My First IP! with Navra assistance

Guys,

As some of you would be aware, I've just returned from a weekend away to sunny Brisbane in search of my elusive first IP. I thought I'd post here the outcome of that trip as well as some of my experiences through the process.

First of all, the IP:

Success!!

We have paid a deposit on a two storey house in a new subdivision about 19km South East of Brisbane. It is 242.7m2 and is on a 700m2 block. The subdivision itself is very nice with good landscaping and is at stage 1 release so should only improve in value as new stages are released to the market. I paid $379,900 for the house and land with a pretty even split between the house component and the land component. So, at 50% land value, this meets one of Steve's crtical criteria for growth. The estate is also predomonately owner occupiers with high "pride of ownership". There was a lot of lawn mowing going on as I walked the very pleasant streets. There's also a new bus stop just inside the entrance of the estate which is about 500m from the house I've bought and connects the estate to the CBD.

I liked the house because it was $40K cheaper than an identical one about 200m away which fronted a park in the estate so I think I've bought equity up front. Given it is brand new I should get good depreciation benefits and I'm in the top tax bracket so these are attractive. It should rent for between $350-360 a week conservatively with the potential for a little more. Assuming $360, my numbers suggest I'll be pretty much neutral on my carrying costs.

So, I've got a brand new 2 storey house in SEQ's growth corridor in a new subdivision in a nice suburb. Rental demand is strong in a sought after owner occupier estate. All this and my holding costs are virtually zero.

The Process:

It was an exhaustive process to settle on Brisbane as my city of choice and this has taken literally months of analysis on my part as well as discussions with Steve and others. I suggest everyone conducts their own due diligence in this regard.

We spent Saturday looking around under our own steam. First of all we went North to "NorthRidge" estate near Redcliffe, then South to another small subdivision in Kuraby. They represented reasonable value as they were selling for $350K and renting for about $350 a week. However, the quality of the houses were not to the standard of the one we settled on, and the lot sizes were only 400m2 or thereabouts. So, it was cottage court and had minimal landscaping. It was also across the road from housing commission. We also looked at "Edenbrooke" estate near 17 mile rooks and "Windemere" just around the corner. A lovely estate only 12km from town, but entry prices are now at $500K for a house and land as its into final release.

Sunday is where the action started. We met Roger in town and did a circuit of the areas which he thought represented value. I have promised Roger not to disclose his "hunting grounds" so I apologise for being a bit obtuse now, but suffice to say that they all made good sense and we saw quite a few properties that we would have happily bought. Roger mentioned all the positive attributes of the areas he proposed and some of these were strikingly apparent. Unfortunately some of the better areas were a bit out of reach for us at the moment and we wanted to keep to our $400K limit so had to head a little further out of town. If you're looking for outstanding value at around the $700K mark, then definately give Roger a call!

So, all in all we're ecstatic. We still need to pay another $5K for screens and blinds, plus another $5-7K for split cycle air conditioning. Of course, there's stamp duty and conveyancing etc etc so our total up front cost should be a tad over the $400K mark all done. We're settling in mid-January unless we can get a tennant earlier. It will be available from mid-December following our final inspection.

Basically, Roger's assistance was invaluable and we have no regrets at all. Not one! However, in the spirit of continuous improvement, might I suggest for Steve's and Navra's benefit the following potential additions to their process:

Potential improvements:

1. Rental Reality. Roger assured us that the houses he proposed met rental reality. However, it would be beneficial if you could provide the rental reality breakdown for the proposed postcodes. Show the median yields for the past 5 years and the resultant rental reality yield. Then show how the current price/rent equation delivers better than rental reality. I'll be calling Navra's offices to get this work up done for the postcode we've settled on just to be sure I can put a tick in this box.

2. Other selection criteria: In a similar vein, it might be beneficial to have a proforma checklist of Navra criteria with annotations around each for proposed houses or estates if you want to stay less specific. All of the information provided was verbal and we spent a lot of time trying to scribble things down to get our own checklists done. We also took lots of photos and came home and compared and contrasted the pros and cons of all the options put to us. If we could have had a one or two page summary for each property prepared in advance with a picture in the top right corner and the Navra criteria annotated, then this would have made our job a lot easier on the day. We could have then just scribbled our own additional notes on the back and not had to have started from a "blank" sheet of paper. The vendor for the Kuraby estate called "Oz Invest" did this and it was a very professional set of documents with floor plans and prices/rent comparisons as well as all the other attributes of the area. Navra would benefit by providing this level of service to their Service Level 3 clients.

That's it. All in all, we're ecstatic. Just need to go through the motions now to execute the transfer, get the blinds/air con installed, and then get a tennant in. I'll post again in this thread to keep you appraised of how it all pans out. Particularly around actual rent realised versus our $360 target.

Cheers,
Michael.

PS Sorry for the war and peace post, but I hope some of this is of benefit to others considering taking the Navra assisted path.

 

Good one Mike!!

I have to agree that Roger really helped us as well. Your comments about the info sheets for properties being usefull is right on the money. As far as rentals go in the estate, we just secured a tenant (provided we can settle on time) for $360pw for our place (purchase price circa $350k). The esatate has a great feel about it, themed quality without being "cookie cutter"!

We just have to get our share fund going so that we can buy again!

Just a word of advice, be prepared to settle early, the tennants are forming ques to get in!! (Wellll we were surprised at how fast ours was filled, with NO advertising by the agent, in fact we engaged the agent, officiallly via paperwork etc. AFTER he found the tennant, Roger sources good people too!)

Catch you later

 

Michael,

" Basically, Roger's assistance was invaluable and we have no regrets at all. "

Told you so ...

 

Tzaki,

Yep, great estate isn't it! I take it you got a lowset if it was for $350K? No question the yield you'll be getting is better than ours given we're up for $380K baseline and looking at the same rent. We just liked the highset because it left more of the block free for future improvements such as putting in a pool. Also it gave us the 242.7m2 of living space.

Pros and Cons either way, but I reckon we're both on a winner for all the reasons I described in my first post.

I'll keep you informed on how we go in getting a tennant in. Keep in touch hey!

Cheers,
Michael.

 

Thanks for your post Mike.

I've got a question - why purchase in new estates as opposed to older suburbs closer to the city?

Is it the depreciation? Or was it simply because they cost more?

 

Well done Michael and I hope it all continues to go like clockwork for you
How does it feel after all that groundwork? Great, I bet!

Thanks for your suggestions on how to improve the process as well- I'm sure Steve and Roger will appreciate such feedback and work to make the process even better for future clients. I really like the idea of the form with the house pics on it for ease of identification and recollection of information later. Good thinking! Also, I do agree with you re: yield info. This should be highly helpful in allowing you to see for yourself how the area has performed over the past five years.
Looking forward to some pics of the new place very soon *hint hint*
Enjoy the break now!!

 

Michael,

Congratulations to you. Glad it has all come together after all your research.

Please keep us up to speed on your progress and looking forward to your response to Glebes question.

Cheers

Jared

 

I agree that this would be nice to have, but it is probably a lot of work for Roger (or someone else at Navra) to produce. We did a shopping trip with Roger a couple of years ago and he showed us about 4 or 5 different developments. From most of these we were given the glossy propaganda from the developers, which was enough to remind me later what each one was like. You mention that Oz Invest did what you are suggesting, but I imagine they have a good economy of scale in producing this info for their estate. Roger would not have this advantage and to produce such information for each estate he shows you would be asking a bit much I think (IMHO).

In the end you should do your own due diligence anyway, unless you are willing to make such a major investment decision based on what someone else tells you on a bit of paper. Yes, it may make the DD easier, but where's the fun in that

John.

 

Glebe,

Good question. I certainly considered buying closer to town, but at the price point I was working to this left me with the option of older houses only as opposed to a new development. The benefits of the house I selected over an older house closer to town are as follows:

1. Depreciation. You have already mentioned the obvious benefit of increased depreciation allowances. This aids me significantly with my holding costs as I'm in the top tax bracket.

2. Hidden costs. With older houses such as Queenslanders, there is often the "risk" of hidden costs emerging after you take ownership. These include termites, wiring, restumping, new rooves and a myriad of other potential risks. I wanted to eliminate this risk.

3. Redevelopment. Queenslanders are often heritage listed so you cannot redevelop the site. You are limited to repairing the existing dwelling and this can be a very expensive endeavour. So, if you buy a nice big block close to town with a doer-upper Queenslander on it, then you're taking a pretty big risk. You can't knock it down and put a flash big new house in there, and the cost to repair it is often much more than the cost to build new.

4. Growth. As funny as this might seem, I believe buying at Stage 1 in a new development offers significant potential short term growth as future stages come online. The estate I've bought in seems to be a high quality one where they are selling initial dwellings at a discount to the market. Once the estate rolls out, new dwellings should be prices slightly higher and thus lift the price of my property accordingly.

5. Land content. By buying a bit further out I could get 700m2, but closer to town the land content dropped to 400m2 and in some cases even less at the same price point. I believe 19km from town is still pretty good, and wanted a decent size block of land to give me development options to add value in the future. For example, there is sufficient space to readily put a pool in the backyard if this was seen to be a good idea down the track. As a % of the value of the property, the land content where I bought is probably similar at about 60% of the value to the ones closer to town. With the old houses closer to town, you're probably paying for land only with an old house thrown in...

6. Size. The house I've got is 242.7m2 and is a very modern design with a nice aesthetic. A highset house with 3 double bedrooms plus study and 2.5 bathrooms. Construction is all rendered brick so is robust and hard wearing as well as attractive. I don't think I could have gotten a house this big closer in to town at my price point. This is a point of difference for me and should attract a decent rent in this estate.

That was my thinking when choosing to buy a new development a bit further out of town. The biggest thing was the "known entity" and "risk elimination". I'm an armchair investor and didn't want to have to get in there myself and get dirty trying to paint walls and put in new kitchens. Similarly, I didn't want the expense of having to get someone else to do it for me.

Cheers,
Michael.

 

Thanks Jacque

Yes, it does feel great. By doing all my due diligence in detail I have drastically reduced the risk of any post-purchase "cognitive dissonance". That is, I am VERY confident I have done the right thing and have no regrets buying where I have.

Not sure I'll get much of a break though. For the next couple of months I'll be focussing on engaging a conveyancer and getting the contracts exchanged. Then getting screens, blinds, aircons installed. Then there's the PM and the tennant side of things. Not to mention the final inspection and key exchange which will require another trip North. By Jan/Feb next year it should all be in place. I'll probably let the dust settle for a month or two after that before starting the whole process all over again for IP #2!

Oh, and I have taken some pictures and loaded them on to my PC at home. So, I'll try and remember to upload a couple when I get home tonight...

Thanks for all your help and support,
Michael.

 

John,

I don't think it would be too much work to produce a Navra-escque critique of each of the developments they are currently proposing. Roger similarly took us to 4 or 5, so that's only 4 or 5 electronic brochures they need to produce and then just print copies as new clients come through and maintain them as rents/prices move. They don't need to be "property" specific, just "estate" specific.

The sort of information I would like to have seen would have included the following for example: (I've made all these numbers and details up so please don't consider this to be an actual write-up of Mossvale. )

Estate: Mossvale at Manly.
Developer: Mirvac
Proximity to CBD: 15km
Positive Attributess: Proximity to the beach at Manly and the associated cafe precinct. X km to Manly public school. Bus stop at front of estate and 25 minutes to the CBD.
Current property prices: Circa $500K house and land package
Current rentals: circa $350pw (3.64% Yield)
Rental Reality Yield for Postcode 1234: 3.48%
(2005: 3.6%, 2004: 3.5%, 2003: 3.3%, 2002: 3.4%, 2001: 3.6%)
Rental Reality: As the prices in postcode 1234 have been dropping slightly since the market peak in 2003 and rents have been steadily climbing, we are now seeing an environment where rental yields exceed the 5 year average by 0.16%. We anticipate that property prices will recover this year and rents will continue to firm.
Typical Houses: The houses in this development are by developer XYZ and typically are around 230m2 and 4Bed, DLUG 2 Bath. etc.

Etc. etc. I could go on with other criteria I would expect to see in a write-up such as stage of the release and land size and land content % of value. There's a raft of Navra buying criteria that I would like to have seen documented and given in support of each recommendation. I wouldn't expect this sort of service unless it was for a development estate which Navra were consistently recommending to their clients.

I am yet to even determine what the rental reality yield is for the postcode I've bought in, but will do that over the coming days. It would have been good to have been supplied this information whilst I was still in "buy" mode and not post-purchase. Particularly given this is one of Navra's key differentiating criteria for property selection. Regardless of how that pans out, I am still happy with my purchase decision for a raft of other reasons.

Cheers,
Michael.

 

Thanks Michael.

I'm still about three years away from buying an investment property (gotta do the PPOR first), but when I do I'll be referring back to this thread.

The summary sheets for Navrainvest to provide sound very good and not particularly difficult to create. I hope they take your advice onboard.

 

Hi everyone,

We have looked at doing these sorts of things in the past, however the nature of the developments themselves make doing them a little too inaccurate for us to be comfortable with.

The availability of property changes from day to day and week to week. As such in a continuously changing market we find it's of great benefit to clients that we show them up to date actuals as most information is already out of date, sometimes by up to nine months.

Also, each estate may only have five or ten percent of availability actually recommended, not the whole estate. For reasons such as: external aspect, internal inherant and streetscape.

As we do not want too many investors in any new estate or postcode, we do not advertise as we get a lot of people looking for free information and run off our hard work.

This way clients receive great benefit in a personalised service with us. Hope this clears up the situation for everyone! As always we highly recommend that ALL clients do their own due diligence to ensure that purchases they make are to their satisfaction.

Signed,

Mark Laszczuk
Paraplanner - Brisbane office
Navra Financial Services

 

Mark,

Makes sense. That's about the only reason I could come up with as to why it would be impractical to do these sorts of summary. If you were "consistently" recommending the same estate then it would be possible regardless of the "individual property" constraint. You could at least describe the estate and its positive attributes as well as calculate the rental reality yield for that postcode.

Then leave the property specific stuff to the actual assisted tour with the likes of Roger.

Anyway, as I've said earlier, I'm over the moon with my purchase and this sort of stuff probably wouldn't have changed my decision at all. Might have just augmented the process a wee bit at the time and made the retrospective analaysis a bit easier.

Thanks mate,
Michael.

 

A slightly belated CONGRATULATIONS Michael.

Wonderful news.

 

Congratulations on your purchase Michael .

I think as most of us on here have an interest in seeing the Navra Group grow and succeed, your suggestions for improvement are a great idea and I am sure would be well received by Steve and Roger.

It would also be nice to see a web-based set of services for the Nava Financial services, equivalent to the excellent quality on www.navrainvest.com.au. Maybe a members area that allows access to the type of data you've mentioned even (make it a more seamless exercise for whoever has to publish the info)

Good on you for sharing your experience and hope you have a smooth settlement and quick tenancy.

Cheers
Carl

 

Guys,

Some of you are already aware that I decided to pull out of this specific IP, but I thought I should post my reasons here so there's no confusion. I'd also welcome any feedback so I can continue to hone my approach to real estate investment.

The main reasons I pulled out of that IP are:

1. Lack of proximity to the CBD. Its 19km out of town and there's a lot more land out there touted to come onto the market in future releases. I felt this created potential downside risk or at least would cap potential CG.

2. Market lead indicators suggest the Brisbane property market has peaked and is now softening. This may be false, but I believe that there is now no rush to buy a negatively geared IP. If you're buying negatively geared then you're banking on growth covering your holding costs. If there's little prospect of short term growth, then you're just throwing money away. Steve might suggest that I'm being "predictive" but that was always a shortcoming of mine. I'm a bit of a technical buyer and I rely on indices and intuition to guide my judgement on when and what to buy.

3. As an extension to point 2 above, I think I am quite capable of spotting the turn in the market and will then leverage heavily back into real estate. I'm not out for good, just out for now. Time will tell whether I get this right or whether I missed all the signals and should be in heavily now. It all comes back to the old argument of "time in" versus "timing". I'm aiming for a combination of both. Time your entry but then hold for the long term.

4. Being counter cyclical I think that shares are a great place to park your spare capital at the moment so I'm heavily leveraged into Steve's share fund right now. The herd still think property is the go as evidenced by recent surveys. Makes me think that when they realise it will be flat for a decade or so we might see a mass influx of cash in to the ASX. Again, being predictive.

5. There are other "due diligence" aspects to that particular IP that I thought in retrospect might let it down but nothing too damaging. I think that for $400K I can buy within a 5km radius of town and that this should ensure a higher rate of CG based on the value of the land component in that purchase. Also, as a new development I wasn't negotiating with a motivated seller so couldn't push hard for a discounted price. I think you make your money when you buy and can do well if you find a motivated seller in a depressed market. This was neither.

Hope this helps shed some light on my decision, and I'll post again when I do finally lock in that first IP.

Cheers,
Michael.

 

Mike,

Disapointed to hear that you pulled the plug, but you have your reasons.

I am not sure that the Brisbane market is about to "soften" any harder, it already has a significant amount when you take the population growth into the equation, check the latest API an see the softening already taken place over tha last 12 months, the herd has left the market, so now is the time to MOOooove on in! With vacancy rates at an all time low rents will be moving upward more rapidly with prices to follow (add lag time).

I read your reasons for buying with interest and agree with them, especially the stage one thing, add to that that it was an in-fill development and there will be more growth soon! Before we settled we were talking to Rod at Villaworld and he said that they had raised tha prices by $5k that week. I spoke to Rodger yesterday and he said that Stage one was nearly all sold with stage two coming online next year... at higher prices.

We are very happy with our purchase there, we bought settlement forward a month as the PM found a tennant at $360pw! All our research shows us that our property was undervalued when we bought it, rental reality show it has immediate equity of $30k odd (oops based on the lower rental estimate of $340pw), comparable properties in the suburb are selling at $45k to $60k more.

Anyways, best of luck in the future Mike, just use the profits from the share fund to get you over the line and into property eh?

All the best

 

Hi Mike,

In passing no judgement on whether or not it was a good property to buy, or if there's a better one around, congratulations for making a difficult decision. Buying property can get emotional and it's good to see you making rational decisions over emotional ones - the decision to pull out can be a hard one (been there) .

I would echo Tzaki's comments on the market though. Property doesn't have good reporting like the stock market. If the commentators are saying the market is moving, one way or another, they're often 6 months behind or more.

Best of luck for the next one!

Dave

 

Thankyou for being so generous as to share the details with us, Michael. It is always a difficult task to pull out of a deal, especially after investing so much time, but investment can be like that at times
I'm sure you have learnt much from your experience and will be all the wiser for it with your next purchase. Keep us posted!!