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October 7, 2015 - 5:13 pm

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

October 7, 2015 - 1:34 pm

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

October 7, 2015 - 12:40 pm

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

October 7, 2015 - 9:43 am

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

October 6, 2015 - 7:28 pm

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,
Benny

October 6, 2015 - 12:10 am

200pw 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

October 5, 2015 - 11:17 pm

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

October 5, 2015 - 11:13 pm

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

October 5, 2015 - 10:54 pm

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

October 5, 2015 - 6:37 pm

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 against

But 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

October 5, 2015 - 3:15 pm

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, ;)
Benny

September 30, 2015 - 7:14 am

Hi 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

September 29, 2015 - 4:19 pm

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

September 29, 2015 - 4:09 pm

Hi Liam,

I LOVE every aspect of what I am learning and I am eager to discuss with everyone I meet being family and friends etc. I am repeatedly faced by scoffs and warnings and head shaking. IT DRIVES ME NUTS.

First thing I would suggest is that you don’t give them the power to affect you so badly. There is an old saying – something like “No-one can make me feel bad unless I give them permission to”. Often, the permission you give is tacit (unspoken). It is up to you to revoke that permission and claim your right to your own views without feeling bad because others don’t agree.

Like you, they have a right to their opinions, and it is likely fear on THEIR parts (and thus concern for you) that has them “warning you”. See, everyone has a story of someone who tried (insert favourite subject – let’s say, property investing) and met a bad ending with it.

Your family/friends know no different unless THEY have also tried the Property Investing path themselves. And yes, there have been plenty of media reports over the decades about “sharks” ripping off people by selling them over-priced property. So you don’t have to look far to see “danger signs” around property investing.

On the flip side, you will get to read of many in here who have created their own successes. There are also those who can become part of your team that you gather around you to grow your success. Lots of hints and tips and warnings in here too – to keep you safe. Make the information yours, then formulate your plan based on you and your goals (not family and THEIR goals).

Stick around grasshopper – much to learn there is…. :p

Benny

September 29, 2015 - 3:35 pm

Hi Kennedy,
Welcome aboard the good ship PI.com. You have come to a good place :)

I wish I had been as driven as you at the age of 20. I didn’t find out about this stuff until I was in my 40’s !! I had an inkling, but I didn’t chase it back then. You’ll be sweet, because you are starting early.

I like @knightm‘s ideas – main thing I would add is that many of those books are likely to be available in a Library (i.e. no cost!!). And you can always buy your own copy if the book appeals, and you want to make notes all through it.

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, and get a shot-in-the-arm from their comments (and even some “how-to” hints from them). For now though, read, read, and read…..

Maybe start with this one (DO follow all of the links) and soak it all up:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/

Benny

September 29, 2015 - 3:24 pm

About 20 minutes.

Very droll, Jamie !! Well done – put a smile on this dial…. :)

Benny

September 29, 2015 - 10:10 am

Hi Moggy,
I found some of the story a bit difficult to conceptualise. In particular, this bit :-

The other half decided to bridge between the two in the hope that the first property would sell in one year.

That “bridge between the two” comment means exactly what?

See, straight off from your words, I thought the other half had taken out a bridging loan (i.e. probably higher interest, and a personal loan rather than against a property, but usually only for short periods – weeks, not a year). That later comment of bridging between the two sounds more like cross-collateralisation – but that would make little sense if wanting to sell one….. ???

What IS really happening? Can you add more words around the actual structure?

It may be better to seek out a Broker or Financial Adviser who can go into it chapter and verse with you.
Benny

September 29, 2015 - 9:49 am

Hi Moggy,

I will not be fooled into borrowing to buying property as this only makes the banks richer …. You can try to out run the debt, but lose your job and the bank comes knocking for the keys. Never let emotion rule your head. Don’t buy anything unless you can pay cash for it including a house. Renting suits me just fine. The sharemarket is one source of passive income so long as you can amass a huge share portfolio. But risk is there too. You can combine the two sources of passive income but still problems will come….. It’s all about income….

Wow, that is an interesting take on things. I have heard of people who only ever rent, but also own IP’s or shares to offset the rent. In your case, you are saying “only pay cash for a house” – and I was wondering how you go about that? Are you looking to grow a share portfolio until it is large enough to sell to buy a house?

I do recall a time (about 10 years ago) when one could buy a house on a credit card in Broken Hill – there was even a story where a widow bought her “first home” with the Owners Grant (then $18k) AND GOT CHANGE !! But that is a long time back now.

Anyway, I am interested to hear your side of things Moggy – care to share?

Benny

September 26, 2015 - 11:23 am

Hi Azalia,
I am sure the learning that has already happened will pay back dividends as you go on. Good to hear that this is not a bad purchase…. Just one comment of yours has me scratching my head a bit :-

I am actually happy to go through with it, improve it and sell it in the near future

It might all come down to your definition of “near future” – but my thoughts went like this :-
1. You are wanting to get in a tenant – OK
2. But you are also wanting to “do it up” (improve it) and sell again soon.

Based on those two, why would you not renovate it first, THEN put a tenant in at a HIGHER rent, keep it for a year to cut any CGT in half, and then sell it? Just a thought !!

Benny

September 23, 2015 - 9:06 pm

Hi Lea,
and welcome to propertyinvesting.com I feel for you with fly screens NOT being a “given”, and the RE agent seemingly reluctant to provide them, I am gobsmacked. I would certainly want to provide them in my rental properties, especially in the Northern Territory.

Have you tried checking with other RE agents in your area? Maybe phone one or two, to see if they think fly screens are mandatory in their area.

I hope other forum members with a bit of knowledge might pop in to add some more ideas for you too, to help you out

Regards,
Benny