Forum Replies Created
Hi, for those who haven’t visited our fair state, the Northern areas are hot & arid and flat and dusty whereas the South is nearer the Great Southern Ocean where the sea breezes blow.
Christies Beach is a suburb with growth potential because it’s probably one of the last beachside suburbs within a 15 minute ride from the CBD (I tried it on the train) that’s still in the $300000 range.
It’s looking quite trendy even though there’s still a fair bit of poverty to be seen.
I don’t know why I’m sharing this with everyone on an open forum except that I wished I’d bought when the thought crossed my mind & prices were around $180 to $200000. I didn’t because I looked elsewhere & I never went to look until a fortnight ago.
Well, I didn’t & I can’t buy now because I maxed out my buying last year. Still good because Adelaide prices have all gone up.
Our risk starts on the day we buy. Doesn’t mean that if we rush to Christies, we’ll make heaps of money immediately.
Good luck,
Kum YinHi, great that you’re so enthusiastic. Not to pour cold water but watch these points:
1) The yield: do you have a secure lease for the weekly rent of $310? What about vacancy rates & waiting time for tenants?
2) Outgoings: insurance, rates, management fees etc?
3) Interest rates can change.Do you have enough room to pay down the debt? It might help if you can put some money away in an offset account.
Having said all that, well done on taking the first step. Good luck,
Kum YinHi, much better bet than Elizabeth. it’s beachside & transport’s convenient with the train & Noarlunga Centre nearby. In fact, prices have gone up more than I expected. Christies Downs is not as good though. Port Noarlunga & Maslin Beach also look good.
Seaford prices have gone up as well but I noticed rental is up as well.
Good luck,
Kum yinHi again, missed the fact that you want to buy & occupy your own premises. A bit different in scenario to me.
I always thought that I’d rent my business premises rather than occupy my own shop. The reason is my rent is tax deductible.
Therefore, unless you are the landlord to your company, it might be worthwhile to buy commercial property & rent it to someone else while you continue to operate your business in rented premises.
I don’t wish to give the impression that my ideas are correct. You have to work out the strategy yourself.
Again, good luck,
Kum YinHi, funding for commercial property is quite difficult. If you’ve fixed/secure income, you’d be alright.
The current rate for commercial property is 6.5% to 8% of yield. Sometimes the property itself may be just very ordinary.
The lending criteria for commercial property are far more relaxed now than just 2 years ago so you might be able to work out something.
To share some info, way back in 2002 I bought 2 blocks of rather tired shops & they’ve done really well. However, I had to pay for it in cash. Actually, I maxed out my home loans(i had 3 houses) to pay for them.
Today those grotty old shops pay me the exact income that I was earning as a school teacher.
So, if you find something worth considering, go for it.
Good luck,
Kum YinHi, the real story is this. In February 2007, there’s a sudden spike in house prices across all suburbs in Adelaide.
The rental yield is 4.5% for most houses. However, the prospects for rent increases is very real.
I went to look at a house in Elizabeth Park last weekend. Even the agent was surprised at the crowds of people who streamed through the property. It’s solid brick, ex Housing Trust 3BR house on almost 800m2. Asking price $135000+
It’s below replacement cost even if it does require updating.
Elizabeth Park & Elizabeth East look to be the better parts. Like most residents of Adelaide, I’d vowed never to buy in Elizabeth. Just local bias, for the info of interstate forumnites.
As per normal, today looks good, tomorrow is anyone’s guess. The 3 properties I bought in the last 18 months have all appreciated 20-25%
Good luck,
Kum YinHi, I agree with Simon, against the advice of my nearest & dearest. Being on 0 gearing as I was, it was really necessary for me to look for -ve gearing.
What makes the venture successful of not depends on the choice of the target property.
I’m working towards 50% LVR and exactly neutral gearing, doing a balancing act between the +ve and -ve cashflow properties. It helps that my properties are significantly below the median. I’ve managed that by sub-division & development.
I don’t wnat to jinx myself by saying that I’ve made profits but -ve gearing has worked and I hope continues to work for me.
Good luck,
Kum YinHi, a bit hard to follow your story. I take it that the rental is jointly owned with your parents and you want to trade that for the target battle axe block?
I’ve done something similar. The old house is tenanted @ 5% yield while the sub-division is going on. Building approval is provisionally approved. The building cost is $160000 hopefully inclusive of sub-division costs. Final value is around $300000.
Meanwhile the indicative price of the old house on half the original block is close maybe more than what I paid originally.Linda, if I were you, I’d confirm the following:
1) that council is supportive of what you want to do. I deal with 2 very different councils here & the I’ve one that’s been on the back boiler for 14 months.
2) Check your numbers carefully. Factor in 20% more for building and 10% less for the value of the new block.
3) Work out what the rental yield will be if you don’t/can’t sellIf the numbers are right, GO FOR IT.
If you don’t have other investment property, why can’t you keep all three for 5 years?
I have 4 houses nearing completion [costs have ballooned 30% more than anticipated yet still profitable]. I have worked out that I should SELL THE OLD ONES AND KEEP THE NEW. That means that I hold five new houses for 5 years.
Obviously, I need to put in a disclaimer here because I don’t know all the ramifications of your situation. Only you yourself can know what’s supportable. The fact that you have $80000 in savings is a very telling factor.
Thanks for reading this very long post & good luck,
Kum YinHi, talk about paralysis! I feel it comes from information overload.
I only found this forum after I ‘retired’ and Christmas 2005, my sister gave me a dire warning about my ‘over-exposure’ to the property market.
If I had taken the time to gather the info, I’m not sure that I’d have bought anything at all.
Not knowing anything and like a complete idiot, I just bought, and bought and bought.
And like a double idiot, I just sold and sold and sold.
However, to put some perspective on my situation, after the 1st house which was a bit of a disaster, my LVR was never more than 67%.
2 weeks ago, I saw 2 blocks of land @ $80000 each. With a 3BR 1 bathroom + carport for $100000 and $30000 for stuff like variations, services etc, a new house will cost around $200000, certainly no more than $220000 at most. It will rent for $230 -250 p.w.
You can work out the numbers for yourself. It is neutral gearing with little cash down, +ve cashflow with $30000 in an offset account. Every dollar paid into the offset account earns close to 8% tax sheltered.
If there’s a lower risk, higher return investment, I can’t find it anywhere else.
The highest yield I’ve ever achieved was in the forex markets but during Sept 11, I sat glued to my computer until 3 am!
A last note: from experience, any property that’s close to neutral gearing quickly delivers capital gain. The one I describe above has $50000 worth of equity from the start.
Good luck ,
Kum YinHi all, been following this thread with some amusement. At last, my 2 cents worth.
Peter & others of like ilk, houses are commodities, just like bananas. You don’t like the producers’ prices, grow your own.
Investors as such, do not push up prices. Don’t they wish they could!!
I’ve discovered that the government is the biggest owner of land & they are the biggest seller. They sell a block of land to me for $120000, it costs me $160000 to put a house on it, hey presto, that house cannot be less than $300000 because there’re other costs as well.
The fact of the matter is that no government can support the housing needs of an entire nation, even socialist governments have found out to their cost.
Therefore to all who are concerned, I say ‘Wake up & solve your own housing needs.’ It is NOT someone else’s responsibility.
Have a good day,
Kum YinHi, I don’t know about the Western suburbs though I did look in Brooklyn Park 12 months ago. Went to the auction at May Tce opposite Kooyonga. The price was a bit too high for me to seriously consider it.
I bought at 3 locations, one at Taperoo (May 2005), another at Clapham (Nov 2005) and a third at Blair Athol (May 2006).
Taperoo (2 old shops) has been sub-divided into 4 courtyard homes. To be completed in June/July. Blair Athol is let & approval for a villa block down the side. Clapham is in need of SERIOUS RENOVATION.
I’m looking for a suitable person to work on Clapham. All the properties around me sell on 1st open & there’re very few on offer.
Interested? Send me an e-mail. At the very least, we can share opinions on Adelaide.
Cheers, Kum Yin
Hi, the Melbourne property looks scary. What % yield is $340 pw on $540000?
Just my thinking aloud.
Good luck,
Kum YinHi, please be extremely conservative with costs. I’d look at it this way. If it costs $X in total, then every day, it’d cost me 8% of $x divided by 365.
And do not be misguided enough to say that it should appreciate by y%.
Good luck,
Kum YinHi, I can see your rationale for wanting to sell to access the equity + profit as this qualifies you for CGT exemption selling PPOR.
The rest of it depends on:
1) selling costs – how much will it leave you & will you be able to buy IPs with better yield than the current house
2) what rental you can achieve if you don’t sellI’m curious enough to look at some numbers.
a) rent : @$450 pw = <$24000 p.a.
outgoings = $5000 approx + $1000 contingency for maintenance
Net income = $18000 p.a.
Interest on $300000 = $21000 p.a.
Conclusion: your house is almost neutral gearing
b) Sell @ $500000 and access $150000 cash to buy a $350000 property
Loan = $220000
Int p.a.= $15500 [assuming around 7% int]
Rent @4% = $14000 Outgoings = $4000 approx Net $10000Looks bad, change the rent to $350 pw = $18200 gross
First run estimates suggest that there’s no advantage in selling to buy another one UNLESS
Let’s see what 80% LVR does for you.
Loan @ 80%LVR = $280000
rent @$350 pw = $18200 gross Outgoings = $4500 approx
Interest = $20000 approx [7%+]
Loss = $5000 approx + depreciation = $8000 {just a wild guess}
Tax offset = $4000 approx assuming 40% tax bracketHow interesting. You’re still effectively neutral gearing if the parameters I describe are more or less correct.
With the sale + 80% LVR, you do get about $60-70 thousand cash in hand.
This is FUN! Tell your headache to go away & play elsewhere.
Good luck,
Kum YinHi, sounds like you got yourself a deal with immediate savings already!
The part that’s uncertain is the gain in price – that depends on whether your purchase price is higher/lower or just right.
Good luck & well done!
Kum YinHi, it’s most important that your choice of IP be right. In today’s climate, it’s well nigh impossible to buy something & straight away get +ve return.
The numbers need to look like this:
IP cost = $300000
Interest = $24000 p.a.
Outgoings = $4000 p.a. [can be more, unlikely to be much less]Therefore, the total tax offset can be calculated on the yield, i.e. rental return.
Let’s assume 4% rent. That mean the IP rents for $250 per week. You have a $12000 annual rental income.
The loss is $16000. This gives you -ve gearing of $6000 approx.
If the IP is new, there’s depreciation of around $12000 (could be higher) for the 1st couple of years. This translates to about $3000 tax offset.
Therefore, you get about $7000 a year back through tax alone.
Your carrying cost is $5000.
THE NEXT STEP IS THE MOST IMPORTANT. Can you put together the amount necessary to generate $5000 within a couple of years?
At 8% [which is what I use to calculate your interest liability]. it requires only $40000.
At your income level, you should be able to save that very quickly, if you wish to make the sacrifice.
What you’d be doing is NOT to pay down the loan on IP but pay down your home loan. Every dollar paid into the home loan earns 8% that is repaid 40% by your tax bracket if your tax bracket is 40%.
Get the idea?
If I were young & starting all over, I would buy to rent and rent to live.
Please also remember that the numbers assume no vacancy periods. This means that the IP must be the kind that never stays empty. Not that difficult to find. Something median, 3BR, 2 bathroom with car port/garage NEAR FACILITIES in a rental suburb.
This is a very long-winded post & I may be repeating stuff that you already know.
Good luck,
Kum YinHi ,
I should think the 1st step should be to buy to rent.Couple X:
Combined income = $75000 p.a.
Rent = $260 p.w, $13520 p.a.Buy IP at almost exactly same rental yield
IP Cost $275000
Loan = $290000
Interest @8% = $23200 p.a. Outgoings = $2500 estimated
“loss” = $12000 approximately – tax offset $3000+
Depreciation = $4000 approxKeep the 20% deposit in offset account. Interest offset = $4000+
With some juggling, the IP is instantly neutral gearing.
You can even team up with a mate to buy an IP each to rent to each other. So far, the ATO hasn’t said we can’t do that, have they?
I’d like some opinions on this!! If I were 25 again, God forbid, it’s what I’d do, IMMEDIATELY.
Doesn’t matter what/where the property, only the yield & that it’s new applies. We don’t ever have to sell. The property never needs tp appreciate in value. We can still build our wealth.
It’s what Margaret Lomas means by on paper loss, I think.
Good luck,
Kum YinHi all, follow up.
Like Koulizos, I thought that prices couldn’t go up anymore & sold all 4 of my houses in 2003-2004 here in Adelaide. Good profit but dash it all, they could still go up! They went up another 30%!
I’ve since re-bought about 1.5M worth of property & am on tenterhooks.
I wanted to tell the young wannabe property investors that in many cases, the profit in property is independent of growth.
My niece has a townhouse which her mother sold her underpriced & it has increased in value by $250000. My niece earns $100000 a year, probably more. Her tax bracket is 40+%
A new house yielding 4.5% would put her out of pocket by about 2.5 thousand a year. If she paid $1000 into her home loan or an offset account, it’d take less than 2 years for the investment property to turn cashflow +
The idea is to maintain 100+% loan on the IP and let the home loan put cash into our pockets.
She is part of the Echo Baby Boom. I wonder how many of them are out there?
As long as there’s someone paying 4.5% rental yield, property investors NEVER have to sell.
James, your problem is that your IPs are beyond the capacity of your home loan. That’s why you might have to sell one of them. But it’s an issue that only you yourself can decide.
Good luck,
Kum YinHi James, woo… 15K after on paper losses can be serious -ve gearing over time.
Either 1) pay down the principal [this is doing the hard yards]
2) sell @ small loss/ affordable lossLong ago, with my 1st house, prices went seriously backward & stagnated for 5-6 years. I know now that I should have taken a loss but at that time I was young & totally afraid of losing my pride.
I busted my guts to pay off my debts, seriously affecting my mood & my social life. Eleven years later, I sold at double the price I paid. I sat myself down and asked “What did I gain?” The answer was startling! “I gained a loan facility.”
2 years later, I thought house prices in Adelaide had stagnated enough. I borrowed from private lenders at high interest, went away & worked 16 hours a day to pay down the loans.
It’s now entering the 8th year of my property investment here. I’ve borrowed a couple of million and am still scared witless. But I also have over a million worth of equity.
I’m sorry you have to make a tough decision about where your property investment is heading.
Wishing you all the best,
Kum YinHi, I’m living in a property exactly as described. The reasons I bought are:
1) It’s a wonderful suburb to live in
2) Properties take only 3 weeks to sell
3) My house cost half the price of those further up the hill, away from the railway track
4) My block is 1300m2 & sub-dividableI ‘m extremely ‘lucky’ to be correct in buying into a rising market. BTW, everyone said at the time (12 months ago) that house price could not go up anymore. If I sell now, I make up to $50000 after tax.
Be wary of the capital gain expectations though. My advice is to buy on CURRENT figures.
Good luck,
Kum Yin
