Forum Replies Created
Well said that cashflow keeps you in the game where cap gains makes you rich.
Most of the deals I see are only 5-6% return so they dont pay for themselves, costing you considerable cash each week out of your pocket.
Don’t instantly think any deal will generate cashflow. Buying in an area that is due to get natural rental growth, then adding value through a reno will definitely get you a great return in this flat market.
Bought one feb last year at $100k in Kingston only getting $110/wk rent giving a measly 5.2% return. August came and the lease was up[biggrin]. Goodbye tenant hello reno. Reno was tiling the whole ground floor, painting top to bottom with gloss enamel trims and doors, rangehood, exhaust fan, downlights, carpet in the bedrooms, new loo and vanity, new taps and shower head and new curtains. $7328. So then I rented it out and got $165/wk on a 12 month lease instantly. This gave me a 7.5% return which covers the mortgage and the management rate thru the agent.
The holding costs out of pocket were $780/yr body corp fees and $1280/yr rates. So $2060/yr in yr 1 to hold the property.
Second year you have as a deduction the $2060 and any reno components legally claimable. Get a depreciation schedule on it and get between $2000 and $2500 in the first year for one of these and you average $2250 deduction. Add $2060 actual first year cost, add $2250 for your depreciation totalling $4310. Then add the actual schedule cost of $330 and you get $4640.00 as your total year 1 deduction off your taxable income. $4640 x 30% tax rate and you physically save $ 1392.00 of real $$ you dont contribute to the tax man[biggrin].
Ok so if you have followed this so far you can see I havent included the reno costs as they vary greatly depending what work you do. This would further reduce your tax but for this example I wont add them in.
Year 2 comes around and you still have $2060 actual costs to find for your property as holding costs. Your $1392.00 still in your pocket after doing year 1 tax means you would only need to find the difference of $668.00 out of your income to keep the property year 2.
All this shows is the figures based on an example of what I did.
Year 2 your depreciation figure would be less but this is then offset in your rental increases keeping it fairly stable for the next 10 years.
So this isnt actually cashflow positive, by any stretch of the measure, but personally this then become sustainable and repeatable which is what we all want. Eventually all of the costs get away from you and you have to slow down, but you never stop.
This climate is uncertain, due to high owner occupier demand and emotional buying, interest rate expectations and investors being cautious at the moment, so diligent searching is required to find those panic sellers and bargains that still occasionally make the figures work. It is getting significantly harder to find this sort of thing, but they do exist.
So with many people reading Steves first book and wanting a 10% return with cheap body corp fees and rates and great cap growth potential, think again. He addresses this in his second book but lets see what the new thrid book will bring for us all to lap up.
Happy Hunting
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Alotti, the one question this also raises is, if they are successful investors why are they doing other peoples profiles and not working on their own full time?
Be sure that the assets they show in their A+L spreadsheet do include liabilities clearly and the LVR. If they are too heavily geared in their portfolio, that in itself shows they need to fund it externally, hence the J.O.B.(just over broke!!).
So just temper their advice with their actual position. Mainly make informed decisions and follow your instincts. You wont go far wrong.
Good Luck
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Land tax in tassie is on the first $1.00 of properties bought for investment purposes, there is no threshold like in Qld. If its not your PPOR it gets hit with land tax.
Secondly the higher management dfees in tassie is right. They usually are 8.8% and there is a 2 week letting fee not 1 as in the other eastern seaboard states.
However I do a lot of business in Launceston and can get 7.7% for my clents even on a one off basis. Cant get out of the higher letting fee though.
Thats about it. Land tax calculators you could fins on the web so maybe adding a couple of hundred a year to your holding costs calcs would be a good idea.
WA is worse for charges and fees. When everything was deregualted there, instead of price competitiveness the local agents who think they are gods gift put all their rates up.
So now you may get 8.8% in WA but you also get the cheek of them demanding $66.00 initial inspection fee, $45.00 qtrly inspection fee and 2.5% on top of any tradesmans invoice as a referral fee. Totally rude if you ask me and this is from having 2 over there until recently.
So tassie isnt that bad after all!!!
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Fivetalents what you are suggesting is sometimes called the 4 pillars approach.
This is where you first acquire 4 cashflow positive properties. This these days is usuallly achieved by finding properties as close to neutral as you can and improving the return by renos and rent hikes over time.
Ok so now you have 4 properties pumping out cash to various degrees. This then allows you to find one growth property which is then neg geared to a similar amount that is generated by the 4 “pillars”. The growth property is then the “roof” on this structure and then you set and forget these five and start again.
As you are getting good cap gains from the “roof” property, you now use this increased equity to fund the deposit on a new “pillar” and start the process again.
Basically the 4 pillars aproach.
Hope this helps.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!$35/mtr is thru the tile shop. Same guy for cash did the job for $25/mtr.
Last one I did myself it was 3 1/2 sqm small bathroom floor.
Problem was it was lino, then lino then 1973 newspapers that had stuck to the timber. Removed and puttied up the floor then 2 days to wet area seal properly and let it cure overnight then with my diamond blade making easy work of it did the tiling in a day. Preparation is required prior to just laying tiles. A wet area needs sealing and if you remove old tiles its always best to loose a day membrane sealing than to do the whole job later due to a leak.
Good Luck.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Simon, again you are spot on when you say most FP’s arent worth talking too. I am passionate for property and have a reasonable portfolio myself. What i cringe at is someone going to a bank and being disuaded from property investing and into managed funds, bonds and other asset classes which will gain for them a much lower return and get the FP a great many $$thousands in fees, both upfront and as trail.
I have done my FP course and have my diploma. However I do not suggest for one minute that I would do a fin plan for anyone. I suggest go to a mortgage broker and see what your financial borrowing power is, then determine yourself what you wish these funds directed to.
Richard unfortunately gets offended when I post anything in here and for that Richard I appologise. I will never however, appologise for agreeing with someone when I believe strongly that they are right.
Ask a banks financial planner and 90% of what they recommend are from the banks perspective not yours, ask an insurance financial planner and guess what, you get thier spin on where your money should go. In a class of 43, 38 were mortgage brokers just complying with requirements and looking for the extra commission hit for the Financial Plan.
All im saying is be cautious with everyone you deal with and ask where their loyalty lies.
You can see what I do so im not making any outrageous claims here.
Good Luck with YOUR decisions.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Sorry I cant help there but the southern subs of Brizzy around the Logan Central area is strongly recommended for cap gains in the next 5 years.
Several new infrastructure changes taking place will again lift the profile of this once rough and undesirable area. Prices are relatively cheap allowing for good returns and as rents rise, the less favourable element moves on.
A corelation to this and Mount Druitt in Sydneys west is the same socioeconomic factors affecting the area and now you cant get anything under $300k in Mount Druitt where they were easily available in 2001 for $90k. Look at the changes, the roads, the community services and a recent(unconfirmed) rumour of a 5 cinema complex due to go in and you start to see the picture.
Whatever you do good luck and I’m sure several people will eventually reply with the info you seek.
This forum is great, and with all the good occasionally you also get the bad, so get a feel for whats right for you and not just what someone wants to sell you.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Thanks to Derek for those yummy figures. My 13 ip’s in seq are looking good. As a specific on rents, one agent i deal with was recently offered a bribe to jump the queue for a rental property in Kingston.
Rents are definitely rising and the market is swallowing in quick time anything that becomes vacant. Its all out there waiting so go and find something soon.
Projections in a recent API has the next boom 2008 to 2010. This means that if you can stomach the startup costs now, may be a good time with a few panic sellers starting to appear, to get a foothold into property. Later this year if the rates rise again then there will be some bargains to be found, so if your gut feeling on those properties you are looking at dont pan out, being pre approved to jump on the bargains later is the right move.
See a broker or three. They will all offer “the best deals” and they will all differ. Get along to some neg gearing seminars as a what not to do exercise as those who are heavily exposed will struggle with further rate rises.
Keep asking questions here as there are supurb seasoned veterans in property investing to share their knowledge and expertise with you.
Dont be afraid to do something. Doing nothing is going backwards.
Happy hunting
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Anything west of Burnie is to be avoided. Burnie with 20k pop and Devonport close by with 25k pop are the best top end of tas locations. Burnie rentals have been slow compared to other towns to rise. So for an average $125k purchase you would still only get $140-155/wk rent there.
Ravenswood in Launceston actually did have about 40% of all of the housing commission houses sold off about 6 or 7 years ago so now its a better mix of owners and renters. There are 2 sections of Ravenswood as well so if doing research I suggest doing it properly.
We have 1 in Ravenswood, 2 in Rocherlea and 2 in Waverley, all suburbs of Launceston. With its status as the second largest town in tas, and Georgetown 20 mins north having a pricing boom as well due to the forthcoming timber mill and 500 new jobs, the top end older housing commission suburbs have an added appeal.
Tassie can be very bad(west coast) without any agent being brave enough with the changing fortunes of the mining industry, to even have an office there. Alternatively, buying 3 years ago for $72k and $88k for our first 2 in Launceston, now valued at $140k and $155k and both of the rents going up to $160 and $170 this coming month (September), all is looking good.
But either do a hell of a lot of research yourself or use the services of someone who has already done it for you like a buyers agent.
Whatever you choose to do, happy hunting.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Cata, its a shame that o many so called professionals give biased (or who pays the paycheck) kind of advice to starters interested in investing. Sadly too many get discouraged from their first experience and their hopes dwindle as the mounting frowns from those they approach weigh them down.
Nice to see you saw yourself past the guff and moved on to greener pastures.
We once had a bank manager frown at us wanting to release $210k equity from several properties to buy more. He, needless to say, missed out on the reschuffle, as well as the 6 new IP’s we bought in that hit.
We ended up in getting bank B to release the funds and lender R to take on the new 6.
Keep smiling and happy hunting to all.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!So glad you again rise to the occasion Richard. Thats why I said go to somone who knows their stuff and only gave generalisations.
If it wasnt a complying superfund it couldnt even be a self managed fund so wow what a clarity of thought. Take a deep breath mate it would do you some good.
How many investment properties do you currently own? As a fellow investor it would be nice to chat sometime and see we are actually on the same page and trying to help someone, whatever our personal beliefs are. Nice to see you have done you advanced certificate, that must have been the fruit loops one not cornflakes like mine.
Lets stop this it is silly. But an honest thank you for clarifying those points.
Jae, sorry.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!If its now been a while on the market I would assume they would be more likely to take a lower offer. So if the property has its local infrastructure and isnt in a one horse town(1 major employer in town) then its one to jump on.
You didnt say of it was a one bedroom unit or a three bedroom house in a less accessable area. I would assume if it was a 2 bedroom townhouse anywhere in the greater brizzy region it would have a non existent vacancy rate. I recently heard of one agent recieving offers of bribes to get someone higher on a waiting list for a particular property.
So with the average for my 6 south of Brizzy being about the $7-800/yr body corp fees and $1350/yr rates your holding cost would average out around the $2100/yr mark. If the place has recently been renovated or you do one, then your annual maintanance is also brought down to nearly zero. If the area is susseptible to termites maybe a barrier or annual treatment/inspection fee would apply. Barring anything strange from the body corporate like an extraordinary fee due to another owner enclosing a carpark without council permission, or something of that strange nature. Your holding costs would be little more than the $2100.
Depreciation on these properties averages out at about $2200/yr first year and reduces from there. (14 yo property) Our 2 specifics for depreciation were $2073 for one unit and $2487 for the other one we did depros on last year(thats how I got the approximate).
So $4300 deduction of your tax in year 1 means at 30% tax rate you phisically dont have to find $1290 towards your real costs year 2 of ownership.
So as an example only, from the $2100 actual cost and having a real tax saving of $1290, your actual out of pocket could be $810 for the year. Of course if you have a hot water system blow or something of that nature you could add another $1k to that amount.
On a $100k property assuming you get the deposit from equity elsewhere, you are then funding 100% or 100k in this case.
$155/wk means that it is recieving 7.52% gross return.
Allowing 7%(this week anyway) for mortgage and 0.5% for management you are hitting $0 outlays apart from the $2100 holding costs.I would definitely be buying this if itwere in a reasonable location.
Good Luck on your calculations and research. Dont forget, its only you that can make this decision and no matter how many replies or opinions you recieve, they can only be a guide to assist you to finalise your thoughts before proceeding.
Happy Hunting
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Thanks Di, such a pleasure to deal with switched on professional like yourself too.
Great to see you assisting others in here too.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Another tip prior to selling would be to do and maintainance or improvement for the whole block prior to sale. A new carport or air conditioner per unit would add to your sale price and the cost of the imporovement can only be ofset against capital gains so you maximise your deductions before paying tax. As you would do all 4 at once you would also get a price reduction on the work on the other three properties. This is maximising your buying power while you still have 4.
Again, well done on the profit.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!If on the other hand it is a self managed super fund your fund can actually buy property outright as no super fund can get a loan and take on debt.
There are several ways to proceed with this and if you use your super funds(if enough) for the whole purchase, it is an asset of the superfund so any returns have to stay in the super fund and accumulate. This would allow you to use it for super life cover and to invest in other asset classes such as managed share or property funds and international fixed interest returns as a couple of examples.
Another way is if you set up a trust and use say $150k out of superannuation to invest in a $300k property, the other shares in the trust cannot be owned by an interested party in the trust such as yourself. Therefore you could use all of that super money as a 50% purchase and a friends company or superfund could buy the other 50%. If it was in their individual names they could go through normal finance and approval means to supply their 50% for the purchase. Each of you would have equal shares in the trust and the property would be owned by the trust. However dont forget all of the income recieved by your 1/2 would have to be kicked back into your super and not accessed until normal retirement and then you have several options again.
So Im sorry Qld007, your answer was not fully accurate. Thanks for letting me suggest other options.
Basically you need a good financial planner that knows their stuff and is not limited in giving advise by whichever insurance company or bank pulls their strings. A great accountant who also has their own property portfolio will also be neccessary. So for those out there who use ther mums and dads accountant who has a nice cardigan or waistcoat and is polite to you isnt necessarily the right man for you and your business of property investing for your future.
Super funds are taxed at 15% going in, 15% ongoing and 15% on removal. This means that in most cases your reduced up front tax means your $$ are working better for you to accumulate wealth for your retirement and your final slice of tax is only paid after you have maximised your wealth in your superfund. It makes good sense to people on higher incomes especially to look at every option for tax minimisation.
Another tip is to use the spouse contribution scheme to reduce the main breadwinners taxable income. Each year you can contribute $3k to your spouses superannuation and it reduces your personal income tax by that amount. So you effectively bolster your future comfort by dropping the money into super. The tax department are happy as the government then have to fork out less when you do retire in payments to you, as you would be better self funded.
All a bit of fun, but basically go and see someone appropriate that has the full story.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Against my recommendation in Brizzy 18 months ago one of my clients went with a certain agent for management because they were the cheapest. In The 12 months they were there, they had 4 changes of property management, 3 maintainance projects started and not completed. A massive bill for fixing a sliding door due to the tradie having to attend the site 7 times before the agent was there with keys to actually do the job, and the total frustration of my client with the whole process, having to fly from Sydney to Brizzy to have a go at them directly before things were actioned on was all too mcuh for them and they nearly sold. Had they sold it would have been just before the recent $25k hike in prices in the area and they would have never invested again.
Thankfully this has been solved by the new managing agent who has 5 staff for 480 properties instead of the 3 staff and 800 properties the other place had. So rather than how many years in the industry, check on how long each of the current staff have been in their current position with this agent, again check numbers managed and confirm you will have one contact and not several if you have multiple properties. This is vital for accountability. If more than one person is responsible, you guessed it, no one is responsible if something goes wrong.
Check your statements and confirm with simple calcs from time to time that the amount of commission agreed to is being actually charged, and also confirm what is defined and included in the management fees so you dont get hit with costly hidden extras. Perth agents give you a reasonable management fee but then charge extra for inspections and 2.5% above invoices for trades. All very rude.
Cross out the 90 day termination clause they all have on their agreements and write in 30 days and initial it. This means that if they prove useless and you change managers you are not liable to pay them fees for longer than 30 days.
Any good managing agent taking on your properties will usually forgo the 30 days commision for the first month to get your business. This means as you are still paying the old useless one you are never hit with double management per property at any time.
Gee I should write a book.
Anyway, enough ranting and raving from me.
Good Luck and dont take prisoners…..take profit!!!!
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Firstly Jazzboy welcome to investing. The sometimes bumpy, sometimes smooth rollercoaster we all have a go at.
With interest rates looking to be certain to rise if you believe the media hype, we are all looking to again tighten the already near to breaking point belts of ours. However, with investing this could do one of two things, stimulate those nervous nellies to get the splinters out of their collecive bums and finally do something, or for those butterfly type investors to panic sell a few choice properties from time to time as they head for the hills or look to shares again.
I strongly believe that property is the smartest way to increase your bottom line over time.
Historically, property doubles in value every 7 to 10 years worldwide for the last 200 years. This means that anything bought now will be worth twice as much if you hold on and manage your investments correctly. There are odd pockets that buck the trend, but with such a high percentage of even mums and dads investing these days those pockets are getting fewer and harder to find.
Ok, so you are thinking what to do. Well the day after the last interest rate rise, I as a buyers agent sold 5 units to one buyer, and three other properties, all in that one day. So bucking the trend of close the doors and keep your voices down so the wolves will go away, several investors went wow, we better do something now and maybe lock in the interest repayments before the next hike.
We actually fixed the interest rate on three of our properties the week before the last rise at 6.94% for three years.If you do your homework on the properties correctly and find out your actual physical costs or holding costs now for a property, and it is a doer, factor in your $$ contribution, allow for tax deductions of rates, body corp fees, management fees, interest on your loan and expected credit back from depreciation to boost your deductions properly, then make an informed decision and move forward.
Getting it through to settlement can sometimes feel like you are running a marathon if your support team of a good solocitor, mortgage broker, pest and building inspectors and agents arent of the highest calibre. Be methodical, but dont drag your feet, as in many cases should you believe it is a good investment, others will too.
Interest rates will rise and fall as the economy both local and global come to terms with oil pricing levels, international conflicts and who won the footy on thge weekend. Something you cannot control and are financially influenced by has to be frustrating, but not making a decision, not investing, not having a go is basically not an option. Which choices you make on those factors you can control is vital for your SANF or Sleep At Night Factor.
Take the deep breath and jump in the water, it may be a bit cold and unforgiving to start with but boy is it nice after a little while.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Once you have a feel for the areas from the wonderful resources suggested above, dont be shy about aproaching realestates in the areas of interest. As well as touching base with people you may have to do business with shortly, you also get agents happy to let you know oabout those things not reported yet, like a new Maccas or Aldi going in or a new community centre or uni campus.
Never be afraid to ask questions, as after all, the only silly question is the one you DONT ask!!!
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Well, a quiet and informative night with Anne and Tom discussing their reno on their rental property locally. Availability of tradesmen and the general ly higher costs of trades these days.
So thanks to those that made it, and we look forward to seeing you next month when we have a finance broker from Brizzy coming to chat mortgages in the changing market, see you then.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Daniella, do you live in Penguin Tassie?? It is nice there, very relaxing.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!
