Forum Replies Created
Flick me a message. I would be glad to share with you the ins and outs of how the industry works. There is never an obligation to do anything and you will at least have clarity in your decision.
I would at the very least get a solicitor to look over Annexure A and explain your implications. If for any reason you could be hold to account in the contract it would be easier settling out of court rather then allowing it to progress (this is not advice). That is if there is anyway the buyer could due money.
However, if the solicitor believes you are safe (which is often very hard to be 100% sure) then be assertive.
P.S. Explain to the solicitor about the concessions you have made to him already. You wouldn’t want to do anything that could have implications.
I'm open to talking to you about my own private deals. I tried to contact you, however you are not accepting messages.
As you have a longer horizon you could look into areas with future subdivision. If agents aren't aware of the blocks true future value, you tend to get a discount on the price. Be careful with agents as the word "potential" doesn't mean that you can 100% do what they think you can.
Especially with development sites I would always pull the title before I make a solid offer. Check the easements, sewer lines, drainage and anything else on the block. Make sure the topography on the site is good, this helps to keep site work costs down.
If you want better rental yields, you could go for a newer house on a retain and build site.
Hi Lmanley,
I know Andrew has just posted above me, but I'll give him a little plug. We are a Buyers' Agent in Perth and whenever any of my clients request one in QLD I send them to him. I've spoken to him on many occasions and he knows his stuff.
Hi Jpr,
There is a Property and Trading Expo on at the convention centre this weekend, Saturday and Sunday. I hear it is going t be quite large. I'm obviously a property advisor and I'm confident we are one of the most reputable in Perth. If you would like to compare us against our completion I would be more then happy to extend you some free no obligation tickets.
Book here to be put on our door list:
http://www.jotform.com/form/10713953820To your success,
KentHi Fully,
When lending banks look at 2 things. The first thing is deposit or equity and the second in cash flow or servicing. A client of mine in a very similar position, he has great servicing.
He purchased a property with a 6.5% rental yield in Armadale, WA for around $300k a little while back. In that time it has hardly moved. He still has good servicing; however he has no equity to purchase his next property. Even at a 6.5% yield, when you take away costs, loan, management and so on and so forth. He is still out of pocket reducing his ability to make savings. Also banks are more reluctant to make more and more 95%+ loans as you have more debt. After 3.5 years of having this property, he has finally saved his next deposit which he thought would only take him 6 months – like it did in the past. He came to me and asked for his advice.
This is what I suggested: Go for a property around the 400-450k mark in a high capital growth area. Look for something you can add value to and save up an extra 30k to do this renovation. Don't be afraid to negotiate hard and know what market value is. One settlement of the property complete a speedy reno (subbing out the work). Stick in a tenant. After this has been done instead of taking 3.5 years to save for your next deposit he had an extra $45k in equity in his property after waiting 6 months for a bank re-val (still nothing is his CF property). I think the first property is costing him around $70 per week and this other property is now costing him $120 per week (as the reno pulled the yield up). Roughly and extra $2600 neg gearing loss a year for $45k equity 3 years quicker, I'd say it's worth it?
He has seen the light:
~ Target Capital Growth (which pulls rents up over time)
~ Negotiate well
~ Add Value (improve equity AND yield)
~ Bank re-val
~ Go againWhen servicing becomes an issue we can then start looking at CF properties for him, but his main concern at the moment is servicing.
P.S. Not to mention the tax concessions.
luke86 wrote:I disagree. Subprime loans were for subprime borrowers- being an NRAS property has nothing to do with the borrowers capability to repay the debt. I dont think this is a valid comparison. The tenants may or may not be bad tenants, but as the landlord you can approve who is or isnt able to live there so with enough luck (actually, investment skill), you can weed out the poor tenants. You may still end up with a dud tenant, but you might get that anyway with a regular investment property.
Of course you need to do your sums to see whether it is a viable investment. In my opinion, a NRAS property would be fantastic if you were able to be the developer. Unfortunately, some developers are making money off NRAS by getting the NRAS approval for the development, building the property, and then charging you a premium because you can then get the free money from the governnment. If you could be the person to build the units and get the NRAS funding, and then keep them all as cash flow positive properties yourself then you could be on a winner.
Buying them from a developer would work if you purchase it at market value, but I think most developers are marketing NRAS properties as ways to get free money and so are charging more than market value for them.
Cheers,
Luke
Instead of the investment as an individual asset you manage. I was meaning the markets perception of the asset class. Similar to what we see now with managed short stay accommodation, there can be a stigma attached.
The analogy with sub prime loans wasn't a direct comparison. Not all loans went bad (similar to not your property being bad), however the prices attached to these securities fell due to the market perception (people are turned off in the future). Despite all the marketing, these dwellings are intended for a similar socio economic level as sub prime loans.
Like any investment decision don’t think in generalisations.
I can say some NRAS developments will be good and some NRAS developments will be bad. You should never buy an investment for a tax break. Olive farms anyone?
Excuse the pun but similar to sub prime loans, these properties have been intended for sub prime tenants. NOW, I’m going to get lots of abuse for that statement. But similar to sub prime loans not all of the loans went BAD. A small proportion of them, and this dragged the entire assets security down with it.
Remember this is going to be a NRAS property for a while and if a few bad tenants wreak havoc on the scheme. Guess whose property (if you want to sell) is going to be tainted with this? “oh that one of those NRAS properties”
I also urge you to look at the underlying asset. Areas to look into include:If it’s OTP:
– Developer
– Contracts
– Builder
Individual property:
– Layout
– Room size
– meet market
– etc
Area:
– future growth– Future government spending
– crime rates
– private developments other then NRAS
– etc etc etc
Scheme:
– who’s managing agent
– agent’s contract with you
– etc etc etc
This is not personal advice, this is general advice. You should not take actions on anything I say and speak to an appropriate advisor.
I know of many good accountants who would get a private ruling before using a hybrid trust. I do know of 1 way that it is considered legal without it being for tax purposes. However, the person's intention must genuinely be for this or they could get in some serious trouble. For our clients we are reluctant to obtain future borrowing in hybrid trusts as it is very restricted in terms of lenders.
Generally, family trust's as the name suggests are more used in a family purpose and less in a business purpose due to the way they can distribute proceeds.
I know of a good accountant who can give you advice on an alternative structure.
Hi Quattro,
You have heaps of questions! I will try and answer as many of them as I can with the info provided.
a) Have you only spoken to your branch manager at the bank about the amount you can borrow? I can't give you finance advice, but from clients of mine with similar circumstance we've been able to get a little more funding. This will increase the options you have for investing. As a general statement, having your lending with one lender often causes them to cross assets. This has been known to hinder buying properties in the future.
b) Didn't understand this 100% (land is infinite – unit it blocks can always go up) I think you meant land is finite? I would say even buying a strata complex (townhouse/villa) always aim for land content above 50%. Land appreciates/and building depreciate. But some land increases faster then others – a $300K bit of land in Armadale will be bigger then a $300K land closer into city – buy what would generally appreciate faster?
c) Does the area of market demand for that? What is the land content? Is the complex owner occupiers or investors? How big is it? Unless it has something unique about it (Great uninterrupted view…) I would generally turn it down as an investment.
d) Buy old, target high capital growth and add value to increase rent/equity. The difference between just 1% consistent growth on a 400K property over 10 years is an extra $75,000. Multiply that by a few extra percent, a few extra properties and a few extra years and it compounds to many hundreds of thousands of dollars of extra net worth. Research is key, I see too many people skimp on this! You only get to retire once so always ask questions.
e) I don't know your situation well enough. From my dealings with clients trusts are great of people in business and not so good for people on salaries. Ask yourself, how high are your risks of litigation?
Send me a message, I can answer some more stuff once I have a bit more information.
You have highlighted three main criteria:
1) Little work (DIY)
2) High capital growth
3) good rental returnsWith also:
4) Sub $400K
5) Tenants
6) Short period to realise its rental value. (How long?)I would say pick two of the first criteria, with a waiting towards looking for high capital growth and putting the work into increase the rental returns. Residential rents, to a point, are often pulled up with capital growth. So it may not have the highest rent now, but in the future it will appreciate much faster (and your loan hasn't gone up) so your returns are higher.
Sub $400k is not too much of an issue. In fact I would say $400k to $600k is a sweet spot for investors market and the closer to $400 you get, intrinsically, the higher the rental yields. Good Tenants are more about a properties presentation and management then the area. I have heard of bad tenants in $1m+ homes on huge incomes and I have heard of bad tenants in those stereotypical suburbs. But the rule of thumb is target properties which match the criteria of the demographic you are attempting to attract. For example, young professionals, target the suburbs/property types they like.
Finally, you say that you have a very short period to hold the property before you need to live off the rent. Property is a longer term investment. Sure, in the boom people made lots of money from property, but that doesn't happen all the time. I feel that a lot of property spruikers market to suggest you can make money fast in property. That may be the case, but these are often the more "active/higher risk" investments.
This isn’t personal advice, but for clients in a similar situation I have suggested to them:
– Get as close into the city as you can.
– Aim for a land value content greater then 50%
– Green title (better) or survey starer (no adjoining walls)
– Go for older properties and steer clear of new ones
– Stay away from new land subdivisions
– Sub out a little work (Painting, new floors, better kitchen/bathroom – amazing what can be done for $10k)
Hi Shavlilly,
Trusts can be complicated to understand completely. However, I would suggest arm yourself with some basic information. To help you with that, I have copied a trust document which we have sent out in our newsletter. You can download it here:
http://pdfcast.org/download/property-trust-tips.pdfOnce you have this basic information, head to your accountant or one you have heard to be reputable. I wouldn’t suggest making decisions on your own through (trust books) as everyone’s situation is different and these books tend to simplify a really important area of structuring.
Hi Burls,
The price depends on a whole range of things (for extension as well as granny flat). I often find that granny flat extensions are cheaper per sqr mtr. Things which effect price include:
– quality of finish
– site works
– single or second story extension
– speed of construction
– city– AND HEAPS MORE
I'm sure if you speak to a specialist in the area you are looking to build they can give you a ball park figure. Also, here is an article to give you a really rough guide (about the extension):
http://blog.aussie.com.au/renovate-or-rebuild/Hi Josh,
It also depends on income, deposit and what YOU want to do (goals, skills, motivation and other). If I knew a little more about your situation I could give you examples of clients in the same place. Some basic tips:
– Put your plan on paper
– Break it down (work back from retirement to now)
– Educate yourself
– Seek advice of professionals.
– Make sure you as well as your partner are committed to the goals.Hi Tony,
Is it essential for your parents to receive 65% payment for their house? If not, you can use a 2-3+ year lease option. Basically you can set it up how you want, but I’ve seen it in the past where:
1) Family member rents property @ the lending costs of the owner
2) Owner agrees (option contract) to sell it for today's price in 3 years time.
3) Family Member uses equity from the 3 years of growth to finance the purchase
4) Have an option to extend lease option encase you don't get funding after the first 3 years.But it still doesn’t guarantee bank lending and property could go down in 3 years (unlikely – but could be worse off)
As every PDS disclosure says, "Past Performance Does Not Guarantee Future Results."
I often start (on the contrary) by looking at areas which suit certain criteria and have not necessarily performed the best.
When looking to value a house in a suburb there is 2 prices which move independently in the short term, but on the long term they converge. The first price is the market price (short term), which is determined by market sentiment – mainly buyers. This is what statistics measure. The second price is the intrinsic value or what it could be worth when you are looking to sell it – long term.
A great suburb, for me, is one where the intrinsic value of the place has increased (government spending has risen, crime rates are falling, private investment is moving in, zoning changes, and so on) and the market hasn't yet recognised this through price growth. The reason for this is the minute the market realises these qualities the price growth will follow.
Also, have a look into the statistic flaws of median house price. Without knowing where you got those percentages, I am guessing a lot of those stats would be calculated of median growth.
Hi Josh,
So you have 3 questions to answer and I will throw another into mix, just because it's Monday. The fourth question I will answer is the economic term, "Opportunity Cost".
Pros of a New Build (often what is marketed):
– Better Tax advantage
– Better rental yield
– Low entry costs ($1000 down and fin the rest after build)
– Lower maintenance
– Often considered an "easy" option and psychologically "new" is considered in our heads as intrinsically better.Cons of a New Build:
– Lower land content (often around 30% or less)
– New subdivisions with substantial land supply
– Developer risk – builder or land developer going broke
– 10% GST
– Little opportunity to value add
– Builder profit margin, developer profit margin and property marketer commission (seen these as high as 8-9%)
– Lower capital growth (often a consequence of previously mentioned factors)Now to living in it. Some tenants are good and some tenants are bad. At the end of the day, tenants have their bond and the "potential" for litigation against them, meaning they won't care for it as much as a person who has $450k directly invested in the property. You may find yourself living in a house that is not so "new". Secondly, I would direct you to an accountant as some of my clients have found there is tax implications when you have the intention of moving into the property in the future. Personally, I wouldn't do this because…
… this brings me onto my next point, Opportunity Cost. New builds are good in some circumstances, for example, if you have a development site and are looking to increase your rental yields. From my experience with clients, family, friends, myself (i know some people on here have different strategies) the first purchase i always recommend to my clients is: a high capital growth property. The equity from this initial property, in the future, will allow you to purchase cash flow properties, your own new build home, or higher capital growth properties (ones I’m biased towards.)
I may be wrong, but if this is going to be your life wealth creation plan, be sure to research as much as you can BEFORE you buy and hope.
Hi Lizard,
If you are not looking to develop for a while there is a great opportunity to land bank. Despite all of the fancy stuff which can be done with design loop holes in town planning schemes. I recommend to most people to understand the basics of a limited number of councils that are pro development in suburbs of high demand and low supply (capital appreciate areas). Look to the local council for aforementioned future density increases. The more recent the plans of a density increase, the fewer people who know about it and consequently the properties are often undervalued. Always remember, council changes are slow and can take any time up to 5+ years (depending on the stage). The newer the plans the more likely they will be revised. As long as you’re weary of the above, I have seen a lot of people make money out of land banking for future density increases.
Hi Lizard,
New homes have quite a limited scope when it comes to value adding. It also depends on to what the finish the build is, basic shell or turn key. Also, new houses in areas are often built to a similar spec, so try and avoid over capitalising. Some ideas can include:
– Landscaping (mentioned before)
– Display furniture (if selling)
– Curtains & window treatments
– Personalising the painting if everything is just builder's white
– Picket fence out front
– Down lights (increased lighting in kitchen/living areas)
– Fresh MulchAgain, a lot of these will have a limited impact and all depend on the area.
