Forum Replies Created
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/DisputesFailing 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,
I had a few more thoughts :-The owners stuck to cosmetic reno’s modernized it, and it just sold for $580,000. This is a dramatic increase from 12 months – 2 years ago. This should give an idea of the potential for value adding in a cosmetic reno with my place due to it’s current value.
Check on the median values in the area – they can often be a good clue from a number of angles. Use this link as a bit of a guide (check some of my updated figures once we looked back as time passed):-
https://www.propertyinvesting.com/topic/5029447-australia-undervalued-suburbs-opportunity/#post-5029613That linked post has those updated figures, but these are AFTER the fact. You may want to check earlier posts in that link that talk about WHERE to find that data, and how it all became useful to KBrodee.
The reno’s to separate upstairs and downstairs would be more in the $50-70k range, including cosmetic reno as well. By doing so, I would also narrow my market should I want to sell.
Good on you for thinking of the “narrowing market”. On the flipside, is there a wider market by looking at your property differently? You mentioned it is around 40 years old, and that neighbours have a pool – perhaps an indication that your place might be sitting on a larger block, yes? How big?
Could it be that a developer might be a part of a more lucrative deal for you if you choose to sell? This would be even more so if the suburb is currently gaining in value (as per the link above). To that end, check out the cost of getting a DA – Developers will pay more if a DA is in place (YOU have waited out the approval time for them – they can just “get in and build” with little time loss).
Just a thought out of left field…
Happy New Year,
BennyHi 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 Kristyn,
This is one demographic that is of very high importance – Steve outlines it well here:-
https://www.propertyinvesting.com/watch-out-for-this-simple-stat/In essence, always buy in an area where Owners outnumber Landlords markedly. Because Homeowners don’t relish losing their house, they will hang on by their fingertips no matter what. This puts a solid base under house values in areas where Homeowners outnumber Landlords.
Benny
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 Kurt,
Welcome aboard, and it is good to see you asking before doing – many seem to shoot first and ask questions later (and that can be dire, depending on just what was done…) :oRentvesting doesn’t seem too wise, as it’s lost money,
Kurt, they say that too about Rent (even if not investing). But then, some other points go un-noticed, and some of these I offer now for your consideration:–
1. Any Interest paid on a mortgage is similarly “lost money” (also referred to as dead money) Do you have alternatives to either paying rent or a mortgage?
We all need shelter – of course that can be a tent, a camper, a caravan, live with parents, rent a house/unit, or we buy one. Which is best? Well, working that out is where the fun begins!! ;)
For now though, do consider you might have some lost money (or lost advantages) to consider in whatever way you choose, so let’s look at other points that may make it easier to accept the losses.2. If others are occupying your rental houses, and are paying their “lost money” to you, won’t that offset the amount of lost money you need to pay from your wage if you are also renting? And what if the Tax Dept now requires you to pay LESS Tax as you are now helping to provide accommodation for others? Isn’t that also lessening the amount of “lost money” you have to pay (at least, it leaves more in your paypacket from which to pay that lost money)? You DON’T get that advantage when buying a home for yourself.
3. You can invest in areas where returns are better, while renting a place in areas closer to your work, saving you transport costs, time costs, and can also be providing you a better stream of Income by allowing you to invest in a more financially sensible area.
There is a lot more to consider before making decisions re Rentvesting, or even buying a PPOR. Be sure you are a “full bottle” (or have taken the time to check your assumptions with the right advisers) before pulling the investing trigger :)You mention being in a regional area – and yes, that can work, depending…. Probably the major considerations should include –
the town’s future – are there several employers in this area, or just one major one? (Risk)
demographics – is this a growing population, or are people leaving it?
tourism – is there a range of attractions there that draws tourists to it? As such, it might well draw service people to the town too (backpackers doing waiting on tables) and they need shelter.
the usual – vacancy rates, returns, prices of properties.Here is a link to a post showing where a family took a “Heads I win” decision along the same lines as you mentioned (buying a block of units or motel) and their results over time. Can it work for you too? Let’s see:-
https://www.propertyinvesting.com/topic/4996026-quotes-of-note/The full quote was “Heads I win, and Tails I shouldn’t lose much at all” – not quite a double-headed penny, but it was pretty close to it, as you will see if you click the link to read the full story.
Hope that helps somewhat,
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
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Benny.
Thanks Corey. And back to you, Simon – are these extra funds planned to be simply a Deposit on a future property? If yes, then maybe take a look at a Bank Guarantee or a Deposit Bond instead – the equity withdrawal can then be left until the actual transaction is due to go ahead, when the equity can then become the Deposit at settlement.
Or maybe consider if you are holding any savings aside for a Deposit, and a Deposit Bond can do the trick, then that frees up the Savings for “other purposes” perhaps preventing you from jumping through hoops this time !!
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
I didn’t end up looking at the Mermaid Waters
Fair enough Ajay – good luck with your hunting !!
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 Codie,
How did it all pan out? Did you get to move in, and maybe you ahve already moved out again? Looking forward to your update.Benny
Hi Ajay,
How did your trip go? DId you get to check out the Mermaid Waters one?Benny
Ben>>> “The look of their site doesn’t instil much confidence though.”
+1 to that comment
Benny
Hi John,
I’ll have a guess and say sell the Frankston one. Why? Well, from the numbers shown, it has the larger Gross Profit if sold, thus likely the largest Nett Profit after Sale. Sure, it will cost a bit more in CGT (or a Tax on Profits) but it should leave you with the larger amount to parlay into the next Ip.That also leaves you holding the “better postcode” IP which cant be bad…. Let’s see whether others agree or not… ;)
Benny
Hi Steven,
On page 1 of the “Big Picture” thread is a post about Offset Accounts. You can find that one here:-In the embedded link, there are several useful posts relating to Offsets and how to use them.
Then, on page 2 of the “Big Picture” thread is a post about “GOTCHA’s” – it reads like this:-
“The first GOTCHA is to do with my old mate, the OFFSET ACCOUNT. But, it could be about any other Account too – so do read it, even if you don’t have an Offset – and relate the thoughts to your account (savings, redraw, whatever).“The first GOTCHA relates to how Mixed Loans can be created by not thinking about HOW to refinance. Or by withdrawing both deductible and non-deductible amounts from any existing account. Once a MIXED LOAN is created, it becomes more and more messy – so better to NOT make it messy in the first place.
Go to the link below to read more where @terryw shares some extra REALLY useful and important information:-
https://www.propertyinvesting.com/topic/4997918-redraw-from-an-offset/#post-5029521———————————————————–
Steven, I hope the above words and links help to shine more light on the subject of Offset Accounts for you
Benny.
Hi Ajay,
One of the two links you posted is a standout to me – and that is the Mermaid Waters one. It appears to be an older style, but looks great inside – and its price is HALF of the Median. Rental return appears pretty darn good too.Is the price wrong? ‘cos based on first impressions, I would be wanting to take a close look at that one if the price is correct. I wouldn’t even look at the Pacific Pines one in comparison.
The other thing is that the Median for that area appears to be on the way up. Now might be a really good time to get into something like that.
Benny
Hi all,
Also, what is a building square and were did it originate from?
One square (in the old measure) was 100 square feet. It was easier to say “Twelve squares” (just two syllables) than it was to say “Twelve hundred square feet” (5 syllables).
Then metrics came along – they don’t quite match with the old measures, but are sort of close – close enough for me. As a simple bloke, I used a simple formula – when we don’t need accuracy, “near enough” will do. e.g. If someone asks me the length of a building, I might say “About 10 metres long!” That could be anything from 8 metres to 12 and still be “about” 10 metres. Of course, if you want accuracy, then get out a tape measure or similar.
So, my simple formula for area of house was to multiply by 10:-
12 squares is 12 x10 = 120 m2 (give or take)And, if wanting square feet, same again >>
120m2 x10 = 1200 sq feet (give or take)Of course, where total accuracy is required, use the figures provided in earlier posts. But for checking out a property first time, “near enough” will often do, especially if you are using the same “near enough” formula to compare several properties.
Benny
Hi Ajay,
In case this helps:-Benny
The long posts would have lost almost all readers.
Hehe – well some die-hards are still here !! :p
What I’m trying to say is that the formula you’re using is lacking dimension of time. Rents grow with time so $20K rental income today = $100K tomorrow so sometimes even 1 property is enough to be ‘successful’ :-)
How does adding a time dimension change your calculations? Probably significantly…
True Ethan, at least in part – but then, if we are to look at how rents have moved with inflation, so too have living costs. So the $100k needed to be “rich” today would need to grow over time too, thus necessitating owning the five IPs. The one thing that doesn’t grow (depending) is a Mortgage, so long as one doesn’t borrow to buy more, or to draw living costs from Capital.
I hope others do get to read this – if only to test THEIR theories against one or other side of the argument.
Benny
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