Your Property Investment Questions Answered By Nathan Birch.
Nathan is no stranger to tricky property investment questions. We get hundreds sent in from the Binvested community every month. He answers some of your burning questions below.
Where would you invest your Super?
First and foremost, I am not a financial advisor. I can’t give advice about Super – I can only give you my personal thoughts.
Secondly, everyone’s situation is different. What works for me may not be best for you.
In order to know what to do with your Super, I recommend speaking with a qualified financial advisor.
The only problem is – there aren’t many out there who I trust.
Make sure you look for one who is not aligned with a financial institution and who is clear about how they are renumerated. Some charge by the hour, and others charge by commission. The ones who earn commissions may only be in it to sell you something that they will benefit from.
When it comes to investing your Super, it is important to understand the following:
- What are your goals?
- What is your appetite for risk?
- What do you want to achieve with your investments?
As for myself, I have a SMSF that I buy properties under.
During the GFC in 2008, I came across people who lost half of their Super pretty much overnight due to crashing markets and mismanaged funds.
The current economic climate is looking grim. We are heading into another global recession and it is very important to revise your super fund and get specialised advice from a trusted financial expert.
What would you do differently to reach financial freedom if you were to start all over again?
I am very happy with the results that I have in my portfolio. All the actions I have taken have led to my current position.
I wouldn’t change my strategy – but I might tweak a few things here and there.
There are plenty of good markets around Australia that I’d focus on if I was starting out today. These present opportunities to build the same sort of portfolio with the same sort of results.
Would you buy Housing Commission homes, especially in regional areas? Can you make money out of them? And are they worth the risk?
I made my first million dollars as an investor from buying ex-housing commission houses and other properties considered to be the ‘ugly ducklings’ of western Sydney. My experience has shown that it is possible to make a lot of money out of these sorts of properties.
As for regional areas, it all comes down to your strategy. I’d definitely prefer buying in metro areas, but I have bought about 15 or 20 regional housing commission properties over the years.
I bought them with a purpose – they each helped me take the next step in my investing.
Did I make money out of them? Yes, but this wouldn’t have happened if he hadn’t picked them up below market value.
If you are going to spend $50,000 on a regional housing commission property it may be worth it. But, if will cost you $200,000 or so, then there are probably better opportunities in metro areas you could invest in.
What are your thoughts on commercial property? Which is the best city to invest in?
When buying commercial properties, banks will generally only lend up to 60% of the purchase price. That means you would be forking out a 40% deposit.
This is because commercial properties have an extra level of risk.
Residential properties are different. Everybody needs a roof over their head, which means demand for bread and butter properties is likely to hold more than demand for commercial ones.
There are generally greater opportunities for capital growth and pulling out equity from residential properties versus commercial ones.
Commercial properties can have long leases and prices are indexed against the return generated from the property. If it is only going up by a 3% CPI increase this can dampen growth.
I personally chose to build a strong foundation of residential properties before purchasing commercial ones.
Having said that, it is possible to make a lot of money out of them.
When it comes to location, I prefer the Eastern seaboard of Australia. Sydney and metro areas of Queensland are my favourite areas.
For cashflow, is it better to invest in blocks of units or residential housing?
It all depends on your position and what you are aiming to achieve in your portfolio.
The property plays another big consideration. I have seen blocks of units with good cashflow and others that haven’t been good. Sometimes, the cashflow of an apartment complex may seem good at first glance, but when you factor in all the costs involved, it isn’t that great after all.
On the other side of the coin, some of my best investments have been bread and butter properties that I have bought with a purpose. Over time the rents have increased and these properties have delivered a positive cashflow.
I tend to see blocks of units as part of a phase two strategy – as something that you purchase after you have built a solid foundation portfolio of residential properties.
Buying a block of units comes with a greater risk than buying single title properties. It can also be more difficult to get finance for.
Make sure you factor in all the running costs such as council rates, water rates and strata levies in order to calculate a realistic cashflow figure.
A yield of 8 or 9% usually turns out to be a neutral cashflow. Anything over is usually positive, while anything under is negative.