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November 6, 2014 - 5:00 pm

Hi PW,
That link to the Sage property was a good one. I was impressed by a couple of things – the low vacancy rate, and the “look” of the apartment (IF the photo is of an apartment selling for $345k, that is). It appears to be genuine good value.

Add Mike Matusik’s words, and overall it looks pretty good – almost unbelievable. But then Merrimac is not beach-front, and I don’t know of any “drawcard shopping” or anything else there. It is away from the crazy land prices of Main Beach or similar, so the land can be purchased at a better price, and, when building in blocks of 24, the small land content at a low cost means you are only paying for the construction – almost. What is the land component of a unit? Can’t be much. Could be worth a closer look…

Benny

October 29, 2014 - 11:39 am

Hi SAH,

My main question was about the new unit market? Any thoughts,

Although Units often have a Gross Rental Yield higher than houses, their Nett Yield is not often positive unless you buy very well. And purchasing OTP is not usually the way that one finds positive yields. I’d be interested to see if these ones are any different – can you share some basic numbers? (price, rent, Body Corp costs, number of units in block)

CBD’s have a habit of offering many units in bulk, often leading to oversupply and a pullback in rents. Consider too, that many NEW apartments are sold to the overseas market. If for any reason they then need to sell, other overseas investors CAN’T buy them (as they are no longer new, so second-hand sales are into a smaller market.

I choose to stay away from that area – but if buying at a greatly distressed price it might work out. Give me houses first any day, or units in small boutique blocks if/when price is favourable.

Benny

October 28, 2014 - 10:11 pm

Hi Hot Stuff,
As a landlord who was (once) quite unfamiliar with gas hot water, I wasn’t aware of a Pilot light, and would have been the same if I was renting a place for myself. So, I think don’t blame the tenant right off – here’s who I would be asking some hard questions of right now :-

Property manager calls me and says that the unit will need to be purged by a plumber, that I can’t do it, a plumber needs to.

Now THERE is one who you would think would be savvy enough about the different ways water can be heated.

It strikes me he didn’t even ask the tenant the right questions e.g. Mr. Tenant, is any water actually coming out of the Hot tap when you turn it on? If water is flowing, what the hell needs “purging”?

If the water flowing is not HOT, then it is not being heated – SIMPLE. If electric, check the circuit breaker first, if gas, check the Pilot light !!!! Do you have other Property Management options in your area? I hope so…..

Benny

October 28, 2014 - 10:00 pm

Hi Wiwin,

I don’t really understand how people can buy 14 ip in a year’s time.

Well, not quite 14 in a years time, but Darryl did a pretty impressive job none-the-less. Take a look :-

https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697977

While you are in that thread too, there are a number of other useful posts and links answering or discussing many of the early questions asked by new investors. Maybe you will learn about things you aren’t even aware of yet. Happy hunting,

Benny

• This reply was modified 10 years, 5 months ago by

October 28, 2014 - 9:52 pm

Hi Derek,

Is there a way she could keep both properties and take out a new mortgage with any existing equity even though she is no longer working or would the best idea be to sell them both or keep one and sell the other?

MIL has some good choices there. You don’t say, but is it likely that she owns these two outright? Since she is unable to work, she maybe should look to freeing up cash, either to invest in areas of good return, or to set herself up in a less expensive place, thus leaving some cash available for “whatever is next”.

I’m not sure she could keep both – that would depend on a whole bunch of other financial things that I don’t know, and couldn’t offer advice on anyway. So let me just throw out an idea or two :-

1. By selling her PPOR, she can walk away with no CGT to pay, and making (presumably) a whole bunch of cash that could do many things.

2. If either of her properties were negative geared, she would get no Tax benefit from it as she would not now be drawing a wage and paying Tax.

3. A quick look at Griffith tells me it could be an interesting proposition. As an example, take a look here :-
http://www.realestate.com.au/property-house-nsw-griffith-118243251

Its price seems to be way below Median ( = opportunity? Or caution?) About halfway down the page, you can see that Median Price for a 4bdr in Griffith is $305k. And, Median Rental Yield is 6.1%. Note, these are only “the numbers”, so things like demographics, vacancy rates, infrastructure, population growth/decline are NOT considered. But the numbers say the median 4Bdr brings in $370 a week and costs $305k to buy.

BUT, that one in the link only costs $175k (seems to be older – could it do with a reno to create equity and a higher rental?) and returns $220 a week which is a 6.3% return. Could it be bought even better, have $$ spent, and be returning 8% perhaps? What if you could spend $10k on it and have a rental uplift of $60 a week (still below median rent even at $280 a week)?

Back to MIL – how does HER property in Griffith compare with the Median prices shown? Note the Rental Yield differs between 3 Bdr and 4Bdr homes. Check out re.com.au or similar for the other homes that match her place. Is it worth keeping? i.e. Is it below Median, and is it in a desirable area that could command a higher rent? Would a reno benefit it? By investing a few $$ in it, perhaps she could make it hugely positive geared. Perhaps it could even be a candidate for a Wrap !!!

I know this way of attempting to ascertain the value is way off being accurate – but as an idea, she may find it IS worth keeping the Griffith one, and even buy more (???)

In her situation though, she should take the time to check out her position with an advisor with whom she can share ALL of her personal information, and who can discuss each possibility with her re “the best way forward financially”.

Happy number crunching !!

Benny

October 28, 2014 - 6:59 pm

Hi all,

First off, let me recommend that you go to the Home page, look on the right side (under Private Messages) and look for the “Strategies Explained” area. The first strategies are “Positive Gearing” and “Negative Gearing”. Have a read of both of those.

Just today, the forum underwent another transformation – what used to say “Strategies” is now titled “Training Centre”. Open that up, look under “Buying”, and the Negative Gearing articles are right there.

In case you have trouble though, here is the direct link :-
https://www.propertyinvesting.com/negative-gearing/

And, in case it is of interest, here’s the other side of the coin :-
https://www.propertyinvesting.com/positivecashflow/

I really like the “new look” and it appears to me that the articles are a bit easier to find. In the Training Centre, some articles appear under several headings (e.g. the Negative Gearing article can be found under “Buying” and/or “Analysing” – a nice touch).

Benny

October 28, 2014 - 4:50 pm

Jeff,

do you have any one who you think can assist me on this?

I know a few RE agents, but none that I know frequent this place. I may mention your question to them next time we meet up – if any of them show interest, I will direct them to this place, and your thread.

Maybe other members might be able to help,
Benny

October 27, 2014 - 1:03 pm

Hi JZ,

I stumbled on this piece about negative gearing, highlighting the pitfalls and misconceptions and will approach this with much more caution.

It contains really worthwhile information. The main slant though (I believe) was to warn against “those that will try to sell you their new offering by using it to show how little it will cost you after Tax benefits, etc”. As Steve says, negative gearing is incurring a certain loss in hope of a greater capital gain.

Now, in your situation, with a large income, it CAN work for you. The more important things to consider are the deal itself. If you buy in a low vacancy area (lots of demand), and the property has features that make it a good deal (reno opportunity, possible sub-division, steady growth, infrastructure in place or imminent, advantageous price, etc.

I watched as Rents in Sydney soared, with renters lining up to “bid up” what they would pay each week – just to get a place. I think that was in the late 90’s. Then only a couple of years later, landlords were having to DROP rents by up to $100 a week just to get someone in. i.e. its a cycle. If you do your research and shop for IPs in the right areas, AND have enough of an Income to ride out the rough times, you will do OK.

I’ve heard Steve (and others) say buy below Median value – this puts you in a price range that is affordable to most, and perhaps buys a place that can be brought up to a Median value with some work (cosmetic reno?) thus adding Equity.

Re Units, these are something I would buy only if I bought a whole block. Though they appear to have a higher Gross Return, the Nett gets chewed up with Body Corp fees as well as the other “usual costs”. Also, as you said, what you can do is quite limited without getting the Body Corp involved. But then, I’m sure that others will have a different slant (perhaps a way that does work for them in buying Units)….

Benny

October 25, 2014 - 9:49 pm

Hi JeffC,
Welcome as a new member to our site. I hope you are enjoying the information available herein.

Re your post above, it shows a lot of thought going into the process. A pity you have had no replies, but then I don’t know just how many on here are RE agents (the numbers might be quite small).

Further to your questions though, I wondered of your reason for asking them…. Is it simply “a need to know” as a new investor? Or are you considering creating something (an App perhaps) that will actually assist a RE agent with some of the “drudge work”, or time-consuming activities. It’s an intriguing list of questions,

Benny

October 24, 2014 - 10:19 pm

HI again JZ,
I’ll put my opinions re some of these – hopefully others might put counter-points, leading to a more rounded look at this complex area for you. See what you make of these thoughts :-

1) From an investing point of view, would you forfeit FHOG for a good opportunity?

Hmm, define “forfeit” !! If you mean would I NOT use FHOG to buy an IP if it was a good opportunity, I’d say a definite YES. In doing so, I believe (I could be wrong) that the FHOG might still be available to you when wanting to purchase your PPOR later on. Of course, State Govts decide when/if to offer or cancel FHOG – when wanting to buy your PPOR, the current FHOG may not be available – in that case, “forfeit” would apply I guess.

2) I’m trying to manage a safe-moderate risk profile and looking long term instead of short term and wondering if I should favour yield over growth (hopefully both). Which would allow me to grow my portfolio at a steady rate.

If a safe path were required, maybe purchasing a PPOR is better for you (as suggested by “theNewGuy” above). Certainly, you appear to have the kind of Income that would allow you to quickly pay down such a purchase, gaining Equity that could then be borrowed against for investing in IPs (and therefore Tax deductible). It also means that a later sale would NOT incur Capital Gains Tax (which, on your Income, would likely be at top marginal rate). So a safe path might be to buy a PPOR, perhaps one that could gain equity from a renovation, then sell when buying another PPOR (also with an Equity gain – another reno?). Some build their wealth in that way, and is (I believe) a very safe, if slower, way to go. The saving of CGT makes a serious difference to your final outcome.

A moderate way would be to go for positive cashflow IPs, which would earn an extra Income from day one. These are usually found in lower-priced areas (with higher yields). Growth is not usually as high, but can still happen, especially if you “manufacture it” via renos, sub-division, etc. In buying at the lower end, EVERYBODY can afford to buy/rent your place. Other demographics apply though, so don’t just buy anything in that sphere.

3) Considering I’m trying to keep it safe for now, what are your thoughts on either buying 1 place in the $500K-$600K range in a better area (e.g, inner west Syd)? Or should get 1 or 2 places in the $300K-$350K in a more remote area (e.g, west/south-west Syd)?

My answer to 2. probably covered that when I mentioned the more moderate path.

4) What are the cons of getting a 95% loan considering that I will be able to make repayments easily. i.e, Put down 5% cash even though I have enough for 10%-20%. Is it silly to do this?

Your high Income probably trumps any “cons” of a 95% loan. One major con is the extra burden when Interest Rates rise. With a larger loan, the Rate increase hurts you more than most. But these things can be mitigated – get advice before committing though – by using Fixed Rates and/or Variable, and Offset Accounts.

On the other hand, the “pros” include the capability of keeping more cash as deposits on more IPs. You could conceivably buy 2 or 3 lower-priced IPs quite quickly. If holding 3 IPs worth $300k each, you have some advantages over one higher-priced IP.

1. If you lose a tenant for 4 weeks, you lose 33% of your income for that time. With a single IP, you lose 100% of your Income.
2. Buying 1 higher priced IP might stop you in your tracks while you wait to build more deposits. With lower priced IPs, your funds can buy 2 to start, and perhaps a 3rd very soon after.
3. Should things turn sour, and you need to liquidate quickly, you can choose to sell just “the worst performing one” – leaving you in better shape afterward. With one IP, you have just one choice, and you might be selling a top-performer.

There is SO much more to it…. I hope those few thoughts are useful to you for now. Let’s see what others have to say too,

Benny

October 23, 2014 - 10:56 pm

Hi JZ,
Welcome to you too – it is good that you have found us, as it sounds like you are well-prepared financially to make a go of IP’s. But first, do have a think about where you want to be, and whether you will need cashflow or Growth to achieve it.

The “Do I buy a PPOR or an IP?” is one of those early questions, and it would be good to arrive at your own conclusion re this. To get an idea, try Steves Articles, or check out this link :-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697967

There are many things to consider and plan, so please don’t set off running – take the time to learn to walk first !! :p

That link takes you into a thread especially for those starting out, so do check out some of the other posts in it too – much you will learn grasshopper….

Benny

October 23, 2014 - 8:52 am

Hi Dean,
And a big welcome to you into our community. I hope joining up proves to be a life-changing event for you. :)

I can’t comment on Yale specifically as I don’t know them. But this comment of yours had me smile – it reminded me of me about 25 years ago:-

To be honest, I had not thought much about IP’s before tonight as I always viewed them as too expensive and too big a risk should it stay vacant for extended periods. What are realistic costs associated with buying an IP? To me, if $60 a week is all it took to buy a $350k IP, everyone would be doing it.

You will very quickly learn here that there are ways to have IP’s put money IN your pocket each week. And yes, $60 a week is not much to be controlling a $350k property, for sure.

First off, let me recommend that you go to the Home page, look on the right side (under Private Messages) and look for the “Strategies Explained” area. The first strategies are “Positive Gearing” and “Negative Gearing“. Have a read of both of those.

The way Yale and many others promote is Negative Gearing. It is a viable and valid choice, especially in Australia, but watch out, as not all companies have your interests at heart when promoting their product.

Then compare the Positive Gearing option. And then, to help you get up to speed on some “early learnings”, check out this thread:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/

That is all for today – we will have a test tomorrow morning….. :p Just kidding – but this can be like a good book – hard to put down…. Enjoy,

Benny

• This reply was modified 10 years, 6 months ago by

October 22, 2014 - 11:23 pm

I have used Qld Law Group several times – based in Springwood. Very happy with them.
http://www.qldlawgroup.com.au/reception.html

Kirsty is very knowledgeable and decisive – did one for me just a month or so back. Conveyancing charge is $550 which seems to be pretty normal.

Benny

October 22, 2014 - 10:41 pm

Hi Knox,

PS do you know somewhere I could find information in “layman’s terms” on depreciation?

Learn it from the man himself – here’s an Article written by Steve :-

https://www.propertyinvesting.com/depreciation/

There are lots of articles on all manner of subjects – great reading for all newcomers,

Benny

October 22, 2014 - 8:09 pm

Hi Jason,
Is there a “rule of thumb” re how best to develop a smallish block e.g. is it as simple as “jam on the most 2 bedders you can fit” (or even 1 bedders in some areas)? Or can it be financially better to build a smaller number of 3bdrs? Are such decisions “area dependent”?
Pros and cons between townhouse/villa and/or duplex/standalone.

October 22, 2014 - 7:59 pm

Hi Adam and Brinks,
Seems to be a quiet time the last few days on forum. Hopefully our usual gurus will pop back in and lend their knowledge to your cause.

Meantime, though I CAN’T answer all of those questions, here are a few thoughts that might be useful…..

1) As a first home buyer, if I build do I get the first home owners grant if I live in one and rent the other?

If you bought, I would think you would still be eligible for FHOG – but if building, I am less sure. There are major financing differences between “buying newly-built” and “building” – maybe one of those differences would affect the FHOG (???)

2) I can borrow $300k if I live in the property, but as an investment property I can borrow up to $500K, but if I build a duplex I don’t know how much I can borrow if I live in one and rent the other out?

It is the extra Income from Rents that would make that difference. If the quotes you got were for single unit dwellings, then it is possible buying TWO will allow more of a loan – depending on your DSR (Debt Servicability). A Broker would be able to give a better guideline, but would need heaps more info from you first.

3) Just in the early stages at the moment and going through the pro’s and con’s, are there any hidden things that I would need to know or keep a look out for? and what would your advice be?

First off, don’t be in a hurry. Read around on here to get the feel for IPs in general. The link below covers many of the early questions and also highlights many useful things (e.g. Offset Account).
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/

Come on here to ask specific questions as they arise. I’m sure there will be some gurus along some time, so do check back here too. What area of you looking to buy/build?

Benny
PS I think you know it from my words, but please treat my comments as opinion only as I am not an accredited adviser.

October 22, 2014 - 7:51 am

Hi Wayne,
This is a very good question :-

I don’t mind if the Child Support Agency add any profit I make at the end of the year as taxable income, though my concern is that they might add the weekly rental income into their calculations regardless of the deductions claimed against it.

Things might change from year to year, and it is not an area that I ever researched as it didn’t affect me …..

BUT…..

I have some vague recollections from years back where the way that some Govt entities calculated these things just seemed wrong, and NOT what would make sense to you and me. Something like adding Income TWICE when calculating…. whatever it was, it DIDN’T benefit you. It is good that you are questioning this, as you wouldn’t be able to GUESS what should be, and you really need to KNOW before making your plans.

I hope one of our learned colleagues can add a bit more for you. Or go straight to the Govt entity and have them tell you how it will be,

Benny

October 21, 2014 - 10:37 pm

Hi Euroboy,
Welcome aboard – good to see you have joined us. And what a great opportunity that souns like. I hope you are able to chase it down to a beneficial conclusion. Families though can become a bit fractured, depending on each individual. Still, even if not all “want in”, it may still be worth having a shot at.

Unfortunately, I can’t help you with the financing except to say that I read of many who make VERY GOOD $$ from developing. Thus the opportunity you have should be chased down until it either proves to be unworkable, or it delivers as promised.

A few points I picked up prompt me to add a few thoughts though –

First, I’m with you re this being an “awesome investment”. Your sister might work in a Bank, but is her role one where she is dealing with Loans daily? (I suspect not). I have heard that Commercial Loans are a bit more onerous, and that you can’t borrow 80% like with residential. I think it would be well worthwhile to sit down with a broker or similar who deals in these things DAILY. There are a number right here on the forum – maybe follow a few threads in “Finance” and see who answers in there. At times like this, you need KNOWLEDGE and not supposition.

This thread talks about Financing a development – maybe some clues there?? :-
https://www.propertyinvesting.com/topic/4994626-finance-for-construction-of-6-townhouses/

Second, do treat my comments as supposition too – anything I say would need to be checked out, but the thoughts imparted might (I hope) prove to be a spur to you.

Third – I read regularly that a developer would want a MINIMUM of 20% profit before entertaining doing a development. Given that, won’t it mean that he/you would be building these for AT LEAST 20% less than a H&L developer would SELL them for. i.e. you would be buying them at a discount, and generating sizeable Equity in them from Day 1.

This is particularly so as the Land is already “covered”. The $200k that 2 of your siblings want to split might well become three times that amount. e.g. let’s say the Land Value makes up $400k of the expected $550 – 600k your parents could sell for. Now, that means each Townhouse would be built on land that only “costs” you $100k, but would probably be worth $200k+ once divided up and a Townhouse built on it. So, right off, the Land component has doubled in value, if not more.

Then, you are building at a “wholesale rate”. The possibilities on the UP side look pretty good. But then, the DOWN side needs more accuracy – the loans and numbers related to them (Interest Rate, LVR, etc), any Council fees, GST, etc – and all that I will happily leave for someone else as I have no bl**dy idea… :p In the end, the “numbers” will tell you if it is a goer or not.

Please do update us as you discover things, Euroboy. I would be interested to learn how it all unfolds. Good hunting,

Benny

October 21, 2014 - 12:14 am

Hi Knox,

This may sound like a stupid quetion but, is it wise to outlay more money, to bring the price down and therefore turn it to a positively geared investment?

By adding more deposit you are bringing the Mortgage down, not the price (but then, THERE’s an idea !! Read on…)

Let’s look at “the numbers” in a slightly different way, then see if you think it would be wise to do – OK?

You say it would take $100k of your money to positive gear it. Allowing (say) $15 for costs and $60k for a 20% Deposit, you need to stump up an extra $25k just so it doesn’t cost you money to hold. So, if you didn’t pay that extra $25k, that would mean you would be paying 5% Interest on an extra $25k of mortgage instead – which is (roughly) $1250 a year, or $25 a week.

If you paid an extra $1250 a year off using the “saved” $25k, how long would it last? TWENTY YEARS !! And, if instead you invested that $25k, you might be able to make 5% with it, and be neutrally geared anyway. That $25k remains under YOUR control – you could put it into an Offset account against the mortgage and effectively have it “paid” off the mortgage (Interest paid on $25k less than what is owing) yet remains under your control, and you can call on it at a moment’s notice without having to ask for it. Read up on Offset Accounts later on in this link :-
https://www.propertyinvesting.com/forums/general-property/4349450

To me, a big part of the charm of property investing is the massive leverage that is available to you. Of course, leverage is a two-way street, and risk is also leveraged, so softly softly. A better way to go is to pay less for it, or derive more income from it.

Outside of your initial question, does a 2bed 1ba house fit with your intentions, and is it in character with the area? (e.g. if this is an area of 3 bedder family houses, how does a 2bedder “fit in”? Is it a bit lonely, like a shag on a rock?)

But wait, is it a 2bedder that is large enough to (fairly easily) be made into a 3 bedder? i.e. can you add value cheaply, thus lifting value, and rent? THAT could be a useful idea for the spare $25k, or some of it. But first, will it work?

2bedders can be hard to sell, depending where they are, and the surrounding demographics, so keep this in mind before looking to purchase one. Often they are hit hard when negotiating a purchase price, simply because they are NOT a 3bedder.

Good on you for making your first post. :) And don’t worry – its the questions you DON’T ask that are the silly ones, so go right ahead and ask away. That’s what we are here for – to help you come to grips with a complex subject.

Benny

October 19, 2014 - 7:40 pm

Hi Farhad,
Click on the link below to go straight to his Profile. From there, you can send him a PM (Private Message).
https://www.propertyinvesting.com/members/RPI/

I note he hasn’t logged on for a few weeks, but a Private Message will be waiting for him when he does.

Or, read some of his posts, as he has contact details in his signature,

Benny