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Landlord Insurance perhaps? Of course, you might be thinking of some kind of Body Corp Insurance (i.e. to insure the common areas as well as the individual units).
I am quite unfamiliar as I’ve only ever owned private homes – perhaps someone else can come up with a better answer….
Benny
Hi SBH,
Re the “Rentvesting”, you might want to use the Search feature (click on Forums, then “Search”). One result I found from doing that led to this topic:-
https://www.propertyinvesting.com/topic/5041971-newbie-getting-started-2/
That might prove useful to you.You also ask this:-
Is there a benefit in the long run to own a house in this area?
… but you don’t mention what area you are renting in (even though I can’t help you with Perth areas, others might – but they would need a suburb name).
Hope that helps somewhat,
Benny-
This reply was modified 6 years ago by
Benny. Reason: Correction - poster lives in Perth, not Melbourne
Hi Steven,
Technically buying a new house is not “adding” to the number of homes available.
It may be a matter of semantics – but to me, if there are (say) 600,000 rental homes in Australia, a builder builds a house, and I buy it as an investor and make it available to rent, then there are now 600,001 homes available for rent. If someone else bought it as their own home, then there is no nett gain in rental homes available. But you are right – the other aspect is this…. If I buy a second-hand home to make it a rental, then the available rental numbers again go up by 1. But there are no EXTRA homes in Australia – owner occupiers now have -1 and rentals have +1. Is that what they don’t like? I dunno !!
…. nobody will want to buy from them because by then those are considered as second hand housing and whoever buys from them can’t negatively gear.
BINGO !! And therein is where many of us see a major problem with the Labor plan to allow neg gearing only for new homes. For those already owning investment homes, it appears that Labor are thinking to allow neg gearing to continue IF it is already in place.
This will likely lead to more market distortions – i.e. investors might rush to “fill up” on investment properties ahead of the election, perhaps lifting values temporarily – with the fall in value to come after….. As I said, it sounds like 1986 over again – and that hurt investors and renters !!!
Benny
Hi Steven,
Good question – I think Labor’s intent is to only reward those investors who are ADDING to the number of homes available. Buying second-hand doesn’t increase the total number of houses, so no “bonus” for these investors.But, as Steve had mentioned in an earlier article – “We really need to wait to see just what Labor proposes once they actually hold power” at which time we will be able to answer a heap more questions with some kind of certainty. For now, it is all conjecture,
Benny
Hi SBH,
I can’t make any comment on the Perth market as I live on the East side of Australia. However, it is good you are asking before “doing” as there are a number of things you should check out before you make your next move.First off, there are Tax benefits in selling your first home before buying another (and it might mean you can offer cash for your next home, thus allowing bargaining of a lower price perhaps). On the flip side though, there are also Tax benefits in providing rental accommodation for others by keeping your current home as a rental and buying another. Your income appears to be sufficient to be able to buy a further property (and not sell your first home), depending on your current expenses of course. A Mortgage Broker could help you more on that though, as the lending climate has changed markedly since the Royal Commission into Financial Institutions.
Further to this are other thoughts – like, are property values in Perth likely to appreciate in the medium- to long-term? If so, would you want to hold two properties instead of one over that time, thus building up your Equity? The risk there is that values might stay low, and keep your finances locked into two assets that aren’t growing. Also, it could be your money might be better used elsewhere. Is your spare cashflow sufficient to cover all costs during that period? Then again, if you sell now and buy again soon, the Equity you have in your current home is then “all yours” with no Tax payable, allowing you to buy another in the same climate, thus not losing out on any growth that might occur in future markets. But if there is growth, holding two would be better than one, yes?
Whew !! Sounds like a circular argument, eh? ;)
Sorry SBH – it sounds like I am asking more questions than I am answering, but that is purely to start you thinking around the whole subject, rather than just concentrating on “do I sell this or not”? There are many good reasons why you should and/or shouldn’t. Becoming more aware of ALL your available options is a good option at this time.
Benny
Well, I missed the Dec 2018 “anniversary” to update this (would have been 10 years). So here we are in Mar 2019, and we are seeing a price correction in play currently. Syd and Mel have had their values settle back somewhat from their recent highs. All to be expected. Pundits right now are stating “We will see a 20% drop before the trend changes back to positive” (Referring to Syd & Mel). Other areas are stagnant or dropping slightly. Recent articles call a 13% drop since last peak for Syd, and about 9% for Mel.
We are in unusual times right now though – with a Federal Election imminent and the Labor Party in the ascendant (according to Polls). Meanwhile, Labor have stated that they will forgo Negative Gearing on all but new properties (1986 anyone?). As well as that, they want to bring in Death Taxes and also remove Franking Credits. With those kinds of policies, I would have thought the Liberals should steam back in again – BUT they are instead imploding with the recent antics of their more left-leaning members. So all bets are off re who will win !! And, depending who does, will (I believe) provide markedly different paths for property investors and investing over the next few years!!
So, will house prices fall further (as Scamp had predicted over 10 years ago)? Like, 40% or even 50%? I see a possible larger fall should Labor win Govt in the next few weeks. But still not 40% nor even close. Perhaps the 20% that others have predicted recently. And if Libs get back in, less likely !
What do YOU think though, friend? Does Scamp have a point? Or is he still licking his wounds from selling off what has been a strongly rising asset over the last 10 years despite his assertions?
Benny
Hi Harley,
This is where “your own situation” is most important. What does your situation need? Cashflow or growth? In all of that though, remember that cashflow is king. Like, if you suddenly don’t have a job, then payments (if negative geared) can become a monster that could eat you alive.You are in a great situation to make a considered decision. Such an injection of equity can be the start of a huge change in your life. As such, do give it some time to check out all options…..
Though your options aren’t likely to be unlimited, this is a huge “leg-up” should you wish to change your job (if you don’t like it) by e.g. buying into a franchise that you DO love. Or it can set you up with property (of course), but also shares, or some other investment type.
Take the time, and even spend some dollars on your education, so that when you make your next move, you will already be convinced it is “the right move for you”.
Re property itself, growth is nice, but even better is buying something you can afford even if you lost your job, so having more rent coming in than expenses paid out is quite desirable. As you said, you might look at buying two properties rather than keeping one that WON’T pay for itself. Remember too, it is good to be able to sleep at night, so keep your next move as stress-free as possible.
A good way to do that is to avoid a negative geared property (Blacktown?) that costs you extra money each week. Start with one that puts money in your pocket each week. I recently attended Ian Ugarte’s day seminar that shows a way to increase the income of a rental property markedly – his way can even take a negative geared property and make it positive. Perhaps that can work for the Blacktown property too – I don’t know, but others will.
Good luck with your choices, and remember this – “If you think education is expensive, try ignorance!”
;)Regards,
BennyHi Tiggie,
Given a choice of only those two options, I’d go the NE facing one. My main reason being that West is quite bad for heat, AND there is no guarantee that you will have a mountain view in one year’s time anyway (depending of course on the aspects of the surrounding land). i.e. I assume it is possible to build to the West of your Unit – but maybe not, if there is a canal, or land already used for infrastructure – rail, motorway, etc.You would know whether it is possible to build to the West or not (thus blocking your view). If you keep the view, you still get the oppressive Westside heat – can airconditioning cope?
Hmmm – and just now, on a re-read of your post, I caught this bit:-
I’m buying off the plan.
Well, after answering you with my opinion on “aspect”, I also want to add the following:-
Personally I am not overly interested in Units, and particularly not if they are Off-The-Plan. There is just too much that can go wrong, and I much prefer to own a chunk of land. I would only consider a unit if it were a small part of a boutique block in an already settled area of a city (no hi-rise for me thanks). Just thought I’d add that wee note of caution….There are some really good references in here re “Buying off-the-plan” that you might want to seek out. If you have trouble finding them, come on back – but have a look in the Training Centre first.
Regards,
BennyHi Steven,
What an interesting muse !!Unless they propose negative gearing cannot be used to offset the investor’s own investment portfolio, in which case that will probably kill off the invest altogether and cause some very serious consequences to the economy…
To me, this question really comes down to “Where does ‘negative gearing’ begin and end?”
I know many who do a kind of “cordial mix” – having some positive geared properties offsetting other slightly negative geared properties. If losses can be absorbed “across the portfolio”, then that’s not so bad. Some though might depend on having it offset their other Income – THAT is where such a change may lead to a change in the rental market (thinking there of “those starting out” who aren’t yet into the consolidation phase). Think mid-1980’s and the introduction of CGT. and removal of negative gearing, and the upset that caused!! (see below for more on that)
Knowing just where this proposal begins and ends is mandatory to understanding the change. One to watch in a couple of months, eh?
Looking around, I found a summary of those 1980’s changes. Initially, it looks like John Symonds is dead against it, but DO read the text and you’ll see that his video offering is not the FULL story. The words also say “the removal of negative gearing was not the only cause of rents going up…” so there does seem to be some balance in this report (from May 2016 by the way…).
Check it out:-
https://www.news.com.au/finance/real-estate/what-happened-last-time-we-messed-with-housing/news-story/ad060b7d2557bd382f4bba5d1fa9ca98Benny
Hi Naomi,
From the info you provided, you sound like you are in a prime position to do just that. I haven’t done that myself, but the good-looking chap right on top of your post (advertising the one-day seminar) is doing this and showing us all how to. Get in on his course (I’ve heard it is almost full in Melbourne, so don’t delay). I am sure what he brings will fill your knowledge bank up quickly with respect to those two properties.Only one thing that stood out to me as a possible problem is that yours are both built on slabs – that makes any new plumbing a lot harder unless sited on exterior walls. But don’t let that stop you going ahead – there will be “ways” around that too I’m sure. And maybe Ian even has an answer to that to – ask him on the day…..
Benny
Compound Interest is great – but what effect do yearly expenses play on your compounding investments?
I stumbled over a post from a year or so back – it shows just how well compounding can work. But this time, it has a twist…. It ALSO shows how much damage can be done when the compounding is accompanied by expenses along the way (be they admin fees, taxes, other costs, etc).
Be prepared to be surprised – I was !! Like, I was already aware of how GOOD compounding can be, but I was unaware of the massive effect of those regular expenses.
It starts by showing how, if you take $1 and double it 20 times, you end up with a little over $1m. Nice !! And I was not overly surprised by it, as I was already aware of the power of Compound Interest.
What surprised me was what happened if you take out 30% each year as you go (for fees or whatever)…. now THAT result surprised me. I thought it might halve the end result….. but I was WAY wrong.
https://www.propertyinvesting.com/topic/5034678-that-surely-cant-be-right-or-is-it/
Then try it again with only taking 5% out each year – think about what the result might be, then calculate it out. Again, surprising !! There has to be a big lesson in that – re watching expenses, Interest rates, taxes, etc.
Benny
Hi KDL,
As a non-resident, I guess you are restricted to “buying new” – am I right there? If so, it limits your choices somewhat – but as a general rule, I’d be looking to buy in a settled area rather than in outlying suburbs. Perhaps developers are doing “urban infill” in Southport that could suit you. Though land size is smaller (where they subdivide a large block into 2 or 3 smaller blocks) its location should give it a better value into the future.I don’t live on the Gold Coast, but from what I read, now is not a bad time to be buying in SEQ anyway. If considering a unit rather than a house or duplex, look for smaller builds (6 or 8 units to a development) as they hold their value better.
My thoughts on Pimpama are widely known – although fine for owner-occupiers, I believe it will take many years before the value catches up to the purchase price. OO’s will spend many years there, and add value by fencing, gardening, putting in a pool, garage(s), etc – so they will grow some equity over time. But this is an area where land is readily available, thus not hugely valuable (at least not for another 20 years or so). In Southport however, the value is already there, as is the infrastructure.
Re “which suburb” to recommend, I don’t know them well enough to say – hopefully others can add some value there,
Benny
So who else spotted my earlier mistake?
Back a few posts I had said this:-
TODAY, it has all changed surely (???) Let’s say a $500k loan over 30 years must be repaid at $16,667 per annum but Interest is currently only 4.5%, so Interest paid is $22,500. Near enough?
This must surely mean that Principal repayments are now taking up nearly 45% of the repayment amount (coming close to doubling the payment that IO alone would be). Doesn’t this mean then, that any change from IO to PI must come with a whopping lift in repayments, thus affecting serviceability?
Well, I was right, and yet I wasn’t… The first paragraph is pretty much OK. But the first line of the 2nd paragraph is not quite right. Here’s why:-
1. It is the “repayment amount” comment that is incorrect – what happens in P&I is that, as Principal payments are made, the Interest payments decrease. As well as that, when calculating repayments, first the total payments (Principal and Interest) over 30 years are calculated, and then divided into the required number of monthly payments. So in the example given, though the principal repayments DO make up a huge %age of the total amount to be repaid over 30 years, the actual MONTHLY payments are nowhere near the 45% increase above IO payments that I had first said…The IO payments were $1875/mth. After calculating the total repayments required over 30 years (with the Interest payments diminishing to zero over that time) the 360 equal payments for P&I come to $2358/mth. So, not a 45% increase after all, but a 26% increase – still substantial, so a point that should receive due consideration.
Benny
Hi Stevie,
The author confirmed its sale on Dec 26th.Benny
Further to that, OS, I just read a piece in my email from the Motley Fool – in essence it said something like “These are headlines you won’t see!” and went on to list how all news is about “today” – e.g. xyz share has plummeted 10%, (shock, horror) and quite ignoring the fact that over the previous two years, that same xyz share had grown 35%. But they don’t print THAT headline.
The same applies to current property news – e.g. Sydney homes have fallen 10% (but how much had they gained in the last 2 years???). By the way, I am guessing at the 10% figure for Sydney – its just an example really…..
So much news today is “noise” and we need to sift through it.
Benny
Hi OS,
It would seem that if there is a drop in values, the magnitude of any drop might well vary between states and regions.
It would have to, wouldn’t it? Truly there are multiple markets involved, and multiple factors all interacting. e.g. Sydney and Melbourne have had great growth, and have now dropped away some of that growth, while other cities have had little growth, and are growing still (albeit more slowly).
Then there are those “other factors” – world issues, federal issues (which might affect all markets to some extent), and also state and local factors (that might only affect some markets but not others). And I’m sure there are many other delineations between markets – any takers?
Benny
Hi Micksta,
A few extra thoughts, thanks to your added information:-
1. The medians you quote for East and West ($565k and $445K) are wildly different to what you are wanting to look at buying (new $330k or old $260k). Am I missing something, or are there some screaming bargains in Burpengary?2. On the subject of medians, there is a lot to learn about them – first they are the “middle” price, and NOT an Average price, in a string of sold prices. One thread asked a lot of questions and we learned a lot about medians by following the topic:-
https://www.propertyinvesting.com/topic/5029447-australia-undervalued-suburbs-opportunity/#post-50294473. I can’t imagine ANY developer selling new for $330k up there – but then these are townhouses, and not houses – could it make that much difference? In fact, maybe THAT earlier question 1 is referring to “House Medians” ($565k vs $445k) rather than townhouse medians – could there be such a massive difference? Land size differences will play a part – but that much???? Could be – but you will KNOW !!
4. “What I struggle to understand is, why the median house price for Burpengary East is $565k and Burpengary is $445k.”
Micksta, it is rather normal for newer areas to be $100k up on older areas – not that they really are worth more, but developers SAY they are worth more (“They are new, and they have tax deductions, and a warranty, and even a rental guarantee, and we think they are better so we will lift the price. And if you think this is steep, watch out for our Stage 2 !!”) :p5. As Steve would say, “Buy problem properties and sell solution properties”. You buy the problem, spend a bit to fix the problem, then sell it to someone with the solution in place (for a profit). A new property is a solution – there is nothing to be fixed, so you won’t be paid for doing it. In fact, YOU will be paying the developer, builder, for having built it – and there will usually be little chance of any discount. There will also likely be few Capital Gains for a number of years. OK for home-owners who might sit still for 10 years plus, but not so good for investors who are wanting to “make a bit” on their investment.
Let’s see what you think of a few of those questions/comments.
Regards,
BennyMicksta,
Run the numbers to get an idea what each +ve or -ve of either option will cost. Without knowing such numbers, it is hard to make good decisions.e.g. What would maintenance of a 10year-old townhouse be expected to cost? Would it be $2k pa, or $5k, or $10k? Compared to that, what is the cost to you of paying $100k more on a mortgage? Is that extra mortgage cost more than offset by Tax benefits of depreciation and/or extra rent?
Will the new home be complete with all of the niceties that 10-year-old homes have – e.g. fencing, lawns, trees, concrete, schools nearby, shops, etc? Will the new home have a warranty that has a meaningful amount of value (e.g. with regard to maintenance)? Likely it should have….
Your current decision should be to quantify these things. As a quick back-of-the-envelope bit of maths, an extra $100k on a mortgage is likely to cost you (say) $5.5k pa in actual cost on an IO mortgage – but you can be nearly double that if doing P&I. And, that is ONLY the day-to-day running cost. You are automatically “down” $100k in equity when compared to a 10-year-old townhouse.
What if instead you can spend $20k on that 10-year-old townhouse and lift its value by $60k? Haven’t you then increased your equity by $40k (making it far easier to buy #2) and maybe even lifted the rent to the equivalent of a new place? Could be that the “old place” is slightly closer to town than the new one too…. Lots of things to consider.
Good luck with your decision, Micksta – the time you spend “running the numbers” could pay you off handsomely methinks !!
Regards,
BennyHi Micksta,
Older properties also (often) have a larger block of land associated with them, making the purchase of the older property even more enticing. Many wish to buy new – but we often pay a price for wanting that. Older properties tend to offer better value in most cases.Main thing though is that new estates often sell based on this “newness” that soon becomes 10 years old itself. Are you wanting a new home, or a good buy?
Benny
My son updated me – the project is “off and running”, thanks to those who contributed toward reaching that initial funding goal. Search for “Furzaid” to keep in touch as he strives toward his bigger goals.
My hat is off to the man!
Benny
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This reply was modified 6 years ago by
