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L.A Aussie
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October 3, 2007 - 10:43 pm
F;
that story is a head shaker, and it happens so often it is maddening.
Mistake 1. The guy buys what seems to be a brand-new townhouse? How often does this happen when the price is no doubt the developer's price; not what the market is asking.
Mistsake 2. He starts off at around 6% interest, and when it climbs to a stratospheric 6.71% he is starting to get into trouble? This is laughable – actually; no it's not; it's sad.
My question is; how does the Bank allow this guy to get into the situation in the first place? Once upon a time, it was very hard to get a loan, now it seems they will give you the money whether you can afford it or not, with no consideration for the worst-case scenario of the customer. Another level of poor customer service from the Banks has arrived, people.
Surely they would have had the townhouse valued, in which case it should have shown up as a borderline value for the loan, then they allow him to go for a 90% loan (no doubt there was LMI) on an interest rate that puts him in trouble if it goes up even 1 per cent?
What was the percentage of his income represented by the loan repayments at 6%? If he gets into trouble when the rate rises
.75% then surely it would be at the danger limit of 35% of income when he took out the loan – all Banks know this is traditionally about the cut-off for people's comfort level.
The Bank has a lot to answer for here, as well as the guy who bought the property, but, in fairness to him; he may not have a lot of financial knowledge, whereas the Banks; well, that's their expertise. Shameful.
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October 3, 2007 - 2:55 pm
Phorsha wrote:
OK so the actual cost of the motor is deductable but the door isnt…I think ill just wait until im in there.
If you replace the door as well then the door is deductible
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October 2, 2007 - 2:09 am
I've never heard of comments like these, but I think that the comment is a bit of a warning sign.
Your friend would do well to do some thorough research into the resale values of similar apartments in the immediate area ovedr the last 12 months, and check with a few local agents on the rental; demand, vacancy and rent return.
As far as I know, the Bank will always lend against the valuation.
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October 1, 2007 - 9:10 pm
Our wedding cost $6k – I paid for the whole thing as my and her parents are broke, and my wife was studying nursing at the time and earned little.
We only invited 80 people, it was a great day.
Our mindset was to pay off the PPoR; not waste it on one day that no-one else really remembers anyway other than us.
L.A Aussie
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October 1, 2007 - 8:12 pm
crashy wrote:
L.A Aussie wrote:
See; another case of the chip on the shoulder, "I stuck it up you – you're no better than me" attitude.
Endless.
as opposed to your "Im so busy pointing out everyone elses flaws I dont realise what a jerk I really am" attitude? careful up there on that pedastool, you might fall off one day and be forced to mingle with the rest of us, god that would be aweful for you huh? the internet is full of people who believe they can appear better by making others look bad. its quite sad.
Hey crashy; where ya been? I've been expecting you.
It's pedastal; not pedastool, and i'm not on one.
Just like others; I never went to Uni, and still managed to come out o.k – I just don't whine on and on about it, or think I've had a big win and shout HA! HA! when I find out I've been able to earn a bigger paycheck than someone who has.
Last time I looked, it wasn't a competition.
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October 1, 2007 - 1:25 pm
L.A Aussie wrote:
Good advice from Richard as usual.
Just a small tip; I wouldn't refer to $100k income as 'modest' and 'we've only managed to save $90-100k'.
There are many people who are not as well off as you and might take offense to that. You are actually in a very good financial position for your ages.
Ah; sorry folks; this should say "Good advice from SIMON".
Too many Margueritas.
L.A Aussie
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October 1, 2007 - 4:57 am
Don't forget;
I.P – Investment Property
P.M – Property Manager
I.M.H.O – In MY Humble Opinion
W.T.F – What The Fu*k?
L.A Aussie
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October 1, 2007 - 4:53 am
I would be doing some of my own research on this. Don't rely on opinions either; look for the facts.
– Look at the demographics of the area; who is moving in, who is moving out, is the population increasing?
– Are there lots of younger people moving in and renovating existing homes – gentrification is a good sign for cap growth.
– Are there any/many new housing estates under construction or planned?
– Is there planned infrastructure development for the near future such as im proved roads/freeways/trains/bus lines/schools/new hospital/shopping malls.
– What is the employment situation like; are there lots of big businesses, factories, retail etc.
– Are there lots of vacant retail shops around
– What is the rental climate like; is there lots of rental demand, tight rental market.
There has been talk of increased mining exploration in the area as well, but has it been verified, and exploration doesn't guarantee that any mining will commence any time soon.
Most of these questions can be answered at the local Council, or by talking to several different local real estate agents as well. If you can; go for a drive around the area for the next couple of months and watch the activity.
L.A Aussie
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October 1, 2007 - 4:40 am
You would probably do better by getting a job with one of the bigger development companies for a year or two to learn the ropes, then give it a go on your own.
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October 1, 2007 - 4:32 am
You can pay any expense for your I.P's out of a line of credit.
Repairs are a tax deductible expense for the current financial year, while expenses such as the finance costs and purchase costs I believe are depreciable over the 1st five years (check with accountant on that one – my memory is a bit dim).
All the interest on the Line of Credit is tax deductible, but you will need to make sure your I.P interest and expenses are kept separate from the PPoR interest so there is no confusion at tax return time.
When you get a bit more established, it is a good idea to have your expenses from your I.P paid on your behalf by the P.M straight out of the rent.
The P.M sends you the monthly statements with the invoices for any work attached to the statement. This can be organised with a phone call, you can set the limit at whatever you like for the P.M to spend without your approval, and you will have a lot less work to do (unless you want to do it)
L.A Aussie
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October 1, 2007 - 4:19 am
"I did have a laugh yesterday actually. I started to think about this thread after I called my local GP. they were closed and the after hrs call out fee if I wanted him to come here was $150. I then looked at my work phone and though funny if he wanted me to go to his house today it would cost him $300. Ah well, glad im just tradesmen "
Oh, for god's sake; so what's funny about that?
Is it funny that the Uni educated poser doctor charges less than you; the apprenticeship trained supposedly lower-class tradie? That'd be it I reckon.
Yeah; I guess you win; he's been to uni for all those years, got the wanker title , and here you are earning more for a call out than him. Way to go.
who cares?

You both deserve to earn a squillion cause you've both bothered to get off you backside and get a qualification. Get over it, do a good job and look after your customers, make a fortune and stop comparing yourself to the white collar boys.
See; another case of the chip on the shoulder, "I stuck it up you – you're no better than me" attitude.
Endless.
L.A Aussie
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October 1, 2007 - 4:00 am
Good advice from Richard as usual.
Just a small tip; I wouldn't refer to $100k income as 'modest' and 'we've only managed to save $90-100k'.
There are many people who are not as well off as you and might take offense to that. You are actually in a very good financial position for your ages.
L.A Aussie
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October 1, 2007 - 3:44 am
Yes Paul,
It's a pity there are not more tv shows which focus on the success stories of wraps. I guess there are no ratings in that.
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September 30, 2007 - 3:41 pm
Hey Bronte,
if the travel time and distance isn't too far (less than 2 hours) then I would keep the property (especially if rentals are in short supply) and commit to no social life for the next 3 or 4 months and do the renos yourself on w'ends and days off.
For the sake of about 30 or so days of work, you will produce an asset that will make you money your whole life. Better than a real job!
You can make the trips into fun camp-outs, organise a few friends to come up and help and turn it into an adventure. My brother and his wife did this with a house they bought in Great Western. There was many a w'end of painting and drunkenness seen in that house. They are perfectionists and went for some more extensive things like removing walls and re-jigging the floorplan a bit, but it was done well and took not a lot of time in the scheme of things.
3 or 4 friends on the end of a roller can paint a whole inside of a house in a w'end with 2 coats. Don't expect perfection though.
The renos can be done very cheaply if you are doing them yourself, but make sure you use the professionals for all the compliance stuff (plumbing and electrical).
Stuff like the paving, landscaping you can easily do and if it is a rental don't go too mad as tenants rarely look after gardens. You don't need a garage, but a carport can add more rental to the equation, so maybe order a custom made one. It is a depreciable expense as well.
Painting is easy, and windows can easily be removed and replaced with new ones if you have a little handyman know-how. You would have to order them to be made first.
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September 30, 2007 - 3:08 pm
dwv wrote:
Hi everyone,
I'm all newbie to this forum so please be gentle… I've been reading posts for several weeks now and this has lead me to decide on finally taking the plunge (well not yet, technically, as I can still back out).
Let me give you a bit of a background… My friend and I migrated from the Philippines nearly 3 years ago and didn't really know what to expect coming here. Fortunately, each of us was able to get a job after 2 months and we are currently earning around 60K each a year. We were renting for nearly 2.5 years until we got an abrupt termination notice from the landlord as he was going the sell the property to his brother who went on to live there. So we decided to buy a house instead of renting again since we were already contemplating on getting into real estate anyway.
We bought a house in Nothwest Sydney (Kellyville Ridge) for 500K (just the limit for stamp duty exemption for first home buyers) 6 months ago and currently, we have 391K left on our loan with 40K on our offset account. Now we found a display home just nearby (The Ponds – a new suburb) where the land area is 506.8 sqm and the house has 4-bedrooms + study, 2.5 bath and double garage. It's complete with ducted aircon, pergola, alarm, wooden flooring, 10k wish card, 1 year leaseback + 2×6-months option to extend at 5% yield, builder is Australand and Landcom… these all for 500K which is less than the prices of their initial home+land pacakges (starts from 520K I think) which are all sold and occupied at the moment.
The only uncertainty is that it is currently their office site and they will rebuild the necessary features when they move out. I know Australand because they're the ones who built our current property… I had problems in the past but nothing major that I won't buy again from them. So I hope when they rebuild, I wouldn't have major problems.
We have given the 1K deposit yesterday with just a hope that our next loan application will be approved. We've found other display homes in The New Rouse Hill (Delfin/Cosmopoilitan) and they were selling it with 6% yield for 2 years. But there's only one left and it's a bit pricey, I think… and there are no houses built around the area yet so occupancy may be a problem in the near future (I may be very wrong, though). But I know it will be a good area in the future since it's just beside the new mega center and the proposed railway (The Ponds, btw, is just a 5-10 minute drive to the megacenter and to stanhope leisure center and shopping mall. They will also build a mini-center with IGA and other small shops and will have tennis courts and community centers with no community fees!). We also went to Nelson's ridge which we also found to be a good place since it's near Parramatta but didn't have the same feeling when we're looking around Ponds. We went to Ropes Crossing and found that the yields were 8-10% for two years. Whoah! But the properties with 10% yields are very pricey considering the location (535K at St. Mary's) but some units I found a bit reasonable (400-450K range for a 4-bedroom). The development of this area started 2 years ago and I think people are not very keen on buying here because of the reputation of the surrounding areas (it might not be the same in 5 years time though… any comments here?) and it's just too far from Parrammatta and the City. M4 and the Great Western Highway are just nearby but I was told the traffic going to GWH is a bit notorious.
Now, for my worries:
1. With 391K still left on our loan on a 500K property (109K equity?) could we successfully apply for another 535K (500K+7%) loan? I have contacted our broker but she's on holidays and will be back on Tuesday.
You can normally access only 80% of your propertie's value. So you have $400k available, but you still owe $391k, so your useable equity is only $9k. With the offset you have $49k. Not enough for a deposit normally. You can borrow up to 100% of your house value with some lenders, and you would need to pay a few grand in Loan Mortgage Insurance, but personally I think this is a very dangerouse financial position where your PPoR is concerned.
2. Based on the above, do you think the IP from Ponds is a good deal considering it is only giving a 5% yield compared to the 8-10% yeild in Ropes Crossing? I think the capital growth in the Ponds IP will be greater in the future than the ones in Ropes (any comments?). I have read somewhere here that a guy purchased an IP in Kellyville Ridge for 482K and the tennant pays 450 a week which is also around 5% and overall response was positive.
It sounds as though you have done a bit of reserch on the local prices, and it would seem that you are not being charged the leaseback money in the purchase price (many people are). Could be worth it.
3. What do you think about display homes as IPs? Pros and cons?
The danger may be not being able to get a tenant after the lease back period expires (what is the area's rental demand like for your type of property?), and /or you may not be able to get the same level of rent as you are being paid in the leaseback. Check the local agents for the rent values and demand for your type of property.
4. Have someone here already heard about or have seen "The Ponds"? What do you think about the place? Personally, I love the view of the Blue Mountains which I can also see from our house.
Don't know it; you sound as though you are switched on and have done some research. Have confidence in your ability and move forward.
5. Someone here have comments about Ropes Crossing? Pros and cons?
6. Will our 40K offset be considered in the computation of the equity?
Yes, see above.
7. I came from a country where you can buy a good second hand car by working your butt off for 10 years and buying a house is just a dream. Now, after a few years here I have a house and have been contemplating on buying another one (just 6 months after we bought our first one!). Do you think it's too early to buy another one? I know we can manage it financially as we were trained from childhood to save our money… so, why not? That's one of the main reasons I came here anyway – to fulfill my dreams.
You have already proved you can do it in the short time you have been in our fantastic Country, so, if you can obtain finance and keep a safe financial position, I would keep on going.
I'm sure I will have other questions that will pop out later but for now these are what come into mind. Apologies for the long post and thank you.
L.A Aussie
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September 30, 2007 - 2:44 pm
I agree with Bardon,
and further to that post, It wasn't mentioned about the Depreciation you would get on the new house (maybe it was included in the "$110 per week to hold with negative gearing").
If not; the Depreciation is on the building, and all the fixtures and fittings and is depreciated at you marginal tax rate. You would need to get either receipts for all the construction costs from the builder, or have a Depreciation Schedule complied by a Quantity Surveyor, then give the paprework to your accountant for tax time.
It is well worth it.
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September 30, 2007 - 5:40 am
"Thank you LA Aussie
Golf a sport that destroys the environment, gets land for peanuts in 3rd world countries and redevelops it and flogs it off for a motza!"
Sorry OnePlumber,
I enjoy your posts, but you are totally off base there.
Look at almost all land where golf courses are built and you will see mostly useless land that is not being used for much at all. That is the main reason why golf courses pop up; it is cheap (no-one wants it) and provides a business opportunity. It is one of my goals to own one or two.
Granted, some of it is natural land already, where birds live and animals roam, but when a golf course is built, you get a beautiful place that encourages bird life, wildlife, and provides many, many jobs for people into the bargain, as well as a great outdoors activity that provides exercise for people and enjoyment for people of all ages and all walks of life.
Just last week I was playing golf with 3 people from 3 different countries. A male nurse from Pittsburgh, a retired police officer from Malta, a UK army computer programmer and a retired Aussie golfer (me).
The weather was beautiful, the company was excellent, and we saw hawks, crows, sparrows, ibis, fish, herons, squirrels, ground squirrels, woodpeckers, rabbits and even saw a family of otters in one water hazard. We even saw some moles, a rattlesnake, as well as fox tracks in the dew and about 100 different types of trees and plants. Not bad for an environment destroying waste land.
The golf course we played on was once a swamp, and still has some of the original swamp around, and there are over 100 employees there. About 40 on the groundstaff, another 15 in the proshop and about 45 or so in the restaurant.
Oh yeah; there is a time-share resort right across the road which is part of the golf complex. It employs around 200 staff as well. And there is a housing estate across the road that has, oh; I don't know; about 300 houses that many tradesmen made some money from during the construction – all provided by that evil, evil golf course.
In fact, on the same day, I saw one house across from the 18th fairway with no less than 8 trades people working on it. 6 landscape gardners and 2 plumbers up on the roof. Shall I continue 'cause there's more.
Those same golf courses in 3rd world countries provide much needed jobs for the local people, who, without the golf courses, may have a much poorer lifestyle. Agreed; the bulk of the profits go to a select few, but I can say that this is the case for almost the entire USA these days, and most of the world no doubt.
It is one of about 100 golf courses dotted in amongst the enormous Sonoma County Wine region; known as the Napa Valley. Now, lets talk about environment destroying land use. I love wine by the way, but we are talking about MILLIONS and MILLIONS of acres of land used for humans to get drunk on.
This is off the track though; you are attacking the sport, while I was talking about the image of the people who service the golfing industry. You have twisted the topic away from the real issue and that is poor form (now we both have poor form).
The issue I and others have been discussing is greedy plumbers and electricians. But let me point out; if it wasn't an issue, then why was it brought up?
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September 30, 2007 - 4:53 am
oneplumber wrote:
NEWSFLASH for Tradies:
1 – Read E-Myth Contractor – Yellow pocket book about $20 bucks.
2 – Understand the cheaper your service the more complaints you get.
I worked in Property Management, in a Banks doing Home Loans and I learnt something valuable about price and service.
The best outcome for a client to tradesman partnerhip is to offer a premium service, premium product and a premium ongoing service guarantee.
So when the work is finished there is a 30 day, 90 day, 6 mth and yearly contact points to reconnect with your client.
If you do cheaper work, your client WILL complain more. The corners cut in the beginning to save money in the beginning will affect your reputation as the product will require a larger service commitment.
When looking after your client you need to keep in contact and keep them informed about the valuable info on how to look after the product while you look after the service.
Consider specialising as this will reduce service ambiguity and service guarantee confusion.
eg: If you give a 12mth or 7 year guarantee make sure sure you are the best at it. If you work on taps do not do the guttering unless it is part of your guarantee.
WHY?
If the client is happy with your tap service guarantee but the guttering work you did is not of the same standard or price then a small leak in the gutter will represent the entire experience of your client.
The client who arges on Price will always bother you for more service above and beyond reasonable clients who pay a fair price for excellent service.
I welcome the opportunity of pricking the bloated bladder of lies with the poniard of truth. Winston Churchill (writer Aneurin Bevan)
William
PS: COST: You can call roofing franchises and get a roof respray quote for $10k or get your local guy with testimonials and pay $3500 – $5000.
One Plumber,
Now THAT'S what I'm talking about!
Thankyou.
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September 30, 2007 - 4:34 am
Yes.
We did that with our PPoR before we moved over here.
We simply had an automatic opening mechanism to the existing door, with remotes.
Cost was $495 and is tax deductible.
Tenants are happy.
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September 29, 2007 - 4:41 am
DraconisV wrote:
Thanks for your help Marc, greatly appreciated,
Ok I have now crunched the those numbers, and re-crunched em. Here they are;
Purchase price: $200,000
Closing costs(6%): $12,000
Deposit: $32,000
Renovation costs added to loan: $20,000
Loan amount: $200,000
LVR 100
LMI(2.5%): $5,000
New Loan amount: $205,000
Holding costs for 6 months(including rates, insurance, interest): $10,000
Value after renovation: $240,000
New LVR 85
Interest(8%): 16460
Rent(6% renovated value): 275pw/14300pa
Property expenses(20% of rent): $2,860
Cashflow: -$4960pa(-$91pw)
Expected capital gains(5% renovated value): $12,000
Net Profit Percentage = 18.05
With an expected rent rise of 3% with all others constant property will be cashflow neutral in 12.5 YEARS, now this is my big shock, what the hell, is it due to my high LVR, or something else.
I hope I have fixed any problems.
And again I haven't included deprecitaion at all, and am not worrying about selling in the near future that is just complicating everything.
Is the reno costs of $20,000 realistic for a $40,000 increase in value.
Regards,
Christopher.
P.S. Would the 20K of reno costs be added at the start thus increasing my LVR and pushing my LMI up heaps??
I have been looking on realestate.com.au at lots of properties, and the properties that are about $220,000 havea tenant in them paying about 290-300 on average(and I'm pretty sure that they are not recently renovated ones, I don't know, I don't want to seem to absolute best case scenario like, I should be worst case scenario, Is that what I am??
If you are considering not selling in the near future, and because the rents are as high as you say, then it may not be worth doing an immediate reno, unless you are positive it can improve the returns even further. This will improve the cashflow, reduce the LMI and the interest payments, improve the LVR which is a better position from a safety aspect.
It may be better to leave the property as it is (if it is already tenanted) until the tenants decide to move out, or wait until you are a bit more established and then offer to do the reno while the tenant is still there, then increase the rent slightly and get the place revalued for further cap gain hopefully.
Renos are fickle; depending on the area, the type of property and the extent of the renos, sometimes you will only improve the value of the property by the cost of the reno, so it is a waste of an exercise.
The indicator will be what the similar renovated properties in the area are selling and renting for. This will give you an idea whether or not the reno will be worthwhile right now.