HI Tiger,

Not sure where you get the 'likely to give 4% growth figure from" as growth is not predictable.

Median house prices in Melb went from $40,800 (Dec 1980) to $565,000 (Dec 2010) which equates to a long term growth rate of approx 9%/annum. Now this is not to say a similar result will be achieved in the next period of time. Source REIA.

The Melbourne market has done pretty well over the past three years or so and probably due to run out fo steam pretty soon. Certainly this has been the norm in markets such as Perth, Brisbane, Sydney, Darwin etc which have a drop off or extended flat period after a price surge during the last 10 years.

I don't see Melbourne being any different to these cities and fully expect Melb prices to stagnate at best.

So while negative gearing is a strategy employed by higher income earners the tax saving in the top bracket is still only ~50c in the $1. That is OK in a period of growth and if you are in the top tax bracket but not at other times IMO.

This then brings us to rental returns. Rents rise and fall on the basic supply and demand equation. Over the past 12 months Melb vacancy rate has gone from 3.3% (Dec 2010) to 4.4% (Dec 2011) so I expect the potential for rent increases in the short and medium term are somewhat limited IMO.

To summarise at 4% growth (predicted) and 4% rent return it could be sometime before you appreciate the benefits of property investment decisions in the Melb market.

My thoughts only!

Hi Mackka,

Therein lies a problem – not all experts are created equal and sometimes differentiating between the two is a challenge in itself.

Pretty important your broker is also a property investor too. Be wary of those branded mortgage broking companies – some of them are really just loan wirters.

Bit like those multi-national tax return companies. Yes they can do a tax return. But can they look after your tax affairs, probably not.

Hi Mackka,

Definately step back to move forward – grab Richard's offer and review your current structure.

While you are at it you may find there are other 'better' lenders out there for you and your situation.

Hi JayDee,

I would like to include rent return assessment in my response.

What is the asking price?

Hi Ryan,

From the ATO's Rental Guide

"If only part of your property is used to earn rent, you can claim only that part of the expenses that relates to the rental income. As a general guide, apportionment should be made on a floor-area basis, that is, by reference to the floor area of that part of the residence solely occupied by the tenant, together with a reasonable figure for tenant access to the general living areas, including garage and outdoor areas if applicable."

As Wobbly has stated above there could also be CGT issues to consider. The 6 yr rule may negate some of this – check with your accountant..

I assume  you have building with landlord insurance coverage. If so you should also have public liability coverage too.

Dispute over bonds will be heard by the relevant authority. If your property manager has good reports, pictures etc to prove why the bond (or part thereof) was retained the tribunal should rule in your favour.

Exactly how are you supposed to be liable for the neighbour placing illegal substances in the shed in your property? Me wonders how the tenant didn't know about the drugs in the shed or why they didn't report the matter to police. A colleague in crime perhaps?

Recommendations
Keep good records.
Make sure your have copies of your PCR & each quarterly inspection report and photos all filed and in order.
Retain copies of all correspondence with your PM.

Then sit back – chill out & wait for papers to be served. Your tenant could be playing the diaffected tenant threatening you with everything under the sun in order to get their money back. Sometimes loss of money does strange things to people.

A question – how did the tenant get your email address? I take every step possible to ensure my identity is not known to my tenants. You employ a property manager to be your 'go between' – they should be dealing with  the tenant and not you.

This would go a long way to explaining why your valuation was so low. The valuer would have done the same research and has come up with a similar realisation to you.

Listen but do not sign anything – tell them you need to speak to your accountant, broker, partner, parents, financial advisor etc before you make a decision.

You are on the verge of making a big and important decision so take your time.

House and land packages being sold to investors are generally located in suburbs located some distance from facilities and in suburbs with a domination of first home owners.

If your suburb is largely made up of first home owners you'll be exposed to their financial situation. Bearing in mind FHB tend to be highly leveraged and over capitalised and are exposed to interest rate movements.

The other strategy marketign companies often use is 'you'll save' stamp duty because stamp duty is only levied on the land value and not the finished product.

You'll also need to investigate the backgroun of the building company. On time – on budget is essential as you'll have interest to pay on your block loan and also on your draw down payments. How ill you feel seeing all of the money going out the door without any income coming in during construction?

If this is your first property – make sure you are mentally prepared for delays, no income etc before you enter the contract.

Hi Young,

Wow – lots of questions.

Darwin looks to offer some reasonable capital growth prospects in the near future. It wasn't that long ago that Darwin was very expensive so you'll need to consider whether or not it can resume forward momentum again in the near future. It is not always a given – Sydney as a single market wallowed for a number of years after their surge in prices in 2002/03.

The borad concept of buying a shared rental facility is sound and taking advantage of first owner incentives is a wise move along the lines you have described.

Congratulations on saving such a large deposit – you will probably find your lower wage will heavily reduce your borroing capacity and a sizeable deposit will be required. Speak to a good broker about this situation. I am not a broker but the projected rental income may be required to sustain the required borrowings.

As a rule of thumb most markets tend to move as a whole unless you are able to utilise some renovation or cosmetic repair or specific improvements to the property to accelarate the growth of the area. Some people swear by buying older and adding value whereas others are content to buy newsih and track the market.

Hope this helps.