Forum Replies Created
Hi Hem,
I’m sure there are many good companies out there. Main thing is, what are you wanting to buy? If you don’t know, then others might have a plan for your money (or Equity). Watch out if ANY company follows this script:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/page/3/#post-5038486But mainly, what are your goals, Hem? Are you a Growth Investor, or an Income Investor? Will you buy and flip? Or Buy, renovate and Hold, or Buy split and develop the block of land, etc. Or do you want to do business with someone who wants to sell you a new house? i.e. You want it ready-made with nothing to do except to bring in rent. That is valid too – but there are some things you need to be aware of, BEFORE going down that path – try this topic:-
https://www.propertyinvesting.com/buying-investment-property-off-plan-dumb/I hope those links have some thoughts for you that help you to make up your mind. Feel free to come back with more questions (perhaps in a new topic, so this one can remain about “Asset Partners”).
Benny
Hi San,
My initial reaction was “WHO would want to live 3Km from a major airport?” Of course, that was a kneejerk reaction from a residential property investor.A better thought would be to consider commercial rather than residential – i.e. sell the land to a hotel chain, to an industry for warehousing, a rental car company, etc, etc…..
Having got that off my chest, I can’t help any more – but I hope others swing by who may have been involved in landbanking in other situations. Good question btw,
Benny
Hmm, here we are 18 months later – I happened to be rereading this topic, when two comments from above fused together in my mind, and a huge lightbulb lit up !!!
Here they are:-
1. from the original poster – “From the start it is cash flow positive.”
and
2. from several reply posts – “…you will only get a 60% loan and that’s if you are lucky…”Bing !!! On came that lightbulb.
Did it shine for you too, having read those two points close together?
For those who are newer, this is a very important point (often put to good use by those who are marketing OTP properties):-
“One of the main reasons it is cash-flow positive is because you have put down such a large deposit.”
So, ANY purchase looking like being a highly negative geared property can become cashflow positive if you only put down enough deposit. How much? Well, let’s see – we’ll start with purchasing a house that is looking like being negative geared right off the bat:-
Purchase price is $600k, and it will have expenses of (say) $10k pa for Rates, Insurance, Maintenance, RE fees, and other costs and then a mortgage (Interest Only) of $30kpa at 5% Interest Only. Rent will be $600 per week, so allow 50 weeks to get $30k in rent per annum. (You plan to use equity in your own home as the deposit, so your total mortgage is $600k). From those numbers you are going to be losing $10,000 a year (roughly $200 a week).
OK, so let’s pay more of a deposit – let’s say you had $50k in savings, so you put that down to lower your Mortgage Costs instead of borrowing that extra $50k against your home. That reduces your Mortgage cost by $2500 a year. Still $7500pa in the negative. Damn.
So instead, you sell the $250k you had in shares (watch out for Capital Gains?) then put $200k of THAT down as a deposit and don’t borrow against your house at all (the extra $50k hopefully covers any CGT). This reduces your mortgage to $400k and your mortgage interest drops to $20k per annum. Right at that point, your income and outgoings are in balance. Put more than that into the investment, and it becomes positive geared – finally!
BUT, you’ve had to put down 33% of the total cost to get to that – put down 40% (as in the original example) and yes, it will be cashflow positive by about $2000 a year ($40 a week – whoopee).
Spruikers conveniently leave that bit out when telling you how “positive geared” their investment property is going to be. They talk you into a 40% Deposit on a little apartment and massage your ego with stories of what a great investor you are going to be (to get you to sign the contract).
OK – you usually won’t need to put 40% down on a house and land. 20% is common as a deposit and not too hard to get this.
My main point was to show how you can FORCE any purchase to become positive geared if you only throw enough cash at it. Before taking that path, consider the poor return you might now be getting on all that cash you’re putting in.
And consider too the opportunity cost of releasing all of that cash. Will it prevent you from locking in some other screaming-hot deal that pops up if you’ve used up your cash to do something else?
In short, for sure any property you buy can become positive geared – but, at what cost?
Benny
Hi Kenif,
I agree there should be “somebody” responsible for this, and I would doubt it should be up to you to fix. If ten years old, could it still be the builder themselves – I vaguely recall limitations of about 6 years, but that might vary depnding on whether a private home vs an apartment block? In short – I don’t know !!If you drew a blank when reporting this problem to the Body Corp, then I would think you should be getting in touch with a lawyer who is familiar with property, and the laws pertaining…..
Good luck,
BennyHi Pascoe82,
Once again, Terryw is “teaching us to fish” rather than giving us one. One super important learning re Offsets (and indeed ANY accounts relating to property – savings, redraw, cheque, etc) is spelled out rather succinctly by @terryw here:-
https://www.propertyinvesting.com/topic/4997918-redraw-from-an-offset/#post-5029521Have a very slow, thoughtful read through that, and DO go back to read the topic from the very start too. That is one of many really good inputs re Offset Accounts and things that can be overlooked even with the best of intentions. It is “what we don’t know that we don’t know” that can really trip us up.
And, if that piqued your interest, also read this one that has a few differing points of view on Offset Accounts – some good learnings in there too:-
https://www.propertyinvesting.com/topic/4997918-redraw-from-an-offset/#post-5029521Enjoy!!
Benny
Hi Andrew,
Just a quick note – sorry I can’t add anything of value as an answer for you though.I noticed your post had “disappeared” off the front page. We have a number of members who swing by over a weekend, so I wanted to put your question out front (my reply post does just that) so someone with knowledge in that area might see it and comment,
Benny
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Benny.
Hi Warren,
Although I’m not one who has enough experience to help you to answer this one, I wanted to reply to bring your question back into view for those who CAN answer it to take a look. It seems you have already done a lot of digging, and have provided a very complete set of “What-ifs” for others to contemplate – you deserve accolades for that.I hope some of our experienced members can point the way forward for you – some of them only come by once a week, and I wanted your question to be “front and centre” for them to find it,
Benny
Hi Laura,
I know years back (and probably still today) I recall Steve saying something like “What are you prepared to give up to reach your goals?” He was pointing out we all have 24 hours a day, and these hours are apportioned according to how we choose. It may be that your time is “full” which means you will need to give some thought re how to “empty” a few spots on your daily schedule.Having a goal, and (even more important) a major reason behind reaching a goal, can help to galvanise your decisions and give you direction. One scenario Steve mentions is “OK, so you want to make $100k – WHY do you want $100k? Could it be to get you the deposit for your first home so you can start a family? Or maybe it is required for life-saving surgery for one of your own? Whatever the “WHY” is behind your goals, is super important in helping to make that goal a MUST for you.”
Now Laura, they are his words as I recall them – hopefully the gist of his wisdom comes through.
And a quote I read recently sang to me – I have been guilty of exactly this, so it pulled me up when I read it –
“In the absence of clearly defined goals, we become strangely loyal to performing daily trivia, until we ultimately become enslaved by it – Robert Heinlein – 1907-1988, Novelist and Screenwriter”
Hope that helps somewhat….
Benny
Hi Jsoe,
If it is important to be in your sister’s name, then the CGT and Stamps will be the cost to do it. Keep a couple of things in mind re CGT:-1. Have you owned it longer than 12 months, or not? (A 50% discount on the CG calculation if held longer than 12 months).
2. Consider whether to sell in this FY or next (and Sale is deemed to be the Contract date not settlement date – I think…. but check). It might make no difference to you, but it is best to be aware of your options. Usually people try to sell in a year when their Income is less. That is because a Capital Gain is added to their Income, and then Tax paid at their marginal rate. It also means, if you sell in the NEXT year, you won’t need to do your returns for about 18 months – but if selling in this year, the CG etc. will be part of this year’s Tax Returns.
3. If you have other capital Losses (e.g. shares that you know have tanked, and you know you must sell them at a loss) sell them first as (I believe) a loss ahead of your Gain can offset it. e.g. a loss of $10k and a CG of $50k becomes a total CG of $40k. That gain is then added to your Income for the year and you pay Tax accordingly (as though that is your Income for the year – which it is).
4. Maybe your Sis will want to give you a wee “gift” to help offset your costs. Keep in mind, that she would have to pay Stamps no matter WHO she buys from – so that was always going to be “hers to pay”. If you are going to pay CGT on the true value, maybe she can pay a price halfway to that market value – that way, you aren’t bearing all the cost yourself.
And no, I am not an accredited adviser, so treat these all as “ideas” and run them past your accountant before relying on them. They may well have other thoughts for you to ponder too……
Benny
Hi Kenif,
That sounds to me like a Body Corp thing. But do note that I have never owned a unit, so my thoughts are not from personal experience. Hopefully someone with experience might step up to correct me, or to add some value for you. Good luck with this – is the courtyard ground surface higher than the level of your floors? It sounds like it might be….Benny
Hi Valluvan,
I noticed no-one had “got up to dance” on this one, so I wanted to share a couple of thoughts with you.First, I would think deciding what type of property you are planning to buy, and what financial limits you have should be sorted before choosing an area or a BA. Have you got these all mapped? Of course, the finances can change a little depending on each deal, e.g. buying well means less of a mortgage, less deposit, and perhaps higher rent, meaning you can perhaps go for your next deal quicker – always a good thing. Or it may allow you a better choice when deciding “which of three IPs to buy”.
Second, give some thought to “getting out” of a deal before you even get into one. And there is a lot in that – clauses to add to contracts, choosing a solicitor/conveyancer, where will you buy and why, who will be your target market when you rent this, and later, when you SELL this? Have some contingencies in place before you go looking to buy.
If one were to use a Buyers Agent, I would think using a “local” would make sense (i.e. use a BA from the place in which you are looking to purchase rather than someone in a totally different city/area). From what I have heard, their costs can be a percentage of purchase price (seems to me to be a bit like a “conflict of interest” with that way….) or a flat fee. They can cost several thousands – so do weigh up whether you jumping on an aeroplane and spending a few days might be more advantageous to you – you’ll learn a lot more that way. And of course, (as you attempted) ask others WHO you should use – the old reference is always a good way to go to weed out any duds.
I’m sure there are some good Agents out there who (like RE agents) are wanting your long-term business, so they will work their butts off to delight you to get “on your team”. I can’t recommend anyone though, as I have always done my own buying. Good luck,
Benny
Hi Mick,
I think the basis of what you are seeking sounds quite sensible. One part I would question is whether your situation calls for a Growth property vs an Income property. It is fine to purchase for Growth, but often these don’t return enough $$ to cover costs, thus you are contributing from your own pocket to hold it. If your situation is such that you have lots of “spare $” then that can work fine. If your situation is not quite that good, then purchasing for Yield might make more sense.I am still on the fence in regards to the benefits of these services (11k cost also). I would love others feedback on using services like this.
For less than that, you can complete Steve’s “Property Apprentice Course” and be admirably suited to find ALL of your own properties, as you will be well aware of all pitfalls, along with negotiating strategies, and even have an option of 12 months of mentoring thrown in. To check it out, look here –
https://www.propertyinvesting.com/store/Although I feel they could find me a good property I am concerned I will be no better of in terms of being financially/property educated as they will present some properties and for going onto further investments we would have learnt little in the process of why they picked what they picked etc.
The above course would leave you WELL-equipped to do exactly that.
One of Steve’s earliest teachings told the story of a couple – they were both asked “What would you pay to learn how to purchase a property that can make you $100k in profit?” The husband said something like $10k, while the wife said “I’d pay up to $100k, as that would mean I could then do it over and over for myself”. Now, pondering on that, I like the way she thinks – I’m not sure I’d want to pay all of the profit from the first deal though….. So I guess I am with the bloke from the $ side, but with the wife from a perspective standpoint.
I can’t help you with Vic properties – but I do know that Steve started off in Ballarat. Perhaps it still has deals – depending on the cycle, most areas get deals – and anyway, you mentioned the 3 D’s yourself – and they happen spuriously (no need for a cycle – they happen when they do). So yeah, all good options.
Check out the link in my Welcome PM for a few more ideas….. ;)
Benny
Hi Dave,
You have just confirmed it, so what a good place you are in. It is smart to look elsewhere too (to test the water?) but there are ways of doing that without upsetting what appears to be a very solid situation. Here are a few more thoughts, just because…. ;)Yes currently 60k after costs which I realise is a good position. And no I am not schooled in shares. I would have an expert help on that fo not. So you are probably thinking I’m a bit mad perhaps! I just thought shares were give me a more diversifIED portfolio. Less risk. Spread the money into different areas. The motel is putting all my eggs in one basket. If something goes wrong (unlikely but possible) that it could be a big problem to deal with.
Worthy of thought, for sure. Warren Buffett himself says “Put all your eggs in one basket, then watch that basket like a hawk”. And this is from one who has made most of his money in shares. He avoids “trading”, and also won’t back anything he doesn’t have much knowledge about (even if he misses out on huge booms).
I hear of many “experts” relating to shares, but really, how do you KNOW how expert they are. What might be worth considering is to invest some of your passive income into Berkeshire Hathaway by buying a few B shares. Then you will have Warren Buffett and Charlie Munger making all the decisions about your shares, and likely making the usual 20% pa return….
One other thought would be to take a defined percentage of your yearly Income and devote that to Shares. If you do well, fantastic, but if you don’t you won’t sink your own ship.
An no I don’t have any expenses myself. The motel is maintained by the leaseholder. So yes it is a no passive income, but shares would be even more passive I feel.
Awesome. And yes, the right shares could well be more passive, though your current position doesn’t sound overly “active” :p
There also might be a ‘retirement advantage’ in 25 years to sell the property but as it is a commercial property and laws might change in 25 years I’m not sure I can base a decision on that point of view.
A part of “Watching it like a hawk” methinks !!
Benny
Hi Dave,
If I am reading this right, aren’t you receiving $60k pa over and above costs? Or are there more costs after the mortgage? Rates? Insurance? Maintenance? Anyway, from what I think I am seeing, you have a 25 year income that exceeds your working wage. But, since you like your work, you will probably stick with it anyway.To me, this sounds like you are already where many of us are aiming to be. i.e. to exceed our present working Income with PASSIVE income. Isn’t that what you have done already?
Re investing in shares – well, I guess that is another possibility, but are you schooled in that? Is there more or less risk in that than what you have right now? And, what would YOU rather have right now? An income of over $50k (assuming there are some other expenses) that is assured for 25 years (or close to it) or an Income of “I don’t know, but could be better (or worse) than what I have now” using shares?
I think you are doing pretty damn good just as you are. I assume the Motel is situated where it will remain viable for decades to come, yeah? Other than that, what other risks are there? Do you need to maintain the Motel too? What other $$ downsides are there?
Benny
Hi sbav,
I imagine books (and maybe even DVD’s or CD’s) might be OK, depending on the original supplier. Some companies might be OK for these to be onsold – some may not. Maybe contact Cherie Barber to see if her DVD’s may be onsold.Really, it is all about “caveat emptor” in the end. And whatever the Latin is for “Seller beware” too. ;)
When it comes to courses, with all of the add-on things that go with them – like Logins, mentoring, continual updates year-on-year, discount cards, etc – it is less likely that they can be onsold. Even more so, I think you need to check with the original supplier, or your original contract on purchase.
We do know that Cherie’s courses are NOT able to be onsold, but DVD’s – not sure.
Benny
Please check this out – FYI
https://www.propertyinvesting.com/topic/5040648-for-your-protection-read-this/
Benny
Hi Shehan,
I had held off responding, as I have absolutely no knowledge of Melton, nor Melton South. From your short description, it does appear to be a new development area. Even today, you are saying there is a lot of new development going on. Now, that could be good, or bad – for these reasons:-If it already has some history (years of development behind it) as an area, then it might be that infrastructure has begun to catch up, with schools, shops, transport hubs, hospitals, etc being built. Usually this does not happen immediately, but means new buyers must travel (by car?) to find what they want. Over a period of years (even decades) an area becomes “settled”. Also, any new development is usually sold off at premium prices, such that capital growth is likely to be negative or flat for up to 10 years after initiation. This kind of area often suits owner-occupiers, with young families buying into them using Grants etc to help them into the properties. An investor doesn’t have that option, but of course, can choose to buy there – BUT they are buying a “solution” property, that will likely be doomed to have no growth for at least 5 years, and maybe more than that.
But then, if one is looking for deals, one might just happen upon someone who is wanting to sell up in this “new area” after having spent the last 5 years or so adding bits – paths, garages, planting trees, gardens, etc – all of which add value to a place. But, it is also 5 years old, or more, and might have had the new edge knocked off it – the occasional broken tile, paint a bit scuffed, Dad backed into the fence once, etc. And in such a case, with a family who now “wants out at whatever price”, there might be the chance of a deal.
Using the stats that you can glean from RE agents, you can find out how “sought after” this area is, and even the demographic that suits the area – who is looking to buy, and what price point can they go to? Look too at other positives and negatives about the area – e.g. how many homes have an extra car jacked up on the front lawn? Are the houses (generally) well-kept? Is there a good community feel about the place? Are there sufficient shops, schools, etc?
Talking of negatives, how much other land surrounds Melton or Melton South? Is it jammed against a river or a mountain range? Or is there land in all directions for Kms and Kms? See, there is not much scarcity to push up the price of land if there is heaps of it available. I know the Councils tend to keep some “locked up” – but hey, at some point, a new land release will make it all available. and, when you think about it, it is the land value that appreciates while the buildings on the land DEpreciate. If no-one overly wants ot go there, prices will languish or fall. If everybody wants to go there, land values will climb.
Same principles apply everywhere. Now tell me how YOU see Melton, based on all that….. ;)
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,
Just adding in a little curve ball. If property management fees weren’t tax deductible would you still be giving above 5? Or is this tax deduction a big part of why property management is a way to go?
Just like in my previous answer (where I differentiate between 7 and 8) – one aspect is purely monetary, while the other ranks the “worth” of the agent to you. Or am I reading it in a way you didn’t intend?
Right now, on a re-read, perhaps it may be better to re-write things from one aspect or the other. Phrases like “worth it” imply a $ value, but perhaps you weren’t meaning it that way?
e.g. If I am time-poor, or not wanting to make many trips to visit the IP, then, even if it costs me extra money to use a PM, it might still be “worth it” even though the $ return has dropped. Similarly with the “Tax Deductible” question.
Steven makes good points that align somewhat with where I am at,
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
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