Lee,

The clauses in standard RE contracts, are typically “walk away clauses”, unless there is a specific dollar figure mentioned in them.

By “walk away” clauses, the condition simply gives you the right to tear up the contract and walk away if you aren’t fully satisfied. What the clause doesn’t do, is give you the right to haggle and discount the already agreed offer price if you are only partially satisfied with the report.

It’s an all or nothing clause….not a “happy with 97% of it, but you’ve got to chip in for the other 3% we aren’t happy with”.

Have a crack at negotiating with the Vendor if you think they are a pushover, but I’d be very quickly telling you if I was the Vendor that

“I knew about that condition, and all others mentioned in your report, and hence why I agreed to such a low offered price….else it would have been 12K higher….now do you still want to proceed or not ??””

Will you walk ?? What’s the dirt worth on the deal, as a percentage of the deal ?? 10 years down the track – what will the 6-8K be worth to you if you don’t proceed and have to start your DD process all over again ?? Could be another 6 months before you are at this stage of a deal again……all things that I am sure are running through your mind. I find most people don’t walk….especially if the numbers regarding the bigger picture of the entire property look robust.

Same goes for a white ant clause….it’s an opportunity to walk, not an opportunity to haggle.

Excellent response Derek…..people would have to pay $ 100’s of dollars to receive advice that wasn’t half as good as what you just gave.

Sue, be very careful about ‘underselling’ when shuffling….it may save you stamps and CGT….but of course there is a very large and powerful organisation on the other edge of that coin you are flipping around.

The SRO in your state will insist that you have the prop. officially valued such that they receive everything they are entitled to.

I agree with Derek, re-finance as is, and simply keep it ticking along….don’t sell or shuffle….and hence those bigger chaps won’t get a slice of your pie. (Sort of reminds me of the lyrics from Pink Floyd’s “Money”)

Hi Michelle,

For me it makes sense to do the calculation on 0% deposit, that is borrow the lot, plus all of the legals to get into the deal….using your existing equity.

Then, I simply take the nett yield of the prop and compare it against the cost of funds.

Eg ; cheapest money that I can buy right now for what I invest in is 7.10%…..so, looking at houses that have a gross yield of say 3 or 4% and then take all of the outgoings out of that, you are left with a nett yield of say 2 or 2.5%…..compared with what I am paying at 7.1% for the funds…..simple decision – no deal.

As an example, the house a couple of doors down from us sold the other day. Good big land with a recently renovated (the son spent a casual 4 years and 60K doing it up after his mother departed) 2 x 1, 1940’s house.

It’s gross yield, rented out for a max. of $ 300 per week, was 0.92%…yep that’s gross.

When you took the outgoings off, the nett yield dropped to -0.4%…..what a bargain !!!! [biggrin]

That is, with the property fully paid off, and fully rented out all year, the place would still make a loss and you could negative gear it. First time I’d ever seen that !!!

This is a really really tough one and involves so many factors it’s almost impossible to accurately pin it down. Opinions will prevail and cold hard facts will go straight out the window. There are a bunch of economic factors (alluded to above) and then there are a bunch of family / emotional / touchy feely ones. Chuck all them into the mix and it gets tad grey.

Our path way back, had us buying 2 IP’s in Perth (as we knew we’d gravitate back there eventually) and renting in Glenelg SA where we had jobs. Our 3rd prop. was our first PPoR in Perth and about half the value of any of our IP’s. I suppose it was an OK strategy looking back, but certainly not the fastest and hardest track of all. Social standing and pressures from female friends and female relatives were very heavily brought to bear. These are very real and should never be underestimated in your wealth building…..especially if the females are the type that “look rich but are dirt poor”.

There are usually enormous pressures imposed by external forces to purchase the biggest flashest PPoR you can possibly afford to attain the “lifestyle” element as quickly as possible. Try and go the other way to get ahead financially quickly, and all hell breaks loose…..from all quarters but mainly the female members of your circle of influence.

Thankfully my wife resisted those pressures and gritted her teeth and we screamed ahead of all of those detractors who were living in nicer houses in nicer suburbs. They looked down and derided us for 3 years. Nowadays, however, they shake their heads in disbelief at where we are living in a fully paid off PPoR and can’t understand how we can afford to live where we do. It is very very tempting to return their derision that they lumped on us 8 years ago. We just watch them still trying to look rich and in fact continue to be poor. None are prepared to go through the sacrifices we did, but all want to be where we live.

Going the other way is IMO definitely the way to go….get a cheap cheap cheap PPoR on it’s own block of land in some suburb that your friends and rellies fear driving into….and pay it off ASAP. Grit your teeth and go hard for a few years until you get some equity happening.

If you have strong female family members who demand the best in life…material possession wise….upfront before you have equity behind you….I’d simply just pack it all in and resign yourself to the fact you will appear wealthy and yet be poor for your entire life. I meet people like this every day.

Some people may take offence at the above, ‘cos it certainly goes against the common grain of modern society….but then 92% of people in modern society go nowhere economically anyway…..so I’m really directing my comments to the 8% of winners who hopefully frequent this site and are prepared to put in the hard yards…but hey – that’s been my experience…..it certainly isn’t all just economic factors.

Good luck in your choice and try and ignore all of the massive external forces that will be brought to bear.

G’day mspartal,

Congratulations on your purchase. Looking at your numbers (what else matters right – in this game we play )

Gross yield = (200*52) / 235,500 = 4.4%

Outgoings : Not sure you’ve included everything. You’ve got rates (I presume you mean shire and water) and body corp fees which should include insurances…..what about Land Tax and PM fees, or if self managed you cannot do this for free….anyway…

As a roughy lets say 2250+850 for PMing+400 for Land Tax

Outgoings Impost = 3,500 / 235,500 = 1.5%

Nett yield on prop = 4.4 – 1.5 = 2.9%

Cost of money = (300*52) / 235500 = 6.6%

Hence, your property needs to appreciate by about 6.6 – 2.9 = 3.7% per annum for you to break even.

Tax implications will help you a bit, and may bring the requirement down to about say 3%.

Anything less than 3% and you are going out the back door. Any more than 3% and you are making unrealised profits.

So, what did your research tell you about these30yr units, have they been appreciating quicker than 3% p.a. ??

In terms of what do you need to buy to work out the figures…..maybe just a sharp pencil and a calculator…..do you really need to buy anything ??

Hope this helps. Cheers.

Same here…..

Hi marlene,

I’ve heard that so many times during the last good while. What they are really saying is that you money grubbing rich Landlords have got our money anyway and as a special leaving bonus you can have the pleasure of cleaning up our disgusting mess. Marvellous choice isn’t it – the bond money is usually not enough to cover the rent shortfall, let alone all of the costs (time and effort or straight dollars if someone else does it for you) associated with bringing the house back to how you gave it to them. Either way you lose.

This is yet another example of tying your wealth prospects to people’s private living habits…..not for us.

The RTA only allows you to charge 4 weeks rent as a bond, unless the place was directly previously your PPoR, but even then it’s pitifully low.

We, as a minimum, charge 1 month bond, 1 month in advance and 2 months cash bank guarantee…..4 months on the nose before they walk in…..they think twice about trashing your investment knowing they have 4 months money tied up. You sleep alot better at night with this also.

Anyway, good luck cleaning up his garbage. I wonder which ressy Landlord will cop him next ??

I’m not an accountant (thank the Lord for that !!), but the legislation specifically states 2 hectares are CGT exempt for your PPOR.

1 hectare = 10,000 sqm
1 hectare = 2.471 acres

Therefore the ATO will exempt 4.942 acres. Your parents other 5.058 acres will attract CGT if you go down the sell option, unless it was purchased prior to 1985, in which case it will be CGT free. Of course, if it enjoys that privileged position – why sell it and then bring it into the CGT nasty zone ?? Makes no sense.

On a general comment on the initial post, I believe your parents made a fuzzy target in their primary aim when they purchased the prop and had no chance of hitting it. It appears from the info you have provided, their next target of re-arranging their affairs to qualify for the pension is also ill founded.

My parents were in a similar position to yours are now 5 years ago, with the same ill founded goal of getting the pension regardless…it was amazing what they were prepared to sacrifice to get it.. We sat down and got them on the right track. It took a while to change a mindset that was entrenched in the 50’s. They now realise their thinking was completely flipped up the wrong way.

The pension and all of the paperwork BS you need to constantly submit to the DSS is a nightmare to be avoided at all costs if at all possible. It appears from your parents equity in their PPOR this is entirely possible. Try exploring other way more productive opportunities than submitting your finances to the DSS….that health care card the pensioners laud so highly is only worth about 6K….instead, why not try shooting for the stars and settle for something far greater than the pension.