[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 28, 2011 - 9:02 pm

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

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 28, 2011 - 8:40 pm

Dear Ryan,

Richard has a point regarding an account for rent payment. Mine only works for me because I don’t use the rental payment for anything else but mortgage payment.

Take care.

Angel

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 28, 2011 - 8:15 pm

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

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 28, 2011 - 10:23 am

Hi NSW 2011,

Thank you. I’m equally inspired by many people here.

Take care.

Angel

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 28, 2011 - 10:19 am

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

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 28, 2011 - 9:32 am

Hi nl,

I advertise on http://www.gumtree.com.au.

If you are keen to look after international students, call the school offering English language and Universities and ask to speak to their homestay coordinators.

International students are pleasant. They generally don’t make a mess of your house and will pay more than the locals. I used to cook for them, but not anymore. I only house self-catering students.

To do this, you have to create a private space within your own house so not being stressed by people who are, really, strangers, to you.

You also need to be relaxed about your things. If you will mind them watching your television, or touching your microwave, you will not survive this business.

At the beginning, you should already communicate your house rules, eg, please don’t leave the heaters on in your room all day and all might. When people are not responsible for their bills, they don’t care whether they have left the lights on or the water running. But communicating your house rules to them before they move in will help.

Good luck with the venture.

Take care.

Angel

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 28, 2011 - 9:23 am

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

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 28, 2011 - 9:06 am

Hi Richard,

I don’t suppose that anyone thinking of buying a million dollar will have just this asset to speak of. Well, I hope not. I also wouldn’t want to risk $344,000 of my own money without due diligence.

As much as I would like this sold DESPERATELY, and that an understatement… I’m also still lucid and not yet suicidal. What I’m saying is, i personally would want to see how the buyer plan to exit. And, of course, the usual assets and liabilities statement.

Thank you for expressing your concern. Take care.

angel

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 28, 2011 - 9:00 am

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

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 28, 2011 - 8:47 am

Hello investingnovice,

I’m not familiar with Perth so will stay clear of giving you any suburb-specific advice.

However, I can offer you old foggy’s wisdom…

1. Buy where it is close to the City. Gentrification happens all the time.

2. Buy where there are infrastructures. Transport links, hospitals, good schools, close to employment.

3. Buy where you personally wouldn’t mind living in. The operative word being “mind.” In other words, you may not want to live there by choice, but if compelled by circumstances, you could. It wouldn’t kill you to make the move.

4. Buy a three-bedroom family home. This is the easiest property to sell.

5. Don’t buy houses on busy streets.

In terms of which suburb will boom? your guess is as good as mine.

Take care.

Angel

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 28, 2011 - 8:24 am

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

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 27, 2011 - 11:23 pm

Hi Nathan,

Your question and my answer – don’t take my word for it though. I’m not a licensed adviser so you can’t sue me.

1. Should I pay above 850K for the property? (I’m thinking not but not sure if it’s viable to pay for future value)

No, in fact, you should cost your renovation plan and take this to the seller. Say to him, it will cost me this much just to bring it to a pleasant standard, I believe I should purchase it only for $xxxx. To be fair though, you can’t ask a discount for the whole cost of the renovation, it would simply be too unfair for the seller.

2. If I was to purchase the property would it be wise to keep it as short term rental or turn it back into 2 bed units and rent them by the unit?

Short term rental is NOT the way forward. It is too tiddly. Too much work, too much stress. Long-term tenants are more responsible and you don’t have to deal with huge fluctuations in income. A steady income, with minimal vacancy period is the way to go. But that’s just a preference of mine. Not Biblical. Also, easier to get a bank loan as you only need to bring a letter of rental appraisal from an agent.

3. Should I renovate the properties at all? The kitchen and bathrooms are quite old and I would most likely be holding onto the property for 5+ years before doing any major development.

If it will increase the rental income, you have got to do the kitchens and bathrooms up. Do it well, even if cheaply. It does not have to be costly to look nice. Get a good handyman who will not charge the earth, and if possible, learn from him. You have got to be hands on. the minute you drop the ball, it will run away from you. and the chances of getting run-over is indeed high.

4. Is there any way I can find out from the council the reason the DA was rejected to see if the owner is telling the truth?

Yes, I believe there is but don’t know how. I reckon there is more to it than what he is telling you. People don’t give up on projects with just one issue, they normally take it back to their architect or drafts person to re-draw. Or, he could be telling the truth and he’s just got no energy for it. I know, I don’t!!! Goodness, it would be like asking for an early death for me if I were to do a development.

Take care.

Angel

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 27, 2011 - 11:08 pm

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

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 27, 2011 - 10:37 pm

Hi again,

For those who are curios. NO, it is not cross-securitised with another property. It is a stand alone deal with Westpac.

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 27, 2011 - 10:35 pm

Hi,

I agree with the NCCP factor. Definitely correct and I have been very much aware of this.

We have always been able to obtain residential rates for this property. We originally borrowed 80% of the purchase price from the Merchant of Korea. Refinanced with La Trobe, also at residential rate; on 80% of revaluation. And, now with Westpac. It is zoned residential, looks like a house, smells like a house and valuers have always been instructed to value it as a house.

It is with Westpac, and anyone with a Westpac Personal Banker can swing it.

Thanks for the responses and take care all.

Angel

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 27, 2011 - 10:04 pm

Hi Skyes,

Reading, getting informed, asking questions, all these are all groundwork. These activities are an “investment” in itself. Knowledge is power, they say. And, it’s true.

It doesn’t matter if all you’ve managed to save is $5K, that is still 5% deposit on a $100K property. So, that’s really big. There is no get rich quick formula unfortunately. It is a slow build up, very unromantic.

It is a hard slog, indeed. But if the Bureau of Statistics is to be believed, nearly 50% of all investment properties are owned by people who make $40K a year. That’s telling you something, eh.

There are many people out there who have nest eggs of bricks and mortar who aren’t big earners. In fact, the big earners are mostly just big spenders. I have tenants who make three more in salary than I ever did. Their income, oh, I only dreamed about.

Slog away. Battle on, and research, research, research. Dream, dream, dream. Do, do do.

All things are possible to those who believe.

Angel

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 27, 2011 - 9:54 pm

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

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 27, 2011 - 9:44 pm

Dear Nathan,

It is hard to give “advice” not knowing what the property is like and where it is. What you do after you buy it will depend on two things: abilities and capital.

We can want to do many things but it will, in the end, be up to your skills either as a handyman or a negotiator, to make them happen. Perhaps, it is best to take baby steps. Start with something small and easy. Gain experience and confidence. Everyone gets it wrong some of the time. I’ve got it wrong, too and I have plenty of experience. Anyone who says they’ve never made a mistake investing is lying. Just read the news about developers who’ve gone under and they’re SUPPOSED to know whet they’re doing.

I can only share my own experiences; and I’m sure, others will, too. My first multi-unit is in Cammeray (sorry to mention this again). Before this, it was all cookie cutter, mum and dad deals.

The property was advertised with potential to make $85,000 a year. My business partner had a look at it. When I saw it, I $95,000 income easy.

The seller had so much vacant studios. And when they were between tenants, the vacancy period was way too long. She had a mentally impaired person living there, a messy unkempt young man and other low income earners.

I said to myself, this is gold mine if I have ever seen one. We bought it and began to improved each studio cosmetically as they become vacant. Nothing structural. Got only professionals to move in.

It looks old outside, after all she’s an 80 year old lady sitting on sandstone! But inside, each unit oozes with charm. Decorative fireplaces, iron-pressed 11″ ceiling, self-contained, bright. Potential tenants often say to me, “It remainds me of this little place I rented in Europe.” Within 6 months, we were making my projected income.

It is now making $105,000 gross per year with another 10% upward move viable. All tenants are long-term, secured with leases, and rents are always paid on time. Vacancy rate over six years is 0.05%.

I knew I couldn’t do a development. It’s not me. But I could do simple, cost-effective renovations.

You should base your decision on what you can do best. This is why Cammeray property is on the market. II have taken it as far as my abilities will let me. Someone else will have to take it to the next level.

This is also why the owner of this house is selling, he has other things he can do better. Are you the person to take it to the next level?

I am glad you’re looking to invest in property. Just be careful you don’t bite more than you can chew. Choking is not a pleasant experience. Should you decide to go in, make sure your exit strategy is in place.

I wouldn’t dare tell a young person not to do it, it’s the surest way to make them do it.

But I can tell a young person that if you do things with thoughtfulness, we will turn out ok in the end.

Take care.

Angel

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 27, 2011 - 9:14 pm

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.

[angelinsydneyParticipant@angelinsydneyJoin Date: 2011Post Count: 270]

March 27, 2011 - 6:33 am

Hi quickchick,

If you happen to live in Sydney and would like to have coffee with me to share some “war stories,” I’d be delighted to. That is if you don’t mind hanging with a 50 something. Don’t worry I don’t sell finance, insurance, paint, laundry detergent or ponzi schemes. I just like to talk with people who are like-minded.

Angel