OT...property investment, where to start

[bates91]

Since we're not on a hyundai excel forum I figure that most of you are reasonably stable financially, and probably with some investment base in property, or at least a bit of knowledge about it

I'm 22, still at uni for another year or so, can't get a fulltime job so no way I can buy a house yet but want to start educating myself on how it all works as the sydney property market is just depressing for a first home buyer these days

Most of the material I come across is the over-exaggerated "Build a 20-property portfolio and retire in 6 years with only $20000 today" type of bullshit which is just marketing the authors property-finding services half of the time

I'm looking for the solid, unbiased material & advice, and a lot of it (a monthly subscription to australian property investor mag is not enough to make a massive financial investment on)

Any advice/places to start reading? books, guides, forums?

Thanks in advance

[Alpha Trion]

Awesome! i love this topic.

I own a law firm in Liverpool and we specialise in property, construction and all aspects of commercial.

The first place you want to start is with your parents.. see if you can find out if they have property and if any equity in it. You could work out a loan from them and put it toward an investment property.

Im the kind of guy who advises AGAINST negatively geared property as i think it's dumb.. unless you have a massive income and you want to get something back on tax.

look for a positive cashflow property.. something that will MAKE YOU MONEY and cost you nothing.

now im not a lawyer.. but thats a story for another time


-Elee

[7smurfs]

1. Cash is king.
You need capital - at least enough for a deposit.
If you have no cash in the bank then look at Alpha's suggestion and get your parents to gaurantor your deposit or simply... start saving!

2. Research
Do your due diligence and educate yourself.
Read Somersoft property investment forums, monitor a particular market/surburb for trends, get a mentor, get used to reading section 32s and picking out problematic properties, attend opens and auctions etc

3. Strategy/Goals
Passive income through postive cashflow on rental?
Utilise negative gearing offset as a high income earner?
Capital gain?
Buy and flip strategy? (aka renovate and sell)
Development
Apartments/Units/Townhouse/House? etc

4. Get a good broker and conveyancer
A good broker will help advise and structure your loans to set you up for success. There are few that I would recommend that can be found in the Somersoft forums.


It took me a good 6 months to 1 year to get my handle on the property market and understand what kind of strategy to go for before I made my first investment purchase. Definitely start by saving and spending time on educating yourself.

Also, great you're starting early... it will definitely pay off in the long run when you see that equity building up!

EDIT: In this current economic climate, it is near impossible to find postively geared property. You may need to be a bit more creative or score a bargain to get one, however if you spend the time it will pay off!

[Knightelf]

Sell your bimmer and you are well on your way to a deposit?

The Hyundai Excel guys are probably the financially smart ones, being frugal = more cash = king...

[kaitan]

I love this topic but believe all the word of wisdom here..As alpha trion says find a property that gives you positive gearing. i too do not believe believe in negative gearing. I hear a lot of people mention about negative gearing saves you tax but I prefer to pax abit of tax and have better cash flow as in the financial world cash is king!

p/s have a such fancy car at that age is not a good way to start as it is not financially wise to have a car that have high out goings. Trust me I know. I had a car that cost me $90 a week on petrol but now I have a car that cost me cheaper to buy in the first place and it cost is $70 for every fortnightly. that is literally $55 a week I save on fuel and yet it's fun to drive and it's 1 year old car thats $55x52 weeks.

Every dollar saved is a dollar earned ! Good luck

[bates91]

hahah yeah the 135 was a 8-month period of expensive fun, sold it earlier this year and now living right next to the city
walking & cycling saves thousands off petrol/insurance/rego/CTP/modifications lol

[Alpha Trion]

If anyone needs conveyancing done let me know (shameless free plug lol)

I just bought a house off the plan, by the time it's built it will be worth approx 100k more than i bought it. Flip it in a couple of years and there's easy money.

here's my take on negative gearing.

If a property is making you $130,000 per year and you want to bring yourself down a tax bracket.. what's it gonna cost you??

Another mortgage?

Why have another mortgage just to save money on tax? gonna cost you $500k to save 50k?

DUMB!

*edit.. my first brand new car was my 135 before i was rolling 2nd hand jappers and corolling along till i was 21.

[05C4R]

Always remember that Aussie RE is a one of the worlds biggest ponzi schemes that sucks the life out of everything productive in this country including brain cells, unfortunately this ponzi is supported by politicians who own many properties themselves, so just make sure you get out before it implodes as all ponzi's do. When Joe Hockey's wife starts selling, you sell!!

[TS135i]

Originally Posted by bates91

Since we're not on a hyundai excel forum I figure that most of you are reasonably stable financially, and probably with some investment base in property, or at least a bit of knowledge about it

I'm 22, still at uni for another year or so, can't get a fulltime job so no way I can buy a house yet but want to start educating myself on how it all works as the sydney property market is just depressing for a first home buyer these days

Most of the material I come across is the over-exaggerated "Build a 20-property portfolio and retire in 6 years with only $20000 today" type of bullshit which is just marketing the authors property-finding services half of the time

I'm looking for the solid, unbiased material & advice, and a lot of it (a monthly subscription to australian property investor mag is not enough to make a massive financial investment on)

Any advice/places to start reading? books, guides, forums?

Thanks in advance

Do you really want to buy into the biggest property bubble this country has ever seen? 30% growth in the last 3 years! don't expect any capital growth. Been investing in Sydney property for over 20 years, I simply would not touch todays market, a fully franked Telstra dividend is a much safer investment IMO.

[gazz]

In my humble opinion if you want to know one of the best ways to make consistent money - set up your own business and work your arse off. A good steady 15% ( or more ) return plus growth in a business is better than 3% on property, ( less if it's geared ). It sounds boring but if you can fall in love with what you do you will make it work. Depending on the type of business every dollar increase in the value of your business equates to a multiple in saleable equity. I'm from the accommodation industry, management rights, where the selling multiples are typically 5 times earnings. If a business nets $100 p.a. then expect to pay $500 for the business. Every dollar increase in the net return equates to a $5 increase in the value of the business, so if over time you can increase the earnings, ( by falling in love with the business and working your arse off ), from $100 to say $150 you then have a business that is worth $750. BTW, this industry may look glamorous from the outside but it's bloody hard work in the early stages. Over 14 years we went from small beginnings working 7 days a week and being on call 24 hours a day to where we eventually had 100 employees in multiple properties. We sold under different circumstances than a normal on market sale but that's another story. I retired at 47 fully self funded with all the stress free time and money to do what ever we want.

Important -Work out what you really want, ( not as easy as it may appear ), so that you are not working for a false dream and set out a plan working backwards from your goal. Set short, medium and long term goals and write them on a big board somewhere private where you can see it every day. Make sure to pay attention to what you learn about yourself as you go, this is critical, then work with your strengths and guard against your weaknesses, ( eg. buying a BMW that sucks you dry ). Surround yourself with positive people who will keep you energized and avoid like the plague hypesters and gloom merchants.
Oh, and don't forget to smell the roses.
My $millions worth.

[dontask]

Its difficult to give you advice on a car forum, and not knowing your individual circumstances. There are so many ways you can make money in property.

CASH FLOW:
1) If you have little capital, you can just rent a large house and sublet each of the rooms to individuals/students.
2) If you have deposit and income you can buy a house and do the same.

VALUE ADD:
3) You can buy a large block and add value by subdividing.
4) You can buy a block large enough to fit two dwellings and build a second house/granny flat or just put a second hand house on it. Most councils have town planners you can call for free for advice.
5) You can just find mortgagee in possessions/distressed and damaged property, project manage its repair and put it back on the market.
6) Find a house on a double block, knock down the house and either rebuild two houses or sell each block separately.

BUY AND PRAY:
7) The other option is just to buy a house and hope it goes up. Depending on the area, scarcity, demand, infrastructure, this can happen. As previously mentioned, don't focus on negative gearing and look at other fundamentals.

There are really infinite options and you can get into other options such as property management and commercial property (as others have mentioned). Over time, you start developing your own investment style. I'd start by going to the somersoft property forums and just read what other people are doing.

[TS135i]

^^ if we were living back in the 80's & 90's then I would agree with the above.
The cost of land, labour & council restrictions in today's market doesn't make small scale development feasible (unless you own the land)
Developers which build 35+ units on small parcels of land sometimes make a decent profit.
The whole property thing has been done to death, seems everyone is flocking to OZ thinking they are buying a piece of the "promised land" lol

[Anthony B]

You can negative gear & end up in front, there is two provisos buy newer so the property has a depreciation report worth paying for & don't stretch for huge negative gearing gains.

Positive gearing is the overall goal for you to achieve, start positive gearing start looking for a 2nd investment.

Property out around the 2nd airport site has started to increase before any dirt has been moved, so their is potential for growth out there. But as was mentioned buy & pray, prices will always end up growing but by what % that becomes a strategic guess.

I'm looking at blocks of land in the lower mountains at the moment to go owner builder on. Hardest work but has the potential for the biggest gains.

Be cautious with brokers they can & will promise the world, but their follow through can be questionable(some not all). Be very wary of interest only aka pissing in the wind suggestions & if you do go this split it to part interest only & part P&I(principle & interest).

Try your hardest to put down a 20% deposit, lenders mortgage insurance applies for most institutions with lending over 80% of the value of the property, LMI is literally throwing money away there is zero financial benefit to it.

Come tax time get a good accountant & keep all receipts, rates, & utility bills related to the property regardless off how small everything counts.

From a rental side choose your real estate agent well, I had extremely bad tenants last in my property & inspections the real estate was meant to be doing would have caught onto the damage they caused earlier on. Alas I ended up having to put $5k into property repairs(luckily claimed in tax)

I worked in mortgage lending, & mortgage servicing. Only recently sold my investment property. Made many learning's in the time I had the property & am currently on the hunt for the right block of land for the next investment.

[7smurfs]

Originally Posted by Anthony B

You can negative gear & end up in front, there is two provisos buy newer so the property has a depreciation report worth paying for & don't stretch for huge negative gearing gains.

Positive gearing is the overall goal for you to achieve, start positive gearing start looking for a 2nd investment.

This.

I don't think many people understand how to utilise negative gearing and automatically think that it must mean that investors are losing money on a property.

I also believe it's always worth paying for a depreciation report no matter how old the property e.g. 1970's apartment still got me a $4k depreciation return

Regarding the current market, it's definitely running too hot at the moment! This also means it is a great time for old time investors to re-value their portfolio and get equity to further invest when it cools down or look at alternative investment classes.

Originally Posted by Anthony B

Be very wary of interest only aka pissing in the wind suggestions & if you do go this split it to part interest only & part P&I(principle & interest).

Try your hardest to put down a 20% deposit, lenders mortgage insurance applies for most institutions with lending over 80% of the value of the property, LMI is literally throwing money away there is zero financial benefit to it.

I disagree here.

Interest Only with 100% offset account is the only way to go if you're going the investment route as the goal is to make the entire loan tax deductible. Why would you pay off the investment loan and pay more tax?

Again, cash is king - you basically want to use as much of the bank's 'money' and none of your own (keep all your cash in offset). The principle + interest is recommended for those who are living in their purchased home or are poor money manager - not investors.

Furthermore, LMI is not a bad thing. If you can pay 3k LMI to get an extra 20k in a loan - it is worth it to save you 20k cash. LMI is tax deductible also...

Originally Posted by Alpha Trion

I just bought a house off the plan, by the time it's built it will be worth approx 100k more than i bought it. Flip it in a couple of years and there's easy money.

Congrats on your purchase!
I've always personally viewed OTP investments unfavourably, however am curious as to how you know that it will be worth 100k more once built?

[dontask]

Originally Posted by TS135i

^^ if we were living back in the 80's & 90's then I would agree with the above.
The cost of land, labour & council restrictions in today's market doesn't make small scale development feasible (unless you own the land)
Developers which build 35+ units on small parcels of land sometimes make a decent profit.
The whole property thing has been done to death, seems everyone is flocking to OZ thinking they are buying a piece of the "promised land" lol

I am guessing you are only talking about the Sydney market? There are other places in Australia where you can still do small development and make enough money for it to be worthwhile. The OP just needs to do the research.

[1q2w3e4r]

Originally Posted by gazz

In my humble opinion if you want to know one of the best ways to make consistent money - set up your own business and work your arse off. A good steady 15% ( or more ) return plus growth in a business is better than 3% on property, ( less if it's geared ). It sounds boring but if you can fall in love with what you do you will make it work. Depending on the type of business every dollar increase in the value of your business equates to a multiple in saleable equity. I'm from the accommodation industry, management rights, where the selling multiples are typically 5 times earnings. If a business nets $100 p.a. then expect to pay $500 for the business. Every dollar increase in the net return equates to a $5 increase in the value of the business, so if over time you can increase the earnings, ( by falling in love with the business and working your arse off ), from $100 to say $150 you then have a business that is worth $750. BTW, this industry may look glamorous from the outside but it's bloody hard work in the early stages. Over 14 years we went from small beginnings working 7 days a week and being on call 24 hours a day to where we eventually had 100 employees in multiple properties. We sold under different circumstances than a normal on market sale but that's another story. I retired at 47 fully self funded with all the stress free time and money to do what ever we want.

Important -Work out what you really want, ( not as easy as it may appear ), so that you are not working for a false dream and set out a plan working backwards from your goal. Set short, medium and long term goals and write them on a big board somewhere private where you can see it every day. Make sure to pay attention to what you learn about yourself as you go, this is critical, then work with your strengths and guard against your weaknesses, ( eg. buying a BMW that sucks you dry ). Surround yourself with positive people who will keep you energized and avoid like the plague hypesters and gloom merchants.
Oh, and don't forget to smell the roses.
My $millions worth.

That's a great post Gazz, most wealth (that allows you to retire self sufficient at an early age) is built via businesses.

Originally Posted by 7smurfs

I disagree here.

Interest Only with 100% offset account is the only way to go if you're going the investment route as the goal is to make the entire loan tax deductible. Why would you pay off the investment loan and pay more tax?

Again, cash is king - you basically want to use as much of the bank's 'money' and none of your own (keep all your cash in offset). The principle + interest is recommended for those who are living in their purchased home or are poor money manager - not investors.

Furthermore, LMI is not a bad thing. If you can pay 3k LMI to get an extra 20k in a loan - it is worth it to save you 20k cash. LMI is tax deductible also...

I'm a little confused here. Why would you use an interest only mortgage at a rate of say 5%? With no principle repayments your hoping on future capital appreciation only. I can think of better things I'd do with my money than sit it in an interest only loan at 5%. If the property appreciates by 8% a year, with 5% interest costs you are earning approx 3% so you're barely matching inflation. Can you explain it to me as I could be missing something though?

Doesn't 'cash is king' mean just that, cash? Not borrowing money otherwise known as credit?

[Alpha Trion]

Originally Posted by 7smurfs

Congrats on your purchase!
I've always personally viewed OTP investments unfavourably, however am curious as to how you know that it will be worth 100k more once built?

Purchased for $640k 3months later selling for $670k and after talking to the neighbours.. they purchased at $580.. WOW. School at the top of the street, church 2mins away.. 5mins from Hoxton Park Rd/ M7 and the street isn't fully developed yet.

looking at the price since purchase, its going up by $10k per month and the price since my neighbors purchased a year ago.. it's all growth.

[TS135i]

Originally Posted by Alpha Trion

Purchased for $640k 3months later selling for $670k and after talking to the neighbours.. they purchased at $580.. WOW. School at the top of the street, church 2mins away.. 5mins from Hoxton Park Rd/ M7 and the street isn't fully developed yet.

looking at the price since purchase, its going up by $10k per month and the price since my neighbors purchased a year ago.. it's all growth.

So this little earner appreciates $120K pa, that's approx 19% on your buy price not sure whether to laugh or cry.

[05C4R]

LOL you know when reality has been flushed down the shitter and there is an enormous housing bubble when 10k a month is a gauranteed return on a house near the M7 LOLOLOLOLOL

if you can find a moron ready to pay that much and you can get that profit locked in then, really, well done, all credit to ya

[totti84]

Am I the only one here who thinks it's absolutely crazy to buy property in Sydney right now??

It makes me laugh when I hear what people are paying regardless of the area..

[Alpha Trion]

The area is part of a massive south west growth development. New train station, commercial set up for the resi as well, schools churches NBN ready, it's a bit of a catch.

I was trying to by acres and subdivide till the rezoning and everything TRIPLED in price (no shit!) so then i tried everything DONTASK posted earlier and had a hard time.. 8 months later i settled for a home n land package to get going since i sold and renting at the moment.

I think the value would be capped at about the $750k mark. really cant see it going higher than that.

but yes, live in it for at least a year so we dont have to pay Capital Gains Tax when we sell and go from there!

[1q2w3e4r]

Originally Posted by 7smurfs

I disagree here.

Interest Only with 100% offset account is the only way to go if you're going the investment route as the goal is to make the entire loan tax deductible. Why would you pay off the investment loan and pay more tax?

Again, cash is king - you basically want to use as much of the bank's 'money' and none of your own (keep all your cash in offset). The principle + interest is recommended for those who are living in their purchased home or are poor money manager - not investors.

Furthermore, LMI is not a bad thing. If you can pay 3k LMI to get an extra 20k in a loan - it is worth it to save you 20k cash. LMI is tax deductible also...

Originally Posted by 1q2w3e4r

I'm a little confused here. Why would you use an interest only mortgage at a rate of say 5%? With no principle repayments your hoping on future capital appreciation only. I can think of better things I'd do with my money than sit it in an interest only loan at 5%. If the property appreciates by 8% a year, with 5% interest costs you are earning approx 3% so you're barely matching inflation. Can you explain it to me as I could be missing something though?

Doesn't 'cash is king' mean just that, cash? Not borrowing money otherwise known as credit?

Any answers on this one??