Forum Replies Created
Hi Jennt,
Maybe 10% buying costs is a lot on a property of that value.
Remember the stamp duty and transfer fee if you are borrowing 95% will be about $4K (NSW) or $5K (VIC – not happy Jan!), which I am not sure if you have allowed for.
Maybe Steve can give us some direction on this, as I have not bought anything of that value so far.
Can’t wait for the seminar next weekend in Melbourne.
Do Well.
FergusThanks Mark,
But no thanks
I already have mine – would be crazy to miss it.
But you should have no problem selling the ticket
See you there.
FergusHi Jenny,
If the house cost to you is $140K then if you allow 10% for buying costs, and then 20% on that again for margin, it brings your sell price to $184,800 ($140K + 10% + 20%)
If your prospect can give you the FHOG (which you get only after settlement) and 5% deposit ($7K) that’a total of $14K income.
At this value I would probably be asking for more than 5% from your prospect as 5% from them will leave you shorter, and take longer to recoup.
Also I would be surprised if the lender will lend you as much as 95%, but maybe they will.I would expect to have to put in 10% ($14K) and pay the buying costs of 10% approx (another $14K) which is a total of $28K of my money in.
So I’m down $14K (my $28K out minus client $14K in) day one which to me is too much risk, and too long to get back on my weekly spread.
If I ask the prospect for 10% deposit, then I am only down $7K ($28K mius FHOG and $14K client deposit) which is better, and faster to recoup.
This all seems to work much better on lower value properties where you can settle on a $60K house and only be down $2K of your own money after receiving the FHOG and 5% deposit.
But on the $140K property with 10% deposit:
my mortgage $126K @ 6.4% over 30 yrs is about $181 per week
client mtge $163,800 ($184,800 less 10% and FHOG) @ 8.4% over 30 yrs is about $287 per week
so you get a weekly profit of about $105 per week or $5,460 per annum.
So you can see that after 18 months you have your $7K back and are making profit.
I hope this all makes sense as I have been writing as I am thinking.
Very bad habit.
FergusThanks Darren for your help in tghe past.
To answer Wei’s question, I add 10% to the $60K for my buying costs.
I then add 20% to that for the margin, so I sell the house for $79,200.
We subtract the FHOG and $3,000 hurt money deposit from that and get a loan of $69,200, which is what I get paid out if they refinance.
I have been adding 3% to the interest rate and have the loan over 30 years.
The repayment ends up being about $135 per week for this customer who was paying $150 per week rent.
My repayment on my loan is about $75 per week on $54K (90% of the $60K).
So the spread is $60 per week and the lady with 4 kids gets to own a house she could never afford otherwise.
I would say the 11 second rule applies regardless so that worst case I can rent it out and it would still be positively geared.
Cheers,
FergusHi AD,
To answer you question, I am doing this in the La Trobe Valley.
The value of the houses are ideally $45,000 to $60,000 as that will keep the weekly repayments close to what people are paying in weekly rent.
Today I spoke to a lady who wants to buy the house she is renting from her Dad (he owns it) for $60,000.
She convinced him to loan her $3,000 as a deposit (5%) which she gives me plus the FHOG for a total of $10,000 which should cover most if not all of my buying costs and deposit.
She and her 4 kids get a house, and I get another happy customer.
Hope this helps.
FergusHi Wei,
I have been using the “find the person first” approach by advertising.
Then I check their refs etc.
After investing in Steve’s WSR library, I decided to just place an ad and see what happens, and panic then if anyone called.
Well they did call, and I started to put together info and application forms to send out.
Onr particular couple actually pushed me through the barriers I had on starting to do wrapping.
It must be because it is such a win-win thing to do that had its own momentum and energy.
When the 1st couple found the house they wanted, it had just come on the market, and would not last long (as it obeyed the 11 second rule).
I sat in my office staring at an “offer to purchase” fax I had filled in.
My thoughts were “OH My Gawd!, I’m about to fax an offer to buy a house I have never seen, I must be maaaaad”
But then I thought “well am I actually going to do this?, or am I going to sit in this office for the next 25 years working for someone else?”
I decided to run with my gut feeling and start the road to finncial freedom.
Worst case I could rent it out for more than the mortagage.
So I faxed it, and when the agent called to say my offer had been accepted, I didn’t know whether to celebrate or throw up.
This property settles next week, and I have learned heaps on the way that I would not have if I had not taken the plunge.Since that scary experience, I have bought 2 other properties, where the prospects found it first, and I am loving it.
I also have 2 other qualified prospects looking for properties.Ideally my prospects are entitled to te FHOG $7,000, and then on top of that I have learned to ask for a deposit of 5% of the cost of the property they want to buy ($50,000 therefore deposit $2,500)
I am looking at charging a higher interest rate for prospects who cannot make the 5% deposit as they are more of a risk to me.
I explain this to them and it’s OK.
The contract of sale between my company and them states what my mortgage/repayment on the property is (I think this is the law)
The trick is not to be backed off on telling them.
I hope this info helps you start if you have not already.
I use “what’s the worst thing than can happen?” to remind myself that I cannot lose, as long as I am helping people.
Do well
FergusThanks Darren and Steve,
Have started wrapping my 1st property, and made an offer on the 2nd.
Yeehaa!
