Forum Replies Created
I believe yield is mainly used by REA to dassle newbies.
It does not really say much. It may help to settle on a general area to investigate further.
I like to do a whole set of numbers to determine if the property makes me a profit. But I also love to crunch numbers. I also know of people who have done very well doing some basic figures on some scrap paper.
One of my favorite jokes:
A guy buys junk at $100.00/tonne and sells it for $400.00/tonne. He became stinking rich from the 3% profit margin.
Agree with Terry and Richard.
I have a line of credit on our house that I use for our 20% deposit and the closing costs.
I am not too keen to go to 90% or 95%, but I may be too conservative and I have a reasonable amount of equity in our PPoR.
That would be nice to have. I only know the good old hard slog.
Go on realestate.com.au or homehound.com.au
Look for average sale prices for 3BR houses and then for average rentals for 3BR houses.
If you find average yields of 6-8% I would look further, else move to the next postcode.
Hi Terry,
you got some good points there. But you seem to be strongly in the “never sell” corner. While this can certainly work, I think in the current property market you can often do better by selling off underperforming assets and look for better deals.
All this said, there is no advantage to sell a marginal property to replace with a slightly better one. The costs will kill you.
Steve put several financial benchmarks into his latest book. I believe it is at least as important to have a clear exit strategy.
I do not know much about them, but hear you really have to set up a system and learn the basics. So if you only want to do a few, they are definetly not worth it. I believe that Steve and Dave made most of their money with wraps.
I also believe that they are illegal in SA.
I do not know much about them, but hear you really have to set up a system and learn the basics. So if you only want to do a few, they are definetly not worth it. I believe that Steve and Dave made most of their money with wraps.
I also believe that they are illegal in SA.
Terry,can you give us a source for the 6 year rule. I have never heard of it before and cannot find it on the ATO website on CGT.
Terry,can you give us a source for the 6 year rule. I have never heard of it before and cannot find it on the ATO website on CGT.
Another big problem could be the shared title. My understanding is that most councils are very reluctant to allow this on a rural property. You would need to do a lot of investigation.
I have heard of several ways that people manouvered around these rules. Some were successful, but all were illegal.
Why are you looking at such a big piece of land?
Unless I could set up a community/torrens title situation, I would run away from this deal as fast and as far I possibly can.
Call me a chicken, but this sounds too much like a partnership and there is an old saying:
“The only ship certain to sink is a partnership.”
That said, I know a few successful partnerships. Steve and Dave were one for about 8 years. An aquaintance of mine has had a business partner for over 20 years. First they had a furniture shop together, now they look after their IP together. But I believe it requires a lot of trust from both sides and is properly more difficult to manage than a marriage.
Marc, be careful.
Your first investigative trip is not tax deductible. Only trips after you purchased can get deducted. However you can claim the initial trip against the capital gain when you sell the property.
But this is really for the accountant to determine.
And a few hundred dollars initial investment can save you a lot of headaches, heart aches, money and painful memories.
Apart from this I agree with Wayne. As long as you are aware that the REA is working for the seller, you can use them to your advantage.
Sitting next to them in a car gives you a very relaxed, chatty atmosphere where you can learn a lot about the region. I believe they are a lot less guarded and you can build a good relationship.
Yes, they are working for the other side, but that does not make them enemies. If you go into the hardwareshop or the pharmacy you are in the same position. Still I will still take the advise of the salesperson on board when making my decistion. It does not mean that I leave my brain outside and swallow everything that they dish up.
Ultimately the REA and I am in it for the same thing: To make a profit and feed their families.
All that said, I would always cross check important information that comes from a doubtful source. But any information that gives you a chance to look at something from a different angle is good information.
How long is a piece of string?
Do you want to be a doctor or a lawyer?
I believe your question is too broad. There are lots of arguments for the different scenarios including your personal preferences.
In general you would probably be better off to aim for some quick capital gain to improve your equity position. But build and sell is only one scenario, and possibly not the most lucrative one.
Reading your post, it does not look like you have a lot of building experience. Spec homes are a cutthroat market, and you are up against some big builders.You may also have some financing issues. I strongly recommend that you talk to a good MB. He should tell you the best method to proceed. If you do not like his answer, try another broker.
Consider improvement alternatives to building. Buy, subdivide, sell or buy, reno, sell. Wraps and flips are other alternatives, that I do not know much about.
The worse your financial situation, the more creative you have to become.
I think you start by reading several books and research the market. Read this forum and just increase your knowledge base. There is no reason to rush into anything.
Books to read:
Steve McKnight “0-260 properties in 7 years” (his newest and best) “0-130 properties in 3.5 years” and “$1,000,000 in properties in one year”Margaret Lomas, Jan Somers, Neil Whittaker, Property Investor Magazine, Monique Wakelin, Neil Jenman, Terry Ryder, Robert Kiyosaki, Peter Spann, “Think and Grow Rich” by Napoleon Hill,
“Millionaire Next Door” by Stanley and Danko, “The Richest Man in Babylon” by George Clason.Good Luck
Hi Linda and Peach,
I must admit that I am not quite up to date with the NSW rules. But depending on how you word your get out clause, you may be able to buy yourself some time. I have five standard get out clauses (I normally only use one at a time):
Amount Offered: $ 220,000.00
Terms: $ 1,000.00 deposit and balance in 30 days.Subject to the following conditions:
– The purchaser’s attorney’s approval as to title, encumbrances, liens, easements, and other regulatory inpositions that may relate to the above property, such approval to be given in writing by the purchaser’s attorney to the seller’s attorney by no later than 5:00pm on the 20th working day after the signing of this contract.
– Receiving all rental and other documentation to the purchaser’s satisfaction within 14 days of signing the sale contract.
– Financial approval by purchaser’s financial institution within 21 days of signing the sale contract.
– The satisfactory building inspectiong by a purchaser approved building inspector withing 14 days upon acceptance of this offer.
– A surveyor inspecting the property to the purchaser’s satisfication within 21 days of signing of sales contract.
This offer is valid until …../2007 at 12:00 pm. Banking of the attached cheque will be deeped acceptance of this offer.
Sanjiv is right.
It was a lot easier to find cf+ properties about 7 years ago.
Nowadays it is pretty unlikely that you buy a cf+ property. But if you find a property yielding 6-8% you may be able to improve it enough to get your 10-11%.
The two main ways to improve a property is to subdived and/or renovate.
If it were easy, everybody would do it. You have to do a lot of research, running around, asking questions, try different scenarios, etc. Steve’s main mantra is:
Problem + Solution = Profit
As the rents have not kept up with the property prices, some people have changed tack completely. Expecting the market to stay level or only show modest growth, they do not look for buy and hold properties.
Instead they buy, improve, sell. There is good money in this, but you need to be careful. You may now be running a busines, which carries a lot of tax implications.
Good Luck
That was a great reply Linda.
Still I would recommend to everybody to put a ‘get out clause’ into the contract.
Even if it costs you .25% of the purchase price. On a $400,000.00 property that is $1,000.00. Really nothing if something bad shows up after you signed the contract and you realise that in spite of all your due dilligence you made a mistake.
Good Luck Peach
There are several ways that you can approach this:
– You could just go to the council, ask for planning officer and tell him/her what you want to do. They will often get you a general idea what the zoning is and what are complying developments, etc.
– You could (and that would be my recommendation) look for a surveyor. They specialise in subdivisions (what you probably have to do) and can often give you heaps of information. They know the area, the pitfalls and also how to approach the council (you may close some doors when you ask the wrong question).
Same thing applies when you buy a block of existing units. But now it can get a lot more complicated. If you want to split the units off, you have to comply with all kinds of regulations, the worst one probably being the fire proofing. You have to ensure that a fire in one unit cannot jump to the next easily. This can be a very expensive exercise. You also need to ensure that each unit has an adequate amount of open private space (a fancy expression for the back yard entertainment area).
Steve McKnight has brought out a development blueprint. While it costs $500.00, I think it was an excellent investment for me, even so I knew already most the things covered in there.
Martin Ayles, the developer, describes his job as mainly solving problems and putting fires out. He has some great examples of real life problems and disasters. He lists his other strenth as marketing. The guy is 33 and is financialy independent.
In my estimation you need to do at least 3-6 month more research before you want to go any further with purchasing land or property.
Good Luck and Keep at it.
Is your first IP cf+ or cf-? That will make a big difference in your ability to buy another one.
Steve McKnight always says that it is very difficult to own several cf- properties, as they drain your income.
The only thing holding you back on cf+ properties is your equity, and that should grow as you are constantly getting income and hopefully some capital gain as well.
In general I agree with the above comments. I believe that vyaw2003 is wrong about the tax deductibility. I think you can deduct it off the capital gain if you end up buying a house.
But that is really immaterial.
NEVER believe a real estate agent without cross checking all the facts. They are SELLER agents interesting to maximise the sales price.
You can try to find a buyers agent, but doing your own research is really irreplacable. And often deals look good on paper but they are not really.
I just looked at a property in a town only 30 minutes from my place and got really exited until a local pointed out to me that it was really not a very desirable part of the town. Only two streets down and you are in the good area. This kind of local knowledge is really irreplacable and you definetly will not hear that from the selling real estate agent.
I would also be very careful to buy your first property interstate. I believe that there are too many pitfalls that are a lot harder to spot in an unfamilar surrounding.
Look for something close to home where you can learn the ropes.
It is a lot easier to fix a problem if you just have to jump into the car and drive for 30-60 minutes than at the other end of the continent.
The good interstate deals will still be around in a year or two when you have more experience.
Agent often tell you that you have to deposit 10% of the contract sum. This is actually not true and I (and several other people I know including Steve McKnight) have a $1,000.00 policy.
I try to always attach a cheque of $1,000.00 to the contract. If they do not accept the offer you have lost nothing, but they may understand that you are serious.
The deposit does not help anybody. It just gets put into a trust account earning minimun interest. Only very inexperienced agents or one’s with a big ego will have a problem with it.
Small deposits help your cashflow (expecially if you are doing multiple deals) and save you interest (especially if you have long settlement periods).
Hope that helps
Good Luck
I would not give up on it that quick. Do some research.
If you live reasonably close, go past at different times of the day and find out how noisy the expressway is.
Maybe you can think of ways to reduce the noise/view with a noise reduction fence (eg rendered straw bales).
Talk to the neighbours. See who is renting and who bought. How much are the renters paying and how are they affected by the expressway.
A friend of mine lived right in the flightpath about 500m from Adelaide airport. Every 5 minutes you had to stop the conversation for about 20 seconds. It drove me crazy, but he did not mind at all.
My brother used to live about 3m!!!! from the main rail line on the Rhine in Germany. Again the house shook every few minutes, he still lived there for well over five years.
I think the approach ‘would you like to live in this house’ is wrong. An example may be that you love pink houses. Would you try to sell one? Not if you want to get maximum returns.
Find out as much as possible about the house, the area, etc.
Make a list of pluses and minuses. Find out how much rent you can reasonably expect to get. Do your figures. Steve McKnight gives you several formulas in his latest book that really help.
Remember fall in love with the deal, not the house.
Whatever you decide to do, Good Luck
Good Article, but the main question is what are you after?
If you are after capital growth, this article may give you a good idea.
But if you are following Steve’s advise and look for cf+ properties, you have to find regional centres where you get better yield.
While you cannot find too many properties that follow the good old 11 second rule, you have to look for properties with reasonable yields (about 8%) and improve them by subdividing or value adding.
Whatever way you look at it, it is hard work. Pick a town and go onto the net.
Homehound gives you some general statistics about % or renters, unemployment rate, etc.
Check the average rental prices for a 3 BR house.
Check the average sale price for a 3BR house.
If the yield looks ok, keep digging and visit the area.
Ask lots of questions and find out the general trend of the town (growing or declining), which are the good and the bad areas, etc.
A point of warning. If you are new to this game, NEVER buy unseen. You are unlikely to know all the right questions that need to be asked.
Good Luck.
