Investing in Melbourne Family Homes
by Mal James, Gina Kantzas & Simone Clarke
Wow - what a time to Invest!
I have written many articles on investing – for The Age, The Weekly Review and Marketnews. I have bought hundreds of investment properties for clients over a long period of time. I have never been reported to Consumer Affairs, investigated or delicensed as a buying agent. My first property I bought was in 1985.
I have made many mistakes in my life, changed my tune on a lot of things and I’m not that great with money. I don’t seem to care about it as much as some people think I should.
However, I cannot think of a serious mistake or tune change on buying a good investment home, except not buying a few more and selling when I shouldn’t have.
All my errors with money and probably some of my emotional shortcomings, have been covered over with the good homes my family has bought. This has been relatively easily done, by following the principles below on good family home investing.
Here is our best advice on the Top 10 for Melbourne Family Home Investing.
Executive Summary
1. Part One – Noise
2. Part Two – Guidelines
3. Part Three – The Real World
The Bonus
Part One - Noise
Excitement v Investment
I am happy to work for investors, but I warn any prospective client that I’m slow, inflexible and boring.
If they want speed and excitement, then maybe its best they go to a property guru seminar – they are far more colorful and motivational, always changing with their tips and there is a new trick on the block every year. AND you get a show bag full of plastic gifts.
I have found the best property investments are usually the boring ones.
Property v Shares
Which is best? Is it Rugby or Aussie Rules – vegetarian or beef curry – which is best?
I like property as I got lucky early, I’m a shocker on shares and my family can’t actually live in the other investment types on offer.
Property I can see, touch and it doesn’t disappear in a boardroom decision or a changing Instagram trend – but I can make no case for a blanket rule to say its better or worse than any other investment – it all depends.
A Little Knowledge
I have a human body and I’m still alive – but I don’t think that really qualifies me as a doctor.
I think my chances in surgery are best served through carefully chosen others, rather than my own exclusive input.
By all means I should contribute and be informed and understand the process, however I’d rather be operated on by somebody who has already made the mistakes and made them on others.
Insights, Opinions and Info
When you read the median price of a hotspot has gone up 11%, that’s an insight.
When you read it has gone up 11%, three years in a row – that’s an insightful trend.
When you are told the hotspot has gone up 11%, three years in a row, because of interest rate drops and now is a great time to buy as prices will go up again. That’s an insight with a trend and an opinion, all surrounded by a prediction.
It’s all information.
If you drive at speed whilst drinking on an ice covered road, your fuel gauge will tell you how much petrol you have left, your oil light will say things are ok and your air conditioner will tell you it’s a comfy 22 degrees Celsius inside.
It’s all information.
My best advice in Melbourne property investing is focus on good principles above all else.
Part Two - Guidelines
Principles of a Good Investment Home – The 3Ps
Price – What you pay now and ongoing and sell for – all relative to the market.
Property – The demand and supply imbalance of your significant land content
Position – In relation to wealthy population growth
A good home has good PPPs – No one P characteristic in isolation is a good investment – it is the combination or interaction of all 3P’s and the investor.
Principles of Good Home Investing
Rule 1: Only buy Good home investments.
Rule 2: Never sell Good homes, unless it’s into a better one – leverage if you have to, rather than sell.
Rule 3: Compounding value over time is generally the mechanism for Good Home Investing, but only if Rules 1 and 2 are applied.
Principles of a Good Home Investor
Start – I find good property investing doesn’t work if you don’t do this.
Money is important – like the 3 P’s in a property – there are 3 $ characteristics in a good home investor. Your ability to find, manage and balance
- Growth
- Cashflow
- Risk
also determines to quality of the investment
Plan: If you know what your goals are and refer to and review them at times – if you follow good principles to get there – if you mostly do it, then you will own a good family home and/or investment.
Big and not so big Mistakes
Big Mistakes
There are only three you can’t make:
- You don’t start
- Continually don’t follow good guidelines
- You give up.
Little Mistakes – you’ll make them, just don’t repeat them.
On one occasion I sold a home for $2,250,000 in 2005, that I had bought in 1998 for $450,000. I hadn’t spent a cent on it and it was cash flow positive.
I had issues in my family, my job and the measly debt on it began to worry me. I also wanted to see how good I was – I wanted to be a millionaire.
I got distracted and sold. Stupid.
Now I write articles on property investing and operate as a real estate agent, instead of reading my bank statements from France about my cash flow positive $5,500,000 home that I should still own.
Footnote: This prescient lesson allowed me to find a way forward and not sell any family properties in a divorce and that has papered over my aforementioned, less than stellar investment move in 2005.
Part 3 - The Real World
Starting
I’m not sure jumping out a plane is a good way to see if you can fly.
I would try off a step first in testing your early ideas – meaning make sure your first venture can’t send you broke – you’re actually not that smart yet.
I get it! Unless you have a rich relative it is bloody hard to get that first deposit. However, you must start – partially credit card your deposit if you have to (sort of joking), borrow or steal (sort of joking) from the family, be McScrooge with your boy or girlfriend, take a few risks and then make it work.
People and Emotion
Every investment is emotional – even Jeff Bezos’s decisions are all emotion, are all opinion.
Yes, no or maybe is an emotional decision for a human, with or without a spreadsheet.
There are good emotional and bad emotional decisions.
Your finances and your family happiness are the scorecards of your emotional decisions.
When your actions match your goals, then your emotional decisions are good.
If you wanted one free kick, then I suggest you get some good luck along the way.
Hopefully that luck is that you never run into bad people that seem good – hopefully that luck is good people genuinely wanting to help you and hopefully you recognize the difference.
Ok you just want practical answers
I am 25 and I want to get started
Beautiful home in Outer Melbourne
Unless you want to live in Outer Melbourne forever, then we recommend against the McMansion in Outer Melbourne – in fact we have the 2 McMansion rule – if you buy a second one you will never leave. Lack of growth options.
A ½ home needing a reno in the burbs
This can work – especially if you buy with 3 things in mind.
- You like the idea and will complete the project.
- 5-year flexibility purchase allows for the home to be a stay and do nothing, reno or a resell – depending on your circumstances.
- You control costs well – buy, reno and sell.
A flat in Inner Melbourne say 5km out
A flat in Inner Melbourne – can work if you buy it well on price, it’s a good one and it gives you a mental steppingstone to buy a home. The lower the price the safer you are. Understand all the block sales going back for some time. Make sure its second hand/older – they have a price / value history to guide you – new ones don’t.
An off the plan with no deposit in the city
No – off-the-plan is not a home, it’s a financial concept and like almost all financial concepts, they only benefit the seller and almost never the buyer. Do not buy off-the-plan as an investor or first home buyer – it’s like jumping from that plane without a parachute – it almost always doesn’t end well.
I am 40 and I want to buy an investment
Position: near the CBD, near the railway, near the schools.
Property: Good land content eg 75% or more with a home you do not need to spend anything on to rent out, except paint and basic maintenance.
Price: You understand it, you’ve seen similar at auction, it’s close to suburb’s and Melbourne’s ¾ quartile median. You have competitors that you can see (not that you are told about) and you beat a few of them – not just one.
Emotion – you and your partner like it and you feel that maybe you will retire to it or your children will rent it for a while. Never sell it and then you never pay tax.
60 and I want to leave something for my children
Buy a home on one level (or you can live on one level), near the shops you can hop to now and trundle too later, with light, a small garden and a car space between $1m and $3m and never move again (stamp duty kills the inheritance).
The perfect allrounder
Less than 15km from the CBD, under 750 metres from the rail station, in a street with limited traffic and within cooee of some private and public schools.
On a block of land that is north rear or east west with a home on it that has a plain (not ugly or dated) façade (preferably period), with a floorplan that doesn’t have overlooking, lets in lots of light, needs little work except cosmetic updates and the rooms are a good size, in the right places, leading onto a flat backyard with car access.
On a single level – but with children you can add a storey and then revert back to single level in your twilight.
The price you pay will be a little more than 20% above a similar vacant block of land nearby, will be very normal for the area (maybe a fraction more and you beat 4 bidders) and you like it.
If you don’t like it, please don’t buy it – you’ll sell it and break the compounding growth magic.
As well, you will lose your initial savings to government charges and make it really difficult to believe in property as an investment.
The BONUS
It’s the Questions not the Answers
It’s about the questions you ask.
- Will Camberwell have a better median growth rate than Yarraville in the next 7 years?
- Is this market a good time to buy or sell in or is it better to wait?
Any good spruiker loves these types of questions, as it facilitates unprovable story telling.
And if you keep asking only these types of questions, then you’ll be entertained by the answers, but never a great investor.
Here are better questions to ask and if you keep asking them enough, then you’ll find the good answers to family home investing.
- What do I really, really want now and in 5 years’ time for me and my family?
- What are the good guidelines, how best do I get there?
- You’ve found a home then ask. Is this really it – does this match the good guidelines and what I really want?
But hold on, I don’t trust myself Mal, I don’t know if the answers I got are correct.
Sleep Test
Then ask for feedback from:
- Your trusted team (agent, banker. lawyer, builder, $ advisor)
- Mums – almost all Mums know if it can make a good family home.
- Yourself via your first impressions, gut feel and overnight sleep test.
We love the overnight sleep test – first up in the morning, observe your feelings and trust them, before your logical, noisy brain kicks in.
Does this feel right? It’s such a good thermometer. If unsure – then that’s a no – better a missed opportunity than a mistake (providing eventually you act).
How Many do I need?
Get started, good luck and gods’ (if you have one) speed.
Afterthought – how many good Melbourne family home investments do we need – what is the number please – is it 135 or 50 or 3?
The starting number for all of us is 1.
1 good one.
We can’t believe you’ve read this far on family home investing but thank you.
