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Hi Julie,
The WA property market at the moment (mid March 2006) very much reminds me of Melbourne, Sydney and Brisbane ~ 3 years ago when people were paying too much for too much in the mistaken belief that property always goes up, and as quickly as it was at the time.
I believe a similar scenario is playing out in WA at the moment as ‘the herd’ starts reading some of the headlines in the press and sees the nightly news and decides that they too will start investing so that they can make as much money as the press is highlighting.
For example real estate agents have rung me and asked if I was interested in selling a couple of my properties this week. In one case they indicated a price $30K higher than 3 weeks ago was acheiveable and in another a property has been listed at $80K higher than any other comparable sales in the same complex.
In another case a REA rang a friend and said that he could sell a friends property for $60K more than it was valued at late in 2005.
Often the herd gets in at (or close to peak) and then watches as the value of their property stagnate or diminish in the short term.
For me I am investing back in Queensland – while I do not expect to make a killing, good research and a long term perspective gives me room for comfort.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113HI Phillip,
At the risk of being howled down and called a ‘Sad Sack’ again I’ll make the observation that these sorts of decisions should have been made before purchase and as part of your research.
A crucial aspect to successful property investment is to know what you are faced with, what you can afford, what value can be added etc and as appropriate to your investment goals before (not after) entering into a purchase.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi Julie,
Thank you for those kind words – they are appreciated.
Don’t be scared to ask those questions – no doubt someone was thinking the same thing anyway and the answers you get here, while not necessarily all exactly the same, are being provided, in the main, by property investors. Surely there is no better group of people to learn from.
I would also recommend you try the forum search facility – which is located under the forums button across the top of the page. I am sure some of your ‘questions’ have been asked before but………….if not ask again.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Are you managing this property yourself as vacancy rates in Perth are currently running at ~1.2% – at this point the ‘advantage’ is all yours.
Under WA legislation you are entitled to raise the rent by 10% or up to market rates. It would seem that this tenant is almost on a subisidised rent scheme, and you are subsidising him.
I would not be overly concerned with losing this tenant and not being able to find someone else. Even if the property is vacant for 2 weeks (which it won’t be in Perth at the moment) you need to consider the lost income not just now but into the future if you retain this tenant at the current rent.
You may want to write a letter to your PM telling them that the rent will be increasing at the end of this lease by $X/week up to $Y/week and can they inform the tenant now. You may find the tenant comes to you and asks to be released from their lease early as they have found something more suitable.
Be wary of your PM they can be a fly in the ointment.
On more than one occasion we have had PMs tell our members that their existing rent is as high as it can be and that no body will pay the new asking rent. More often than not this is proven to be false.
A case in point – a complex of villas in SE area of Perth. Some PMs are sayign maximum rent is $175/week – I am getting $205/week with more than enough enquiries.
Another example members have two units due to settle this week – two applications taken sight unseen and another 40 people on the waiting list. And that is only with one PM.
The key message is do not believe that your property will be vacant for a long time in Perth at the moment. Here we often talk about dropping rents to get a tenant due to demand in the area, it also works the other way at times like this.
Now all of that is not to say be heartless and lack compassion – what I am saying is make decisions based on sound business principles. It is your pocket.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi Brad,
Where is your property?
Vacancy rates (the market) will largely determine what you can do after the expiry of the lease.
Leases can also have 6 monthly reviews written into them.
If you do decide to keep this tenant ensure that you are ratcheting up the rent in line with market forces. If they are a ‘good tenant’ then maybe slightly less than market rates is a happy medium.
Bear in mind that some property managers seem to forget who is employing them – it is you not the tenant.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi Kelbert,
Just had a look through todays real estate section and noticed that $300k will struggle to buy you a 1 bed apartment in Subiaco. A quick skim over the ‘To Let’ section tells me that most purchases in Subiaco will have a lousy (and I do mean lousy) rent return.
A skim of Mt Lawley For Sale and To Let section has a similar result.
In my opinion you may be better off heading a lttle further out and maybe picking up something more standard eg villa, townhouse or house and land in suburbs around some of the satellite cities of Joondalup, Midland, Gosnells or Rockingham.
While demographics are changing and the one bed apartment market is growing I prefer something a little more ‘regular’
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Originally posted by wealthangel:all of my properties are CF+
Hi WA,
You haven’t identified where your properties are located and this may be important.
As i understand it (one of the brokers will correct me if I am wrong) If they are in more distant places a no doc loan may be a little difficult to obtain as some no doc lenders are averse to lending in some more distant parts.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi Kelbert,
A fairly safe approach and if your objective is long term growth then you should be fine. In saying that I would also suggest that you establish why you are investing and some timelines to help you along the way.
You will need to check your cashflow projections as rental returns in Perth are not flash at the moment and as such you will need to structure your loans correctly and to your advantage.
I would also recommend that you check availability of property within your price range as median house (not unit) prices in Subiaco and Mt Lawley, in particular, are well above your stated limit.
That is not to say they are not out there (I haven’t looked in today’s paper) but check that they do meet your chosen goals.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi fbd,
If you set up your line of credit for $200K and only use $100K then you have at your hands an additional (and easily accessible) $100K. This will remain in the account until drawn.
In essence your first $100K is deposit for property one and the other $100K is available for another deposit.
In setting up the initial facility of $200K the bank has established that you have sufficient security and income to service the $200K when fully drawn. They would have charged fees etc based on $200K but will only charge interest on the amount drawn.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi LA,
I have a mate, Terry Watt, working at Prime Real Estate http://www.primerealty.com.au/ – they are based in Joondalup so may not be to your liking. Equally he may be worth a call.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Originally posted by iamsooty:The other thing we did was ask everyone who offered us advice about the properties they owned, and about any recent purcheses they had made. Got to tell you, a startling amount of ADVISERS and REAL ESTATE agents either do not own their own property or have not purchased in recent times. This is important to me … right now I am dealing with a broker who freely admits that he is an investor – he will probably sit back a bit (all the others did!!!) when I get a little specific and start asking for details! (Bit of an advantage having a media background – I do know how to ask the questions!!!
Hi IAS,
Your first point is very important here and you are dead right.
Many financial planners know very little about direct property investment and if you search through some of their training websites you will see how little of the training programs cover direct property.
http://www.tribeca.com.au/content.asp?Document_ID=303 and/or
http://www.tribeca.com.au/content.asp?Document_ID=304 as an example of what is typically included in any FP training program.On a similar note there are a large number of REA who do not own investment properties. Approximately 5 years ago the Vice President of REIV was quoted as saying that approximately 20% of REA owned IPs. Now this percentage ay have changed somewhat over the years but I find it amazing that only 1 in 5 Victorian REA (at the time) invested in their own area of ‘expertise’ [bigeyes]
Now, as for the second bit, about asking questions. Some of the reluctance may well be due to our general societal expectations/habits of keeping private financial stuff private – maybe wrong but you’ll get my drift.
By the way great to see you have made some great decisions and your pathway has opened up for you.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi Ryan,
The first trip (prior to purchase) is not deductible rather the expense can be claimed against as purchasing costs and used to offset any capital gains tax liability in the future.
If on the other hand you visited after purchase this trip is deductible under most circumstances.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi Andy,
Pending the outcome of your various investigations there is another thing you may want to try Andy.
You have some months before bub is due and in this time your wife will continue to work. Pretend she has stopped work and milk her salary off into a ‘do not touch account’ and see what living on one wage is really like. You may find that you can actually do it anyway – sure it may take a little review of life’s pleasures but……..
Certainly everytime we had major changes in our life (first child, secoond child, periods on no pay, eldest off to Perth to go to school, large mortgage etc) we initially wondered how we were going to do it.
A comprehensive budget and a little pruning of our lifestyle here and there and things always worked out for us. I believe we (the collective we) sometimes tend to think ‘both’ salaries are needed and often live to that level whereas in reality we can live on less.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi L & S,
That is a very good point you make.
Buying an investment property is often hard enough – to go somewhere out of the comfort zone is another challenge to an individual’s state of mind.
For some it is relatively easy, for others impossible.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi Herks,
The best answer is really dependent upon your financial situation, the amount which you are prepared (and/or able) to gear and what your goals are.
Cashflow and growth in a simplistic sense are really at opposite ends of the investment scale and there are those who will argue until they are black in the face for both options (and probably others in between too)
If you do choose to negatively gear then try to select a property that will grow in value fairly consistently, such that growth helps ‘compensate’ for the negative cashflow.
Also bear in mind that negative gearing is more suited to higher income earners and without knowing your income, goals etc it is really difficult to comment further.
Nonetheless hope this helps.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Originally posted by Chelley:Thankyou all for your advise. We have always obtained finance with the one bank so that we could borrow off the equity for future purposes – I was lead to believe banks won’t lend you money using equity on property that is financed by another bank. Also that by having all lending with one bank we get a discounted interest rate.
Therein lies your problem Chelley – your bank has hamstrung you for their needs and not yours.
It is really simple to set up a line of credit/equity loan using your existing property (ies) as security. This then provides you with the capacity to go to another lender and say ‘here is the money for the deposit and costs can I have the remaining 80% or 90%’
Now this is a simplistic explanation of the process as different banks have different lending policies and you may find yourself reaching the serviceability limits of more than one bank sooner rather than later.
Therein lies another problem – everytime you make application for a loan and a credit check is made you get another ‘hit’ on your credit reference. Too many hits (particularly if the loan is rejected) sends alarm bells off in the next institution and so on, you are in a vicious cycle.
A good broker, who deals regularly with investors and who fully understands what you are trying to do in the long and short term, will help you set up your loans structures correctly from the beginning.
I am always amazed by articles in API which feature low income individuals or couples who manage to build up $1m portfolio’s, it blows my mind how they get financing for this. In my experience banks seem to take a highly conservative approach with servicability – it is like they make the assumption that all properties will be unrented and your income is half of what it actually is.
This is another instance where a good broker comes into their own.
Banks are limited by their range of products. A broker, on the other hand, has access to a range of lenders and their products and will generally source a loan that suits your needs.
A classic case in point is the availability of no-doc loans which most banks steer clear of. Other lenders have these products which enable people to borrow considerably larger sums of money provided they have sufficient equity.
Sure there is a slight increase in interest rates but it is only slight and if a no-doc loan enables you to increase your portfolio in a manner consistent with your goals and financial and personal capacity then it is well worth it – in my opinion.
Some of the people you refer to as appearing in API have made prudent use of no-doc loans to futher themselves.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113The January Edition of Money Magazine had a budget planning sheet that may be of use.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113I would strongly suggest that neither locality is a suitable investment.
If it is cashflow you are after I am surprised you cannot find something closer to your place of residence. While these may not be cashflow positive in the strictest sense of the word they would make much better investments than either Laverton or Kambalda.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi Brian,
I have found it unnecessary to have ready access to my accountant. Once he/she knows what you want (and vice versa) then i find there is little need to see my accountant face to face.
So you may even extend your search a little wider.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113HI andy,
Bugger – back to the drawing board.
OK lets consider the issue of stamp duty – how much will the bill be if you bought your wife’s share out?
Yes it could be a knock but in the bigger picture it may still be worth paying. Micgh be worth another call to the OSR.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113
