Forum Replies Created
Hi Andrew,
So giving this example, I advise people to understand how games work, before take any actions.
That applies to so many things in life, eh?
Thanks you for sharing your story, Andrew – I too hope it helps someone else to stay ahead of the game !!
Benny
Hi Simon,
My family and I moved to Brisbane over 30 years ago. Even back then, I regularly heard the words “termite activity” from inspectors. So long as it was “old activity” there seemed to be no big deal. Comments we heard then were like “Every second house in Qld has termite activity”.
You have done the smart thing and have commissioned a pest inspector to take a look. He came back with “old activity” on one piece of wood against a garage door, and no activity anywhere else? I presume he went UNDER the house too?
He reported it as “Termite activity” on the report. He advised removing the timber & investigating further.
As expected !! If YOU were an inspector who found “old activity”, and then had to produce a written report, you WOULD put a mention in the report, and even suggest further action on your part (even though he essentially said to your face “Don’t bother”). See, he didn’t know if you might rely on that report to shave a few more $$ off the price, so he covered his own posterior, and now, what you do with that report is what YOU do.
Part of due diligence is in defining where problems exist, or any risk of problems, then choosing how much you want to pay to “insure” against them, or to walk away if you cannot mitigate them.
In this case, you might pay him to come back and do more, or you pull off a board and use common sense to tell YOU if you need his help. Maybe it really is old damage, and maybe you just need to replace a board and keep an eye on that area.
Re “leave it up to the owners”, I would say “check it yourself”. If you are allowed to pull off a board and take a look behind it, then draw your conclusions from there. It may well be just one piece of wood that needs replacing – shame to kill a deal if that is all it is.
You seem to think it is a good deal otherwise….
Benny
Hi Lucy,
I know the name, but not the company, so I can add no value from personal experience. But, if you use Forum Search and input “Cashflow Capital” as the Search key, it will produce a number of threads that you can read.This post https://www.propertyinvesting.com/topic/4389238-anyone-knows-or-member-of-cashflow-capital-pty-ltd/#post-4566004 may have some relevance, and researching the assertion made in there could be a good place to start.
Scroll up and down to read the rest of the thread.
Good hunting,
Benny
Hi Ozzy,
This is sounding more and more complex. I am with Ethan and Jamie – you need to sit down with someone (Broker or Bank Rep) to discuss your options. There are right ways and wrong ways to unwind all of this – you will want to do it the right way.
I hate to say it, but “most” bank people only have info re their end of things, whereas a good Broker (like Ethan or Jamie) can give you “chapter and verse” on most aspects of loans, including unwinding cross-colled properties, as well as coming up with the BEST lender to approach re the second IP, AND give you reasons why their choice is the best.
A banker can only promote their own employer’s offerings, thus limiting your options, and the knowledge you might glean.
Click on this link to read of another member who is uncrossing cross-securitised houses – and the Bank is dictating terms that are NOT to the benefit of the borrower – https://www.propertyinvesting.com/topic/5033258-cross-collateralised-loan-payout-problem/
THAT is why I would recommend getting a third-party to give you a holistic “outside look” at this before going to your bank.
Benny
Hi Simon,
Can I just get my broker to send out the valuers to the IP in 6 months and expect another wide range of numbers and just go with the highest for a refinance to go again?
WOULDN’T that be nice !! :p Unfortunately there are or two points that you need to consider.
When wanting to have a property valued to be able to withdraw some Equity, it is a whole ‘nother ballgame. You are getting a “valuation for Finance” and not just a “market appraisal” (as per onthehouse, property value, or similar).
If wanting to redraw Equity, you would either be limited to re-using your current lender, or you would need to go for a complete re-evaluation with a different lender – with associated Application Fees, solicitor’s fees, etc, etc. So not quite as easy as first thought.
What WOULD be a good idea would be to connect with a good Mortgage Broker if you haven’t already. This kind of “dance” becomes a lot easier when you have someone on your side who knows all of the rules !! ;)
Benny
Hi bbinvest,
According to realestate.com the median for a 3 bedder is around $400k. Check this out (if the link worked) as it gives details on just HOW the median has been calculated:-
https://www.realestate.com.au/neighbourhoods/cooranbong-2265-nsw
then click where it says “How this was calculated & copyright information” to see how they arrived at the figures posted.
Note that 4 bedders are the ones that make the median around the $500k mark. Can a reno turn yours into a 4 bedder (without it looking “contrived”)?
Benny
Hi Simon,
Or do you think it’s better to cop a few extra thousand on the loan to keep the cash in your pocket, specifically for renovations?
Short answer is “Yes!” – the risk level rises a bit, but a good reno uplifts the Equity, and likely allows an increased rental too. An extra few thousand of LMI costs little on a week-to-week basis. e.g. let’s say LMI was $3k more than expected (as you went over the 88% mark). At today’s rates (say 5%), $3k extra is $150 a year ($3 a week) in Interest.
Instead of keeping the LMI lower (and maybe needing you to take out a small Personal Loan for the renos), you keep your cash and pay a token amount for the privilege. The one caveat would be that the Mortgage Lender will be keeping a closer eye on you than on someone at 88% – but if your Income is stable and all payments are met on time, this is not likely to be a big issue.
Benny
PS all just my opinion – no advice there !! ;)Hi Greg,
With a quick look, I would think you would want to do better than to add just $25k in Equity for $20k spent on renovations. The usual “rule of thumb” is to aim for doubling the money spent on a reno – i.e. spend $20k, but add at least $40k in value.
See, the fact that you appear to be buying well (buying a $250k place for $220k) should not disguise a low value add from a poor reno. It is a function of buying well – you would have gained that Equity without doing any reno at all.
So working back, if you are spending $20k on renos, then plan for a $40k uplift (from $250k, being current market value, to $290k) and work out your profits from there. From your figures, I think I was seeing a $4k return from a ~$200k Investment being 2.12% – so how about a $19k return? Gets you nearer to 10%, but is THAT enough? Look at the cash-on-cash return and it should look a whole lot better (how much you got back from how much you actually “put up”).
Also, you are using the term “flip” – but I don’t think that is what you are doing is it? It seems to me that you are buying to reno, then re-selling later (12 months later?) I’m not trying to pick you up on terminology – just trying to understand just what your whole plan of action is.
Benny
PS And I like the bearded bloke’s thoughts too !! Well said.
Hmm, OK – could you share then just where a FOS limits are?
I thought they would go into bat for a “David” versus any Goliath who was playing hardball!! Not so?
Benny
Hi Andrew,
A Financial Ombudsman might be worth contacting to put your case to them, then see what they recommend you do. Their role is to help with disputes…
Simply Google those two words and choose the one that seems right for your situation,
Benny
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This reply was modified 7 years, 10 months ago by
Benny.
Hi Tanner,
We contacted him via a different number as another buyer to which he replied its available and scheduled a time for viewing …
It might be interesting to do the same again, as another potential buyer, but start by quizzing the agent – i.e. How long has this place been on the market? What has the interest been like? Have there been any contracts? If so, what offer price was involved (the agent probably won’t tell you, but it doesn’t hurt to ask – who knows just what the agent might let slip!) How negotiable is the seller? etc. etc.
A further thought – if your friends are looking to purchase prior to selling their own place, is it likely that they have included this as a condition on the contract? If so, this might have the Seller playing “hard-to-get”.
Let us know how it goes,
Benny
Hi Annie,
The answers will vary depending on the Council area in which the property is located. You would need to approach that Council and speak to a Town Planner, who should be able to guide you,
Benny
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This reply was modified 7 years, 10 months ago by Benny.
Hi Simon,
repairs are not tax delectable until a tenant is in?
You gotta lurve “auto-correct” eh – it gives us regular snickers !! :p
I have read that repairs are not tax deductible until a tenant is in? Is this correct?
….. (Just found the info, crap).Yeah, any repairs would be capitalised, and thus would only be recoverable as a CGT saving down the track……
But wait – there’s more.
That would be the official answer, but let’s think a wee bit more about this:-
In essence, this is the “problem” that will pay its own way handsomely. Sure, being unable to claim for the repairs is a bugger, but then, if you had bought it without the repairs being necessary, the price would have been perhaps $20k higher (or more). That is your Equity lift on completion. And, of course, you can look to re-financing within a short period (6 months?) at which time any amounts you paid as repairs can be returned to you via borrowings (and with a bunch extra too?). So you won’t be out of pocket for too long.As well, the new carpet and other new fittings can be depreciated (and at a good clip) so this will have a good effect on any Tax paid (or negative gearing if applicable). Be sure to pay the ~$500 to have a Quantity Surveyor visit the place to prepare a Depreciation Schedule – these are worth their weight in gold to you.
Consider using an airless spray gun to do the painting (or pay someone who can/will do it). Again, it is all about making it “livable” in the most cost-efficient way possible. But then, if you have several weeks, and you like painting, you can add your own sweat equity instead of paying someone else. Of course, if you DO get painting done, leave the old carpet in place until the painting is all finished… ;)
Good luck with it,
Benny
Hi Simon,
Sounds like it could have merit. Re things to check, apart from Building/Pest, do stop by the Local Council to ensure they are not planning on resuming the property any time soon. Also, swing by there at different times through the day and night to get a “feel” for the area. Is it full of barking dogs at night, or arguing couples, or bikies, etc….
How is it for infrastructure – schools, shops, transport, etc?
I would be tempted to do “the basics” before renting – it is harder to do a reno with a tenant in place. And, if you get a good one, you won’t want to throw them out to do a reno in 2 years time. Fresh carpet is inexpensive – go for commercial grade rather than “fluffy, plush” and keep it neutral coloured.
Is it tenanted or inhabited right now? If not, maybe the vendor will allow you to “get in and fix it up” ahead of settlement – but that would need to be negotiated, so don’t just assume you can do it. Make it a condition of the contract.
Even if you had to put $5k on a Credit card, keep in mind that the short-term cost (if providing you with an extra $50 per week in rent) can quickly be paid off. e.g. $5k at 20% interest is $1,000 a year which is $20 a week. So, if you have to pay $20 a week to make $50 a week, is that good? ;) The extra $30 a week can go toward paying it down.
Or spend the $10k, but keep some access to short-term funds IF needed (that could be a credit card).
Your wife’s POV is quite common – use Steve’s expression “Buy problems and Sell solutions” to explain to her how it goes. By buying that problem, YOU TWO get paid for its solution.
i.e. No-one else wants to buy it because it looks ugly !! THERE is where your Equity can be built. I would be looking hard at it, if it were me, ;)
Benny
Hi all,
An old memory hit me the other day – I recalled it from my schooldays… A Maths teacher described a situation where a lake started to grow a weed – the weed was doubling its size daily, and had been growing in this lake for one year. The question posed to us asked “once the weed covers one quarter of the lake, how many days will pass before it covers the lake completely?”The answer is quite simple, but perhaps almost unbelievable. i.e. it takes just two more days. It has taken more than a year (365 days) starting from almost nothing, then, in just two more days, “Wham!” it has covered the entire lake.
And then, there is the grain of wheat on a chessboard – how awesome was that one (put a grain of wheat on the first square of a chessboard, then two grains on the second, doubling as you go). How much wheat would be on the last square (there are 64 of them)? The answer was something like “The total wheat output of the USA for one year!”
The lesson from this:-
Well, to me it is something like that with investing. In our earliest days, setting ourselves a goal of amassing $2million can seem WAY too unlikely and hard to reach (a bit like when that weed was starting out). Setting aside tiny amounts might seem like watching grass grow in those early days, but keep it up and the rewards will come. We are not likely to be able to double our money daily, but what if it were possible to double it yearly?Working backward, how could that $2million have been amassed? Let’s see:-
Now +10 years = $2million
Now + 9 years = $1million
Now + 8 years = $500k
Now + 7 years = $250k
Now + 6 years = $125k
Now + 5 years = $62k
Now + 4 years = $31k
Now + 3 years = $15k
Now + 2 years = $7k
Now + 1 year = $3.5k
Now – do you have just $2,000 to start out with this? And a spare ten years? :)Isn’t that amazing? Starting with just $2000, and doubling that each year for 10 years, you would have over $2million.
OK, maybe doubling it each year is a stretch too – or is it?
What if you were to use the leverage that property provides? i.e. you put down just 10% of your cash to control 100% of an asset. You buy well, do a small reno, lift the rental income, and force an Equity jump in value. That Equity jump then allows you to “do it again” with another 10% deposit to buy another IP….
Your cash input might be as little as $50k, yet be returning a further $50k in Equity. If so, isn’t that doubling your money? You still have the initial $50k in the value of the place, but it has now gone up in value by ANOTHER $50k. But, what if it takes 18 months to do that instead of 1 year. If so, then damn, it will take 15 years to get your $2million instead of 10 years.
As your experience and your assets grow, you will likely find that you can double your money quicker, and the amount being doubled can be growing a lot larger too (like that weed in the lake was, just two or three days before fully covering the surface).
Like the lake weed, the “working backward” figures show just how miniscule the start-out amount can be. If you are getting into property investing, surely you will be starting out with $50k, not $2k. So, how many years have you just saved? Or, maybe now it means that 10 years is still very possible, but you don’t have to double your money each year to “make the goal”?
THAT is an example of what others mean when they say “Set your goal, then work backward to see what you need to do today”, or this week, or this year.
Don’t be over-awed by the final goal – it might be WAY more achievable than you first thought !!
:)
Benny
And, if you want to check out someone who actually did this recently, go and reread Westnblue‘s story (from the “Big Picture for new Investors” thread):-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697977He started with about $20k – bought a cheapie in Broken Hill, did a quick reno, doubled the value of the property (he had put in just 20%, so he had more than tripled his initial money within a few months). He then kept that one, doubled the rent too, and went out to buy another one. That original $20k mushroomed.
Within just 3 years (from 2011 to 2013) he had created $600k+ in Equity, and was pulling in $200k in rents from around 20 properties. It is a great story.
Hi Simon,
A few thoughts relating to your post – for your consideration:-
1. Good to see you having a go at presenting the “numbers”. You are off to a good start, as the numbers are what make or break any investment.I would keep looking, for these reasons:-
– Land 308m2 in an area of hi-density IP’s – the former kills any growth (give me bigger land) and the latter keeps you in competition with too many other landlords. Buy in Owner Occupied areas if poss.
– Rates and Ins both seem a bit low to me (those are Monthly figures, yeah?)
– Re positive geared, it seems line ball – depreciation might help the final figure somewhat, but I would want to do better than that first up. The first purchase can make or break, so be sure you get a good one.2. Simon>> “I am aware that there is a lot of land available & I wound never consider a new build.”
Good to hear – OTP’s can work well for Home Buyers (if they are the right OTP that is), but an investor needs to buy better…3. If you buy in your area (GC and even Brisbane) can you arrange, or handle yourself, cosmetic renovations? If so, I would suggest you look to doing something like that (i.e. you CREATE Equity Growth instead of WAITING for it).
4. I like your Option 3 – until you find something that screams out “I’m a bloody good deal”. Opportunities come along “just because” – some authors refer to the “3 D’s” of opportunities (death, divorce, or destitute) and if you are ready to take on work that others don’t want, and/or are “ready to go” with your finances, you can take advantage of such bargains.
5. Do check out your finances with a Broker, just to get inside information that can help you to be “ready”. You mention “usable equity” – and it is good to hear that you know there is such a beast. Have the Broker check your figures, and/or suggest other things that might help you.
6. Keep educating yourself. Look for areas that appeal (what about the Hinterland?) Can you get IP’s suitable for families with amenities nearby at better returns? Who IS your target renter anyway? Maybe NOT families? One area might suit senior cits, another families, another young professionals, etc. Look to structuring your “looking”. Use some ideas from the books you read to find a “way” that suits you.
7. Consider setting yourself up by paying to “fast-track” your education. e.g. look at the Property Apprentice course as a possibility. A few dollars spent now could set you up for life (assuming you were planning on having a portfolio of IPs, that is).
8. Reread Westnblue’s story in the “Big Picture for new investors” thread I sent you. Would something like that appeal?
Keep on reading, Simon, and looking, :)
Benny
Hi Sing,
…debt held by the trust is not recorded against the guarantors financial record…
Hmm – I read quite the opposite to that !! Let me quote from the book:-
p 175 – Is this legal?
Yes — it’s legal and ethical, but if you have any doubts then let me point out:
1. You are not lying or hiding the truth. If asked, you must declare all the loans you are guarantor for.2. Your credit record will clearly note what loans you have applied for, and what loans you are guarantor for. Even if the application form doesn’t request it, your financier will soon find out.
What he also did say though, was this (on page 174) :-
When asked by subsequent financiers, so long as the loan is not in default, the debt to ABC Bank will not count towards your borrowing limit, and so you can keep leveraging off your income time and time again.One issue outstanding is whether acting as the direct trustee of a trust differs from using a company trustee
Steve seems to think so – re-read his comment on Asset Protection (p169 and into p170). In there, though he acknowledges that an individual CAN be the trustee for the Trust, he uses a Company as Trustee and goes on to explain why.
The difference is HUGE !! Read it all again, Sing – and maybe lay it in front of your Accountant or whomever to get their input too.
Benny
Hi Singchee,
I’m trying to understand Steve Mcknight’s comment in his book, that using a trust allows him to “leverage his income to increase his borrowing ability”.
Your question intrigued me, so I thought I would go looking…. You didn’t say just which of Steve’s books you were quoting, but there is a whole new chapter in the re-released “From 0 to 130 properties” book. It was re-released in 2009, so if you have an earlier version, this information WON’T be in it – at least not in this form.
The answer to your question appears to be VERY well covered in Chapter 9. The short answer appears early in that chapter in a table where Steve compares “Buying as an Individual” with other forms of borrowing (like “Buying in a Family Trust”). His comment re Trust purchases says this:-
Borrowing capacity – Debt is in the name of the company as trustee and the directors act as guarantors. Allows directors’ incomes to be used multiple times.Further on in the chapter is a section titled “The Structure Steve Uses” where it goes into a quite complete breakdown of his method. On p172 a sub-section titled “Borrowing Capacity” includes a highly detailed explanation. Note that he advocates things that others might gloss over.
e.g. Steve suggests don’t borrow more than 80%, and use P&I not IO. He also outlines the REASONS for doing these. It is interesting to read this from a self-made multi-millionaire, as what he advocates is not what many others suggest. As he says, “Success comes from doing things differently”…..Well worth a read (or a re-read) to get the good oil from a top bloke !! ;)
Benny
Hi CS,
I can’t help with recommendations re Perth-based property managers, but just wanted to run a few thoughts by you:-
Call around the RE “names” and even smaller agents if there are any – we have “local RE agents” who run little local RE shops.
1. Ask about the size of their rent roll, and number of Rental staff. If two staff are looking after 500 rentals, they are stretched way too thin. One person can look after 100 to 150 quite well IMHO, depending on their experience (a learner won’t work as efficiently as a senior).
2. Ask about the management rate they charge – $age of rental per week (lower is not necessarily better). Usual rates vary but can be from 6% to 9%. Consider that 9% of a $200 a week rental is way lower than 6% of a $500 a week rental.
3. Check out other parameters – cost to find a new tenant (often 2 weeks rent), how many inspections per year, do they pay the bills for you, do they arrange tradies for repairs (careful with that one, but get the info anyway), etc
4. Ask how they handle “out of the norm” situations – emergency repairs, bad tenants, rent late, etc
At the end of it, a bit of thought and comparison between the “players” could have one of them showing as standouts !!
Good luck,
BennyHi JB,
I just checked for myself and found that Frenchville is a (new?) suburb of Rockhampton. Since the map shows Frenchville as having lots of land to the East, and few roads, I am wondering if this is an OTP (Off the Plan) sale, or a brand new house in a new subdivision. If so, you will be buying a “solution” instead of a “problem”. That is OK, and works well for many (especially home buyers) but it doesn’t help investors a whole lot usually. Why?Well, first and foremost you will be paying top dollar for an item that has all of the developer’s “margin” built into the cost. Similarly to buying a new car, a lot of its value disappears the moment you drive it off the car sales yard. Often the infrastructure is not yet in place – schools, shops, transport, etc and it could be YEARS before you see much Equity growth, especially if there is still lots of usable land nearby.
Steve says “Buy problems, and Sell solutions” yourself – buy an existing house that needs work, do that work, and reap the rewards. Or, if buying new, find a developer who is wanting to sell “the last house in a development” at a big discount – it helps him, and you. He can then move on to his next development without having to come back to sell the last lots of this one.
Have a good “read around” on here – especially the Articles in the Training Centre (middle of home page on the right – scroll down to get to the middle) – or check out the “Buying” part of the Training Centre here:-
https://www.propertyinvesting.com/buy/If you were thinking of buying a new house from a developer, do check THIS out first (a harsh title, but with good reason…):-
https://www.propertyinvesting.com/buying-investment-property-off-plan-dumb/Hope this helps,
Benny-
This reply was modified 7 years, 10 months ago by
