Forum Replies Created
Cool, Savannah – do drop in to tell us all how it goes !! Good luck,
Benny
Hi Suzy,
Some good thoughtss already – here’s mine too…. Keep the “numbers” in mind. What if you might need to wait 3 weeks to get someone to rent it at $420/wk? Or, opposed to that, what if someone will pay you $400 straight away?Using those numbers as an example:-
Run the numbers, and you will see that you will lose $420 x 3 = $1260 by holding out. But if you take $400 and it is taken straight up, then you are only “losing” $20 a week based on what you “might” have got. Now divide $1260 by $20 – you get 63 weeks that it takes before you “lose” $1260. But, you might have signed a 6 month lease with your $400/wk renter, and can put the rent to $420 after 6 months. Then, you have only “lost” 26 x $20 = $520. And your mortgage will be mostly covered in all of those weeks.Benny
This has been the most interesting poll thus far.
Even at the time of creation, I wondered if we should have an “All of the above” button. As of right now, four out of the five options are ranking between 22% and 28%.
Certainly several things are having (or could have) a major impact on real estate values. Perhaps it depends on which headline is screaming loudest that day?
For the record, here are the values as of today:-
Which of the following most threatens the future of Australian real estate values?Government regulation …….. 25%, 58 votes
An oversupply of housing …. 22%, 52 votes
Higher interest rates ………… 22%, 51 vote
Economic trouble overseas . 28%, 65 votes
International war ………………. 3%, 8 votesBenny
Hi cs_rlewis,
Re this:-As for the westnblue story, do you think his high rental yields are constant year in year out? If he’s bought in a mining town then perhaps the rental yields will decrease once a boom has finished – hence why hes only fixed his rates for 2-5 years.
A quick look at what he has bought, and I see some exposure to mining towns (Broken Hill e.g.) but then the purchase prices and returns are such a tiny part of the overall portfolio that I would think he has little to worry about.
Re fixing his rates, there could be multiple reasons :-
1. A 3 year term is often the cheapest.
2. If rates generally appear to be going DOWN, why would you fix for a long period at a higher rate?
3. Darren has stated he wants to lower his overall LVR – many Fixed Rate loans limit the amount you can pay off them.
4. A Fixed Rate can be a major road-block if wanting to SELL properties to re-engineer a portfolio so having loans short-term prevents long-term headaches.You seem to be getting the idea that there are lots of ways to do things to maximise the benefits to oneself – that starts with knowledge, and a great team can provide a large chunk of that.
Benny
One more recent read is a succinct post by BuyersAgent. In it, he talks of HOW to keep a portfolio growing. Useful comments re DSR, LVR and the balancing of the two.
https://www.propertyinvesting.com/topic/5014274-how-do-people-buy-multiple-properties/#post-5014359
Here is a teaser from it:-
Overall it is a balancing act between LVR and DSR. You want growing equity (LVR goes down) and growing income (DSR goes up).
If you can balance these two with every purchase, you maximise how many you can buy.More in there, and all good – go click the link. In fact, the whole thread is called “How do people buy Multiple Properties?” so there are other useful snippets sprinkled throughout.
Benny
PS – for the newer reader –
LVR is the Loan to Value Ratio (how much you owe on a property divided by its value) e.g. Owe $300k on a property worth $400k and the LVR is 75%
DSR is the Debt Servicing Ratio (the percentage of a borrowers income that is available to cover loans). Note that DSR includes car loans, credit cards, as well – over-use those and a house loan might be hard to get. Talk to your Broker for more detailed information.Hi ZC,
is there any lenders out there that will be more generous?
From what I read from the Brokers on here, “Yes, some lenders are more generous.” More generous than yours? Well, that depends on who you are banking with. Share more information upfront, ZC, and you will likely get more useful information back to you.
And me? No, I am not a Broker, but let’s see who else replies – they may the answer you are looking for…..
Benny
Hi Christina,
Does anyone have any advice on financing your first ip with nothing but cash in the bank and no income? We will have (roughly) 30k USD.
Since I gather from your words that you will be buying in the USA, I would suggest you check out the forum called “Overseas Deals”. In there, a few people are discussing the USA property market (mainly for Australian Investors) but you will likely glean some useful information just by reading the posts in there.
Benny
I read both posts. I now realise that buying a $338K place for about $330/week is not ideal on a $200K loan. It would be much wiser to haggle the price to $318K, and aim for a rent of $350 upwards. At least then I’ll be heading in the right direction
Yes, you will – but think bigger again – if the $338k property can’t return $450+ per week, go looking for one that will, or could. See, it might be that you buy something needing help – perhaps a deceased estate home that could do with a huge reno. That lifts the rent it will command once completed while also lifting the Equity (allowing perhaps the deposit for your next one). Buy it well under median, and have the reno bring it up to median or above. Of course, watch the $$ throughout.
e.g. Look to buy in an area where the median rents are $450/week. Median price might be ~$380k (depends on the suburb of course, and the quality/age/location/whatever of the property). Look for a bargain in the $300k range and spend $15k on a selective reno. Anyway, right idea, but give it more ooomph and you will have it nailed !! ;)
Benny
Hi CS_R Lewis,
Are these properties geared so positive that its funding all their line of credit equity loans?
In a nutshell, YES !! But there is a longer answer, so stick around… :p
First off, I wanted to say that you are already in good shape with $150k in Equity, so well done already. Second, I would not be buying an apartment without very careful consideration of “the numbers”. Unless it is a screaming deal (and there are some of those around), the Body Corp costs mixed with the limited Growth in value would have me preferring a house and land.
OK, now to your situation:-
For the new investment property worth $338K, i will need to borrow an extra $200K approximately. Once all the figures add up lets say this is geared positively and I come up ahead about $3K per year.
Sounds like you are not taking the Equity loan into account – in which case, I would want to see WAY more than $3k per year at this point. A $200k mortgage at 5% will be $10k, then rates, insurance, etc another $3k – so ~$260 a week. You say you are ahead by 3k, so another $60 a week to make $320 a week. Well, I wouldn’t be buying anything that costs $338k and only returns $320 a week. And right there is the problem.
That extra loan is another $7.5k per year ($150 a week) so you would be looking for $320 + $150 = $470 a week rental just to break even. So, can you instead buy a $338k property that returns nearer $500 a week? That is the question.
And here comes the solution – piece by piece :-
1. Buy as well as you can (can the $338k price be discounted?)
2. Is the apartment NEW, or just new to you? I would need to have a supremely good reason to buy a new apartment – like a huge discount, or a block of them at a steal. But that is just me.
3. If it IS new, then there will be taxation benefits that will ease some of the pain if it ends up negative geared.
4. When “running the numbers” always work things out on “100% lend” upfront (the deposit had to come from somewhere, so account for it in the outset. This new apartment was NEVER going to be positive geared using your original numbers.As you can see eventually my borrowing capacity will be limited, so how do people manage to buy 5+ properties? Are these properties geared so positive that its funding all their line of credit equity loans?
In the thread linked below, there are two stories in particular I want to point you at.
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/DO check out the story about “Westnblue” in the post dated 4 Apr 2014 – have a good read of his extracts from the magazine – the numbers are ALMOST readable…. There you will see how to grow a portfolio, and what returns to start with. Then, the very last post (on page two of the thread) points you to a thread that discusses how to have 25 properties by the age of 30 (or something similar to that).
Do have a read of the other items too, as they may help overall – enjoy,
Benny
Hi Savannah,
I agree with the Realtor. Certainly, if the other rooms look good, then the kitchen floors will “stand out” even more. And the major problem I see is in the buyer’s mind :-
e.g. “Ooohh – look at those tiles – they look quite dirty. I don’t know how much it would cost to clean them, or (horrors) replace them !! Could be $5000 or more to replace them. What would it cost to have them cleaned – CAN they even BE cleaned? Better allow $5000 off the price, or just look for another house that doesn’t need fixing”Re the tile cleaners, I am not Melbourne based, so can’t recommend anyone. But, my thoughts would be to talk about any guarantees they might put on their work, the type of cleaning they might need to do in your case, any risks, etc. Have them come over and show you what they can do, and/or have them direct you to where they might be doing someone else’s tile cleaning so you can see results before you engage them. If they are a reputable group, I am sure they will be only too happy to show you their expertise.
Benny
Hi PLC,
Of course, you are correct – “running the numbers” should always be done prior to making such a move.My response was another option (as opposed to “the ONLY way”) but it certainly may not be the best option – unless there was no other way. Then, the choice then comes down to
“Do I walk away from a screaming-hot deal because I don’t want to use a Personal Loan, or is there so much upside in the deal that even the use of a Personal Loan won’t keep me away from it?”Good warning though – thanks !! ;)
Benny
Hi Becs and Sasha,
Great to hear from both of you as MAP students. I thought Sev’s question was an intriguing one, as the MAP goal was (correct me if I am wrong) to become a “property millionaire” within 12 months. i.e. to have $1m more in assets than you did when you started the course – something like that?Now, Sev’s question came at it from a different angle – I figure any passive income might be negligible in such “early days” (the first 12 months), but I was prepared to be surprised, as I believe some of the moves made by MAP students were quite “out-of-the-square” and thus COULD have created quite an income (like one person/couple I heard of who rented out shipping containers to tradesmen as storage in a country town). Wouldn’t have been that Passive though, would it?
Anyway, did either of you manage to attain (or even bother to work out) the passive income your efforts generated? Or did you hear of someone else who also did something earth-shattering and made a motza??
Hope you can share – I love success stories,
Regards,
Benny200pw was for the property in ravenswood which is 130k. The property in Georgetown is 100k with 150pw
So, which has the better yield? We don’t know the Nett Yield until all costs are known for each – but the Gross Yields are there :-
Ravenswood – Gross Yield is $10400 divided by $130k x 100 = 8.0%
Georgetown – Gross Yield is $7800 divided by $100k x 100 = 7.8%
The Nett Yields will be determined after all costs are known. It could be that the Ravenswood house has higher rates, or more maintenance required, thus higher expenses. In such a situation, the one with the better gross yield might become the one with the poorer Nett Yield.
Benny
One other thought – did you see this? It may hold some clues for you :-
https://www.propertyinvesting.com/topic/5010490-tasmania-is-it-worth-it/
Benny
Hi Lorella,
Do you have an idea of the kind of rent the Tasmania properties would fetch? To be able to have it pay you something (be positive geared), the rent needs to cover the mortgage, insurance, rates, maintenance, and Real Estate Agent fees (i.e. all costs) and STILL have a bit left over.To do that, with a $150k property (and mortgage about the same) you would likely need a rent of $220 a week or better (I am guessing, but you use YOUR numbers, and tell me ;)
That is your Yield. $220 a week is 220 x 52 = $11,440 a year Divide that by $150k and multiply by 100 to get a percentage and you have 7.63% Yield. That SHOULD be enough to cover all costs in most situations, leaving you a small return for your $150k. Using a depreciation schedule can help to improve the cashflow too.
Anyway, I hope that gives you some idea of what others have been asking. You likely already have all the numbers you need to work out your Yield.
I can’t help at all re Tasmania – I hope others can,
Benny
Hi Kennedy,
Remember this:-When meetings are logged on the forum, do make an effort to go attend – you see, it is when mixing with others who have already done what you wish to do that you will learn heaps,
Well, if you can go to the Gold Coast or Sunshine Coast, do check out these new posts today :-
Sunshine Coast – https://www.propertyinvesting.com/topic/5014185-sunshine-coast-property-group-meeting-tuesday-20th-october/Gold Coast – https://www.propertyinvesting.com/topic/5014186-gold-coast-property-group-meeting-thursday-22nd-october/
There are Brisbane meetings too, I’m sure – but if you are keen and can travel, these are only two weeks away….
Benny
Hi Pollardis,
The only way that is possible if you have another property you can borrow equity against
I agree with you – the wording probably should have looked more like this :-
The only way that is possible if you have another property with equity you can borrow againstBut then, I don’t believe that is the ONLY way – with the smallish amounts needed, a Personal Loan, or even a Credit Card could do the job.
Benny
Hi Aru,
It sounds to me like this is a house you are buying to be your own home – is that right? Will it become an investment later, or do you plan to live in it for MANY years?Some of the basics are the same (re getting a building and pest inspection, and checking what is happening around the area – new infrastructure, etc).
First thing, do you know you have sufficient finance to be able to afford a $460k property (or even $500k?). If you don’t know this yet, I would recommend that you find out BEFORE you start looking for a home. See, there is no sense looking for a $500k home if your finances will only allow you to borrow $350k (unless you can borrow the rest from “Mum and Dad” ?)
The median price in the area is 460000 but the owner says someone has made an offer for 499.
Dont worry – this is a common ploy to push up the price you offer. Of course, if you WANT this house as your own home, you may be willing to spend more than if it was an investment. But, it still comes back to “can you afford it”? When you complete a contract, I suggest you take it to a conveyancer/solicitor to have them check it BEFORE you sign it. They should go through each of the conditions (e.g. subject to finance, subject to satisfactory building/pest inspection, etc).
If you take things SLOWLY, you should be able to buy a nice home that will serve you well for many years. A 23 year-old house is no issue to me – there can be benefits in these as they may need a reno to bring in the best price. If you buy it at a lower price, later do a reno, you will likely create some Equity for YOU to use down the track.
Good luck – and don’t be in a hurry, ;)
BennyHi Moggy,
As Australia has many different markets, it may be worthwhile to add just WHERE these properties are. e.g. if they are in a mining town, I think we can all understand why the first property hasn’t sold for the price you want.Now, I don’t expect it IS in a mining town, but you see what I mean? The location and current property cycle of that location will have a lot to do with the price the house might fetch.
Benny
Hi Sam,
Like Corey, I’d say “Don’t try to catch a falling knife!” Let it get all the way down to the ground, THEN pick it up – it is safer that way.You didn’t say WHERE in WA – if the one you are looking at is in one of the mining towns, be VERY aware that a decision from YESTERDAY has Banks reducing the LVR of a loan for some particular postcodes. Nothing new there, except that the CBD’s of the major cities are “black-listed”, as are several MINING TOWNS. So, if you are looking at buying in one of them, you MIGHT have to come up with a 30% deposit !!
If looking elsewhere though, just run the numbers as you would for any IP. If the numbers say “Good deal”, then it is worth pursuing. The more info you can add (without giving the game away) the better the answers can be.
Benny
