Hi Kurtuk,

  And welcome !!   Depending on how long you have lived there, and whether you might have bought for a discounted price, the property value might not now be $540k.  We appear to be coming out of a 7 year slump in Brisbane (when prices hardly moved overall), and there are indications that values may be heading North, or have already started to do so…. 

  I agree with Jamie re x-coll (i.e. it is rarely a good idea….) but it can make the difference in specialised cases, so let's not write it off altogether – yet !! 

  If you can add a little more to your story, those extra pieces of information might turn the whole ship around.

  Do you have a particular area in mind for purchasing an IP?

Benny

Corie said it for me – I was about to offer a few "pro's" of purchasing an older dwelling…..  

The point made by Corie re "manufacturing growth" in an older place is well made.  

As well as that, existing homes often don't have any "wait and see" points associated with things like – neighbours, infrastructure, "tone of the area", etc.  The area is already established, and you can see what you are buying.   Buying new in a new subdivision doesn't have that same certainty, yet buying new in an existing area can (e.g. old house knocked down, land carved up and 2 or 3 homes built).  And yes, by buying new, you are also buying a bit more peace of mind, but not overly likely to get much of a bargain.

Re not having enough deposit for existing, there have been ideas from tommytucker, and I'm fairly sure some other lenders can still do a 95% or 97% lend.  Of course, THESE loans will depend on the purchased old home meeting their valuation, so that forces the need to buy at a discount anyway.   Perhaps spend a few months just looking (in your chosen area) for all property that is on the market and start sizing up what kind of numbers will work for you.  

You might even make friends with a few RE agents – who knows, they may have one or two properties that others don't want to touch, but you can maybe clean up quickly – deals like these can assist you in getting really solid property for discount prices.    We bought one many years ago – no-one else wanted to touch it, so was on market about 12% below comparables – it had an old tired kitchen, drab carpet, red walls in some rooms….  Nothing wrong structurally.   I took two weeks off work, and bought a new "seconds" kitchen on my credit card, painted, re-carpeted, and had it rented (at a 15% gross return) just as we were finishing up the reno.   Bonus !!

I think it is often said "You make your profit when you BUY" – and it becomes far easier to get a positive rental return when your outlay is lower.   Good luck – you might find a similar diamond in the rough (but you have to be looking to spot them….)

Benny

Amen to that one JacM !!   And especially as you mentioned Offset account – they cure so many possible "diseases" !!

Benny

Hi Paterson,

Yes, that is Gross Yield as JacM mentioned.  Gross Yield is typically a good "starting point" when considering purchase.   It can guide you to say "I can't pay more than $xyz else the Yield is too low to work for me".   Maybe such a thought can help you pick up a property for a better price, or have you walk if that can't happen…..

But then, think about what happens after a reno…..   If the reno was only to make it rentable (thus the rent might not increase, yet the value will) your yield drops – or does it really????  Have a play with the numbers, and you will begin to see that Nett Yield is far more useful once you are into a property.

At one time that rough price you mentioned (a 5% return roughly) was likely "near enough" to allow disparate people able to discuss a complex subject at a BBQ using "common ground assumptions/facts?"    But times change and cycles move on.  

Also, some areas might typically generate WAY less than 5% even in the good times, while other areas might generate way better than 5%, even in hard times…..  

Good on you for asking questions too, Paterson.  Better to be sure of your facts by asking than to assume you have got them sussed, eh? 

Benny

Hi Melissa,

  I'm from Brissy too, and my places haven't seen much growth for several years.   Signs appear to be changing for the better recently though….    But then, I have houses – I gather units have a different way of working.   E.g. I gather the dynamics differ in that, a forced sale in a block of apartments can impact on perceived value of all of the units.  

  So could it all come back to WHY is that other owner dropping his price?  How are the other owners handling things?  Any whispers re others also wanting (needing?) to sell soon?    And is the current "value" being arbitrarily dropped because of this one seller?     What do other owners (and RE agents, etc) see as today's value of these units?

  Who are the usual renters of studios in your location?   Are their numbers dropping, or increasing?   Have rents been ticking upward over the last few years (even while values have stood still?).   Any extended vacancies?  

  Seems to me you might already be able to provide your own answer, as I'm sure you'd be "keeping an eye on things" as an existing owner.   And  you would be better placed to answer them all than any of us, unless we also owned one of the other units.   Do keep us up-to-date with your thoughts….  I'd be interested to hear what you decide, 

Benny

Can I say, don’t depend on Silhouette to get you there. The numbers provided are seriously flawed.

If using this as a rule, an Interest rate of 2% would have you offering $177k for an IP – but, if the Interest rate was 8%, you could spend up to $265500.

Not a good idea at all – methinks a rework is needed to THAT rule

Benny

Hi Carpe-diem,

Sounds like you “seized the day” – and good for you. And I love what I read from you:-

You’ve got to be on a winner right there, CD. If Derek is right, and you only need $37k pa, this HAS to be good news, right? Isn’t that the next 4 – 5 years already taken care of? Even if not quite right, it does tend to give a good idea about the value of equity growth, yeah?

Anyway, it’s good to see you are back with us again, and charging forward. Keep on reading, and adding to that “store of knowledge” that allows you to make the best decision for YOU. For me, it’s amazing just how LIBERATING this knowledge can be – I wish the same for you,

Good luck,

Benny

Hi Dazzling,

I haven’t always agreed with you in the past, but you get my gong for this comment. Hehe – as if it matters [blush2]

In fact, your total reply in this thread has been very worthy – but I particularly liked the above quote – shows you in quite a different light. Onya, Dazz

Benny

Hi Carpe-Diem,

I realise it will be a couple of weeks before you read this – and I wish you the very best re the medical operation you are facing.

Just wanted to add that you are already where I want to be financially – so well done. From what I read, you have already amassed over $1m in equity – at that point I believe Living Off Equity is almost a doddle.

Look at it this way. Any lender will immediately lend up to 65% as a pure “Asset Loan”. In other words, they don’t care what you owe, or earn, as they have the right to sell a property worth 50% MORE than what they are lending. This is your “safety net” – many will lend on a far better basis – but this is the worst it gets.

As I understand it, you have at least $1.2m equity, but just don’t know HOW to access it. Can I say “You are in VERY GOOD SHAPE” and that must be because of the decisions you’ve made up to now. So, for that, congratulations – you’ve done well.

Based on Derek’s response (that you only need $37k per year to live) you are a shoe-in to not need to work for the next 20+ years. And if you retain the current properties, their value would at least double over that period – probably far more – therefore allowing you to borrow more to take you over the following 20 years.

I am getting close to being able to do this, but I think you are “already there” Enjoy,

Benny

Hi hb,

You made a good point

but tell me, what would CBA have returned to you if you’d used the same deposit that you’d put into the property? Would it have been $1.5m? (I suspect it might’ve been slightly lower)

And – It’s easy to say “x share would have been the greatest” but what if you’d chosen y share? (You said it – hindsight is terrific) What if you’d put that same money into Telstra? How would you be today?

Still, in the spirit of sharing knowledge, I’d agree that property is NOT likely – over the next 4 years – to do what it did over the last 4 (depending just where you are investing). But you can still do well using the leverage available. Can you get 100% leverage in shares with the same lack of volatility as property? Hmmmm?

Benny