Newbie questions

Welcome to our forum!
I’ll have a go at answering the questions –

1. Generally, with the exception of Perth and maybe Darwin, now is a good time to buy as in most parts of Aus the boom has ended and the cycle is nearing the bottom, or maybe slightly either side. You will need to research each micro-market (neighbourhood or suburb) to know for sure.
If you are a ‘buy and hold’ investor there is no bad time, just bad properties.

2. You need to research your chosen investment area to find out what is the best property for the demand. For example, you may buy a 2 bed unit and find out from the council that there are plans for 1,000 of them to be built in the next 2 years. That will create a lot of competition for your property, or you may find that it is a family orientated area and they need yards and extra beds, which you don’t have.
If there are lots of 1 bedders for sale it may mean they can’t get rid of them because no-one will rent them. Do some deeper research.
TIP: whatever a r/e agent says, divide it by 5 and add lots of salt. Find out your own anwers and truths.

3. There are numerous rates of return you can look at. If you are talking about rent return, divide the yearly rent by the purchase price and then multiply by 100.
eg: weekly rent = $200. ($10,400 yearly)
purchase price= $200k.
$10,400/ $200,000= 0.052
x 100 = 5.2%
A positive return means the rent covers ALL the costs – loan, insurance, rates, management, repairs etc. This is very hard to find in Aus at the moment unless you can add value somehow.

4. I am not sure whether it’s 6 or 12 months you need to live in it to be eligible for the FHOG. Check the Aus Govt website.
I’m fairly sure you can rent the rooms out after you move in if you want. But again; check with the Govt; you could google FHOG as well.

In closing, do lots of reading now – Margaret Lomas, Jan Somers, Neil Whittaker, Steve McNight, Property Investor Magazine, Monique Wakelin, Neil Jenman, Terry Ryder, to name a few.

Cheers,
Marc.
[email protected]

All the authors I mentioned in the earlier post are great. Between them there are about 20 books so that wiil keep you going for a while. I have read every one and they are great, as are the ones below;

Add to that list ;
Robert Kiyosaki, Peter Spann, “Think and Grow Rich” by Napoleon Hill,
“Millionaire Next Door” by Stanley and Danko, “The Richest Man in Babylon” by George Clason.

Cheers,
Marc.
[email protected]

My first property was a 2 br unit in Brisbane. I rented out one bedroom, furnished and lived in the other. I rang the ATO on a few occassions to find out if I needed to declare the income or if I could negative gear. Their response was that I could claim income and expenses or treat it as a personal nature and not claim. I chose to negative gear which meant when I sold I was up for capital gains on 50% of the property. CGT has changed since then (it used to be indexed with inflation) so at the time I’d estimated I wouldn’t have to pay CGT so this method worked for me. I found the unit worked well for me too as insurance and maintenance was looked after by body corporate. I didn’t have a huge mortgage and after a couple of years I had made extra repayments and reduced my loan from 25yrs to 9yrs. I think this could also be achieved if you had a 3bed house and rented out 2rooms. If I’d bought a house at the time the house would have gone up heaps more in value. I paid $95k for the unit in the boom and sold in the bust 5 years later for $104k. My neighbour bought at the same time for $105k and sold a few months before me for $95k. Buying and selling smartly is also important. Having a bit of decorating flair helps also. If your buying a unit make sure you check for maintenance issues outside the unit and how much money is in the sinking fund for repairs so they don’t come out of your own pocket. The owners of the unit before me had to pay towards painting and when I sold there were concerns about a retaining wall collapsing. I agree with the reading material already mentioned plus reno kings material, smarter property improvement, and Australian Property Development.

FHOG rules are dependant on the state you live in. EG in SA you have to move into the property within 12 month of purchase and live in it for at least 6 month.

Check out http://www.firsthome.gov.au/ for further information.

I was browsing through this thread and noticed there was no mention of Capitalization Rate (Cap Rate), so I thought I would chime in on this for our newbie. Basically, the Cap Rate is the yearly rental income minus the regular expenses (including taxes, maintenance expenses and other expenses but NOT including mortgage expenses) divided by the purchase price. So, if you bought a home for $100,000 with a monthly rent of $1,000 and monthly expenses of $300, the cap rate would be 12*(1000-300)/100,000 = 8.4%. Note, this calculation does not factor in cash flow.

The better long term investments have positive leverage, this is where the cap rate is larger then the mortgage rate. With positive leverage, you will build wealth even if the property does NOT appreciate in value. Most “investing” the past few years has revolved around building wealth with the property going up in value, but this is not the only way to build wealth, positive leverage could still lead to wealth building in a declining market. The larger investors that purchase commercial, retail and multifamily properties all focus heavily on cap rate and verifying the stated cap rate is correct.

With my investments, I was not able to achieve positive leverage, but I was able to get close, having a ~5% cap rate and ~6% mortgage rate on average across 4 properties. Over time, the rent should increase which would put me into a positive leverage state if the expenses do not rise to quickly (taxes and insurance are the largest expenses). I am in position to hold all of these investments for a good period of time as they are cash flow neutral since I put 20% down on each.

The biggest concern for me is always making sure I have a tenant. I became a Florida Real Estate and Mortgage Broker so I could earn commissions on all of my own transactions here in Tampa and help other do as I did. Now, I created a tampa property management website to better advertise the properties and further help investors maintain high occupancy rates. While many may feel property managers charge too much (sometimes they do), if a property manager is profecient at the most critical aspect of the job, maintaining high occupancy rates, they more then pay for themselves. There is nothing worse then an investment property sitting vacant for >3 months as this will diminish wealth unless the appreciation rate is outpacing the expenses (not likely in 2006 in the US, can’t speak for AUS though).

Rob
Rent New Tampa
Florida Real Estate Broker
Mortgage Broker