Please check this out – FYI

https://www.propertyinvesting.com/topic/5040648-for-your-protection-read-this/

Benny

Hi Belvede,
Just so you know, please do read this link:-
https://www.propertyinvesting.com/topic/5040648-for-your-protection-read-this/

As you will see, that is a course that has restrictions on its sale.

Anyone thinking of buying this item, also see that link and the warnings therein.

Benny

Hi Hilly,
Good on you for having a go at quantifying something that is perhaps a bit intangible. I couldn’t easily answer you poll questions, so thought I’d throw a few ideas into the mix so you can ponder.

My results over time would have ranged between 4 and 10 on your poll. Had I bought anything out-of-state, I perhaps might have needed to use 1 thru 3 at some stage (mainly because it is a bit more difficult to find good PM’s from a distance – so, if I couldn’t get referrals from others, I might have had some bad eggs in amongst my choices).

As with most things, the gold is in the people themselves. I had great PM’s that worked for lousy RE agents, and great PM’s that worked in great agencies, and poor PM’s working for great agents (but not for long though).

If you are simply polling the CONCEPT of using a Property Manager versus going it alone, then I am in the camp of a 7 and an 8 (these answer two different questions in my mind). I was happy, and it was worth it.

Benny

Hi Klaus,
Wow, that sounds quite unfair and should be remedied. It seems like there has been some serious mis-communication happening. Now, I don’t have experience in this subject, but, since you are in Queensland, I would think your next port-of-call should be the RTA (Residential Tenancies Authority) to get advice and perhaps even some help from them. https://www.rta.qld.gov.au/Disputes

Failing that, there seem to be a few different “tenant help agencies” that offer ideas – I can’t recommend any one over another, but here is one that looked like it could help:-
https://qstars.org.au/tenancies/tenancy-databases/
In the section titled “Quick tenancy database facts” it describes some paths to take to have this resolved. e.g. “Tenants can apply to the Tribunal to dispute a proposed listing or an existing database listing. The Tribunal can order an agent, lessor or tenancy database operator, to amend or remove a listing.”

There should be a path that will provide you with satisfaction. Good luck with choosing the right path – but if one doesn’t work, try the next one.

Benny

Hi Jay,
Seems you got a lot out of my thoughts – I’m happy, as that was what I intended.

You asked:-

Also, just wondering why you calculate the return off the total value. Wouldn’t you calculate the return off money owing aka your investment? So 480pw = $24,960, @ $380k investment = 6.5% gross return. No?

There are several ways of calculating such things. I like using Rent/Value of House x100 as a Gross figure when comparing which one to buy. Sure, by considering other options, you can learn more about your investments, but these might be for once they are owned. One other common one is CoCR (Cash on Cash Return) and that looks at Cash Returned/Cash In x100 to get a percentage. This can often have HUGE returns (even Infinite, if you are able to put no Cash into a deal).

I prefer the way I chose, simply because, if instead you chose to add a larger deposit, it looks like you are getting a fantastic return when really you aren’t (the return on the Deposit itself is deemed to be 0, but your Return looks better – a case of “lies, damned lies, and statistics” :p )

Here’s an example (using your figures from say 10 years on). You have held the property another 10 years, and have now cut the mortgage down to $200k. The return from rents has lifted, and 10 years later, you are getting $700 a week ($35k in a year of 50 weeks).

So, 35/200 x100 = 17.5% return. Well yes, it is sort of valid, except that all of the equity is sitting there unused, and returning nothing to you, as all Income is deemed to be coming from having the mortgage.

Instead, by using the Income vs Property Value (usually Cost Price), there is no bias toward one or another property. In fact, it could be said that, doing the calcs that way, one can be more easily compared against another when looking to purchase one, as they are all deemed to be fully mortgaged.

Later on, you can look at NPV’s and CoCR’s etc. Each has their place. Steve is a full bottle on all of them (I’m not) and he has written about each of these in his new Product called STEPS. It is a very comprehensive Due Diligence program that takes you by the hand and explains ALL of those things in much detail.

Also, by comparing Income vs Current Value (include Equity adds from renos) rather than Cost Price, you get a more realistic look at whether this place should stay in your portfolio. e.g. What if No-Risk Govt Bonds return 3%, and your renovated house in 5 years is now valued at $800k, but rents are still just $30k pa. Then you have ONLY 3.75% return. Would there be a better return somewhere by selling this one up? Would you be happier to take the 3% from the Bonds and sleep well at nights by selling up? Or, should you get 8% by buying a Commercial Property instead?

Hope that helps a bit more,

Benny

I like being conservative re returns. See, if you are thinking “I am getting a 6.5% return”, you may think that is pretty good – but it is only good because of the way the calc is performed. It might then blind you to the fact that “you maybe should be selling as the real gross return is nearer 4% perhaps”.

Hi Jay,
I penned a few lines to see if my thoughts might help – here we go:-

The “numbers” should help to tell you the way forward. Using Steve’s investing mantra, an investor’s goal is largely to “Make the most money, in the least time, with the lowest risk, and least aggravation”.

So, let’s now look at your “Today” vs “other options” in numbers and see where they lead us.

Today:
Value $480 Equity $150k Income $460/wk = $23k pa = 5% return (gross). (using a 50 week year)

Option 1: separating upstairs and downstairs. The layout of the house would allow for the two levels to be separated with private access. Some structural renovation required. Rent for the two individual levels would fetch around the $650-700 mark (currently $460).

So here, Jay, you would need to make an educated guess re the cost of splitting the two areas to become self-contained. For the sake of the exercise, I am going to say $20k for renovations in the “numbers” and you can make changes as you get proper quotes:-

Option1:
Value $550k (est) Equity $200k Income $650/wk = $32.5k pa = 5.9% return (gross).
In example above, I have made a couple of assumptions:-
1. That the value will lift from $480k to $550k thanks to the extra Income – that might be invalid though, so re-do that number if needed.
2. The $20k for the renovation may be wildly inaccurate – adjust as required – you know your house, I don’t.
3. I guessed that the Equity would be $70k shown, less the $20k spent for the reno – so $50k extra.

Option 2: Leave as is and stick with cosmetic reno. It’s pretty tired at the moment and has potential for value adding (built in 70’s, lots of windows need replacing, bathroom updates etc.) then keep and use equity for next IP

Option2:
This is a harder one to guess at – but perhaps you take a guess at the “numbers” based on what you believe needs to be done. I have one question coming from your words though – “Why are you needing to replace windows?” That is hardly part of most cosmetic reno’s, and maybe not likely to add any value either. Think long and hard about that option.
Bathrooms updated, yeah sure !! After 40 years, a refresh there could lead to a serious lift in rent based on how well the reno went, and the call for rentals in your area. I guess the current tenants would need to find other accom while you renovate (there is a cost in that too – loss of income while mortgage payments go on, and then there is the cost of the reno itself). Hmmm.

Option 3: still do cosmetic reno, but rather than hold, sell and cash in, freeing all equity for future investing. I lived there up until a year ago so no CGT.

Option 3
That is nice having no CGT to pay. This option also frees you up to think about “What next?” You don’t share finance details (e.g. what amount of borrowings you and your wage can handle) and that could be your next limit to consider BEFORE selling. Are you needing Growth next? Or Income? What investment type would give you the better outcome? e.g. buy/reno/sell? Buy/reno/hold and rent? Buy to develop? Buy commercial? Once sold, will this put you in a better position to move forward? etc.

Locked into your decision-making should be “OK, if I am about to sell, how is the market in my area going? Do I need to expedite the sale? Is a reno necessary at all?”
By selling this one, do you have the capacity to buy perhaps THREE other IP’s – or just one, but a whole lot bigger/better? Sydney appears to be peaking now – but does that mean Central Coast might have another year of growth before its peak? Or not? Can you sell into that peak after a reno?

I think my judgment is being clouded due to emotional investment as to whether reno’ing and holding would be better or selling. It’s on the central coast so is going pretty well at the moment and I feel it is an area that always will to a degree because of it’s proximity to Sydney. And that’s why I’m not confident in pulling the trigger so to speak.

I found that my own decision-making was assisted greatly by “the numbers”. It became easier to make a move once the numbers had convinced me of one particular way being better than another. Try running a few different scenarios using numbers as accurate as you can and see where that takes you.

Of course, the last two phrases of Steve’s mantra need to take some precedence too – e.g. risk and/or aggravation. Making a bit less money, but being able to sleep at night can be preferable to making the very most you can using a risky strategy that has you frantic. ;)

Hope that gives you something to chew on, and perhaps leads to an optimal conclusion for you,

Benny

Hi Ajay,
Luke made a good point here:-

Coomera has got heaps of supply so in my opinion will not sustain growth as well

Upper Coomera is a much newer area (approx. 15 years old) with wide open spaces around it. Mermaid Waters is boxed in and is right near the CBD/tourist area of the Gold Coast and. Coomera in comparison is halfway to Brisbane and near little except the theme parks.

If you were going to the Gold Coast to live or to holiday, in which of the two areas would you like to rent a place? Or, if moving to the Gold Coast, and had work in Surfers, how far would you like to drive to work? Mermaid is about 5Kms away (can catch a bus?) and Coomera is 20+Kms.

To “get an idea” of relative popularity, check out the rental cost of something in one area compared to the other. Check vacancy Rates too. Supply versus demand is the key. Buy a bargain in a sought-after area, and you won’t go too far wrong. It could be that Coomera does have short-term rental demand (for those wanting to visit the theme parks), but for mine, buying in a well settled in-demand area trumps buying in a “greenfield estate” in most cases.

For the record, I don’t have a ‘thing’ about Mermaid Waters per se – I could have said the same of Broadbeach, Burleigh Heads, Southport, etc in preference to Coomera. It is simply that you provided a link to the Mermaid one, and a first glance at it looked pretty good. I see it has sold now.

Benny

• This reply was modified 6 years, 10 months ago by  Benny.

Hi Corey and Richard,
Could a Stat Dec to the effect of “I undertake to only use these funds for investment purposes” go some way toward satisfying the lender? As I understand it, a Stat Dec is not something to swear to lightly – but would one be enough to cover the lender’s needs (especially since it is an existing lender, and not one where Simon is a new borrower).

If not a Stat Dec, is there some other possible “out-of-the-square” option? What about Simon’s own Business Plan that lays out his roadmap for his future investments?

It sounds a bit silly to be having to pay thousands to get a “financial statement” over such a small loan…

Benny

Hi all,
As we near the end of 2017, I thought it would be interesting to take a look at this well-worn topic once again. Things have changed – as I am sure we are all aware. Like, Syd and Mel have continued their climb into the Stratosphere. To the point where Syd now shows as needing 12 x Annual wage to afford the median house.

As Steve mentioned just a few weeks back, the super-low Interest Rates have contributed to these abnormally high prices (along with other factors). Meanwhile, wages have NOT kept pace, so the gap continues to grow. Recent signs seem to show that Syd might be settling lower after driving its Median Price into the $1million+ range.

An earlier post (back a page) tried to shine a light on the “Demographia survey” that had so many calling Australia property expensive. This particular quote was an interesting one to me:-

Another key issue with Demographia is that it compares cities in Australia with cities in only six other countries, yet the media proceeds to claim that Australia is the ‘most expensive country in the world’. The survey conveniently ignores all the many cities around the world with much higher house prices than Australian cities. For example Moscow, Tokyo, Oslo, Seoul, Hong Kong, Geneva, Zurich, Milan, Paris, Singapore, Monaco.

The other link I had added back then, takes us to see many cities around the world with the darker colours (i.e. with affordability figures greater than Syd’s) and, as well as those mentioned above, a host of cities in India and the Middle East ALSO have figures above 12. Why are they not mentioned? What is on their agenda, in stating Australian cities are some of “the most expensive in the world?” And why did they leave out so many others who have figures WAY higher than Aussie?

Let me post the link again here – http://www.numbeo.com/property-investment/gmaps_rankings.jsp

Take a look at any “paddles” that have a colour approaching Red. Syd’s shows as a light brown with a figure of just below 12. But LOOK at all of the Red and Brown paddles that have figures higher than Syd (click on the paddle to show the “Price vs Income ratio”). Many European cities, but also SE Asian cities too, and even the Middle East, have MANY cities that are more unaffordable than Sydney.

To be fair, the Demographia survey for Mid 2017 appears way more sensible than the previous one linked (2014) so they appear to have learned some things over the last few years.

Meanwhile, echoing Steve’s latest Article ( https://www.propertyinvesting.com/australias-sub-prime-debt-shocker/ ), where do YOU see this heading? Is Scamp going to finally be proved right after nearly a decade? Or is this going to become an orderly settling down of values over the next year or four? A 10% drop? More? What do you see for Australia’s house prices?

Benny

Hi Ajay,
How did your trip go? DId you get to check out the Mermaid Waters one?

Benny