I was just wondering if anyone who has multiple investment properties would like to chat?
Dp and i are starting to look into investment properties at the moment, we want to get a good amount under our belt over the next 5 years.
If anyone has any advice/stories they would like to share that would be welcome too.
Thanks in advance
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15-01-2013 23:41 #1
15-01-2013 23:48 #2
16-01-2013 00:05 #3
what do you want to know?
do you have any investment properties currently?
own your own home?
have spare cash to invest in the venture?
have any idea what kind of area you like, the type of property, amount you want to invest?
In general, I would say to anyone ... purchase your own home first. It is your best investment.
Once you own your own home, if you have spare cash to invest ... property is a great investment. But you NEED to have the cash flow to support that.
100% gearing and no cash flow is a disaster waiting to happen.
16-01-2013 00:24 #4
Yes we own our own home (mortgage)
We own our own business too so the cash flow thing isn't too much of a problem.
We live in Bendigo, Victoria but are open to buying anywhere that is feasible really.
At the moment we have just been reading lots and signing up to forums, we are very keen to talk to people that are actually doing it, the books are only helpful to a point. We are very keen to get away from the business as soon as we can, say the next 5 years (best case scenario)
16-01-2013 00:28 #5
right - going to bed right now, but I will post tomorrow with some basic start up advice for you.
16-01-2013 00:29 #6
16-01-2013 01:21 #7
Some quick thoughts before bed:
Diversify within the market (e.g. Some suburban houses, some inner city apartments, some in new estates, some in older established suburbs). That way you are never solely dependent on one type of market. Even consider commercial space?
In a similar way, don't make real estate your only type of investment. Diversify your portfolio with shares or dump into super so it can appreciate between now and retirement
Consider growth rural areas, not to buy a farm or anything but a house in a growing regional town
Look into defence force housing areas, takes the hassle out of direct tenants
Look at what feasible time frame you could go without rent in any of your properties and still manage the mortgage (e.g. Tenants do ++ damage and you are stuck chasing them in court for repairs before you can get next tenants, or serious problem like tree falls on house in storm, fire damage etc) things can happen and you need serious cash flow to get through
Never leverage against your family home
Buy with your head, not heart. You might not like the area but if the rental returns are gold then go for it.
16-01-2013 11:30 #8
ok - firstly, its not usually a full on business ... not for quite some time.
Investment in property is relatively passive until you build a critical mass - and that takes time.
Start with one property, and when you have paid that down to an acceptable level, you purchase another one.
Basically I approach things with an 'optimal debt' level. I look at the income we have, and what income we can expect to get from a property in rental income ... and work out what kind of debt level that can reasonably service. You need to be paying substantially more than the minimum repayment ...
I also strongly suggest using an offset account arrangement. Borrow more than you need (so if you have 40% deposit, still borrow 80% or so ... and just keep the money in an offset account. Have rent, and your monthly cash contribution paid into that account. Set up an automatic direct debit for the minimum loan repayment from the offset to the loan account. this should build up considerably over time as you should be putting way more than the minimum repayment amount. (If you are not, then you have borrowed too much)
This way if you have months where you have vacancies, repair bills etc ... the loan still gets paid.
The biggest danger is basically if you dont have enough cash to meet your needs ... if something goes wrong (tennants trash the place, it falls down, DH loses his job etc) ... you need to be able to afford the repayments for a good long while until you get things sorted. You do not want to be in a position of "having" to sell because you cant afford the loan repayments. That is when you make major losses.
Many financial advisors will tell you that you dont need to be able to put cash to it - and sometimes that works - but it is VERY risky. Especially in this volatile market
To be a safe and good investment for your future, you should be only doing this if you have a decent amount of cash to begin with, a good amount of equity in your own home (or preferably to own it outright), and a good cash flow to inject into your investments.
For tax, once you do something, you cannot go back and change it ... so take the time and set it up properly the first time. Consider both your current and future incomes, capital gains consequences, tax (revenue) consequences etc carefully.
for example - for many purposes a family trust is a great way to go. Its great for GCT purposes, good for income splitting (as trust are discretionary) ... but if you are negatively geared (so the property makes a tax loss) then trusts cannot distribute that loss.
Choosing the right place
Do your research. There is no other way ... make sure you know the areas you are looking at well. You are looking not for the next big thing, but something that is going to be good capital growth without the risk of a huge back step either. Something with good transport links, good schools, good access to shops.
Get things sorted with your bank early. If you can get the cash drawn down into your offset account, then do it. Cash talks and a cash offer for less will often be accepted over a subject-to-finance offer for more.
Set your budget carefully - and dont exceed it. Remember that this is not for you to live in. It doesnt have to be perfect, or your style. You dont have to like it.
Think about the market you are aiming at. Is the property suitable for the type of market you are looking at (first home buyers, young couples, families etc). Is it in the right location for that market.
Look at rental returns in the area you are considering, and make sure that the property is going to give you a decent return on investment. Rental returns of around 5% is usually about average ...
In your budget, remember to allow for property management fees, rates and taxes, repairs and maintenance and a contingency for vacancies. So roughly they are 1-1.5% of that 5% ... so effectively you need to get capital growth of about 2% per year in order to cover your financing costs
Its not a short term investment though - so look at 10 years at least as a time frame for whether or not a property is a good buy.
Once you built up a significant amount into the offset account (do not pay extra off the loan, just leave the cash available to you), then you can look for another property. As you are still contributing cash, you will end up paying off the debt faster as you go along, as you will have more and more rent .... but that takes a good long time.
The Following User Says Thank You to BH-KatiesMum For This Useful Post:
16-01-2013 12:01 #9
Great minds think alike KatiesMum! I was coming back to add more thoughts this morning but you have beaten me too it with pretty much all the same stuff I was going to say (must be good advice if we both think it )
16-01-2013 12:04 #10Senior Member
- Join Date
- Dec 2009
I don't mind chatting if you want. We've got 3 investment properties - 2 residential and 1 commercial, which we've just extended (kind of 2 commercial properties merged to make it bigger for our tenant).
Anyway, blah blah. Go for it if you can!
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