Forum Replies Created
“Seems very very steep…cos i would’t pay that much a week on rent!!! Must be hard to crack…”
Ah, one of the main reasons why we’ve given investing in RIP’s the big flick. The rent is so personal to so many people, and seeing as though they get no help from the govt in terms of tax deductions for it, it is a big nett expense for them.
Hey Strawberry Babes, what would your attitude be if the Landlord not only asked you to pay $ 760 p.w. for renting their 380K prop, but also demanded you pay for all of their rates / water rates / land tax and insurances. And on vacating, you had to replace the carpets and paint the place top to bottom.
Are their any residential tenants out there currently renting that would be happy to pay for and do all of the above – to the Landlord’s satisfaction at your sole expense ??
If yes, give me a call and I’ll sign you up, if not, I’ll stick with my alternative strategy.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
OK…OK, I’ll jump on your side PP…
KEEP…KEEP…KEEP…Whatever you do. Pumping the 260K into a building at the back (IMO) will do nothing to the value of the land that is appreciating for you…but instead depreciate at a great rate of knots in the first couple of years…which the ATO generously allows you to claim some of it back.
Instead of burning a hole in your pocket or sending you crazy, have you thought of this ;
1a. Action – Keep all of your props as is…do nothing. Let the land grow. Heck plant a nice vegie patch and chook run out the back if you have lots of land. They taste better. (High finance here – can’t you tell ??)
1b. Result – land continues to grow.2a. Action – Go buy yourself a nice little shop somewhere for 250K + acquistion costs in your local area and lease it out for 5 years on a 9% nett yield. ($ 5,000 p.a. clear cashflow in your hand)
2b. Result – Use the excess funds (5K p.a.) to lighten the burden on your neg. CF props.All up at the end of the day, no selling costs, no fighting with selling agents, no CGT, no fights with builders, more land growing in your portfolio, exposure to different classes of real estate.
Happy days.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
I’m confused as well…which bit don’t you understand ??
The fact that the purchaser insisted on 12 months settlement or the fact that you agreed and signed off on it ??
What’s the point of asking the question “Am I missing something”…and then conferring with your solicitor after you’ve signed off on the contract ??
Me thinks it’s just a tad late for queries and ‘trying to understand’ for this deal. For future reference I can see the point, but the horse has bolted on this one Chrismaz.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Hey Jenny….long time no hear,
Posted something this morning that fits perfectly into this category, fleshed it out a bit since then…see below ;
One of our recent acquisitions was a basket case block value jobby on 1-1/2 acres with six dodgy 35 yr old sheds.
The place had been advertised for over 9 months on the internet only with absolutely no takers. This was a huge mistake we later found out on the vendors behalf, as the people trolling the internet sites were put off by the photos, and the people who were interested in the block obviously never went on the net…some can’t even read. The vendors were pretty sloppy and didn’t push the issue to get it sold, and their agent was also pretty sloppy (on my inspection of the property accompanied by both the agent and the vendor, he sheepishly asked if she had a copy of the title deed, as he’d asked for it over 9 months ago…I’m standing there as she searched through 4 full and scrappy filing cabinets to no avail). The agent turned around and said I was the only one who had ever shown any interest in the property and he’d try and get some details…it was a non event.
There was no sign on the property that it was for sale..another big mistake on their part. Two days after settlement, when I first went back to the property, I was approached by the next door neighbour who ran a bus company on the two blocks either side of ours…he’d been waiting for the block in the middle (ours) to come up for sale for over 4 years to consolidate his position and had no idea it was for sale. He was prepared to pay $ 150K more than what we bought it for, to have the triple block. The man was slightly [angry2] when he found out we’d bought it. Never underestimate the power of a sign out the front, or the next door neighbour who intrinsically perceives more value in the place than any other buyer out there.
Cleaning up 55 tonnes worth of trucking rubbish and garbage off the property (8 years worth of dross kindly left by vendor) was daunting but worth it…messy people never clean up their mess…
We had lots of trouble with clowns who thought the property was theirs to do as they pleased, with nothing written down. All but one tenant were not prepared to either pay rent or sign a lease and they either left or had a meeting with the forklift…beautiful…[biggrin]
Three months down the track it’s cleaned up and now 70% leased out and signed up. When 100% leased, it’ll be making 15.5% gross yield (12.7% nett). This was definitely one of those distressed properties that needed some elbow grease. You simply can’t buy them like that.
If we applied Eastern States logic of 7 or 8% yields on the cap rate method, the prop would of increased value by ~ 600K over 3 months for about 10K worth of costs and some confrontation with illiterate trogoldites who refused to pay rent and refused to move or clean up their mess. Well worth the hassle.
Our biggest dilemma is deciding whether to sit back and collect the 15% yield, or cash out, pay CGT and transfer equity into classy CBD CIP’s.
Our biggest lesson from this whole exercise is not to be put off from ugly and disgusting looking properties. They can be both capital growth shooting stars and great yielders. To look at though initially, you wouldn’t let your dog set foot in it. We’ve now moved away from “pretty” properties.
Go the ugly duckling every time I reckon. Don’t go buying these tarted up cosmetic reno’s that someone else has done…all image no value…you’re paying top dollar for someone elses fluff.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
The biggest tip dollar wise I utilise nowadays that I didn’t realise when I started is ;
Always have the title of each property in a different ownership structure to minimise land tax.
We haven’t in the past, but now have every property in a slightly different ownership structure, which in my state has reduced our land tax bill dramatically.
When chatting to the vendor of our last purchase, the sole reason he offloaded the property on two titles was that they, along with 16 others in his portfolio, were all in the same legal entity. Hence the land tax burden simply killed it for him with them being lumped onto one another. Wasn’t a problem in 1964 when he bought them all, but when the State ripped into him so badly it just became too much for him. (Pun intended…for those who don’t live in WA, our State Treasurer is Mr Eric Ripper MLA…bless his little cotton sox).
Having to sell otherwise perfectly good properties because the State taxes you so much for simply owning them is outrageous. Hopefully our good fortune now won’t be undermined by laws changed to our detriment in the next 41 years.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Marisa,
When I was back in Oz I noticed the drop in yield as well with CIP’s. All of the Fed. Govt leases used to be ~ the 7% mark, but now the developers and owners are getting greedy and lowering the yield down to that level for ‘also ran’ tenants.
I’ve seen a pattern of late where Eastern States investors are snaffling up good Perth props on much lower yields. These aren’t attractive to the local Perth buyers, but compared to what they can get over the other side of the paddock, it’s good for them. I think, combined with more people being cheesed off with the low returns of the ressy market and whinging tenants, we might see a continuation of this trend.
Shifting next door is definitely not the go. Signing up a lease with us to take over our IIP is definitely the way to go…[biggrin] Geez, what else am I meant to say ?? PM me for what you are really looking for and what area suits.
Before I left I was still seeing great 9 and 10% nett yield props for sale, but the scale is pretty big. For starting out on the CIP route with less than 500K, you can still pick up good 8 and 8.5% nett yields with 5 yr terms.
One of our newer acquisitions in Welshpool was a basket case block value jobby with dodgy 35 yr old sheds, and is now 70% leased out and signed up. When 100% leased, it’ll be making 15.5% gross yield (12.7% nett). This is definitely one of those distressed properties that needed some elbow grease. You simply can’t buy them like that.
If we applied that same Eastern States logic of 7 or 8% yields on the cap rate method, the prop would of increased value by ~ 600K over 3 months for about 10K worth of costs and some confrontation with illiterate trogoldites who refused to pay rent and refused to move or clean up their mess. Well worth the hassle.
Our biggest dilemma is deciding whether to sit back and collect the 15% yield, or cash out, pay CGT and transfer equity into classy CBD CIP’s.
Our biggest lesson from this whole exercise is not to be put off from ugly and disgusting looking properties. They can be both capital growth shooting stars and great yielders. To look at though initially, you wouldn’t let your dog set foot on it. We’ve now moved away from “pretty” properties.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Scale is an overpowering thing, isn’t it ?? It changes your thinking, your opinions, your tactics, the assets you buy, the tenants you attract, the finance deals you cut and basically your entire outlook.
I should probably retract the initial ‘poxy’ comment. This probably got you offside. If a 100K house is your pride and joy that you are struggling to pay off, it is probably inappropriate for me to term them as such…even though that is how I would accuartely describe them.
I tell ya, if your ‘corporate tenant’ is the State or Fed Govt…lotsa places like this, and they go bankrupt or cease to exist, then boy, the whole country will go down the gurgler…being a Landlord out of pocket will probably be the least of your worries.
Hmmm, getting together as a group to buy a substantial asset like a 10 MM office block…not the type of comm. property to cut your teeth on really. Probably best to buy something small for 100 or 200K, learn 80% of the lessons and terms of the deal before trying something of that magnitude.
When you get up into these deals, trust between the partners also becomes a huge deal, and the financial weightiness of each partner…sometimes you need deep pockets.
What exactly did you have in mind and what specifically could you bring to the table on such a deal ??
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Hi Sosau,
We have been leasing out 6 industrial sheds of varying sizes on a 1-1/2 acre block over the past 3 months or so.
Our mix in m2 are { 90 / 110 / 255 / 365 / 215 / 255 }.
What we’ve found is the little 100m2 sheds lease out very quickly. We wish we had 10 of these, they would have all gone. The downside to these, as Michael pointed out, are they attract little M&D type operations, where they bleat about not being able to afford the rent. They are also more reluctant to sign burdensome lease contracts. They all wany short term, no paperwork, cash under the counter type arrangements – which we find detrimental to the relationship between Lessor and Lessee.
The bigger units attract a sharper tenant usually, where outgoings are no problem.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Don & Liz,
Who said anything about tying up your entire net worth in one building ?? What are you talking about ?? Owning a 13 MM block doesn’t preclude you from owning other assets ?? You need to widen your scope just a tad.
Multiple tenancies are the norm, locked up with long term iron clad leases with blue chip tenants like top 100 companies and State and Federal Governments…now that’s low risk…unless you know nothing about them, then of course they are very risky. Dealing with 130 different Mr & Mrs Low Income…now that’s risky.
You may have the same amount or more in different classes of assets and a small smattering of different types of property.
“HAVING YOUR ENTIRE WEALTH FIXED IN ONE INVESTMENT IS PROBABLY A BIT QUESTIONABLE.” No it’s not, it’s downright imprudent, but then who is suggesting that ??
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
I read somewhere a while back, this person’s definition of a stress free lifestyle was based on her ability to have the following ;
1. A nice PPOR in a decent area free of debt.
2. $ 10 to 20 K cash in the bank, or enough to easily overcome any imminent bill, such that walking to the letterbox and flicking through the ‘window type’ letters was never a scary thing.Everything else in her life was built around those two bedrocks.
We thought that was a pretty good plan also, and in the early days emulated that. Of late, the scale has got such that, to have ample cash idly sitting by waiting to pay for all of the bills is not efficient use of your capital.
Good strategies for some folks, simply don’t work for others for various reasons { scale / fear / individual competencies and backgrounds etc }.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Hmmm,
A few comments on the above comments. These are just a few examples of why we pulled out of the RIP game…being the puppet on the end of the residential tenants string whenever they call up is not my idea of savvy investing. Each to his own though.
1. “$700 damage to the credit card, and everyone is happy”…ah, except the chap who pays the $ 700.
2. “the tennant thinks I’m a legend because I reacted quickly and fixed the problem”…I wonder what he’s going to do next time he needs you to wipe his nose over some trivial issue.
3. “My details are circulating around the block of flats currently as we are in a big dispute with the painter and the Body Corporate Manager. This is a whole nasty saga in itself.”…residential owners cop it from all angles – no thanks – don’t like playing that game either.
4. “the tenant had handed him an A4 list with about 26 things he wanted attended to”…classic, none of which improve your cashflow one jot.
5. “Good luck to the next poor landlord”…absolutely, my sentiments exactly.
6. “guess its just a reminder to people to act quickly and tenants love it.”…they surely do…tug on that string again and see how high the Landlord jumps.
7. “Now the tenant should be spreading the good word about you to all the neighbours”…should being the operative word, but more likely setting the precedent that you’ll jump again (incurring both time and expense) when they next decide to pick up the phone and have a bleat.
My father owns quite a few RIP’s and he drops everything and trundles around there at the tenant’s whim, who all stand there like useless teats and complain to him about 5 other things they want changed or fixed whilst he attends to the intial problem. This gains him absolutely no kudos in the eyes of tenant and in fact harms his credibilty next time he has to negotiate something important with them. Most think he is a joke, which drives me nuts.
I’ve tried desparately to show him a better way of dumping the whinging / very low gross rental paying residential tenants but he won’t step outside his comfort zone.
Dr X : I general abhor solicitors and court, but there is a time and place for everything, and that one sounds appropriate to wheel in the snarling litigation dogs…assuming you had a lease, which you didn’t mention.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
I don’t have a time budget and when I’m in Australia on “time off”, when I actually work on the IP’s, couldn’t think of anything worse.
My working life is so strictly regimented time wise, I reckon I’d turn into an autotron if I tried that carry on with the time in Oz.
Like at exam time at Uni, or when a big lease deal or contract is about to be signed, I find the stress of a very strict deadline is enough motivation to extract maximum value and activity out of your time.
I couldn’t imagine applying the same to family and relaxation times…imagine the scene ;
Your sitting down with Granny and some cousins having a chat around some tea and scones…suddenly you jump up and say “Whoa, times up, gotta go work on the IP’s, seeya” ???
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
What’s the big deal about owning a large quantity of properties. I’d go for quality every time.
I’d rather own one office block worth 13 MM, than own 130 poxy little houses / units / flats worth 100K each. What a nightmare. No thanks.
I’d be very happy to be in the ‘under five’ class.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Thanks for all of the responses. It’s funny when family priorities and finances clash to see the differing opinions, probably based on people’s different backgrounds.
Oshen, to answer your question, no my parents didn’t have any IP’s at that stage when I turned 18. They accumulated 7 or 8 great little properties before (mostly in Geraldton – all paying for themselves), but sold them all when they moved to Perth and the equity seemed to just vanish ??? Looking back that was frustrating for me to know, but it all happened before any of us kids or indeed M&D really knew what was happening.
What they did do for me at 18 was buy a newspaper round and let me work it for 2 years…hours were really great, only 5 days a week and 7 nights per week. The hours practically eliminated me from all forms of social life – which looking back wasn’t a good thing at all. Sold the business, wasn’t good…money for 2, work for 3.
Left home at 20 to start Uni, supporting myself financially on the money I’d saved before getting a tax free scholarship.
The inspiration for shuffling the children on actually comes from the wife, who went to boarding school at 13, doing all her own washing and ironing. At 18 she shifted up to Perth into her parents IP with her elder sisters who were managing the property. This is when I met her and frankly she wasn’t very good with her money then, but has improved dramatically over the years.
At the end of the day, this event for us is still 9 years away, and, even with best laid plans, the whole scene will probably change in that time. Looking back 9 years ago, our life is nothing similar, having lived in 3 separate countries during that time, so who knows. We may not even be in Australia given my job. We’ll leave that in the hands of Allah.
Caston – in terms of looking for jobs, why not have a crack at being a roustabout or roughneck on one of the rigs at Moomba or Jackson. We used to get all sorts coming through, from illiterate 18 year olds through to 40 year old qualified teachers. Starting salary is about $ 45 K p.a., working 2 weeks on, 1 week off. If you apply yourself, keep your mouth shut and work your **** off, within 18 months you could easily make it to derrickman who are on about 70 K p.a. Gotta be better than doing the 9 to 5 thing in the city. All accom / transport / food / laundry taken care of. I was always amazed at 18 yr old illiterates from Quilpie or Roma got paid more than graduate doctors, and had far more holidays. Have a crack at it.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Hi Marisa,
If you are looking for a larger industrial property to lease, give me a tingle, I have an absolute cracker for lease in a prime spot.
In terms of CIP vs IIP, we only own IIP’s at this stage, but are seriously looking at CIP’s in the CBD and in my opinion they seem alot better, attract a better class of tenant, but more importantly the Directors of the tenants seem to take the lease obligations that they commit to far more seriously than with IIP’s. This is a big issue for us.
Land content in IIP’s tend to be larger – as a gross overall comment…which is a good thing, and zoning typically allows more flexible use of the site.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
It sounds as if you guys also don’t buy into the old furphy of “If in doubt, seek independent professional advice” that’s glibly trotted out as a cure all for any situation.
Great if we were all autotrons, but when human error, laziness and inexperience / incompetence are thrown into the mix, sometimes these professionals don’t cut the mustard.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
James and Anna,
Well done for contributing to the forum. Hopefully people learn from you as you have from them.
I liken your choice (which is your full right) to attempting to travel down the road to wealth as quickly as you can on a busted tricycle with a flat tyre and wonky handlebars, when, parked in the garage you have a souped up Ferrari all raring to go. [bike2] Tinkering with the chain and rusty bell on the tricycle is literally what you are asking advice on…it doesn’t make sound financial sense.
I’m not trying to belittle you or be a smarty bum, but one has to use all the resouces at one’s disposal if you are serious about investing – whether it property or otherwise.
I was under the very strong impression that banks have the ability to sell your house from underneath you in rough times, despite the title deed securely under your mattress and not hocked. Maybe one of the finance guys could confirm. If this is the source of your resistance, I believe it gives you no more tenure than if it was put up as security – unless the title is in a totally separate entity to all of your IP’s and that entity hasn’t gone guarantor.
The following is directly answering your Question # 5.
If you want my humble suggestion, I’d put the PPOR up for security (as your 30%) and go and buy a fully tenanted office block with signed up 5 or 10 year leases for $ 1.2 MM.
The deal would look like this ;
Purchase Price $ 1.2 MM
Total Loan (100% plus all costs) $ 1.28 MM
Interest payments @ 7.2% (fix for 10 years) = 92 K p.a.
Rent @ 10% = 120 K p.a.
Outgoings Paid by tenant
Escalation clause CPI or 4% whichever is greaterIn year one the prop is putting 28 K p.a. ($ 538 p.w.) in your pocket.
In 2015 the rent has increased to 178 K p.a., and the prop is now putting 86 K p.a. ($ 1,654 p.w.) in your pocket.
The capital value of the 1.2 MM place in 2015 is up to your best guess, but I’d suggest it’ll look after you handsomely.
Leave the ‘shifting boxes on trucks’ caper to someone who can’t afford to do what you can. [toff]
Fear of the unknown will stop good productive people stone dead in their tracks if they let it.
Onwards and upwards….[thumbsup2]
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Up to a point Redwing,
My personal philosophy with all buildings has always been look after the roof and the roof will look after the building and stop further damage and more importantly painful whinging from tenants. The 4K you spend on the roof might save you 20K damage next winter. Wet timber for termites, stains on ceilings & walls / mold / etc etc.
I agree that the roof is out of sight out of mind and one of those nasty structural things, but it sure is handy in keeping out the weather, which is the root cause of most of your subsequent troubles.
If I had the choice of replacing a roof with major faults, or fluffing up the kitchen and bathroom, I’d go for the roof option every time. get the valuer round in 6 months time when the growth on the land has swamped the bathroom reno by a factor of 4.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
AXJ,
From where I sit, I concentrate on the ‘steak’, the bit that actually makes you the serious money, and with all houses it’s really really old – like a couple of billion yrs old.
Depreciation and cashflows regarding the box on top are the ‘peas’. Accountants always get in a tizz over those because it’s their area of expertise.
Now if you ask a Geo or surveyor what is important, they’ll probably say the steak… i.e. the land.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
You’ve got a bog standard situation there, where, without you knowing it, are probably not the one who shall make the final choice.
On a scale from 0 to 100% economically speaking, you’ve got an array of choices.
At the 100% economically good level you’ve got the tiniest run down dump in Drossville that you could purchase and somehow exist, with all of the associated pleasantries that accompany it.
At the 0% economically good level you’ve got the flashiest property you could possibly extend yourself to in Flashville that will almost crush you, and make you spin your wheels for the next 30 years but send the lifestyle and pose factor to the neighbours through the roof, with all of the associated pleasantries that accompany it.
Of course in the middle are a myriad of less extreme choices.
I’d sit down with the wife and honestly ask her what her tolerance level is on the scale from 0-100. With a new bub on the way it’ll be high with the nesting factor coming on strong. Don’t be surprised if she picks a 70-80% level choice, in which case you can forget investing for the next decade or so getting rid of your large NTDD.
Or keep going and be happy with your current ‘toilet’ option.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
