Investment advice

I’m absolutely out of my depth in this thread, as I handle money like an artist.

But… Does anybody know much about the value of investing in CBD car parks? I’ve got a cousin who reckons he’s done very nicely out of it as a safe, small investment, and it’s something I’m thinking about.

From what I can see, it’s just a scaled down version of getting a rental property. You’d also reckon their value and demand can only go up over the next 10 years.

I'm absolutely out of my depth in this thread, as I handle money like an artist.
But... Does anybody know much about the value of investing in CBD car parks? I've got a cousin who reckons he's done very nicely out of it as a safe, small investment, and it's something I'm thinking about.
From what I can see, it's just a scaled down version of getting a rental property. You'd also reckon their value and demand can only go up over the next 10 years.

From the little I know up till now they will not give you much capital growth but can return around 6 - 7% which is better than a bank term deposit and same as any property its all about location location location.

 

As for demand while there hasnt been any real increase in the number of car parks in Melb the local council is trying to get cars out of the city which has seen an increase in council rates driving the costs up and the potential returns down.

 

Now investing in a secure bike parking space in the city.........thats a growth investment right there ;)

I'm keen to speak to a financial advisor, whats the best way to go about it and what are the things I should be looking for.

It can be pot luck with financial advisors. Some of them are just sweet talking and are hanging to get a hold of managing your money to earn trails. I wouldn't walk into the door of a financial advisor without a good endorsement from a friend or family.

 

I'm keen to speak to a financial advisor, whats the best way to go about it and what are the things I should be looking for.

It can be pot luck with financial advisors. Some of them are just sweet talking and are hanging to get a hold of managing your money to earn trails. I wouldn't walk into the door of a financial advisor without a good endorsement from a friend or family.

 

I'd want a REALLY good recommendation. A lot of them are just the type to make sure they get everything that's coming to you.

 

 

I'm keen to speak to a financial advisor, whats the best way to go about it and what are the things I should be looking for.

It can be pot luck with financial advisors. Some of them are just sweet talking and are hanging to get a hold of managing your money to earn trails. I wouldn't walk into the door of a financial advisor without a good endorsement from a friend or family.

 

I'd want a REALLY good recommendation. A lot of them are just the type to make sure they get everything that's coming to you.

 

Do a bit of homework and find out exactly what kind of advice you are looking for. I.e. is it for shares, for property purchase, super advice, insurance etc... It's hard to find the right financial advisor until you have these things in your head.

 

As I know a lot of them some are really good at some things but not another.

 

All should also offer a free consultation so don't be afraid to see 2 / 3.

 

Advisers who work for a bank are generally the most expensive.

 

Some advisers are the sort who you can sit down with a beer to mull out big picture items, others will keep it strictly professional. Again this will come down to your personal preference and how 'hands on' you'd like to be.

 

Think of it as getting a quote to repair something on your car. If you don't know what you want fixed you're going to get a poor deal.

Good advice.

Got a few people worth seeing.

I reckon I’m going to be looking at investment property purchase.

Earn more than $100,000 from your super. Now tax-free; Government says it's too hard to tax rich people.

Earn more than $100,000 from your super. Now tax-free; Government says it's too hard to tax rich people.

They find it pretty easy to take it off the poor though.

Be really really careful if someone tries to get you to set up an SMSF and then buy an investment property. Your investments should be diversified, designed to produce income and cannot be for personal use.

Earn more than $100,000 from your super. Now tax-free; Government says it's too hard to tax rich people.

It was a ■■■■ cobbled-together idea on Rudd's part.
Having seen how bad the surcharge was, and how uneven and anomalous it was, I just don't trust basing tax in your super fund on your taxable income.
I'd far prefer a co-contribution type of approach, preferably up to 3% if the member contributes 3% post-tax...obviously income-tested.

Be really really careful if someone tries to get you to set up an SMSF and then buy an investment property. Your investments should be diversified, designed to produce income and cannot be for personal use.


Yeah i think i heard this mentioned on the radio today. There's always sharks out there. I'd be interested in learning about self managed super funds, just to get my head around it, maybe an option for closer to retirement

You can never go wrong with property. My Accountant told me years ago to buy units in Western suburbs that you could hose out after each tenant. Best tenants were single Mothers on a pension; I told him he was an unprincipled prick. He now has millions and I should have followed his advice.

You can never go wrong with property. My Accountant told me years ago to buy units in Western suburbs that you could hose out after each tenant. Best tenants were single Mothers on a pension; I told him he was an unprincipled prick. He now has millions and I should have followed his advice.

Lots of people went very very wrong with property around 2007.
If you do your property buying yourself and don't overpay, or overgear, you could make a fortune.

And while we are at it, I’ve heard good things about buyers advocates for properties. How do they get paid? Up front, or when the property settles? Flat rate or %. Always keen to outsource if it saves time.

And while we are at it, I've heard good things about buyers advocates for properties. How do they get paid? Up front, or when the property settles? Flat rate or %. Always keen to outsource if it saves time.

After my last experience, I'd be more interested in a vendors' advocate too.

 

The agent was bullish...you don't want to waste your money doing this...you won't get your money back. What I wanted to do was some wallpapering and tiling in the bathroom, ensuite and toilet. Surely wouldn't have even cost $5K...it just made the place look a bit tacky. Then, after 5 months - the place lacks charm, some photos and paintings would have looked good. Well, why didn't you tell me that 5 months ago?

 

Took 5 months to sell and 15-20% off the original selling price.

 

She told me she'd give me that advice straight up. What do I know? I know I'm fairly functional and don't go in much for frippery.

I'm still annoyed at the poor advice from our agent from my last sale.

You have to remember that they're all about getting the sale, and that last 10, 20, 30K is far more important to you (if you're turning the house over reasonably quickly) than it is to them.

I'm still annoyed at the poor advice from our agent from my last sale.

You have to remember that they're all about getting the sale, and that last 10, 20, 30K is far more important to you (if you're turning the house over reasonably quickly) than it is to them.

very true.

 

You have to do your research when it comes to property. Pre 2007 any mug was able to buy and sell properties and make money. Now, it takes a more savvy investor if you are looking to buy and sell.

 

For a lot of people, simply adopting the strategy of buying to keep for at least 5 to 10 years while keeping an eye on things would be the better strategy.

 

I think the more positively geared properties you can include in your portfolio (and yes, it takes good research to find these and often they start of being neutral or slightly negatively geared) the more you can replace your income over time.

There's a few mistruths in this thread about resi property. 

 

Start by thinking about what your expected, ungeared gross return is going to be over a prolonged period. In property, the rule of thumb is you get your initial yield (cash flow / capital cost) plus long term p.a. growth in cash flow. This assumes you exit on the same yield you bought on; if you're assuming capital growth in excess of cash flow, you're assuming yield compression, i.e. the guy you sell to 10 years down the track will pay a tighter yield than you did.

 

Gross resi yields in big Aus capital cities are around 4% for freestanding houses (slightly higher for apartments). Once you pull out upkeep and management costs (unless you manage the property yourself), and put in a downtime assumption of maybe 1 month per 18 months for tenant turnover, you're looking at maybe 3-3.5%. So that's your net initial yield.

 

Now think about how much rents (cash flow) might grow over the life of your investment. I would think a good proxy, long-term, is income growth - rents can't increase faster than people's incomes over the long-term (unless you assume exponential growth in homelessness). Income growth is probably inflation plus 1% p.a. or thereabouts, and the RBA targets 2-3% inflation p.a., so i'd imagine a safe assumption for long-term rental growth is 3.5% p.a. or thereabouts.

 

So, given where initial yields stand on resi property at the moment in Aus, i'd estimate the long-term total net unlevered return to be around 7% p.a. for capital city housing in aggregate - that's if you assume long-term rental growth rates and have no view on where the market might be within the cycles that come and go for up to decades at a time. Personally i think we're much closer to the peak rather than a trough of a long, debt-fuelled cycle which started around 25 years ago.

 

If you think you're going to get more than ~7% p.a. (at the asset level - pre capital structure, gearing and tax treatments) over the long term under current conditions, you have to bend the rules of physics (economics is physics, just a lot more boring) a little. I'd be extremely cautious about assuming long-term capital appreciation beyond the rate of rental growth (i.e. yield compression) - yields have already compressed enormously over the last 25 years in Aus resi, mainly due to the availability of debt and the broader populace's embrace of much, much higher debt levels to fund investments and purchases of resi real estate. Likewise, i'd think it unlikely that rents will grow faster than incomes in the next 10-20 years as rents as a portion of income have also significantly ramped up in the last 20 or so years.

 

For what it's worth, i have a 100% allocation to equities, and self manage everything. Always have, always will. If you don't have the time to do your own equities investments, stick it in index funds - discretionary managers will eat your capital with fees, and will not outperform on average (statement of fact - sorry to anyone who works in the FM industry). That's coming from someone who works for a diversified financial with equities management comprising a not insignificant part of the business' earnings.

Last last paragraph is correct but only relates to Australian shares and only relates to the ASX100. Index funds only try to replicated the top 100 shares without buying the top 100 shares so it will pick 25 / 40 shares in the top 100 and hopes it moves along with the index. They are cheap because there is no movement in them (i.e. it's rare they'll swap from BHP to RIO as an example) so there isn't much 'active' management.

 

Where the fund managers come into their own is not the blue chip but everything else or the specialised areas. Retirees want income so fund managers that look for good dividends are one example of a specialist. Then you also have small cap funds, overseas shares, specialised countries, ethical funds, healthcare, technology etc...

 

You don't mention it but it seems you're 100% invested in Australian shares which is something that any Financial Adviser would be fined / lose their licence over if they recommended that to any clients.

 

Last point on property as well particularly if you have borrowed. If you borrowed 80% of the property value and the property market falls 40%, the bank will ask you to provide either payment to reduce the loan to less than 100% of the property value or ask for more collateral.

 

Also if you are a small investor (i.e less than $100,000) and you only bought say 50 Australian shares, given the transaction fee of buying direct (50 * $20) you are still paying $1000 in fees or 1% of the fund value. Most fund managers do charge about 0.5% to 1% per annum. 

 

Platform (i.e. the bank account) is where the fees have really started to tumble of late. Colonial First State for example have a really really cheap option now which is rivalling some industry funds.

There's a few mistruths in this thread about resi property.
Start by thinking about what your expected, ungeared gross return is going to be over a prolonged period. In property, the rule of thumb is you get your initial yield (cash flow / capital cost) plus long term p.a. growth in cash flow. This assumes you exit on the same yield you bought on; if you're assuming capital growth in excess of cash flow, you're assuming yield compression, i.e. the guy you sell to 10 years down the track will pay a tighter yield than you did.
Gross resi yields in big Aus capital cities are around 4% for freestanding houses (slightly higher for apartments). Once you pull out upkeep and management costs (unless you manage the property yourself), and put in a downtime assumption of maybe 1 month per 18 months for tenant turnover, you're looking at maybe 3-3.5%. So that's your net initial yield.
Now think about how much rents (cash flow) might grow over the life of your investment. I would think a good proxy, long-term, is income growth - rents can't increase faster than people's incomes over the long-term (unless you assume exponential growth in homelessness). Income growth is probably inflation plus 1% p.a. or thereabouts, and the RBA targets 2-3% inflation p.a., so i'd imagine a safe assumption for long-term rental growth is 3.5% p.a. or thereabouts.
So, given where initial yields stand on resi property at the moment in Aus, i'd estimate the long-term total net unlevered return to be around 7% p.a. for capital city housing in aggregate - that's if you assume long-term rental growth rates and have no view on where the market might be within the cycles that come and go for up to decades at a time. Personally i think we're much closer to the peak rather than a trough of a long, debt-fuelled cycle which started around 25 years ago.
If you think you're going to get more than ~7% p.a. (at the asset level - pre capital structure, gearing and tax treatments) over the long term under current conditions, you have to bend the rules of physics (economics is physics, just a lot more boring) a little. I'd be extremely cautious about assuming long-term capital appreciation beyond the rate of rental growth (i.e. yield compression) - yields have already compressed enormously over the last 25 years in Aus resi, mainly due to the availability of debt and the broader populace's embrace of much, much higher debt levels to fund investments and purchases of resi real estate. Likewise, i'd think it unlikely that rents will grow faster than incomes in the next 10-20 years as rents as a portion of income have also significantly ramped up in the last 20 or so years.
For what it's worth, i have a 100% allocation to equities, and self manage everything. Always have, always will. If you don't have the time to do your own equities investments, stick it in index funds - discretionary managers will eat your capital with fees, and will not outperform on average (statement of fact - sorry to anyone who works in the FM industry). That's coming from someone who works for a diversified financial with equities management comprising a not insignificant part of the business' earnings.


Ok smarty pants. Then where the hell doninstrt lookin for one of those...?
And a question while your at it. Doesn't the negative gearing and associated tax benefits, depreciation etc make housing, not to mention the ability to borrow 80% make it at least worth a look?
But love your input though.