Forum Replies Created
pstickles,
Sound to me like your first step should be contact a broker and get them to run the numbers for you. You haven’t said whether or not you already have a home with some equity that you can use or whether this property would be your first purchase in which case you may be able to access the $14K first home owners grant. I think you’ll need either of these options because $2000 alone won’t be enough of a deposit to satisfy majority of lenders.
Also don’t forget all the fees, stamp duty etc. Assuming a purchase price of say $150K you’ll need about another $6K to cover these. If you can work all this out then think about how you’re going to finance the refurb. You’ll have no rental income through this period so there won’t be much left out of your $250 spare a week to put into a refurb. Seems to me that you will need to borrow some extra to cover the cost, complete it as quickly as possible and get a rental stream happening ASAP. Other option is to rent it as is and forget about doing the refurb until later on when you have some CG and therefore some equity to borrow against or until you have saved enough to pay for it yourself.
Flatout
Hi Anita,
I can understand why you’re confused. Our personal strategy at this point is for high CG’s in 2-3 years. The trade off is that we have negatively geared IP’s. One IP has increased in value by about 40% since offer date. I settled 2 months later so in 5 months I’m looking at a $60K net profit after selling fees and CGT. It’s only costing me $30 p/wk out of pocket – or approx. $700 in total so far. Off course this kind of high growth is the exception not the norm…Also, my goal in life isn’t necessarily not to have to work because I’m fairly accepting of this fact of life. My aim and that of my partners, is to be able to supplement our salaries from investing so that we can afford some of the nice things in life, have a comfortable, financially stress free retirement, hopefully give our kids a hand-up in life and be free of the financial burden of making ends meet day to day (eg. can we pay the power bill on time?).
As for CF+ IP’s my personal take on that is that Steve is a standout example of what can be achieved BUT he was at the beginning of trend. The populaity of CF+ investing and the boom has dried up supply of good quality, sound CF+ IP’s. Plenty on this forum who say they are still around you just need to look harder and they may well be right, but good luck trying to find 49. My next point is to be very careful what you buy. For instance, I travel around rural WA quite regularly and just lately I’ve been amazed at some of the prices properties in some towns are bringing. And quite frankly, so are the locals – many of them can’t believe their luck. There has been an influx of mostly eastern states investors seeking CF+ IP’s who are pushing prices up and many buying sight unseen. I seriously doubt that they know what they are buying into and I fear that many of them will enjoy only short term +CF before realising that they are stuck with a property that they ultimately can’t rent and can’t sell. Of course, my comments are restricted to much of rural WA and may not be applicable to the generally larger, less remote rural townships in the eastern states. Lastly, remember that a property that is CF+ to the tune of say $20 per week will very quickly become CF- if even a relatively minor repair is required.
It seems to me that both forms of investing have their merits and downsides. All I can suggest is that you do your homework very carefully, maybe start out close to home where you have better knowledge of the state of play and be honest with yourself about why you’re investing. If you’re after quicker, lum sum CG then CF+ investing may not be the way to go. However, if your goal is to replace your income and look on CG’s as a possible upside then CF+ investing might be a better option.
Flatout
Gattaga,
If access is an issue then i would say yes. If the driveway is cracked, unsightly and generally letting the property down and a new driveway would add street appeal then possibly. However, if the driveway is on a par with the rest of the property standard wise then I doubt you’d get your money back. In this case I reckon you’d get more bang for your buck putting the money into new paint, floor coverings etc and improving the actual living space. BTW, check with your local council. We looked into replacing the driveway on an IP (WA) some time ago and the council were prepared to contribute to the cost of the cross-over. Was awhile ago though so things might have changed but worth a phone call.
Flatout
Leewizza,
You can definitely put in subject to clauses in your offer. We recently did a subject to satisfactory roof inspection on a property, Offer was accepted but we pulled out due to unsatisfactory report. However, in your position with the unit needing such an extensive makeover, I’d be inclined to get the inspections done prior to putting in an offer otherwise how will you know what to offer? It sounds like a very big project which is bound to turn the majority of buyers off. This could be to your advantage so don’t rush in, take your time and do your homework.
Flatout
Matt,
Are you familiar with Excel? If so this is an excellent tool for setting up your budget. About 18 months ago I set up a very detailed annual budget (FY not CY) setting out all our income & expenses including housekeeping, entertainment, fuel, start of school expenses, club memberships etc etc. Budget is set up on cashflow basis (eg. expense incurred May, payment due June, appears in budget in June). Starting point was to pull out all our bills from the previous year and start plugging them into the spreadsheet according to due date and adding a bit extra to allow for inflation. Because both partner and I have variable incomes I dedicated a worksheet to calculating our incomes based on hours worked each day, total for pay week less salary sacrifice, tax, student loans etc. So if we take a day off or have a holiday, I simply revise our hours worked and the effect flows right through the budget. Also put in school holidays as we incur extra daycare expenses during school holidays so the budget is adjusted accordingly. I then set up a worksheet for IP’s listing all expenses and rental income, depreciation etc so that we can see the net position. Finally I linked this all through to another worksheet which calculates income tax payable. Income and IP deductions are automatically linked, I just update other deductions as necessary. Hence at any time I can see exactly what our position is before and after tax. Beauty of this system is that I can now do all sorts of “what if” analysis. Last FY for instance, I discovered that by taking holidays in June before the end of financial year, rather than July and thus reducing our taxable income to a certain level we saved enough on tax, student loans, medicare levy surcharge and also became eligible for some FTB. So much so we took the last 8 weeks of the FY off and had a nice long holiday as we would virtually have been working for the taxman otherwise. Without the budget, I never would have realised. Handy hint: ATO website provides formula’s for calculation income tax payable, weekly/fortnightly/monthly PAYG withholdings, HEC/FSS withholdings etc.
Flatout
bomandlouisa,
Just guessing but I’d say your not from WA and/or have never travelled out to either of these two towns??? If you have, I’d suggest that you wouldn’t even be considering Laverton. Kambalda is better but only due to closer proximity to Kalgoorlie. There has been a lot of talk about Kambalda lately with big boost in mining activity having brought the investors out of the woodwork. Apart from this activity, the place has very little going for it and the only reason people would be buying/living there is for work. So before deciding to invest there, or any other mining town, you need to be very clear in your understanding that your investment success there is intrinsically and unavoidably linked to the mining activity. If there is a downturn in activity you could very well be stuck with a IP that you can’t rent or sell. So do a lot more homework and then weigh up the advantages of +CF IP againt possible downside. Are the returns worth the risk? That is the question you need to resolve.
Flatout
PS: Suggest you search the archives here for Kambalda as I have seen some posts about the place recently. A lot of talking up but I believe still a fairly high vacancy rate in town at present.
We’re still in the infancy of our investing but so far so good. Recent valuation shows 40% CG for IP no. 1 since purchased last Sept. so we are very happy indeed and have also recently secured another IP. Just about at our servicablity limit now though so will have to sit tight for awhile. Looks like I’m gunna have to return to full-time work soon as current P/T job looks like coming to an end and realistically not much scope to replace it with another P/T job in my field without taking a significant pay cut in a lower level job. Pity as P/T suits me nicely but on the bright side F/T work will bring in an extra $[whistle]20K pa which will increase our servicibility and allow us to move forward. Goal is to sell up IP’s in 1-2 years and pay down our PPOR mortgage then dive right back into the property market using the extra cashflow to service quite a few more tax deductable IP’s. So we’re happily on track but just need to be patient which is the hard part. [whistle]
Flatout.
Andymitchell,
Firstly, congratulations to you and your wife. You are about to embark on the most wonderful, frightening, rewarding, frustrating, important role of your lives. It’s easy to say I know, but try not to let your financial situation take the joy out of it – everything will work out.
When my husband and I were expecting our 1st child, we had savings in the bank, downsided to a cheaper car and and had commitments that we could manage quite well on one income. But even with all our careful planning things went wrong. Firstly the company I worked for went into receivership 2 months into my maternity leave. Then my husband injured his back and spent months in agony with his work declining steadily until he was no longer able to work at all. As a contractor he had no sickness benefits or holiday pay to fall back on. No work meant no income. Suddenly we’d gone from 2 good incomes to none and had an extra mouth to feed. We had no income protection (as we were geared to one income we figured we’d didn’t need it as it was unlikely both of us would ever be out of work at the one time – how wrong we were!). We had no private health insurance and eventually had to pay for my husbands surgery on credit card. It was either this or have him on the public waiting list for up to a year. Our son had a few medical problems (he’s 5 and 6 operations to date, probably another soon. Nothing too serious luckily) and besides I was nursing a bed-bound husband so I couldn’t go back to work. We live away from our families so we had no family support at all and none in a position to help financially either. Looking back I wonder how we managed but we did because you don’t have a choice. By the time my husband recovered we had used all our available credit. Hubby was guilt-struck at the thought of having failed to support his family even though of course, he had no reason to feel this way. I went back to work as soon as I could when our son was 9 months old but the stress of the whole thing caught up with me and I suffered a very nasty bought of shingles so even when we thought we were over the worst of it, our troubles seemed to keep rolling on…
Now 5 years on we have 2 beautiful children, a lovely home, 2 IP’s, a couple of toys. We like to travel when we can and last year we spent 8 weeks touring around the Kimberley. Our financial comeback has been steady but remarkable when I think back to what it was. So I say to you Andy, take heart and think of your current woes as a blip rather than a bust. You will get through this.
Good luck and best wishes,
Flatout.
Personally I wouldn’t touch them – I’d rather pay a little bit more for an IP and not have the worry about whether or not it can be rented. Realistically you would probably have to charge a bit less rent to attract a tennant than you would for the same property situated away from the motorway. So your yields and out of pocket expense will probably be the same for a better located property…you need to do your sums. Also, think about when you eventually want to sell the property – it could be a bit harder to move. Having said all that, there’s a buyer for everything.
Flatout.
I don’t think you could go wrong anywhere in that south west coastal corridor. The seachange phenomenom looks like its here to stay and this region has plenty to offer. Smarter people than me are predicting strong CG’s of 15-20% over the next 12-18 months at least so the question IMHO is really which towns/suburbs will get the most CG??? Will you be complaining if you “only” get 15%!
Flatout.
voigtstr,
Don’t get disheartened and stay on track. Eventually you will get there. Then if you’re serious about building your wealth through investing, you won’t ever fall into the kind of debt trap again. Sure you’ll have debt but it’ll be the kind that is wealth producing such as IP mortgages. I cringe when I look back at some of the cash draining debts my partner and I have had over the years. But the funny thing is, once we started thinking about investing, researching and understanding the options we have become a lot smarter. For example:,
– Instead of a 5 year car loan or even a secured loan at home loan rates, you could take out a salary sacrificed novated lease. Hence, you’re paying the lease in pre-tax $ not after tax $ and you don’t have to pay GST. Of course you have to get your employer to agree to this but smart employers will realise this is a great “fringe benefit” that actually costs them nothing but might encourage good employees to stick around (If you’re paying all the expenses such as fuel, rego etc in most cases this will offset any FBT liability on the employers part).
– As for credit cards, l’d never say don’t have one because they are handy but pay it off before the interest kicks in. If you can’t, pay it off using a LOC at home loan interest rates.
There are plenty of other ways to save $ (some not strictly above board like claiming repairs on PPOR against an IP) and I’m sure others here will have some suggestions.Flatout.
Like some others have stated here, I see no sign of the Perth housing boom slowing for at least another 12 months. Even then I’d be surprised to see anything other than a minor correction before things settle back into “normal” historical growth patterns.
The thing that is hard for eastern staters to understand is that unlike most other states, WA has only a handful of regional cities – Geraldton, Mandurah, Bunbury, Albany, Kalgoorlie and some fast growing sizable regional centres – Broome, Karratha, Busselton, Margaret River, Esperence, Northam. Most of what is left in the state are “blink and you’ll miss it” small, far flung towns. The resources boom is bringing people to the state in droves (I recall seeing projections of 90,000+ expected each year for the next 5 years or so) and most of the big resource and mining companies opt for fly-in-fly-out workforces rather than the expense of setting up mining towns. Generally FIFO is from Perth, Geraldton or Broome. So basically if you come to live and work in WA most people are going to base themselves in Perth or within 2 hours drive. It is simple supply and demand.
Inevitably the market has to slow as work opportunities for migrants dries up as the new resource projects reach their workforce quota and the building industry catches up with the backlog of new houses/units (currently construction time for a new house is around 18 months). But IMHO I don’t see that happening anytime soon and it will be a gradual slowing rather than a “bust”.
Regards,
Flatout.
GrossRealisation, forgive me if I’m being dumb but in Ganakars original post he stated he was looking at I around $250K. Your scenario for +ve CF sounds great but you’re talking about developing with an outlay of $640K plus costs. Hardly comparable. Even if one had the necessary equity to get into a deal of this size, they would need to be able to service the loan entirely right up until the point the duplex could be sold/rented. And as I understand it, over here in Perth and SW WA there’s currently about a 14-18mth lead time on building. Am I missing something obvious?
I do agree with you about Albury though, but I would include Wodonga in mix. Most of my family lives there including my brother who is a builder (a very good one). I’d love to get JV going with him…
Hi Ganakars, As has already been said here, +ve CF properties virtually impossible to find except maybe in the very small towns or mining towns. Even in these property prices have been driven up by demand from +ve CF investors so they aren’t as good as they might have been even IF you were willing to overlook the lack of true growth potential in these communities. Seems to me that Steve McKnight was able to achieve +ve CF because a) he bought cheap, cheap properties readily available prior to the boom and b) he put cash in (say 20% deposit plus costs) rather than 100% lend and c) he used wraps to create passive income.
Unless you’re willing to put in a significant amount of cash or get into wraps, options etc I doubt you’ll find a true CF +ve IP. Only other possibility would be if you can find an undervalued IP with value add potential (eg. through renovation). Personally in our position I prefer to concentrate on CG potential coupled with reasonable rent yield to at least minimise as much as possible out of pocket expenses. No way would I use put cash in or redraw against PPOR mortgage (a non-deductable expense) to create +ve CF IP.
Venno,
Have a close look at Coogee. This is a beachside suburb not far south of Fremantle. The proposed marina development has recently received approval and traditionally this kind of development has a positive impact on property prices. I’d love to get in that area myself but it’s a bit pricey for us. However, your $450K should will certainly see you in the game. Worth a look anyway.
Hi Dazzling,
I knew there are others out there like us so it was heartening to hear from you and also that your relationships eventually normalised. There is hope yet!
I honestly believe that a lot of the resentment from family and friends that successful people encounter along the way is not so much that these people don’t want us to be successful or even begrudge us, its just perhaps that our success is too stark a reminder of their own failures or non-achievements. Unfortunately it is a sad fact of life that most people never achieve their dreams. We’re well on the way to achieving ours and if we never fully succeed at least I’ll die knowing I gave it my best shot – and there’s something very empowering about that. I suspect Dazzling that you and many others on this forum have already discovered that. So its not about the money – that’s just a means to an end.
KG, have to agree that subdividing the block will probably give you the best return. Other than that, spend a little time and money sprucing the place up. Try to modernise the interior by painting, new light fittings, window treatments and floor coverings. If the place has ceiling fans consider replacing with nice new ones, particularly if the old ones are a bit daggy. Surprising the difference this can make. If not consider installing them as it is a good little value add that doesn’t cost much.
Work colleague recently purchased a town house in Hamilton Hill just south of Freo. After his 2nd inspection he told the agent he was ready to put in an offer. When he told her his offer she refused to write it up saying that it was an insult to the vendor (circa $420K against $450K asking). My colleague was very taken aback by the agents attitude but really wanting the property and having in mind a higher cut-off price he reluctantly upped the offer to $430K. Anyway, after it was all written up and he’d signed the offer doc the agent then produced a notice of disclosure for him to sign, only then revealing that she had an interest in the property (her hubby was one of the JV partners). Needless to say, my colleague was very annoyed and felt he’d been duped into making the higher offer. To his credit, when the vendors countered he stuck to his original offer and is now the proud owner of the town house although he’ll forever wonder if he could have gotten it for less but for the questionable ethics of the agent.
Dr X, for what its worth we have also found that the more successful we become in our pursuits, the more varied peoples responses. 11 years ago my husband and I were living working dead end, menial jobs 50-60hrs per week just to make ends in a part of the country that traditionally has a very high cost of living. With no hope of getting ahead let alone buying our own home we made a decision to leave family and freinds behind and make a new start for ourselves. We moved across the country and both of us went back to school full time to earn degrees. To support ourselves we worked weekends, nights and early morning cleaning offices, banks etc and ran up student debts we’ll still be paying for at least another 5 years. Degrees in hand we returned to the workfore fulltime in jobs that required more from us that any of our previous labouring jobs in terms of responsibility, mentally draining etc. My partner in particular found the transition from labouring work to a professional occupation extremely stressful and it is a credit to him that he held on, worked through the challenges and now has a successful career. Eventually we bought our first house, furnished it, upgraded our car etc and even have a little money left over for a cheap annual holiday.
In the early days our friends and family were very supportive but we have found as time goes on, they are less encouraging and at times almost resentful of our success. For instance, we once had a great relationship with my sister-in-law and her husband but that changed almost overnight when we bought a better PPOR and later sold our first IP for a tidy profit. Whilst she’d never admit it, I’m convinced jealousy spoiled the easy, fun relationship we used to have. Several years on we have started our own family whilst their children have all grown up and left home. We’ve both carefully managed our careers and after plenty of hard yards earn a good income working about 60hrs a week between us so that we can enjoy plenty of family time. The downside is we have to contract to achieve this meaning no sickies, no annual leave, no real job security etc. After a few years out of investing we’re now back in the game having recently bought another IP and looking for a 2nd IP hopefully before Xmas. Meanwhile my SIL has heaps of disposable income and can’t stay away from the shops, spending as fast as they are earning. We’ve tried to talk them into getting an IP as a wealth building tool, they even went to their bank who said yep, go for it, but they just can’t bring themselves to do it and justify their stance on the basis of property prices falling, blah, blah, blah. Now we can’t discuss money at all – they just scoff and make comments like “yeah right” as if we couldn’t possibly relate to their lower income status. Neither have ever lived anywhere but their very small home town within spitting distance of parents. He’s remained in same minimal income job for over 20 years having turned down several potentially career making promotions. In other words, they have lived a life as risk free as you could possibly get. Apparently we have become too big for our boots. What they can’t see is that the have far more disposable income than we do and with plenty of equity in their home they are in a great position to build wealth. But its not just them, my family are also a bit negative and we have already decided to keep quiet about our hunt for a 2nd IP. Just easier if they don’t know.
But you know it really peeves me off. We aren’t enjoying our rather modest success through luck or inheritence. We stepped outside our comfort zones, we made a plan and stuck with it, we worked damn hard and we’ve taken risks just like most of the people on this forum have. Risk equals reward! Its just a sad fact that those factors are too easily forgotten/overlooked by those that can’t/won’t have a go themselves.
Yes, IMO definitely worth buying in WA as the market is still surging ahead. We bought an IP a couple of months ago and currently looking for another. As for cashflow +ve, I think you are dreaming unless you’re buying commercial, residential at the higher end of the price scale or low cost rural properties. With regard this last point, a word of caution…when searching look at other factors beyond cashflow +ve alone. You can still find cheap, +ve cashflor IP’s in some of the small rural towns. Just weigh up the risks though as some of these towns have contracting or stagnant populations with no real growth prospects. Many of the properties are old and if not already will become maintenance nightmares. In summary, you might get +ve cashflow for say 5 years but you could find rent yeilds dropping, maintenance costs rising and little chance of CG. In fact you may even find it impossible to sell to stop the bleed. Until the boom I personally know of several towns where you could barely give houses away, now suddenly they are “great investment opportunities”, with rising prices being driven by cashflow +ve investors rather than real, tangible economic growth such as higher employment, increasing population etc. Not my intention to scare monger, just being very familiar with many of the small WA communities, I urge you to do your homework thoroughly and weigh up the risk/rewards carefully.
