Dear all,

I hate the thought of ageing. Oh my goodness, I’m like, (as the kids would say), 12 years away… to being considered senior citizen. I promised myself that by the time of my retirement, I’d have divested myself of everything. I’d live in a small plot of land, swinging away in a rocking chair.

It’s all too hard.

Take care.

Angel

Dear Andy,

That’s a great feedback, especially for the newbies. We should and MUST do what we are comfortable doing. This is why I will never ever be a developer. You can promise me the moon, I still won’t do it. You can put me in front of a firing squad I still won’t do it. Being shot is a quick death, doing development would be like “killing me softly.”

Going back to this deal, I don’t want the newbies to think I’d been reckless. I can’t afford to be because I have 4 children, the eldest just turned 18, the youngest 12 year old who will still need a mum in 5 years.

This is not to encourage newbies to go “full steam ahead” but rather to show what parameters I used.

The reason I did this was:

1. I have tracked the Northern Beaches for over a year. There was no rush into it. It was months and months of research.

2. I know that the quality of “tenants” I can get at the Northern Beaches. They are usually young couples with very high income. People who pay rents in the range of $700 to $2000 per week for luxury houses. It’s hard to save a deposit if you’re paying such high rents. But for these people living in the “right” address is essential. If I could offer them an opportunity to “buy” the “right” address, I was pretty sure I’d have half of the Northern Beaches jumping for joy.

3. I wouldn’t have done it if the original vendors didn’t agree to NIL interest on the vendor financed amount. Never. Not a chance. It had to be positively geared or they would have to be selling off their house for peanuts.

4. The quality of the “tenants/buyers” really made me think they were the ones to have at the end of the line. They came with their architect and their builder to the inspection. They wanted to create value in the house. Currently, as of this writing, they have ripped up the old deck and replaced this. They have created, with council permission, a separate self-contained accommodation on the lower floor of the house. This they will rent out at $700 per week.

5. All deals have inherent risks, they can all be mitigated with research, research and research. As a rule, I don’t like people feeding me information. I have NEVER, EVER been in a seminar in my life. My tip to newbies is to find impartial people who can provide you insight and knowledge with no agenda. But having said that, the most expensive advise is usually free.

6. EXIT STRATEGY: In five years, what happens when the tenants/buyers can’t settle their end of the deal? The property goes to market/auction. If the house only sells for $1.4M, less my costs, I still made $170K at the very least. The tenants/buyer gets nothing. They would lose their $40K non-refundable deposit and expenses for improving the house. Why will they not get anything, you ask? Because all I ask of them was to pay rent. The $1,500 is standard rent. They would have had to rent anyway. If they want to move out this week all I have to do is find another tenant.

7. How can I afford the running costs such as insurance, water charges, council rates, etc? It is positively geared.

I hope this helps someone.

Take care.

Angelina

Hi Ryan,

Generally, rental managers only accept bank cheques so tenants can move in straight away without having to wait for the bank cheque to clear. Personally, I wouldn’t allow anyone to move in until the personal cheque clears.

The bank account issue is really up to you. What will make it simple for you? Managing the property takes a lot of time. If you can make things simple, you will benefit from it. I choose to get my tenants to bank to the home loan because it is what works for me. There is no right or wrong approach.

The amount you “save” by switching from P and I repayment to Interest only can be used for whatever you want, hence called disposable income. It also helps with having some “extra cash” available if you are looking to add to your property portfolio. This means you can borrow a little more for the next property if you have some cash left after servicing all existing loan commitments.

You can’t claim the $161 on tax. That $161 is simply cash you get to keep by reducing your repayment to the bank.

You can claim the $1,278 because it is what you paid as interest. For negative gearing purposes, you add up all your mortgage interest repayment and all out-goings and subtract this from the rental income.

Example:

Total rent received: $100. Total interest and out-goings $105. You are able to claim a tax deduction on the $5 loss you suffered.

2nd example: Total rent received $105. Total interest and out-goings: $80. you will be taxed on the income of $25 you made. This is what is known as positively geared.

Hope this helps.

Angel

Hi Sapphire 101,

You are my kindred spirit. I also rent rooms out to international students. Currently, there are 6 of them. There’s more — I also have four children.

This was how I supported my kids. They have been living with international students from the time they had consciousness. I became a homestay mummy 16 years ago.

My house currently receives gross income of $900. The upside is that we live for free. I pay tax on the “business”. So I tax deduct a proportion of electricity, water, gas, telephone, internet, foxtel expenses. We basically live for free.

As my kids are becoming adults, they are starting to “voice” an opinion, like, “why can’t be alone?” With the costs of living in sydney and the costs of mortgage, I don’t know how to do it any other way.

Take care.

angel

Hi Wynyard,

Perhaps a house with a granny flat you can rent out? It doesn’t hurt to have help with the mortgage.

Good luck and I hope the bub comes out happy and healthy.

Take care

Angel

Dear RyanJD,

You kinda lost me somewhere… but here’s some thoughts about your questions:

1. Does anyone have problems with getting bond and 2 weeks rent by cheque which takes time to clear? Weekly rent will be by internet transfer

I don’t understand the question, Ryan. So I will leave it. For myself, all my tenants direct deposit their rent into my home loan account.

2. When would be the first time i should be an inspection? 2/3 month?

I think you do an inspection within the first three months in the beginning. Once you have established that they are good tenants, you stretch it to six months. Once they’ve been there over a year, and you’re still satisfied, you do it once a year.

3. Should i create a separate bank account for the rent to come in? I’ve given them details for my savings account

Personally, I get my tenants to bank it straight into the home loan. But that’s just me.

4. Any rules on picking up my mail that i’ve missed out on changing the address. Should i just get them to tell me by email when they have some? Not a fan of PO box or giving them my current address?

PO box is a good investment. However a request to redirect your mail via Australia Post would be the best option.

5. Should i change my loan to interest only and how much would this save me a week?

You can change your loan to interest only to give you more disposable income. To find out how much you are going to save simply multiply loan balance with your interest rate and divided the answer by 12. The difference between this and what you’re paying now is what you save. Example: $100,000 loan balance x 7.09% = $7,090 / 12 = $590.83. If you were originally paying $700 per month, this is a saving of $109.16.

6. I’ve got mortgage insurance which covers building, tenants defaulting or rent if the house becomes inhabitable. All this is tax deductible but should i keep it for the whole period of the lease?

Yes, always always have landlord insurance. Never, never go without one.

7. Gearing. Below are the figures for my mortgage, rent and landlord insurance

To simplify: You are negatively geared if you are out of pocket. Example: If the income from the rent is $100, and your costs (mortgage interest payment + out-goings) amount to $105. You are negatively geared by $5.

I hope this helps.

Take care

angel

Hi Brisboy,

If I were you, I’d take what council tells you with a grain of salt.

If you really like the property for sale and you can afford it, by all means, buy it. However, just in case council has given you the wrong advice, make sure you have a Plan B that will work in your favour just as well.

Trust me, I’ve dealt with Council and you will not believe how much pain they can inflict. I have this theory that for some town planners, it’s a power game. They love the power they have over your life. some of them may even suffer from narcissistic tendencies. Or maybe ego-mania. Or maybe some sort of psychopathy not in the medical books yet.

Joking aside, good luck.

Take care.

Angel

Dear RBK,

Perhaps someone forgot to tell you that there are no free lunches.

If you have no savings, why? Even my 18 year old has some savings and some share investments. It’s small amount, yes, but it’s something he’s worked hard for. Not even enough to buy a second hand car with. But what it has given him is the confidence that he has it in him to save. and it’s given him discipline. Ever seen a 18 year old do a budget, it’s so cute. Trying to decide whether his $50 is better spent on night out with friends or a pre-paid phone card. Uhm,,, what to do???

Banks require savings not to be mean. They do it so that they have an assurance that this person they’re lending money to has the financial discipline to make the payments. Owing a property is mighty hard work, despite the romance attached to it.

Sorry to burst your bubbles, the simple straight-forward answer is you either cut your costs down or get a second job. It’s not answer you want but such is a bitter reality of life.

Or, you can marry someone with a trust fund.

Take care.

Angel

Hi Scruffy,

I would like to share my story to encourage you. I know it is hard to stay positive when the market is down. My situation is such that I’m selling a property in Cammeray now where properties sell within weeks of listing and my “sale” keeps falling over. Now, that’s really sad. I, too, is struggling to keep my spirit up but I know from experience that a solution is always available. There is always a way out of any tight spot.

This story goes back 12 years ago.

Newly divorced, four children under 7 (6, 4, 3, 1), working as a mortgage broker. My ex and I accumulated 4 properties by the time of our divorce. We split the assets; we’ve sold two and kept one each.

I got the house in Richmond, Sydney NSW. When I did my budget (we live frugally), I found that I’m $100 short of being able to keep the investment property. This is when I developed the philosophy that if all you needed was $100 and you can’t find it, it might as well be a million. The alternative was to sell it. I had no bargaining chip.

Then I thought, what if I ask the tenant to be an “equity contributor?.” I approached them. Told them if they were willing to pay the rent and add $100 as “equity contribution” into the property, I will give 20% of the capital growth when we sell. And, if I decided not to sell, we will get an independent valuer to assess the value, and I will give them the equivalent of 20% of the capital growth . When we drafted the contract at the start, we decided on the value of the property.

Three years later, they decided to move to Gympie. As I didn’t want to sell, I gave them the equivalent of 20% capital growth, which amounted to $15,000. Enough to start a new in Gympie! For them, it was such a joy to go with cash to start that new life with their children.

When people hear this story, they often say but 20% is such a lot of money. That’s not how I view it. The alternative was to lose the property. In this way, I got to keep it, and not have to worry about it. Did you know what they did as soon as we signed the co-equity contributor deal? They repainted the whole house at their costs. Over the 3 years they lived there, I didn’t have to spend a cent on repairs and maintenance.

Secondly, it gave me time to recover. I was able to re-start my career and within a year of the deal, was able to increase the value on Richmond to buy a second investment property – a little beauty — a two-bedroom unit in Hunters Hill. The millionaire’s row! Can you imagine that? I have since sold this and it’s another long story.

I learned that we have to give some, to gain some. My tenants have become like family to me. I adore them, continues to speak to them and I “bought” a house for them in Gympie. They are paying me for it. They are lovely people.

I am not saying this is what you should do. All I’m saying is that the solution is not necessarily to bail out at any costs. Sometimes you only need a shoulder to help you.

Don’t despair. If your heart is in the right place, a solution will come to you. If it’s a win-win situation, everyone will benefit.

Take care and if you need someone to help you keep your spirit up you can send me an email to [email protected].

Fellow struggler,

Angel

Twelve ago was when properties skyrocketted. It didn’t matter when you bought, you made money.