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Belladonna
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@belladonna
Join Date: 2003
Post Count: 12
January 23, 2003 - 9:32 am
Depends on your strategy, if unlike me you have one! LOL []
If you’re after short term cash flow go the $40pw but be prepared that property prices may fall over the long term & you may not recover your cost if you have to sell up before prices rise again (if they do). If you’re more interested in long term capital growth of your property go the one in the area likely to experience more growth at the expense of immediate cash returns.
It is possible to do both if you do your research right so I’m told… i.e. pick the cheap area about to boom & get good capital growth while getting high positive cash flow if your property is in a ‘high demand’ area people are willing to pay premium rent for.
Belladonna
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@belladonna
Join Date: 2003
Post Count: 12
January 23, 2003 - 9:27 am
Try using the terms “Vendor Finance” or “Vendor Terms Contract” rather than “wrap” as I have found not everyone you talk to knows it by this term.
Cheers
B
Belladonna
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@belladonna
Join Date: 2003
Post Count: 12
January 23, 2003 - 9:24 am
Hi Adrian,
To my knowledge it is illegal to wrap in S.A. but I’m not sure if this means it’s illegal to wrap a property in S.A. or illegal to do if you live in S.A.?? I’d seek legal advice before proceeding any further. Perhaps you are better off looking at Lease Options (not sure if these are legal in S.A. or not??) or if it’s okay for you to wrap as a resident in S.A. perhaps you will have to look at property outside your state (difficult to do if you don’t have the means to go inspecting properties interstate or paying someone to do the leg work for you. It seems to me like you’re trying to run before you can walk!
Belladonna
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@belladonna
Join Date: 2003
Post Count: 12
January 22, 2003 - 8:31 am
In my experience, it is up to you as the purchaser of the property to make sure it is structurally sound. A formal inspection is not compulsory, however unless you are a builder or such, it is well advised. It’s up to you whether you have one done on a new property… some new properties can be very shoddy workmanship erected very quickly as a friend of mine is now discovering. Fortunately you are covered by the BSA if major structural defects occur within a certain time period after construction (in QLD I think this is 6yrs) but it’s a time consuming process of red tape & beurocracy to file a case with the BSA. Do your background checks on the builder of a new property & ask to see examples of previous (older) work.
Belladonna
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@belladonna
Join Date: 2003
Post Count: 12
January 22, 2003 - 2:47 am
Hey Steve, I know you weren’t telling me what to do… nobody has done that for a very long time!!![] I was merely comparing the advice I had received from someone else to the suggestions you had made and wondering which would have the better outcome.
And yes, you’re right I don’t have a structured plan yet. I make no secret of that. It’s difficult to get to a point where one can write down a structured plan when one doesn’t know what the options are, where to start and what is possible…
Perhaps my structured plan should begin with understanding all this stuff & then discussing it with a financial adviser who can assess the whole situation and suggest a few paths I should follow whether that be property investment, shares, managed funds or whatever.
Ideally, within the next 5-10 years I want to be able to work only 3-4 days a week so I can persue other interests (my love of sailing & music!) and later down the track to bring some rugrats into the world without having to worry about how my partner & I will survive on one pay packet at that time. So I guess I do have goals, I’m just not really at the point where I can quantify the goals nor make inroads into how I’m going to go about achieving them (this is a most frustrating thing indeed).
But anyway, I really value the advice everyone, including yourself, has been giving me so I can come closer to realising those goals & actually doing something about it instead of just talking about it & whinging about a crummy investment decision I made without doing my homework!
Cheers,
Bella
Belladonna
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@belladonna
Join Date: 2003
Post Count: 12
January 22, 2003 - 1:11 am
Hi IB
I’m a newbie to all this as well but I think you’re on the right track wrt acquiring lower priced properties as +ive cash flow investments. It’s virtually impossible to recover more rent than the cost of the mortgage repayments & expenses once you get over a certain amount.
My trouble has been finding the little blighters… everything I’ve seen so far is very unappealing (i.e. I wouldn’t want to rent it if I were a tenant) or ready for demolition! Takes a lot of hunting around to find a good one.
I’m sure I shall be corrected here but I think you might be confusing two issues here – +ive cash flow properties and wraps. A property doesn’t have to be wrapped in order to be a +ive cash flow property… and to my knowledge by their nature if you are wrapping a property to someone else it is +ive cash flow because you are paying the lender at a lower interest rate than the buyer is paying you as the financier of the wrap deal. At least I think that’s how it works… my big wonder is how to entice someone into a wrap deal if they can just as easily get finance through non conventional lenders at equally inflated rates? What is the incentive for the buyer I wonder?
Belladonna
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@belladonna
Join Date: 2003
Post Count: 12
January 21, 2003 - 9:00 am
Don’t wait!!! If there’s one thing I can say about my dabble in property it’s the longer you wait to get in the harder it is… that’s what everyone I talk to says when they congratulate me on getting in so early (even if I did cock it up slightly by not doing enough homework first!) If it were me, I’d buy the investment property(s) in the less attractive areas & use the income from that to save your deposit (supplemented with your own ‘spare cash’ from your salary where possible) in a high interest bearing account (some net-operated accounts are advertising 4.85% at the moment – you just have to be prepared to transact electronically & have no keycard access to the cash = what you really want anyway to force you to save!). Some of the more astute investors may disagree with this approach because the money isn’t ‘working’ for you while it sits there accumulating but it’s certainly better than sitting on your hands for the next few years and buying in when the interest rates are back on the way up again…
Belladonna
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@belladonna
Join Date: 2003
Post Count: 12
January 21, 2003 - 8:40 am
A big thanks to everyone who has replied to this post… your stories are all inspiring and I’m still marvelling at it all.
You’re right Steve… there’s loads of apprehension & ‘what if’s’ going on in my head! What if I can’t tenant a place?
What if I lose my job & can’t make the payments? What if the interest rates go thru the roof again like the early 90’s?
What if a tenant trashes my place/skips town without paying the rent?
It seems easy once you have a few properties under your belt… if one is going through a difficult patch the others can prop it up for a while & the hit to the hip pocket is minimal. In my case I would be looking to rent the unit & buy a home to live in so there would be nothing to absorb any cash flow problems. I saw mentioned somewhere earlier that in this case it’s better to rent your principal residence & keep acquiring investment properties until you can afford to pay cash for your home? Is this correct & will it really work?
Another person has advised me to take my $15K & use it as a deposit for another investment property now (+ive cash flow this time!) rather than add it to my exising mortgage on the unit. Would this be biting off more than I can chew? Should I do as you (Steve) say & pour all my spare cash into getting my mortgage down on the unit in the hope that it will become a +ive cash flow property when I can get it to a point that the repayments are below the rental return? I know it is just sitting there doing nothing productive for me right now so I may as well put it to good use. For info, my loan already has a redraw facility (min $2000) and as far as I can remember there is no fee attached to this. (I’d have to check my paperwork).
Sorry to keep asking dumb questions…but hey the dumbest people are those who never ask!
Belladonna
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@belladonna
Join Date: 2003
Post Count: 12
January 21, 2003 - 8:21 am
Thanks for your advice Steve…I will take it all on board & churn it over in my mind.
I keep thinking to myself ‘if only’ I had stumbled upon this site earlier!!! All I knew about property investing was capital growth & negative gearing (and even then I didn’t know much about it!)… sure this unit is in a good area for capital growth ($20K in 12 months is not bad… but the growth can’t last forever in this market!)
One more question I have is why have an ‘interest only’ loan? What is the benefit? You (or your tenant) is just paying forever & a day… you never actually get to own the property. Sorry if this seems trite but I just don’t see the point. Is this system relying on capital gains so that you can later sell off the property at a profit?
Oh yeah and the last thing I wanted to ask was where on earth does one find $50-70k properties that are worth the investment??? Everything I’ve seen in that price range is either a shoebox or ready for demolition! How does one find the balance between rental return and purchase price? Are there any good sources of market information on such things available to the average Joe like me?
Belladonna
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@belladonna
Join Date: 2003
Post Count: 12
January 21, 2003 - 3:35 am
Hi Nathan…
I don’t know much but I can tell you what I have gleaned from this site & other info…
Wraps are only illegal in South Australia, however in any state you have to be very careful with the wording & conditions etc to make sure you are doing it legally.
As far as leases go I can’t help there… I’m not up to that part of ‘property investing 101’ just yet… still getting my head around wraps & positive cash flow properties!
Belladonna
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@belladonna
Join Date: 2003
Post Count: 12
January 21, 2003 - 3:13 am
Hi Nathan,
Thanks for your words of encouragement… I had actually been reading over your previous posts (& replies) with much interest. You’re asking all the questions I probably should have asked…
I have also formed a similar opinion about negative gearing, however I think that my choice of investment doesn’t really lend itself to that… one of the pitfalls of buying property before you do your research!!! Hmmm… note to self “shake one’s shoulders vigorously & tisk tisk loudly at one’s self!” LOL []
Belladonna
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@belladonna
Join Date: 2003
Post Count: 12
January 21, 2003 - 1:09 am
Thanks AD… glad to see at least one reply []
I guess you made me realise that I don’t really have a clear ambition as far as quantification goes… I’m just sort of bumbling along with my fingers crossed at this point in time. I guess it’s hard to know what you want when you don’t know what is within the realms of possibility. I know I want to get into a house & rent the unit but I don’t know enough about it all to know what is realistic to expect to achieve… I was just asking about negative gearing because that’s a term I’ve heard bantered around & was wondering how all that worked… since reading up a bit more yesterday I don’t really think that is what I’m after – who want’s to lose money to save tax? Seems weird to me… especially as I’m not in the top tax bracket.
It seems though that the more you make, the more you’re taxed and you’re really no better off?!?! Am I missing the point somewhere?
If for example I were to rent out the unit clearing $220 p.w. (let’s work with 50 weeks allowing 2 wks vacancy) that equates to $11K per annum… now take off rates, body corporate management fees, mortgage repayments and say $1K for miscellaneous maintenance etc – that’s over $15K already not considering any other expenses like landlord’s insurance etc… clearly I’m running at a loss unintentionally and also unintentionally negatively gearing because I assume I can claim these losses off my income? How can I turn this around to be a positive cash flow situation? Am I pushing it up hill with a piece of string? I can’t up the rent because that’s pretty much the maximum I could expect, and that alone doesn’t cover the mortgage repayments?? I’m really confused.[]
I agree with you wrt the fact that it is a personal decision about fixing interest rates & super funds etc… I was just hoping to get an idea of other people’s thoughts and what they were doing. As I said I’m of the opinion that super is a waste of time & like you I would prefer to have the freedom to invest where I want to & access my $$$ when I need it (not when the gov’t says I can have it!)