Where To Start - First Property Purchase

Discussion in 'Where to Buy' started by tmcmillan1993, 6th Jan, 2017.

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  1. tmcmillan1993

    tmcmillan1993 New Member

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    Firstly, just joined PC a few days ago and I am wowed by the vast knowledge and experience along with how friendly everyone is on the forum.

    I'm nearly 24 working as an accountant looking to start my investment career and want to know what peoples ideas and strategies would be if you were to start your journey from scratch today?

    Over the past 6 months I've spent a deal of time trying to soak in as much knowledge as possible whilst trying to sift out sales and marketing bias. I am slowly starting to get a deposit together but at this stage looking like late 2017 at the earliest (around the $350k - $450k purchase price point, which is on the low side).

    Being my first property it seems logical to take advantage of the $10k first home buyers grant along with stamp duty concessions which limits me to SE Melbourne (working in the Frankston area so not too far away). Friends are trying to lure me into H&L packages out in Cranbourne/Officer but I'm weary and don't end up paying overprice for these.

    I'm guessing that leaves me patiently waiting for a house in the general SE Melbourne market that I can live in for 12 months, then rent out neutral/positively geared with upside for some capital growth. I am contemplating a BA, as the first property seems an important factor to success.

    Keen to know peoples thoughts and advice.

    Taylor
     
  2. Tom Simpson

    Tom Simpson Well-Known Member

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    Well done on getting in early mate.

    It looks like you've decided on a buy and hold strategy for the first purchase, this is typically where long term wealth is made so that's a good first step.

    You'll need to decide on new or used. Both have pros and cons, it depends upon your priorities. Spruikers typically promote new because of the greater depreciation which is correct, another benefit of new is maintenance and upkeep if far lower (less headaches). On the con side you're paying 10-20% (or more) margin straight into the builders pocket meaning a larger portion of your purchase price is spent on the building (which depreciates) rather than the land (which appreciates).

    If you're buying a used property then the building will have already depreciated somewhat since it was built (obviously this will vary depending on age) which means a greater portion of the sale price will be for the land content. The down side of a used property is that maintenance will be larger and depreciation will be less.

    Keep in mind that cheaper doesn't always mean a better investment. Value is what you want, if you need to pay a little more, or buy a little less land for a good asset then this will likely be a better option than buying an asset because it fits in your budget.

    Keep to the four major cities, obviously you're buying in Melbourne so you have this covered. I've no idea about the suburbs in Melbourne but the typical advice is stay within a 10km radius of the CBD. The further out you start going the lower the growth rates.

    New suburbs with H&L packages are normally appealing to people with lower deposits and/or lower incomes AND they're normally quite a distance from the CBD. They're a good option if you have no other options but any growth you see in both house value and population will be because of the influx of new buyers. Once the suburb is full it will probably stagnate for who know how longs.

    Income and emotion drive growth. Suburbs in which people have more money typically have higher growth rates because owner occupiers fall in love with a property, are willing and CAN pay more for a property. In lower socio-economic suburbs buyers don't have this ability.

    Like you said, the first property can be a big help if you get it right.

    This is general advice only, be sure to speak to your advisers before taking any action.

    Best of luck,
     
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  3. sash

    sash Well-Known Member

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    Some interesting comments about H+L and cheap end of the spectrum...a couple of facts:

    1. Well chosen H+L in 4 major cities will return CG, CF, and depreciation ..the trick is to get into a growth market
    2. Properties with 10 klms of the major cities typically return 4.5% or less...how many places will you get to before you run out of serviceability?
    3. What you think will not go up is based on outdated thinking the Chinese and Indian buyers are turning this on the head in Sydney and Melbourne...Brisbane is following this trend...in when Perth was booming this applied there also.

    Would love to learn about your property successes...
     
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  4. Gockie

    Gockie Life is good ☺️ Premium Member

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    Agree with this. More desirable areas have low supply to demand ratio (whatever is on the market sells quickly), therefore prices push up. And in some areas, people live there forever, never sell up or want to move. Tends to happen most in the inner areas, whete good schools are or in areas where wealthy people want to live. Consider where wealthy migrants want to live too.

    Rental yields in premium areas tend to be lower than outer areas though, so that's a factor that has to be considered. Also holding costs (land tax) can come into play if it's already expensive, making it unviable as an IP.
    Just watch these factors.
     
    Last edited: 6th Jan, 2017
  5. Tom Simpson

    Tom Simpson Well-Known Member

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    I'm definitely not saying all H&L come from spruikers, apologies if that's the way it came across, but it's generally from spruikers that people have come across the depreciation argument.
     
  6. tmcmillan1993

    tmcmillan1993 New Member

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    @sash do you have any pointers with regards to what you look for in H&L packages?
     
  7. sash

    sash Well-Known Member

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    Well...my strategy is quite unique, I tend to focus on the following:

    1. Smaller low maintenance homes with high specs which are a great alternative to Villas and T/H
    2. Like to buy in where significant infrastructure is planned within 3-5 years
    3. Prefer suburbs within 40 klms of a major city like Melbourne
    4. Good transport of road infrastructure
    5. High concentration of migrants from countries which have a reputation to work hard...they tend push prices up
    6. Rental return of 5.5-6%
    7. Prefer land under 170k and total H+L land deal under $350k
     
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  8. Zine

    Zine Member

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    Would you consider Wollert as a suburb under your strategy?
     
  9. sash

    sash Well-Known Member

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    Pretty hard to get blocks to keep under the 350k and get the return.

    Bear in mind very little infrastructure at Wollert...rentals will be lower than Craigieburn/Mickleham for a couple of years.

    You will get the growth but the question is are you prepared to accept a potential return around 4.5-5%
     
  10. Angel

    Angel Well-Known Member

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    Given my VERY limited knowledge of Melbourne, Frankston is always one of the places that PC posters talk about. You can search the forum for specific threads with all the knowledgeable people.

    I have no qualms buying an older house in an older suburb. I don't factor Depreciation as it is something that is different for everyone and every property. What is important with the strategy of buying older homes in outer suburbs is that you can do a basic reno and improve the rental potential and market value while you are living in it as an owner occupier. Things like carpet, landscaping, paint, new lights, ceiling fans and blinds. These things are minimal cost (each) but give a decent return. You can do these things without touching what can be a perfectly good kitchen or bathroom.
     
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  11. JL1

    JL1 Well-Known Member

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    Where would you be looking at the moment to get this kind of return?
     
  12. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Hi there and welcome to the forums :) Before worrying to much about area I would think more about what your goals are and what your financial situation looks like. Making sure the finance side is compatible with the goal is the first step and will very much determine the types of properties you need to look for, and the type of strategy you need to apply to reach your goal. There's no point buying a H&L if you'll be negatively geared from day one and unable to service more than 2 properties on your income. Now more than ever investors need to plan as any non performing property is taking up valuable borrowing capacity. The good news is the best time to start is before you buy anything.Find yourself a good investment broker and start the ball rolling with them - they'll be able to let you know what's possible and the types of strategies you'll need to employ to reach your goals.
     
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