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When you start off, all the numbers are mind-boggling; levels of debt, numbers of tenants etc.
As you progress, it all becomes just numbers and equations. The important things to worry about are equations.
For example; if you have 10 properties, but the cashflow from the total portfolio is positive, then it won't matter too much if you have a vacancy or three at once, and the overall income from the rent will be high enough to have got you to 10 properties in the first place.
It is rare; if not impossible to have 10 properties with a neg cashflow.
If you work on buying each property, based on it's merits and how it fits into your financial situation at the time, then it will all fall into place.
Also, with the tenants, even if you had 30 properties, you are probably going to have them managed by a Property Manager, so they will attend to all the day-to-day stuff.
You would also get Landlord's Insurance on each property, so the risks from rent default etc are covered, and you would also have building and public liability insurance as well.
This is all standard practice, and you do it one property at a a time. Later, as your portfolio grows, you may do things like have all the properties covered by one insurance policy, as we do, and you may have one PM managing a few properties and so on.
Keeping a tenant is relatively easy; charge a fair rent, keep the property well maintained, and have a good PM. You will get turnovers, but if you factor in 4 weeks vacancy into your number-crunching for whether or not the property will work for you, then you are covered.
As a general rule, you should expect up to 20% of the rent to be eaten up by "holding costs" such as insurance, body corp (if any), maintenance and this also includes your 4 weeks vacancy. This is not including the loan repayments. Go for interest only loans as well to help with the cashflow.
Our average period for each tenant since we began investing in 2001 would be around 18 months per tenant I reckon.
You will also need a savings fund, or access to some other equity in your PPoR of at least $10k to cover things like new hot water service; bigger expenses like that. So far, I haven't copped one of these, but even if it happened, my PM's are instructed to inform me of any repairs that are required, I give them permission to get them done, and the cost of the repairs are deducted from the rent.
The rent is automatically dpeosited into our bank account each month by the PM.
I get sent a statement, with a copy of the invoice for the repair, and the money has been deducted from the rent. Same with the coucil and water rates.
Steve,
thanks for that.
I hope you didn't think I was DEMANDING the answer; it was a tongue-in-cheek job.
Sorry to here about your wife; I hope she gets well soon.So, in 3 years you have more than doubled your money, and it provides you with $160 per week of free money.
Why would you sell it?
Does the "better side of town" have as good a return as this?
Pu that extra $160 onto the PPoR.
Unless the house is a hazard, and the tenants are complaining every day, leave it as it is.
Without more info it is hard to suggest a plan.
How much did you pay, how much is it worth now, what is the rent return, what will be the projected rent return after the renos?
Also; why are you selling? is the property cashflow pos, or neg?
Tell us more, and we can suggest a few things.
Mystery wrote:amaljaya
We have an IP in Redbank Plains.
After recently having a 5 minute chat to town planner at Ipswich Council with the intension of handling the application process myself, I decided to employ a town planning consultant.
We can't do sub-division on our block, but we can have dual occupancy approval on our 800m2 corner block apparently. It will cost us around $20,000 (about $13,000 of this is for council fee's, levies, impact reports, holding fee's etc). We are flying up to meet the consultant in April to finalise everything as we live in NSW and I don't have the time, knowledge or understanding to do it ourselves.
Martin
Hey Martin;
where is the photo taken on your picture?
sorry to hijack the thread people but, hey; that's impressive!
I'll tell you about mine if you tell me about yours!!
Steve; get out here and answer this question.
I can tell you one thing about TRUSTS though; they are good for sheltering the properties and you from litigation, but there are limited tax breaks from them, unless you already have other income going into them from other sources; a business etc..
If you have earned income, which you will be paying tax on, you cannot offset the tax deductions against this earned income tax if the properties are owned through a trust – I think. Correct me if I'm wrong other knowledgeable persons. Terry?
So, if you have lots of taxable income, it is probably better to hold the IP's in your own name to minimise this tax, and take out suitalble insurances to protect yourself.
I have to agree with Trakka (Tracey).
Also; get a list of ALL the outgoings from the complex, and what your share will be. You may be surprised how high the costs are.
Firstly, Steve's book is totally out of date now. I have read it, and it's a great book, but times have changed a lot. The market is vastly different to when he did his stuff. Not to say that it can't still be done, but it's very difficult. These days, you need to create the pos cashflow through renos, adding value, subdividing etc.
You can, however, find properties that are POSITIVE CASHFLOW AFTER TAX. This is different. Read all of Margaret Lomas's books to learn the strategy. This is the strategy that we have used.
Secondly, agents rarely invest. Their incomes are very inconsistent, and most are purely salespeople. Most have no investing knowledge. You are correct; if it was that great, why doesn't the agent buy it? They can't afford it most likely. There are rules restricting them from buying properties that they are selling unless they disclose their interest in it, but it is a minor inconvenience and not the main reason for them not buying.
Thirdly, the rental return on a house has nothing to do with it's value and vice-versa. They are both market driven. Look at the last few years. The cap gain has totally outstripped the rents to the point where in most parts of Aus the rent returns are crap now if you are trying to buy.
But I expect the cap growth will slow down as the interest rates keep climbing, so the rents will catch up again, then the cap growth will surge again, then slow down, etc etc. It's a cycle.
That's a POSSIBLE rent return of only 4.8%. Finance is 8% now.
On a $1.2 mill investment? No thanks.
IF, I say IF again; you could put down a 20% CASH deposit plus costs (5% of purchase price approx) = $312,500,
the loan will be $1 mill @ 8% = $ 80k per year, interest only; thats $1538 per week.
rent is possibly $1160 per week, 20% will be eaten up by holding costs and vacancies = $928 nett rent per week.
shortfall on the weekly cashflow is -$610. Let's say the holding costs are only 15%; that's still a whopping -$552 p/w.
Admittedly there are tax deductions and depreciation, but even at say, $10k per year, the weekly shortfall is still -$410 based on the worst-case scenario of 20% loss in rent to holding costs.
If you had to use equity to fund the deposit and costs as well, the equation gets far worse : -$1409 per week before tax returns.
let's call it an even $1k per week out of pocket.
Who can afford that?
Your best bet is to try to sell it to owner/occupiers I'm thinking.
I guess another option for you, or for another prospective buyer, would be to buy all 3 and then sell 2 and keep one. That would be more appealing.
Then you have one cashflow positive asset.
Use the search button in the top right hand corner of the home page and look up investment books, reading etc.
There are plenty of posts covering this topic.
Shower head and oven door; get the agent to check what is "wrong" with them first. Don't fix until this has been done.
The rest;
Garage; no. It was like that when they moved in.
Cat door is the tenant's choice – they pay.
Gutters; you pay.
it is a tight rental market right now. You won't have a prob finding a new one should you have to kick these already annoying pests out.
Don't know much about the UK processes and rules, but it sounds like you need a new lender.
We are currently doing this with our PPoR.
The limit is 6 years before you are liable for CGT.
crashy wrote:the difference is though, people only make one trip to work per day. tradies can make 10-15. MOST of our day is spent travelling from job to job, or job to wholesaler to job. a large chunck of our day is spent in wholesalers buying materials (and its normal to lose 2 hrs here since service is sometimes shocking) or in traffic. also we spend hours after work doing paperwork.Fair point; you're preaching to the converted though; as an investor and business person, I don't have a problem with you guys doing that.
But the majority of your clients are probably the average sheep; 9-5, no handy-man skills etc – no appreciation.
voigtstr wrote:I cycle to work most days on a Trek mountain bike that cost $1100.
I dont have a car. (Someone stole it, and I couldnt be bothered replacing it)
I also have a Moto Guzzi motorbike, bought for $21800 which is now worth approx $12000.How long have you owned the Motto Guzzi?
dreaming wrote:Hi JambvI read an article not so long ago saying that soon every 10th person in Japan will be over 75yrs old. They also went onto say that Japans population will start to decline soon.
I'm not saying don't invest in Japan because there could be some good money to be made, just make sure you do your homework and buy a product in demand.1 in 10 over 75?
The rest of the (younger) population must be all on tourist holidays, based on everywhere I go around the USA. They are everywhere.
As a general rule, the Banks will only allow you to access 80% of your properties' value.
You can go higher with some lenders, but then you are up for Loan Mortgage Insurance and higher interest payments and even higher interest rates in some cases. This will all affect the cashflow on the investment.
In my opinion, it is dangerous to borrow more than 80% of your HOUSE equity ever; hence the reason why Banks are reluctant to do it and will make you take out LMI when you do. They do this to protect THEM, not you.
Steve's book is quite a few years old now (I've read it), and it would be fair to say that the property market around the country is very different now.
It is extremely difficult to find an "off the shelf" positively geared property these days as per Steve's formula.
You pretty much have to create the positive cashflow; either through depreciation, tax deductions, adding value, rent increases and/or all of the above.
crashy wrote:I was a sparky offering 24/7 service.I was often called at 2am in the morning.
I went out and fixed the problem immediately, and charged $60 callout and $60 an hour (with min of 1 hr, this was back in 2000)
you wont believe how people whined!
lets look at it from my point of view:
at 2am, my house gets a phonecall. everyone wakes up.
I spend 10 mins getting dressed, and 5 mins looking up the address in the map.
at 2.15am, I start a 30 min drive to the client (on average)
at 2.45am, I start work.
at 3.15am, I stop work and issue an invoice for $120
at 3.50am, I arrive back home, have a shower, family wakes up again
at 4.05am, Im back in bedso thats effectively over 2 hrs work for me, plus petrol, plus the inconvenience of my family having a crappy nights sleep.
I argue $120 isnt nearly enough!!!
Yet people say things like:
"$60 an hour!? so thats like $1 a min, are you for real?"
"$120 for half an hour, your a friggin shark!"
"if I had known you were going to charge that much I would have got my regular guy who charges $45/hr"
"Ive NEVER been charged that much in my life!"hmmmm…….does your regular guy come out at 2am? Im guessing no since you called me. Of course you have never been charged that much, since youve never called someone out at 2am before. half an hour…….yeah mate, I teleported here!
$1 a minute………yep, you just wasted $2 bitching about it
$120 for half an hour…….but that saves you taking the day off work and saves $300 of food in the fridge from going off.so remind me again, who has the low I.Q……..the public or the tradies?
For what it's worth, I think that those charges are fair and reasonable, given the type of service.
The problem for most people is; they have to travel to work every day, and never get paid for that. It's just part of the deal of being a commuter.
This, I think, is why so many people baulk at a call-out fee. I'm not saying it isn't justified; just guessing at the mindset of the customer.
This being the case, it would be an idea to make it well known that when you are providing this service the customer knows what the costs will be when you pick up the phone at 2 am.
Then, they can say yes or no, and if they say yes, they have no cause to whinge.
Not much fun for you if they say "no" over the phone at 2 am after you've answered it though.
Crashy,
is it possible for you to get involved in just ONE thread where you don't end up getting into an argument with someone and attacking them?
What is wrong with you?
