Agree with the comments above, I would just add that the most accurate method would probably be to engage a valuer to provide you with current valuation AND end valuation (based on the schedule of work you plan to do).

Banks use such end valuations all the time (mainly when financing construction loans).

Hope this helps? 👍😎

Cheers,
Ethan

A simpler solution might be your friend applying for a loan with a lender that will take into account only 50% of the loan on the existing. The lender will also accept only 50% of the rent but overall, this could work 👍😎

Terry’s advice is solid. Getting the equity available for use and knowing your borrowing power afterwards is step 1 IMHO.

Only then can you proceed to actually purchasing anything. What to buy is eventually your choice, suggestions from anyone may help or may overwhelm you (and from your description it sounds like you already had your share of ‘too much information paralysis’ so I would definitely focus on step 1 mentioned above first).

Hope this helps? 👍😎

Hi Ben,

We probably lost most readers already (long posts…) so I’ll keep my replies as brief as possible.

Ben wrote:

1. The $100,000 arbitrary income figure is simply the rental income from 5 “average” Australian properties:- approx $20k per property or $380 per week per property. It is also the annual income figure I used to represent “financial success”.

No worries but why look at 5 properties’s current average return? Why not 2 properties that were bought 20 years ago and provide now each $50K rental p/a?

Ben wrote:

2. Using the historical purchase price to calculate rental yield is wrong. Any accountant will tell you that they would not use the purchase price of $58,000 for a typical Sydney home to calculate the rental yield an investor is getting today simply because the property was purchased in 1978.

Are we talking accounting laws or property investors’ strategy? ;-)

If I bought the property at $58K in 1978 and today it brings me $116K rent (see? sometimes 1 property is more than enough, no need to buy 5 ;-) ) then my real yield is 200%. The fact that I can sell that property off for $4M and therefore the yield to the buyer would be 3% is maybe relvent, maybe not.

Ben wrote:

Tthe main limitation being the finite number of rental properties and the need to have approx 5 rental properties to replace a typical working income.

Disagre that one needs 5 properties as illustrated already above.

Ben wrote:

The ones that only own 1 IP are removed because for over half a century this number or percentage of property investors who only own 1 IP has not changed significantly from 70%. I don’t know why it is but this has been the case for a very long time.

Yeah, well, sorry but that’s definitely torturing the numbers by cherry picking the data to suit your theory. You took away 70% of the stock and then let 100% of the population to fight for the remaining 30%. It’s either or. Either 70% of investors are out of the game (them and their properties) or 100% of the investors (not the population, since not ‘everyone’ will do it as we already agreed) are in the game with 100% of the stock. How does these options change your calculations?

Ben wrote:

I wanted to do more than just point out why everyone cannot do this and to go a bit further to try to put a figure on how many can do this with the result being that only 1 out of 100 people can use non-commercial property as their main method for becoming financially successful and why this is the case.

I definitely agree with some of the points you made and I really appreciate the effort you’ve put in to come to a definite tangible number on ‘how many property investors that live off $100K p/a rental income can exist at the same time in Australia’ but I disagree with the methology. The example aboved showed 1 investor living off 1 property (albeit bought 40 years ago but it does tick your ‘success’ criteria).

What I’m trying to say is that the formula you’re using is lacking dimension of time. Rents grow with time so $20K rental income today = $100K tomorrow so sometimes even 1 property is enough to be ‘successful’ :-)

How does adding a time dimension change your calculations? Probably significantly…

Hope this makes sense? :-)

If the only issue is the val coming low, then it may be prudent to do some val hunting?

How did you get this val? Direct from the bank or was a broker involved?

Is it an upfront val or was a loan application submitted?

Definitely not to MYOB 😉

My 2c:

From my personal experience, vendors prefer simple arrangements (KISS style). Once you introduce things they never heard before (such as them paying the stamp duty), you might find more resistance than it’s worth.

Happy to hear issue has been resolved 👍😎

I would definitely honour the amended agreement with him. Would probably not use him again though 😉

Sometimes you find properties that were built in a certain way (for example: without setbacks) and it was approved by council back in the day. Theses days, however, you won’t be able to build same, even if it’s next door 🤓

Hi David,

A few questions come to mind:

Do you reckon it’s realistic that the vendor will accept such a low offer?

How confident are you that there won’t be an issue with the fire rating of the walls? (aka the biggest killer of strata titling)

Strata costs can easily inflate if council will come back with certain requests (such as separate water meter for each unit etc etc)

My experience is in NSW only so not sure how things work in other states but generally speaking strata seems to be a very profitable venture IF it goes through…

Hope this helps? :-)

Cheers,
Ethan