Forum Replies Created
Buying your first CP is a big step.
You will generally hear leases priced in per square mtr. eg $100/m2 So if the building is 300m2 your rent will be $30,000 pa + outgoings (outgoings are body corp fees, rates etc).
After doing research on sales price history of the one you are looking at and also many others nearby and the info you get from your real estate agent sounds promising, I would suggest you do some legwork.
Get out of from behind your computer, drive around the area for a day. Count the number of for sale/lease signs up VS leased properties. Ring the agents and ask what the vacant properties are asking for and then discount this by at least 10%. Then walk into businesses currently renting in the area and ask the business owners what they are paying for their lease. This will give you a better idea of what the lease rates actually are. Ask the local business owners how long the vacant ones have been vacant for. It’s amazing how business owners are often happy to chat…at least for a little while. And you’ll get valuable info on the area at the same time.
In the end it is up to you to judge your risk profile and decide if the asking price is reasonable and how much you would expect to get from owning the property each year if things go well but also how much you will have to find if the CP is vacant for an extended period and how likely this may be.
I would recommend talking to your accountant.
In Qld, my experience is that if you purchase a CP that is currently leased and will remain leased to the same tenant after purchase then you do not have to pay GST or can get around having to pay it somehow. But if you are buying the CP vacant then you will. However, if you are using a GST registered entity to purchase the CP then although you have to find the funds to pay the GST at settlement it is returned to your purchasing entity (trust or company) in that entities next BAS statement. It is rather a pain having to find the funds first to pay the GST and then getting the GST back as a refund a few months later.But as I suggested talk to your accountant to get full and accurate details.
Hi pcn
Never heard of them. The look of their site doesn’t instil much confidence though.
Hi David,
I just used the accountant I use for my business to set up the SMSF company/trust etc. You will need to get a financial planner’s approval and it is a fairly expensive process. Approx 20K by the time all the professionals and red tape invoices were paid.
Terry summation is correct about the process and it can be a daunting but rewarding one to learn all the in and outs.
I guess one of the main things to remember is that you need to think of an SMSF fund in a similar way to the super you have now, except (I assume because you are here) your SMSF will be investing in commercial property on your behalf instead of where super funds invest your current super. You still can’t access the money until you retire etc same as standard super.
I would advise that your first step is to go to your accountant and financial planner with your plan and get their professional advice. This may or may not be the best option for you given your current circumstances and I believe it is best to get independent professional advice early on when it comes to SMSF.
Hi Narinder,
The corridor between Brisbane and the Gold Coast has a lot of new development but is also very popular due to people being able to commute to work in Brisbane while being close to the Gold Coast’s surf, sun & fun. There is also a lot of commercial property development happening between Brisbane and the Gold Coast which will, over time, mean more businesses moving here and therefore increased demand for housing in the general area.
Apart from researching the area for property values, rents, suburb price history and expected future values etc as everyone else here has suggested, I would also add social demographics to your research mix. There are sometimes reasons certain suburbs or areas in this corridor that are cheap and these same reasons will often mean they stay cheaper than surrounding suburbs limiting capital gain.
I live in Brisbane and although I’ve not researched the Pimpama area itself I’ve not heard any bad things and it is right smack bang in the middle of this growth corridor. Depending on the property, if you were to drop a pin on a SEQ map, Pimpama might prove for it be a good place to have landed.
I always buy existing, especially if it’s in a newish development precinct, mainly because there is at least some history in the surrounding streets to research, but mostly because that “new home shine” has come off and it is possible to pick up bargains. But this is just one IP strategy. Many have found success working almost exclusively negotiating the lowest possible price for H/L packages and then selling within 3-6 months after putting lots of personal effort into presenting the home for the highest resale through landscaping, interior decorating etc.
Good luck in your search.
Hi Steve
There is a huge amount of personal variability in IP desire, agenda, methods, circumstances, situations, goals, ambitions, expectations etc. I get that. In addition, I agree that the opportunity is open to all, and it’s also even nice to suggest that this offers hope to those who sacrifice and work hard etc. But I reject the premise that all who try can succeed as there is a definite limit on how many property investors can succeed. Ignoring this leads to trouble for all.
In practice, my moot point exposes itself most when things are going really well and you start seeing everyone jumping on the bandwagon. Fortunately, drastic consequences have not happened to any real extent in Australia but acute examples can easily be found in foreign markets wherever property investors get sold on capital gain ignoring vacancy rates and rental return factors. Lots of example western property markets showed this up during the GFC (Ireland is but one example) and more recently the ghost cities phenomena throughout China.
The business world history is also littered with financial markets that have gone awry when something is sold based on capital gain hopes alone. It’s human nature to want to join in when profits look so good. Check out Tulip Mania for the first recorded example. https://en.wikipedia.org/wiki/Tulip_mania
It’s not a pleasant topic though thinking about potential restrictions on anyone’s plans of getting many multiple IP’s especially when you’ve written books with titles like “0 to 260 properties in 7 yrs”. (which I read way back when you first wrote it in 2006). I thought, yeah, I could do this too. I’ve adopted and embraced IP wholeheartedly but have only managed to accumulate 8 so far. Yet about 5 yrs ago my wife worried about getting and keeping tenants in them all. I told her not to be so stupid but did some quick calculations anyway and went…jeez…if just 100,000 Australians had what I have I would be in serious trouble fighting them for tenants. So the notion of even thousands of people being able to have 260 IP’s started sounding a little cuckoo.
Cheers.
Properties are sold cheap for many reasons but this is one possible dreadfully corrupt but, as far as I know, still legal scenario. Maybe there are some legal eagles out there who can put the Jonny Badboy’s of this world in jail for me.
So we have this business owner. Let’s call him “Jonny Badboy”. The business is earning money and is going along fine. Jonny is close to retirement and has been trying to sell his business for the last few years but unfortunately he’s been unable to sell it.
The business has always paid suppliers on time but recently has been running up a lot of dept with trade creditors and is stretching them all out to 90 days. They accept and extend the credit terms. After all, Jonny Badboy has always paid their account and the suppliers don’t want to loose the business.
As Jonny Badboy is close to retirement and decides to pays himself a “well deserved” but huge bonus that year. The bonus is so handsome that now the business cannot hope pay any of it’s accounts. Jonny Badboy uses the huge bonus to pay off the mortgages on all IP’s instead of using the businesses money to pay it’s suppliers. Jonny Badboy then transfers all the now debt free IP’s into his spouses name at crazy cheap prices (as you see here) and even avoids paying much in stamp duty. Then, because he hasn’t paid his suppliers, they force him into receivership and he declares personal bankruptcy. As none of the IP’s are in his name and he’s now a bankruptee the trade creditors can’t touch him and he sails away into the sunset, spouse by his side, with all his suppliers money.
As he’s close to retirement he doesn’t give a rats that he’s declared himself bankrupt and he knew that he was never going to be able to sell the business for anywhere near 90 days worth or trade credit so he justifies to himself that this was his “only option”. He did it for his kids.
Dirty rotten scoundrel.
Excellent strategy.
You are correct in everything you said, especially the last part about suitable properties being very difficult to find. But they are out there.
You just need to keep your eyes open, know what you are seeking, invest wisely but most important be ready and willing to act when you find the right one(s) and this strategy will work for you.
Act like a snake. When something perfect crosses your path, don’t wait, don’t dither, strike.
I chose “force councils…” I would prefer that councils are encouraged rather than forced but doing this does a few things.
1. If you open up enough land for development then it puts downward price pressure on land values because those selling are competing against more sellers.
2. It puts downward pressure on prices because there will be more properties being constructed.Some strategies that council could employ would be to allow more simple multi-dwelling properties on small blocks. Or increasing the rezoning portions of what is now 100% LDR development sites to 50% LDR 50% MDR or even HDR depending upon how close the development is to transport / shopping hubs etc.
Councils could do a huge amount to increase supply if they wanted. It’s not like Australia is lacking land…but this land could be made a lot more affordable if council wanted.
Hi Benny
All true. Some other model parameters:
1. No mortgage at all on any IP’s. Otherwise you would not be getting all the rent as some of it will have to go to pay mortgage payments. Yeah…I know this sounds ridiculous but if say half your rent goes to pay mortgage payments then to get $100,000 pa income you will need 10 “average” IP’s not 5…making the situation of how many people can do it worse.
2. No drawing down on any capital gains. You own these properties outright and they stay that way.
3. You live off the rental income only ($100,000 pa). Of course as time goes by inflation increase the property prices and therefore the rent but this increase will be offset by increases in living costs. Lookup Net present value for the “time” factor that you seem to think makes a difference to this model but doesn’t if you want the same spending power $100,000 gives you now to continue ‘ad-infinitum’.
4. I did say you die with these IP’s (mortgage free) but it might be nicer to say that you pass them onto your children mortgage free in your will.Ethan: Yeah sure one property may be enough. If it rents for $100,000 NET pa (or whatever you feel is the right annual income for you to live off) then cool. But my calculations were based off “average” home prices and the “average” price for a home in Australia ATM is approx $600,000. I did the same for gross/net rental yield etc. It would have been invalid for me to suggest anything other than “average” stats.
You can research all these “average or typical” PI stats online.
I also 100% agree that time is your friend when it comes to strategies to get there but these strategies are for another thread. This is more of an END GOAL discussion.
Can you post pdf files here?
Thanks.
I have lots of other, more positive stories, and may share or comment more here.
But, as I am so busy running a small business managing staff etc etc it is very difficult to find the time. But seeing as I am currently in that happy place “between” property investments and don’t have much “on the go” I might be able to find some time without my wife nagging at me like she was last night…”What are you wasting your time writing? Come to bed!”.
Hi Ethan
Your definitely right about one thing. The long posts would have lost almost all readers.
Hi Ethan
1. The $100,000 arbitrary income figure is simply the rental income from 5 “average” Australian properties:- approx $20k per property or $380 per week per property. It is also the annual income figure I used to represent “financial success”.
2. Using the historical purchase price to calculate rental yield is wrong. Any accountant will tell you that they would not use the purchase price of $58,000 for a typical Sydney home to calculate the rental yield an investor is getting today simply because the property was purchased in 1978.
3. “Anyone can do it” is mostly correct, but certainly not everyone. There are restrictions on who can be a doctor (intelligence tests, limited university places etc), engineers (limited university places, a limited number of jobs available etc). The point of my article was that there are similar limitations on how many people can be successful property investors with the main limitation being the finite number of rental properties and the need to have approx 5 rental properties to replace a typical working income.
4. Sure, I love the control factor as well and have renovated many properties over the years and been rewarded handsomely through capital gain as well as improved rental return. But I had to work at this. It required my physical and mental input. It’s not work if you love it…so it could be argued that the time and effort I spend making money with investment properties is not work. Or at least that’s what I try to tell myself every time I find myself spending a huge amount of time dealing with building contractors, repairmen, painters, council, lawyers, etc etc.
What I was trying to stress was income without any work at all. Strictly investor cashflow income…like dividends are the income part of owning a share. But even my example still requires “work” in the form of having to reply to property managers emails…which can be painful enough!
5. So true that there are lots of ways to define success. But any model must have one defined. So I chose financial success through property investing as meaning replacing a working income with property investment income and I choose $100,000 as that working income figure. You gotta choose something tangible to represent financial success and this seemed fair enough to me. I also included success to mean that you die with all property assets still intact and generating $100,000 (@ today’s value).
6. They fail if they don’t meet my arbitrary measure of success. And yes, 99 out of 100 must fail in order for that 1 to succeed. Exactly the same way as 99 fail to become a doctor, lawyer etc. But what I ignored is that 98 out of the 99 who “failed” most likely never even has any aspirations to become a successful property investor and thus are not “failures” because they didn’t even try. However, the hypothesis that only 1 out of 100 people can ever be successful property investors is still valid.
7. The ones that only own 1 IP are removed because for over half a century this number or percentage of property investors who only own 1 IP has not changed significantly from 70%. I don’t know why it is but this has been the case for a very long time. After this, there is a lot of variability in the number of properties owned by any one investor, but they are scrapping amongst the 30% of rental properties left.
PS. I know the scrapping amongst 30% of rental properties left figure is wrong, but I used it because it is easier for people to follow than the truth and it does not make much difference to the argument anyway. Why is it wrong and what should it be? Maths genius only apply!…lol Tip…the original true statistic is that “70% of property investors only own 1 property”.
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I’m an avid property investor who has multiple property investments and has done, is doing many of the capital/value improvements, buy low / sell high and other strategies to try to get more properties or reduce debt and I love talking to family and friends about property investment opportunities and strategies. I wanted to do more than just point out why everyone cannot do this and to go a bit further to try to put a figure on how many can do this with the result being that only 1 out of 100 people can use non-commercial property as their main method for becoming financially successful and why this is the case.
