Forum Replies Created
Hi WWJD,
It all sounds so easy because you haven’t actually started doing it yet. [biggrin] The concept is simple but making it happen is no picnic. Don’t let me put you off though I love property investing (but not because it’s easy).
Ultimately your goals should determine your approach to property investment eg: Do you want to build some retirement money or do you want to quit your current 9 to 5 job in a couple of years time. Obviously the approach would be very different depending on which goal you chose.
I am happy to use a negative geared property as long as it has good capital growth prospects and I get the bonus of getting tax back which I would not normally get if I did not invest. In my portfolio these properties are fairly new and cause me few hassles. Being able to claim depreciation is a big financial boost also.
I use positive Cashflow properties to bump up my servicibility with the banks so i can get more loans and I don’t care too much if they don’t appreciate in value (but it’s nice when they do). These properties tend to be older, involve a little more risk and take a bit more work.
I remember reading a report recently that said a lot of people are now opting to buy an investment property first (before their owner occupied home). It makes sense to me.
Todd Burns
http://www.freepropertyhelp.com.auHi Carina,
I know you said that you are a low income earner but do you still pay tax and if so, do you get ALL of your tax back ? If you don’t get all of you tax back there is still room for deductions.
Todd Burns
http://www.freepropertyhelp.com.auHi Grh,
Just about everyhting rose in value over the time frames you mentioned but not everything is as overpriced to start with and costs so much to hold as DHA property.
I think it is quite likely that an investor may have profited by $400K on a DHA property but a comparative ‘normal’ investment property probably returned $500K (when initial price and holding costs are taken into account). Anyway…. we are in a very different era now with very different rent returns compared to prices.
Todd Burns
http://www.freepropertyhelp.com.auHi all,
Thanks to Nat R for posting the Australian news link. Here’s an interesting quote from it-
Mr McElduff said the purchase was a long-term play counting on capital appreciation, with properties bought on a gross yield of between 3 per cent and 4 per cent.
That yield dropped to “a tad over 3 per cent after the DHA reclaimed 16.5 per cent of rental income in maintenance and management fees. DHA acting managing director Michael Del Gigante said investors – including WFM – also paid a premium of about $10,000 on the purchase price of properties…….
“We are really selling a 10-year cash flow with no risk of vandalism and with the security of a government tenant,” Westpac’s Mr McElduff said…………
He said the internal rate of return for residential properties over 30 years was typically between 10 per cent and 12 per cent.
Mr Del Gigante said the DHA had taken the properties to the institutional market in August last year because demand from retail investors had slowed, in line with the residential property slowdown, and because the DHA has plans to roll out $2billion of new development in the next two years[/red].
Hey !! DHA have had a used car….. I mean….. used property sale to make room for new stock.
By my calculations WBC bought the properties at an average of almost $545000 each with half of the properties being in Sydney. I wonder if they asked for extended warranties. I hope the properties don’t drop too much in value when WBC drive them out of the showroom. [biggrin]
Todd Burns
http://www.freepropertyhelp.com.auHi specific,
If you pay tax and the building is of a fairly recent age or you have enough depreciable items in the house (chattels) to make it worthwhile, then you probably should claim depreciation. Just remember you cannot claim back more tax than you pay out so depreciation has its limits just like negative gearing does.
I am guessing its probably not worth it for a lot of the little old cheapy houses because you would probably pay more for the depreciation schedule than you would get back in depreciation, especially if the buidling is too old to claim on and you just have to rely on chattels.
Todd Burns
http://www.freepropertyhelp.com.auHi All,
I think a few of you have hit the nail on the head as far as Westpac is concerned. The rate of return is based on what is paid for the property in the first place and I think Westpac probably got a BIG discount so obviously there return on investment would be higher.
DHA have been trying all sort of free stamp duty offers and similar marketing ploys to offload stock for quite while. I guess whatever Westpac paid was low enough for Westpac and economic enough for the DHA because they were able to do such a high volume offload at once.
It’s all making a bit more sense to me now.
There seems to be two seperate threads in one here. Those talking about private purchase of DHA properties and those talking about the Westpac REIT involving the DHA. The discussion is jumping around a fair bit. [confused2].
BTW> DHA use to offer much better returns on investment but I think they are much less viable these days for the private purchaser.
Todd Burns
http://www.freepropertyhelp.com.auHi HappyJack, [biggrin]
Check out these posts on the same subject.
https://www.propertyinvesting.com/forum/topic/23094.html?SearchTerms=student
Regards
Todd Burns
http://www.freepropertyhelp.com.auHi All,
The simple fact is that these DHA properties are over priced, have poor rent returns relative to cost, have high management costs, are inflexible in their use and generally soak up too much cash. They would have to get very high capital growth to compensate for all of this.
I am sure Westpac have some sort of cunning plan that involves making the punters feel secure because of the beneifts that DHA offer. However on pure financials I wouldn’t touch DHA with a barge pole.
I noticed that the DHA was listed as sponsoring a Residex report recently… mmmm… interesting. Look out Steve !!! they’ll probably come looking for you to help promote them next. [blink]
All smelling a bit phishy to me. [blink]
I think I’ll stick with your types of strategies Steve. Ones that clearly show how to make a profit from property
Todd Burns
http://www.freepropertyhelp.com.auHi Nell and Tony,
If you choose to go ahead (taking into account what the other forumites have said) this is a few other things I suggest-
Note: This is quickly off the top of my head. I could have missed some things-I am sure others will add to what I have said. Try and get as much due diligence done before you start spending money on services because something you find in the early research may turn you off the property-
*See a good mortgage broker and get the loan application process moving.
*Find out the selling prices of comparative houses in the area?
*Make an ‘under the market ‘offer on the property. (Unless you desperately want it for some reason other than a good investment).
*Talk to a solicitor about putting a contract of sale together with the conditions that you require.
*Make sure you organise plenty of time on the contract for building pest inspection to get done.
*Get building pest inspection done.
*Find out what the lender valued the property at.
*Assess building/pest inspection report before unconditonal date.
*Possibly negotiate lower price (depending on condition of property).
*Make sure loan is approved before contract goes unconditional.
*Proceed to settlement if everything works out.
Todd Burns
http://www.freepropertyhelp.com.auHi Derek,
To promote discussion, I was outlining a possible scenario if the higher value property was sold.
By the way, how do you get the ‘originally posted by box to appear’ when replying to a specific post.
Todd Burns
http://www.freepropertyhelp.com.auHi IM Charlie,
It can be difficult to get a residential loan for these dwellings and they can be hard to sell for that same reason. Once costs are taken into account the yield is usually not that good, especially if they are only tenanted for the Uni year (not the full 52 weeks) or if students are moving in and out.
You will probably get reasoanble depreciation but find out what the running costs involved in owning the dwelling are because they are usually quite high. Remember it is NETreturn that counts.
I suggest you find out the following (along with normal due diligence):
1. Are they only rented for the Uni season (about 42 weeks)?
2. What is the rental history (are all rooms usually filled)?
3. What are the management costs?
4. What are the body corp, sinking fund, insurance, cleaning costs and any other compulsory outlay.
5. How much do management charge to find a tenant for each time a room needs to be filled?
6. Can it be rented to non-student tenants?I hope this helps…
Todd Burns
http://www.freepropertyhelp.com.auHi Tomtkb,
I got a quality 4x bed, 2x bath, 2x garage house built in QLD about 18 months ago for close to $150K complete with everything required to get it to tenant walk in stage (even had a garden auto watering system and remote garage door).
I would be very surprised if you could not get a complete package for under $200K from a VIC builder. Try http://www.metricon.com.au (they were my second choice) and i know that they are originally from VIC
Todd Burns
http://www.freepropertyhelp.com.auHi Teedee,
Disclaimer: I am not a qualified accountant or financial advisor.
It’s hard to say if this would suit your situation but I’m throwing it in as an idea……
If you need some extra cash, why don’t you talk to your lender about extracting some equity from the property without selling. You will lose a lot of money in fees if you sell (especially through an agent) and you will trigger a capital gains event as well.
You may pay a bit more in repayments if you draw some equity but at least it is not taxed and you won’t lose mega bucks from paying capital gains tax. Meanwhile you get to keep your property and benefit again from future capital growth once the cycle returns to undersupply.
Todd Burns
http://www.freepropertyhelp.com.auHi Dave,
I wish I started investing in property at your age.
I’ll give you a bit of a hint….. Look at some mining towns and regional areas. You are not the only one that cannot find CF+ properties at the moment. They are out there, you just have to know the secrets to finding them. You also need to be aware of the risks involved before you jump in to anything too quickly.
Todd Burns
http://www.freepropertyhelp.com.auHi All,
Consider this… 1 Mil x 10% (which you should be able to get fairly safely on that amount)= $100,000pa (or $1923pw) Obviously 1 Mil would not be the full useable amount after the sale because of CGT tax but it just goes to show to me that this option requires some more thought. The tax rate would be high too so you would need plenty of deductions and there are probably other ways to get onto a lower tax bracket.
This scenario does not take into account the effect of compounding interest if you could get a investment that pays monthly returns.
Having said all that, I think you should go to a switched on accountant who will go through some scenarios with you. There’s a lot of money (and someones whole life) tied up in these assets.
Don’t let forum people do anything more than give you a few ideas to explore. You really need to run these issues by the relevant professionals.
Todd Burns
http://www.freepropertyhelp.com.au
Grossrealisation Quoted-
hi tamtam
sorry put must disagree with crusher as its not a 107% lend if you are putting up other equity its 80% lend and then the rest lend on the other equity.A misinterpretation here. I got a 107% loan secured against equity in my owner occupied property. I did not extract any equity.
Todd Burns
http://www.freepropertyhelp.com.auHi Bennido,
I found it hard to make myself spend the money on a good accountant but my portfolio was growing and getting very complex so I decided to go ahead with it.
I am glad that I did go to a property specialist accountant because he has helped me soooo much. Just because he knows property, tax law and legal tax minimisation strategies so well I know that I am getting the best ethical return possible. Have you seen how thick the folders of tax law are? How can us mere mortals ever hope to keep up with all that stuff ?
I say overcome your fear and reap the positive benefits.
All the best…
Todd Burns
http://www.freepropertyhelp.com.auHi Sadie,
Just remember, you won’t lose unless you sell. You haven’t had the property very long. In a couple of years it could be capital growth positive. If it is a CF+ property and you have good depreciation (which you should have being so new) it may be worth holding on to for a bit longer.
It would be worth finding out a bit more about the economic drivers for the towns future. In a town that big I would be fairly confident of long term gains.
I guess if it’s holding you back from building a property portfolio in a certain time frame then it would be better to cut your losses and start again but you would have a fair bit to make up. Depending on your financial situation, there could be some tax advantages in making a capital loss though. It would be worth talking to a good (property savvy) accountant about this whole situation.
Todd Burns
http://www.freepropertyhelp.com.auSorry Patrick I got off track on the previous post. I wanted to give my suggestion for your situation….
I would use as little of my own money as possible and buy where I can get a good rent return to get enough money so that my IP is not a financial drain on me Obviously it still needs to be a place where capital gain is likely.
I would not be locked in to my hometown or by the FHOG criteria because this could work out being a very big drain on finances even considering the other advantages you get.
I suggest you work out a couple of different scenarios and see which one you think you could best cope with.
All of this really depends on what you are wanting to achieve long term. If you only want to own 1x IP or a house to live in, then your strategy would need to be very different to what it would be for accumulating a multi-property portfolio.
Todd Burns
http://www.freepropertyhelp.com.au
