Where should I be looking with 200-300k?

Hi all,

I know I have been a bit of a pain looking at so many areas but I figured maybe if I explained my full situation I may get some helpful feedback.

Firstly my partner and I are in the accumulation phase and are on track to reach our savings goal of 60-70k by July 2020.

We are just being little sponges right now and really learning as much as we can whilst we both hold down two jobs and a joint side hustle to help us save for our goal of building a great investment portfolio to obtain financial freedom in 20 years ( we are both mid twenties and not afraid of hard work).

My question is whilst looking for what feels like almost all iver Australia I feel daunted, I'm baffled at where I should invest and if im missing a good deal elsewhere. I do not what a buyers agent as I want to learn these skills with my partner as well as to save money in the long haul ( this may change a few properties in).

I am interested in something in my price range that is CG and CF. I having been looking around Hobart, Adelaide, Orange/Bathurst as well as the Cairns region and am not sure if I am even beginning to come close to where I should be looking.

This would be our first investment property so the strategy I would like is to have something that is fairly self sufficient that would tick away for us over the next 10 or 20 years whilst we expand our portfolio.

Anyway sorry for the long post, just hoping for some friendly advice.

Kind regards, Luke

 

Hi Luke

Welcome to PC.

What had you select Hobart, Adelaide, Orange/Bathurst & Cairns?

What about Brisbane & Perth?

Research on the concept of property cycles - see if you can get access to something like PriceFinder - we found it a really good resource in our journey.

Review when the last peak was, and what the current rental returns are. Rental returns are inversely proportional to capital growth.

Eg.. Sydney had been flat / going side ways for some time prior to the boom. However, the rental yields were high (which attracted investors back to the market, and also first home buyers - which then drove prices, and was start of the Sydney boom).

 

Thank you for the warm welcome.

I was interested by those places as when we were reading these forums posts about these places would come up so we would look into them and noticed the entry cost and rental yields were around what we were looking for however we didn't know about capital growth.

We are open to perth and brisbane as well and should probably begin looking around these cities as well.

Great advice, thanks so much. I think I will spend my day looking into the cycles which should hopefully help me narrow down where we should be looking.

 

Have you considered Brisbane/Moreton Bay/Redlands? Most areas have had good solid growth, it looks like it will continue.

 

I haven't yet but will start to give it a good looking into.

Thanks so much

 

For your budget, you could get into a lower socio-economic area like Darra (I don't invest in this area), but it has trended well and should improve over the long term. I just bought in Thorneside, a little over your budget, but it needs a lot of work. Darra Property Market, House Prices, Suburb Profile & Investment Data I haven't seen this property at Darra, but something like this might be ok 70 Wau Rd, Darra, Qld 4076 but you would have to consider if the area floods.

 

That little pocket of Darra (?) is the old Wacol Army Base. All the houses were sold off 30-40 years ago.

If interested, check carefully. Given the age and appearance, it is most probably 100% asbestos both inside and out unless it has been renovated (?).
Marg

 

Most likely has asbestos, but most houses of that age do. If it is inert it is safe, but yes, all houses should be checked thoroughly. It certainly looks like where the old Wacol Army base was. For that price point and return, could be worth a look.

 

Thabks for the feedback, I will for sure have a look i to darra although not a big fan of buying into asbestos

 

Most houses in your price point will have asbestos. Asbestos in the home - what you need to know

 

It is definitely the old army base.

I remember them selling off the houses, they went for around $25K each. They were unpopular even then due to the isolation of that little pocket, and tricky access when approaching from Brisbane. Plus at the time all the houses looked the same, hopefully the years have been kind to them.

Given the area, it’s hard to see how you could add much value.
Marg

 

Hmmm, much more to consider.

Wouldnt areas like sailsbury east in adelaide where I can get a brick home for that price be a better investment?

 

Hi Luke, welcome! You are in the right place here, I have learnt heaps over the past 10 yrs from PropertyChat members.

Firstly, congratulations of your mindset, happy to hear you have a goal and a mindset to save hard, work hard and invest!

Now, I don't want to discourage you, but... trying to find cash flow positive investments that also have good capital growth potentials are like finding diamonds (rare!).

Generally speaking, the higher the cash flow the lower the capital grow.

At your age with 20 yrs to invest, I'd encourage you to lean more towards capital growth potential properties. Sure they will cost more to by into (you might need to wait an extra year to save up a bigger deposit) and will be cashflow negative to hold, but in the long run you'll accumulate wealth faster.

So that means focusing on properties closer to the CBD (different for each state, but here in SA that is properties within 10km of the CBD), and buy properties with as large as possible land component that you can afford (remember land appreciates but houses depreciate), and avoid properties that will deter people from living in them long term (like on a busy main road/adjacent industrial just to name a few).

Hope that helps you narrow your search down a little bit. It's not easy making your first IP decision/purchase. Good luck.

 

Wow, this is fantatstic information and advice, thanks so much.

My fear of negative gearing I guess is being out of pocket for things, will this slow down my potential to expand into more properties?

 

Perhaps, but you aren't talking much $ and Darra has improved in all those years. It is still a good 615m. It wouldn't suit my strategy, but still has a good return for low $. IMO, better than Ipswich, Logan, a unit or a townhouse. I also just rang the agent who was very helpful, I am always looking People are building granny flats at the back in that street, with BCC approval- so there is a bit of an upside, and both are renting with good returns. This one has no problems with asbestos from reports, was on the market for 3 weeks at this price and has a verbal offer going to paper today. You are right, it was an old property from the army base, but has always achieved good rent.

 

Only you can decide how much money you are prepared to comfortably contribute/sacrifice toward holding an investment property each year.

But let me show you a couple of real life scenarios:

Property 1: CASH FLOW POSITIVE
-a brand new courtyard home purchased for $300,000 in Morphett vale 10 years ago (a low socioeconomic suburb of Adelaide 25km from the CBD).
-the rent return is 6% from day one, $350 per week.
-it was self managed, it would give an annual income of about $2,000 per year (assuming interest rate of 5% and $8k of building depreciation on tax return).
-this property has had ZERO capital growth for 10 years, it is still valued at $300,000
-so overall my net wealth is better off by cash flow of +$2k x 10yrs = $20,000.


PROPERTY 2. CAPITAL GROWTH
-bought land and built a brand new courtyard home in Woodville South for $400,000 10 years ago (10km West of the CBD, NOT a low socioeconomic suburb).
- cash flow negative (self managed) by -$3,000 per year (again simplified at 5% interest rate, and same $8k depreciation per yr n the building, same as the property above)
-so this property cost a total of $30,000 to hold over 10 yrs.
-Now this suburb has had some small and steady capital growth, and the property is now worth $500,000.
-so my net wealth is better off by $70,000.

Ask yourself : which property produced the better outcome for my net wealth creation?

 

Oh wow, real neat! I think Darra has potwntial right with it being so close to brisbane!

 

I definitely see the reasons for property two and taking that approach however my issues are -

1. At the end of the day its all speculation which areas will grow, I'm worried that I may be wrong and not gain capital growth.
2. My end goal is to live from a passive income so I would prefer the consitency of a cash flow positve positive strategy.
3. I don't really want to be running at a loss for so long.
4. Labor gets in and can ruin this for me.

That said I understand that a negative gearing strategy and this has worked successfully for many people. I am however going to spend some time reading a book or two on this and do as much research as I can because I may become more comfortable with the idea.

I think at the end of the day I need to find a strategy my partner and I are most comfortable with and will sleep better at night with doing.

Thanks for the scenario breakdown, really helped me wrap my head around the power of negative gearing.

 

Ha ha, house didn't flood in 2011. Pays to do your homework, DD is a thing. Many properties flooded in 2011 Buyers return to suburbs worst affected by 2011 Brisbane floods

 

Yep, this is key.

Hubby and I have had many of fights/sleepless nights because I've stressed renovating properties and stretched the finances too close to be comfortable when trying to finish off developments prior to sale/tenanting.

My advice comes from a position of hindsight, where I look back 10 yrs and realize I could have achieved much better wealth creation had I focused on capital growth suburbs (within 10km of Adelaide CBD) rather than cash flow positive suburbs (low socioeconomic).

But anyway it's all a learning experience, and you are better to do something and learn from it, rather than do nothing at all.

Good luck.