the property investment thread

I notcied some were asking questions on this so thought for the guys who are into this could help out with tips and questions?

Im currently at 4 houses at the moment 5 years into the game.
Currently buying one every year for next 10 years.

My Tips
- Research research - Location for capital growth (u can get reports from various websites to find out growth of sites within last 7 years). I look for min 5%+ growth per year.
- Low rental vacancies (u can find this info by asking the suburbs real estate agents books)
- Buy a shit property in a good area. Say for e.g if the house u were buying is a mediocre 400k but stood next to its neighbours on the street which were ALL double story and they were worth 600k+ Eventually those neighbours will bring your property up
- Buy a shabby property above and "flip" it by spending 60k on renovations. When a couple buys a house the female ALWAYS walks into the kicthen first. Dont go cheap on the kitchen its the selling point. Paint is cheap and is does wonders. Once u flip that 400k house u could resell it for 550k.
- never pay interest plus capitol on your investment home. You want to free up as much of your cash reserves as possible to buy more properties. It could mean u pay 400g/month less. That 400g could be put into saving for another home.
- Take mortgage insurance. Sure u pay around 7-10k to the bank but it lowers your 60k deposit to 30k. The 30k u just didnt spend you could buy another property. So u have now 2 instead of one.
- Your goal is to buy neutral or positive geared properties in the long run so they pay for themselves year after year till your 60.

Theres plenty more tips which im sure most of the other guys here who do the commercial route can input.

Here's a few:

- Structure your finances correctly. It helps to get a good mortgage broker who knows property investment inside out. These guys make their commission from the banks btw, you shouldn't have to pay for them, they're free so use them.

- Once you have one property you can get the deposit for the next property when you've built up some equity in the first property. As Ceffo said, if you take Lender's Mortgage Insurance you need a lower deposit (between 5-10%) which helps you to get more properties.

- Don't cross-collateralise your properties i.e. keep your properties with separate lenders as you have more flexibity when you want to sell. To buy property B, go to the lender you used for property A, re-draw available funds (or refinance on A's increased value), get your deposit from A lender and then get remaining 80-90% of funds from a separate lender. If you get all properties with one lender, then want to sell one, they may force you to put more of the sale proceeds into that debt than you would prefer, and fuq up your future strategy.

- Understand the contrasting position between capital growth and cash flow. Higher capital growth properties have historically been closer to the CBD. Their values have increased faster than their rental yield has increased, meaning you have to pay more to hold it. If you can afford the holding costs you can benefit over a period of time. Good cash flow properties mean that you may have to pay very little to hold them, but this is usually because the value has increased little over the years while rent has still gone up. There is a risk that you could get no increase in value for many years.

- Research areas well before you buy. There's a saying 'you make your money when you buy, not when you sell'. Ask the r.e. agent how long its been on the market for, make low-ball offers to those on the market for some time.

- Get principal & interest loan on the property you live in and interest only loan on all investment properties. As Ceffo said, the repayments are lower, which frees up your available funds to get more properties.

- There are many different strategies...buy & hold, renovate and flip, sub-divisions, commercial etc. Most important is to research and educate yourself. There are many aspects of this game to consider. By the same token however, don't get bogged down in analysis paralysis.

on the intrest only, i was under the impression that once the intrest was paid, then you were up for the capitol as a lump sum almost?

Can someone clarify this please?

Thanks for all the good info..

Example Buy & Hold Strategy

Very rough and simplistic example:

Buy 3 properties, $500k each
Total assets $1.5M
Total debt $1.6M (approx)

Assume 6% annual growth on all properties

Fast-forward 12 yrs

Total assets $3M
Total debt $1.6M (hasn't decreased cos you got interest-only loans to help you afford repayments)

Sell properties, clear close to $1.4M

Invest $1.4M in smaller mix of shares, managed funds, and larger mix of SAFE investments i.e. term deposits.

Earning 5% on your investment mix, you will get $70k per year.

You're now financially independent. Sayonara job.

This is a basic example, and there are many variables to it, but it can definitely be done. It helps if you have a good income from your job to support this strategy but I've read many cases of people on moderate incomes still achieving it.

I'll hand over to you to research and understand the specifics that under-pin the above strategy.

Most people won't try this cos they shit themselves at the thought of that level of debt. That's why most don't get rich. You need to get comfortable with the concept of leveraging a certain amount of funds to get more funds and hence more return on your investment. If you earn 5% on your own funds of $50k, then your ROI is still 5%. If you borrow and turn your $50k into $500k, and then also get 5%, you've earned a $25k return by using only $50k of your own funds. So your ROI is now 50%, rather than 5%. The power of leverage baby!

labz2233 said:

on the intrest only, i was under the impression that once the intrest was paid, then you were up for the capitol as a lump sum almost?

Can someone clarify this please?

Thanks for all the good info..

Click to expand...

labz, some lenders will have an interest-only loan that reverts to a principal & interest loan after x amount of years. For the i/o loans that don't revert to p&i, once the term of the i/o loan nears completion you have to make a decision about renewing the loan with that lender, refinancing elsewhere or selling the property and clearing the debt.

DKD said:

Example Buy & Hold Strategy

Very rough and simplistic example:

Buy 3 properties, $500k each
Total assets $1.5M
Total debt $1.6M (approx)

Assume 6% annual growth on all properties

Fast-forward 12 yrs

Total assets $3M
Total debt $1.6M (hasn't decreased cos you got interest-only loans to help you afford repayments)

Sell properties, clear close to $1.4M

Click to expand...

i have no idea about this stuff but that example makes a lot of sense to me, where does the average idiot like me start when planning something like this? would you suggest a financial planner? my partner and i bought our first house last year and we plan to spend the foreseeable future there but im interested in an investment property or land as well although ive never been able to see how we could afford it with our current mortgage.

Dave, stay away from financial planners, they will steer you towards managed funds and such shit, wherever their commission is aligned.

Land is a poor investment option. You get no income from it for a start, so you have to finance the loan entirely yourself. You'll also get no tax deduction on the interest paid, because no income has been earned, and without any building you don't get any depreciation deductions which can help quite a bit in meeting loan payments.

My best advice would be to visit Somersoft Property Investment forum. There are some very smart cookies over there. Even though I couldn't find any posts with limericks or pictures of bent-over lingerie babes I still found a few threads that interested me.

Choose the best strategy suited to your circumstances, skills, goals and personality (risk level).

Investing in property on a low-medium income works well, and is a great long term strategy.
This is available to everybody with a reasonable income.

I believe investing in yourself first to increase income is a better way.
Then invest in property, shares or business, much better results in the long run.
I tried the slow way first and it was just not working, so spent 5 years building up income and now ready to invest.
However, it's better to make a start now no matter what your income, rather than using the reasoning of "I'll start saving/investing when I earn more money"
People who use this reasoning often never make a start.

One year ago had 1 investment property (now 2, the 1 turned into a new duplex)
In 2 years from now, will have 13 new properties (high depreciation) around 600k each.
All these are basically wholesale price by developing the sites myself 2 + 5 + 6 - build to hold.

Compounding and exponential growth is the aim of the game.
Start slow but finish big.

ceffo said:

- Your goal is to buy neutral or positive geared properties in the long run so they pay for themselves year after year till your 60.

Click to expand...

How often does this occur? This is my 'issue' with property investment. I can't rationalise how a property would generate an income via rent to sufficiently cover the mortgage (let alone make a profit).

It just seems like if rent was that high, people would buy their own house?

Edit: While I'm here, are CBD apartments a good investment in general? I've heard different accounts from different people ranging from 'there's no land so no real appreciation' to 'most people want to be as close to the city as possible which lends itself to apartments'.

This is definitely something that interests me.

I currently invest in shares, I am only 3 years out of Uni, have been made redundant twice, but have a portfolio approaching a 20% deposit on a decent place, all completely self made. I feel I have the ability and the discipline to do something like this.

I currently live in a share house, so rent is reasonably cheap. Everyone says I should buy a house to live in to take advantage of FHOG and Stamp duty exemption, but in my current situation I feel an investment property just makes more sense.

I am somewhat nervous regarding the high price of property in Australia though. I have recently been considering property overseas.

Is there anyone here who has invested overseas? If I was to buy a property in Europe, would I still be able to reduce my income with any interest paid on the loan? Australia would require me to pay tax on any income earned (i.e. rent) crediting me for tax already paid overseas. Thus surely the interest paid on the loan would reduce income the same as it does here.

Can anyone give an example of house/asset depreciation

Thanks

Any suggestions of investment for an 18 year old? My cousin bought his first home at 20, and that's my goal too. I'd like to be investing at an early age. But finding the money is insanely hard.

What strategies should I be looking at?

read through that somersoft thread... It has so much info in it... When you figure out the lingo it gets a bit easier..
It looks a bit much, but gets easier to follow... Its just like starting on bodybuilding, read the info, get the main ideas, then start to ask question, then get into it..

thanks man I'll look into it.

The Hulk said:

Choose the best strategy suited to your circumstances, skills, goals and personality (risk level).


I believe investing in yourself first to increase income is a better way.
Then invest in property, shares or business, much better results in the long run.
I tried the slow way first and it was just not working, so spent 5 years building up income and now ready to invest.

Click to expand...

Hi Hulk, can you please elaborate on this point, perhaps give your example ? Thanks mate.

Thanks for the thread everyone.

gareer said:

Any suggestions of investment for an 18 year old? My cousin bought his first home at 20, and that's my goal too. I'd like to be investing at an early age. But finding the money is insanely hard.

What strategies should I be looking at?

Click to expand...

The only strategy I'd recomend for you right now is to start good a savings habit.
Put just 10% of your income away for investment purposes.
Don't touch it, ever, except for investments, no exceptions!
You can park it in a high interest bank account until you have better use for it.
Make sure you put this 10% away before you take any to pay bills, expenses or living costs.
After a short while, you won't miss this 10% you are taking out first and will adapt to it.

Then, use this money and put it to work for you, property, shares, other investments.
Every dollar is like a little worker, not much different to an employee.
It's there to generate more money for you, make it work hard and it will double, then double again, then double again....

In time, the law of compounding will reveal itself and you'll be amazed at how little could become so much, over time.

Not much different to bodybuilding.
Consistent effort over time will produce results.

A good book to read to get your mindset right is, The Richest Man in Babylon.

dicko10 said:

Hi Hulk, can you please elaborate on this point, perhaps give your example ? Thanks mate.

Thanks for the thread everyone.

Click to expand...

What I was trying to say was that, I believe it's a faster path to financial freedom by trying to increase your income first (even if not investing at the time), then invest with the higher available cashflow from improved income.
Rather than try to be an expert on investment (property/shares), but have very little income to invest.

Since I finished school, I haven't achieved any tertiary quals or any type of licensing, trade, etc.
I've been working unskilled jobs, pretty much all related to building and basically providing labour.
Not much leverage at all in that and no potential for much increase in earnings.
All that time while working the crap jobs (and hating them) I was always looking for other money making opportunities.
Lost my savings a few times trying business/money making opportunites which all failed.
Learnt from all the mistakes from the past and finally broke through with a great business which had virtually no start up cost, but now provides great cashflow for investments.

If I'd have kept trying to invest on my previous low income, I would not have made much progress in the last 5 years.
However, now the increased income has opened up many more potential opportunities.

You can do it either way, depends on how much time you've got and if you're in a hurry or not.

Gareer your in brissy so heres an example of what my uncle (who got me into investing) did there

NOW the homework BEFORE u head to the bank as an 18 year old

1. Open an saving account with 5% interest
2. Bank with the same bank for over a year
3. Show them that u can save by putting in say 300-400 a month
(optional) See if your parents will help u out. Tell them your not going to buy a car for 5k but your going to use it to invest in property. Most parents wouldnt disagree to this

4. During that year look for houses that are close to neutral or slightly negative geared. (look these terms up its very self explanatory). There not many around BUT they do exist!!
5. Approach a mortgage broker (they do ALL the paper work running around for you and get u the best deals. They will pretty much jump over hurdles to get u a loan and its ALL FREE)
5(a) tell them u want to
6. Buy the property
7. Find a real estate agent to handle rentals and payments
7. Work hard or get a better paying JOB
8. Wait 2 years for the property to appreciate
(if u bought the property for 100k and it went up 110k in a year for e.g then the 10k is your "equity")
9. Approach the mortgage broker again and tell him u want to buy another property. U Should have save a bit more money by then. Use the equity to purchase another property.

That above is called duplication

Before u know if your onto your 3rd house and u only pay 300 a month to maintain all 3!!

Hold onto them. That 100k house will eventually be 200k in 7 years time x 3 = 300k (minus givernment taxes)

Now would ANY of us have saved up $300k in 7 years time?

I highly doubt it!!

So at 26 you have 300k in your pocket.. Not many 26 year olds have that cash lying around

mind you u dont have to sell u can keep buying more properties.

My accountant who is 32 now has 23 properties ALL. He pays 5000 a year to maintain them all.

IF he was to sell them all now its estimated at 5million after paying back the bank and taxes

Now Once again how many of us have 5mill at 32?

an example of neutral/slightly negative geared property

My uncle -

- He bought out a property around 5km from the beach in brissy.
- $150k (this was just before the boom 10 years ago)
- It wasn't the best property on the block as it was a bit run down.
- He spent 10k renovating it
- Rented it out for $180 a week as a holiday home in an area where the tenancy vacancy rate was 2% (which means at any time in the year you home will be 98% occupied with renters)
- Now we calculate the interest
- Interest Only Payment: $812.50/month @ 7% interest
- Rental return: $720/month
- This would put u at negative geared and forking out 100 bux a month
- In a years time increase the rent by 10 bux per week
- In 2 years time increase again by 10bux and you should be roughly neutral which means u could lose your job and the renters would pay it off.
- All in the while the property is going up in price (well the land is)

If u play your cards right -
- In 10 years time it will eventually be positive geared as rent increases
- It would hopefully be making u money in rental such as 100 bux month for example. Thats $1200 a year sitting on your arse doing nothing letting people who couldnt be bothered to invest or do something with their lives pay for u to get richer!!!
- The old saying the rich get richer applies here as well. Money breeds money.
- If u hit 10 houses that $1200x10 = $12000 a year passive tax free income.

Good buying opportunities in Brisbane now too.
Markets flat and falling slightly.
Not much moving.
Motivated vendors.
Seems like it will be flat for a little while now, so buying opportunities are imminent.

We put an offer in on a site in Hawthorne for about 860k, with a few clauses, subject to due diligence.
Silly vendors didn't accept.
Increased offer to about 879k which was asking price, but longer settlement, still no acceptance.
Couple of months later (now), listed for 829k !
Too bad for them now, we sourced a better site 100k below previous listed price.

Daaam. I really need to do as much research as possible into this don't I. Hulk, Ceffo you guys are amazing. And ceffo I really appreciate your awesome 'informative' post. Probably the best I've seen from you so far....please don't keep it up. Tits or gtfo.

On a more serious note. Can anyone suggest a site that will help me gather the most information I need? I.e. like this forum. To learn everything about everything?