Unless there are checks and rules put in place to ensure the developer's do actually pass on the discount, then I reckon the developers will simply make $25k more per house.

The other scenario will be similar to what happened with the FHOG; more people suddenly came into the market than there were previously, driving up the prices to cancel ou the the benefit of the FHOG.

If all goes well, and the newer houses are cheaper, it will mean in the short-term that all those recently completed new houses will drop in value to be comparable to the new discounted ones. If you don't need to sell there is no problem. But I don't see this happening.

It is purely a vote getter at best. Elections.

So let me get this right;

you pay them $5K per year for them to find you deals through developers that they know? How generous of them. Why not approach the developers directly. The 'closed deal' line is BS.
Then, you get the "right" to buy the blocks for $100 -$200 per lot after paying them $5K?? Again; how generous.
Then, at settlement you hope the land has appreciated, so you then drawn down some equity to pay the future loan repayments, thus capitalising the interest on the loan so it costs you nothing to hold ithe land? But once you make a draw down on the equity, you then have to start paying interest on that draw down. Basically, you are not paying anything off the loan and the interest is simply tacked onto the loan and the loan increases. What if the land doesn't increase in value by settlement? What if they are charging you more for the block than it is really worth in the first place?

This smells.

You are being charged a lot of money to buy land that you can simply do yourself for free by going to the local real estate agents and asking what they have for sale and save the $5k. Every developer will also have their land lots advertised with all the local agents.

You shouldn't be charged money for the 'right' to buy the land they find for you; especially after you cough up $5k.

The legals and stamp duty amount to around 6% of the purchase price typically. Do you think they are going to give you this for free? No; it is built into the cost of the land.

There are 2 things you need to do here;
1. Run a mile.
2. Run another mile.

But seriously; look at what the average price of a block of land costs in that immediate area, and also look at what the cost of house and land packages are going for in the area right now. This is as easy as an hour on the phone talking to local agents, or spend a couple of afternoons driving around researching the values.

Don't be betting on a cap gain in 18 months with their deals; this is gambling. You need to do a really in-depth due diligence to verify whether there is a likelihood of a good cap gain occuring in that area in that time frame. In most cases, these developer's deals are price loaded, so when settlement rolls around, your cap growth doesn't materialise as the price you paid for the land in the first place was too high. You may even find that the land is worth less than what you paid for it; especially if we get a few more interest rate rises over the next 12 months and everyone puts their cheque books away.

These sorts of companies rely on people who can't be bothered to do the due diligence. Being lazy is expensive. If you want to be a successful investor, YOU need to do this work, take control of your future and make sure your investing is safe.

One last thing; ask the 'consultant if you can provide your own valuation on the land , and your own legals before signing any contracts. Their response should be interesting.

A bit of background first;

We live (not at the moment) in "Dromana", Victoria. It is a bayside town on the Mornington Peninsula, about 1 hour south of the city. We bought there in 2000.

It is right next to a township called "Safety Beach", which is about 2 miles up the road closer to the city.
Both townships have been traditionally holiday destinations; the majority of the properties are holiday houses. The beaches are great and there is decent shopping already, and the freeway is 2 mins drive or less. There are spectacular bay/city views as well for some.

In the last 7 years since we moved there, we have seen a major improvement to the freeway access to the Peninsula (there is still more going on via the Frankston Eastlink), which has encouraged people to live down there permanently and commute to the city, to Frankston 25 mins away, and to Dandenong 40 mins away.
The demographic has been shifting from holiday houses to younger families and retirees moving in for the "seachange" and the cheaper prices. You can still buy a decent 3 bed house in Dromana less than 1 mins drive from the beach for around $300k, or a doer-upper for low-mid $200's.

Since 2000 the price of our house has more than doubled which is nice (we are on the hill with bay/city/marina views). Part of this is due to the above factors, the other influence has been the construction of the new $100 mill Martha Cove Marina at Safety Beach;

http://www.marthacove.com.au/

Meanwhile, the properties in Safety Beach; especially anything beachside, or with bay/city views and/or Marina views have trebled and quadrupled. Blocks of land in the Marina with boat berths and Marina access started at around $600k when they were released in about 2004. I heard one sold for $1 mill 2 years ago.

Both areas continue to grow, and we have seen a marked increase in tourist traffic every holiday period, as well as population growth.

There is no doubt that the Marina has inspired more interest, and has/will raise the profile and standard of our little sleepy hollows.

In my opinion the same effect will occur in Frankston (yay! we have a property there as well) when its Marina gets going.

As for a 300 berth in a regional coastal town, it will definitely have a positive effect, but I couldn't guess at how much. Anywhere that a Marina is built you see other infrastructure improve; more restaurants, more shops, cafes, more holiday houses to accomodate the people with the boats, more tourists out driving around etc.

But don't take my word for it; do some research with the local council to find out what other projects are planned; there could be more shops etc which will be a good sign for the area. They should also have proposed plans for the Marina that you could look at, budgets etc.

Incidentally; where is the marina you are thinking of?? Maybe we should all be buying there.

Hey Pete,

a few options come to mind;

First, it would help with the cashflow if you can convert the loan repayments to interest only. This still gives you the option of paying down the principal when you want to.

 The interest on you loan will become tax deductible when you turn the property into an I.P, as well as all of the other holding costs such as repairs, insurance, rates, property management, etc.

Second, if your property is built after 1987 you will be able to depreciate the building and the fixtures/fittings, so check this out and get a Depreciation Schedule prepared by a Quantity Surveyor. This will cost around $500 but is tax deductible and will pay foritself in the first year thorugh the extra tax you will save.

This is an important point for your next purchase as well. Look for something built after 1987 with the next one to help with the tax returns and overall cashflow. Go for an interest only l.oa with that one.

One bed units can appreciate too, but it depends on the area and rental demand as to whether you will get good rent returns and good cap growth.

It is harder to find any pos geared properties around at the moment, so you may want to look at a property that you can hopefully add value to through renovations. This can also improve the rental return for you.

Look for an area that has not recently gone up a lot in price, but might in the near future. The research you will need to do on the areas you choose will help to show you the likelihood of this happening. Things like improvements to the local amenities such as new schools, shopping malls, hospitals, improved roads, new housing estaes being constructed – these sorts of things are good signs of population increasing and demand for housing.

Lastly, you can only afford to buy when you can afford to buy, so don't be in too much of a hurry to get that 3rd one unless the figures are good for the property and your overall financial position. We all hear the stories of people buying multiple properties in a year etc, but remember that this occurs in boom markets, and usually in areas that are cheaper and have good rent returns to begin with.

This sounds as though you are "capitalising the interest" on the I.P loan?

Capitalising the interest is good for short-term cashflow, but there is a danger in that you are adding more debt to your financial position, while you hope that some cap gain offsets the extra debt. This is a bit like gambling, and you need to be realistic; life happens. What if the market slumps, or you get sick or injured or you lose your job, or all three?

Many investors don't do bother trying to pay down investment debt because it affects your cash-on-cash return. Idealistically, this is o.k; you put in less money, the investment increases so your return is better. But…

Personally, I believe that you should try to always pay down debt, whether it is tax deductible or not.
Of course, you should try to cut out the non-tax deductible debt first, then start on the the investment  after this as it is tax deductible and costs you less.

At the end of the day, if you continue to pay down debt, you are improving you over-all financial position. Property investing is a business, and one of the biggest causes of businesses going broke is laxk of cashflow – too much debt; too many expenses.

When you pay down debt, your equity will increase, your cashflow increases as you have less debt to service, your ability to service more investment debt increases so you can get access to more finance –  the whole scenario is better for your financial health.

Further to what Stu has said, you can also take your profit to a degree through living off the equity in your portfolio. This is without selling any of the properties of course.

The other way is to sell a couple of properties to pay out the debt and have debt free properties that provide you rent. The rent is now taxable as it is a positively geared cashflow. Still a good problem to have.

But let's look at equity draw downs.

This will occur after a number of years when the equity has built up and the rent income has increased to a level where the rent is higher (or close to the same figure) than the all the outgoings and the loan combined (positively geared).

The way it works basically is you have a redraw facility or Line of Credit (LOC) loan/s against your property portfolio. As your equity increases in the portfolio, you can draw down some of the equity to use in any manner you wish. Having said that, you should only draw down enough to not allow your LVR to reach a dangerous level. Banks will normally only let you borrow up to 80% of your properties' value (80% LVR). So your draw downs should leave you with way less than this figure for safety – say; 60%.

As a rough example; after 10-15 years of investing, your portfolio is worth $2 mill (this is not an unreasonable figure by the way) and your loans are at $1 mill. Your interest rate is 8% on average. the rent is now covering the loans, and with the tax deductions and depreciation associated with the potfolio you are cashflow neutral.

The portfolio is appreciating at a very conservative 5% p/year. So, as of year 1 of the equity draw downs, your equity is $1 mill, but you can only use 80% of the equity $1.6 mill. You still owe $1 mill, so your USABLE equity is $600k.

You decide to draw down $52k per year to live off – $1,000 per week.

The portfolio is going up by $100k  (5% of $2 mill) in year 1, so your nett worth has increased after equity draw down by $48k.

Hi Nami,
I took out an interior wall in a unit we own a few years ago as part of the renovation we did. We sold it 2 years ago to fund another project.
The renovations took 3 months, and by this time I new all the other unit owners and they all came through to follow the progress with interest.
No-one from the body corp said anything, and I didn't know we had to ask, so ploughed on.
After this I had 2 offers to do the same for a couple of the nannas in the complex, but said thankyou, but no time available.
 I did all the renos myself except for plumbing and electrical, and a small amount of plastering, and we had a new Bunnings kitchen installed. The unit looked fantastic.
I'll explain what was done; sorry if the carpentry terms etc aren't correct.
The wall was between the lounge and kitchen, and opened up the area amazingly. It was wood frame and plaster board. There was a sliding woodframed glass door in the wall as well, which I kept for use later to close off the laundry from the kitchen.
I checked to see if the wall was load-bearing (wasn't) then traced the area on the wall where I wanted to remove, then used a stud-finder to work out where the vertical wall frame beams were.
A bit of re-marking to make sure the cuts were going to be right up against the inside edge of each vertical wall beams on either side of the opening, then proceded to cut what I could of the plaster out with a standard $7 wood saw.
When I reached each wall noggin, I cut this area with an angle grinder.
Then cut along the top near the roof, just below the cornice with the saw again etc.  There was a roof beam in line with the edges of the cornice which was later plastered over and formed a small bulkhead between the kitchen and lounge. Looked good.
After removing the skirting boards, I used an angle grinder down at the floor so as not to damage the lovely floorboards underneath (these were later polished). I then removed the remaining plaster with pliers and a stanley knife.
All that there was left to do was saw across the vertical wall beams and remove them and the opening was created.
I then hired a plasterer (friend in the trade) to fill in the side openings and the top near the ceiling.
There was some minor damage to the skirting boards, so I removed the ones affected and replaced with new lengths.

I can't remember the total cost of this job, but I guess it would have to be under $100 as the plastering was part of other bits that needed doing as well, and the entire plastering bill was around $190 from memory. The skirting boards were 2 lengths, then cut up, so whatever 2 lengths cost. Oh yeah; a bit of sealer along the edges of the cornices and skirting boards and some paint .

I might say, I had no previous experience at this, other than a bit of home handy-man stuff. I had some of the tools already, so had a go. It wasn't that hard, but renos will always take longer than you think.

Give it a go.

I hope thems not the words of someone bitter and twisted?