Forum Replies Created
Is the property an I.P that needs to have other criteria that hasn't been mentioned, such as a certain rent return, land size etc, or is it a PPoR?
The criteria you mentioned seems basic enough, and I am surprised you would need to engage a B.A at all based on that.
I realise you are time poor, but at 2% of purchase price, isn't saving $10k worth the time spent on the phone and the internet?
The other problem may be what you are actually wanting to buy for $500k; is it a house with land, or a brand new townhouse, beach side of Nepean Hwy, or a 2 bed unit, etc.
I think you could contact 3 or 4 agents in the immediate area, give them a very specific list of criteria and let 'em go. This is what agents are good at, and if they have a nice clear list of instructions they will do a good job.
The reno costs can simply be part of the loan the Bank gives you, but the critical factor will be the LVR and the servicability of the loan.
With the reno costs, plus the LMI, the interst bill goes up, which affects your servicability.
Also; depreciation was mentioned somewhere (by Draconis I think). Any depreciation you claim over the period you hold the property gets added back on to your cap gain, which will increase it and then increase your cap gains tax. It may end up being ok, but it needs to be factored in.
The other figure that I have a question over is the rent; do you know for certain you will get that much? What are similar renovated properties in the immediate area renting for? Be very wary of selling agent's OPINION about the likely rent. I made this mistake back in 2001; it ended up being $100 per week less than I was expecting.
me wrote:i am certain your a knobOh dear; need I say any more?
The problem is what you will ultimately make out of the deal for all the work you put in.
After cap gains tax is factored in, it may be a very low hourly rate; maybe even less than your day job, and you have taken lots of rosk and sacrificed a lot of hours. If you are doing it more for the fun than the money (or a bit of both) then it's not hard to justify the effort.
Contrastingly, you can put the same amount of time into a higher price property and probably make a lot more based on your hourly rate.
I think your strategy with the cheaper properties works better for a buy, renovate and hold, hoping for the renos to add value and increase the cap growth and the rent returns, then repeat.
oneplumber wrote:L.A. Aussie – would you stay on the back foot if you were passionate about your profession?Maybe not, but my profession doesn't have an image or public perception problem, and if/when I was made aware that there are a few areas that needed improvement I would accept that criticism and look to making improvements; not tell everyone "well, take it or leave it – you need us we don't need you". There are different ways to accept criticism.
Being critisized doesn't automatically mean you need to get on the front foot. Take it on the chin and use it for ways to improve.
Here's an idea; put together a customer survey form that you give to every customer. I've never seen one in the trades. There is only word of mouth; the good guys get more work, the bad guys don't. Unfortunately, bad news spreads faster than good.
List on it every aspect of your business, from reliability, to work standard, pricing, customer relations (attitude and behavior – such as dealing with pain-in-the-ar*e clients which everyone has to deal with).
Or don't; it's your job, I don't really care if you are offended or not; are you personally offended, or upset that the industry as a whole is copping a blast?
If you are personally offended because you yourself do a good job while many don't, then find a way to improve your industry so the bad guys don't make you look bad.
I'm just trying to help you all realise there are areas that can be improved.
These figures are a concern to me;
Traditionally, Banks wouldn't let you borrow more money than was going to use more than 30% of your nett income. Now they have gone a little higher with standard loans – 35% in most cases; and that was for ALL loans (car etc).
This means they don't believe you can live a decent lifestyle if more of your wages are used than this percentage. there is a good likelihood of financial stress.
If you buy an $800k house, put in $500k, your interest alone on the $300k loan, at 7.5% will be around $432 per week. What about the Principal payments?
That is 36% of your take-home pay. Interest rates are still likely to rise further in the near future.
After you add around 5-6% to the purchase price ($40k), and assuming you borrow this with your house loan, your repayments blow out even further. Even if you do get the FHOG, this seems a bit precarious.
You now have a young baby, and not including any other debt (car, credit card?) I think you will be finacially stretched to do this.
You may even find that your situation won't get finance approval from the Banks using the standard loans, and if you need to resort to Lo Doc or No Doc type loans to get the finance, you should probably question whether you can really afford it.
What if your husband gets laid off, or hurt.
No offence, but I don't think you can afford this much house on your income, even with a big deposit.
I would be looking to buy a $500k house, and spend another $50k to make it look like a $1 mill house.
I don't think you should ever compare Sydney to Melb or Brissy. I know it's done all the time, but I'm not going to invest in Melb because someone says Sydney is more expensive and vice versa. I will look at it on an absolutely local level.
Totally different locations.
As we all know, real estate functions both on a macro level and a minor level.
Is Cambelltown and up and comer?yes, his response might have been appropriate, but the spirit and the wording of the response has some history.
he could have worded it in a manner such as yours; but didn't.
Good post by the way.
As usual crashy; a compassionate response (not). Good of you to 'help'.
A few questions come to mind Rowester, and please forgive me if I am asking questions that you have already answered for yourself, but I want to make sure you have considered all the numbers.
1. Have you allowed for 6% for purchase costs.
2. Have you allowed for up to 20% of the rent to be swallowed up in the holding costs (including 4 weeks vacancy per year).
3. You can only access 80% of the properties value for redraw, L.O.C etc. If the property goes up by $30k, you won't be able to use all of it.
For example; buy a property worth $200k. Banks will let you use 80% of its value, less any outstanding loans. You can use only $160k less any loans (assume no loans, so can use all $160k). Then the property goes up by $30k. value is now $230k.
80% of $230k is $184k. So your useable equity has increased only $24k, even though your value has increased $30k.
4. Even though a fair portion of the rent is considered by the Bank for loan servicability (up to 80% in most cases), your personal income will factor into your ability to borrow for another property. You want to make sure that the combination of 2 properties (if they are neg cashflow) does not cripple your familie's lifestyle.Not trying to put a dampener on your plans; just trying to make sure your eyes are wide open.
With the ownership aspect; I think (stand corrected if wrong) that your ownership doesn't kick in until you are officially on the title.
Me,
that's exactly the attitude that so many tradies display that many people are referring to in this thread, and recently in others.
Very disappointing, and just confirms the perception.The preception is that tradies are generally;
Arrogant,
Aggressive,
Have a "fu*k you'" mentality (chip on the shoulder),
Unreliable,
Crooks who will scam you if given half a chance,
Unprofessional; probably a bitter high school drop out with no business skills.Even though you know better, unfortunately, perception is reality.
And, you guys confirm our views, because everytime someone brings up a tradie critisism on this forum, one or more of you guys gets on the front foot an attacks. You can't handle it at all; get all petulent and aggressive.
I never see you guys get on here and say "gee; thanks for that criticism, I'll use that information to go away and improve my professional approach to my career and become a better tradie".
First thing; have you actually seen a property that you can buy for $200k that rents for $300 p/w, or are you assuming you can buy one with those rent returns. It is rather difficult to find one with that good a return at the moment; especially in areas that have any hope of cap growth in the near future.
Ok; now to the other figures;
Allow approx 6% on top for purchase price costs; this includes stamp duty. (I guess you have factored in F.H.O.G?)
Allow approx 20% for expenses to come out of the rent; this includes management, rates (council and water), maintenance, repairs, insurances, 4 weeks vacancy etc. This doesn't include the loan interest.
Allow for a couple more grand for Loan Mortgage Insurance, because if you put in less than 20% deposit and money for the purchase costs, the Banks will slug you for LMI if they loan you more than 80% of the purchase price in most cases. 80% is $160k, so at $175k loan you are over the cut-off; LMI would apply.
You mentioned renovations, but I don't see any funds allocated for that.
Allow $5k for a very, very basic one, $10k for a half decent one, $20k for a good one – new kitchen, bathroom, paint throughout and carpet, update light fixtures and switches and door furniture, other repairs. You may be able to borrow this money in with the original loan, but you will have MORE LMI.
The strategy Steve talked about is not new by the way, but is a good one none the less. There are considerable costs with the subdivide and various 'hoops' to jump through, so before ever attempting this do a thorough cost analysis and check with Council on their regulations.
Do another number crunch and show us the new figures.
My 2c;
In the USA all everyone talks about is going to college (uni), it a badge that everyone wears. Total wanking. It's like which car do you drive. The pressure here is immense to do College, and to drop out is considered failure.
So, people who are tradies are therefore anyone who didn't go to uni, hence the stigma about tradies and lower IQ's etc.
It is my opinion that this same mentality still exists to a degree in Aus. The old; 'couldn't cut it at high school, so left and got a trade' mindset.
Of course, we all know that it isn't the case; it has been proven in child studies that boys learn differently from girls, and often don't stay attentive in school because the school curriculum doesn't match the thinking/learning processes of boys to a large degree. (Steve Biddulph; "Raising Boys").
Basically, boys are more 'hands-on' and practical learners, and the school curriculum is full of a lot of useless pen-pushing guff. Boys get bored and lose interest. Then they start to fail the system, and eventually drop out and do something that inspires them (trades).
So, the trades were a great alternative, or tech schools that catered to more 'hand-on' learning for specific careers such as carpentry, mechanics, plumbing, electricians, some engineering etc.
The reality is those same boys (and girls) have the same IQ as anyone else, but because of how the school curriculum is structured, they didn't fit the system and dropped out.
So, the IQ is not the issue with the tradies; they are usually very knowledgable and capable in their field of work.
If anything, it is their lack of professionalism and ability to run a professional, efficient business that has the customer service factor that everyone gets angry about. This is ultimately what brings down their image in the eyes of the paying public. And people have a hard time paying lots of money to people who are disorganised, unreliable etc etc.
Perception is the key.
This is not their fault either; as far as I know, there is no training in the trades in how to run a business, how to be a manager of people, how to serve the customer, how to manage finances and administrative duties.
Nearly all their training comes from similar bosses with the same lack of business skills. What hope do these guys have?
My two brother-in-laws are classic examples. Both dropped out at year 10. One is a sparky, one a plumber, and both are great guys and perfectionists in their work, but both are hopeless businessmen and terribly unreliable (experience). They still do well because they are basically honest and do good work for a good price.
They have both been through about 20 bosses each, mainly due to work ethic issues and being ripped off in hours and money owed before they finally started up on their own.
You may need to be more creative to find a better return; especially in larger towns and cities – buy something that is run down a bit, do a basic reno and improve the rent return that way.
This requires knowing the rents for the selected property in that area and so you can quickly see whether there is room for rent increases after renos.
Try to make sure it is built after 1987 to get the depreciation benefits as well.
That's a 5.2% return approx.
Some people call that a good return.
It isn't.
The more you borrow, the more neg cashflow you will have, so if you can absolutely guarantee at least a 10% cap growth per year to offset the horrible neg cashflow, then it might be an allright investment.
Assuming you are still very young from your post, to sell the second I.P and leave you debt free would be a fantastic result for your age. There may be cap gains tax to pay, but even so; well done.
You can then use the equity in your PPoR for more investments, and the interest on those loans will be tax deductible.
Of course, in the long run it would be better if you could tough it out for a bit longer and hold the 2nd I.P, but investing should be fun as well as finacially rewarding.
Badgers,
Why would we give you advice out of self interest? We are not developers trying to flog over-priced properties. There are some here who have websites and products to sell, and advertise the site on their signature, but no-one directly tries to sell anything; simply we are here to offer advice, have a chat with like-minded people who are genuinely interested in property investing.
Just out of interest; how many properties have you ever bought and over what time frame? I'm not asking what you own now; just your past experience in real estate. This is critical as we get quite a few armchair experts here and when the truth comes out they haven't done anything yet; they are asking us if it's ok to go swimming, but when we say yes, these people say 'take off you rose-coloured glasses'. We can't win with these people and it is very tiresome.
Are you one of them?
There is an extremely long and boring and annoying thread on the Somersoft forum about the same topic you brought up here.
There are 2 or 3 people (probably only one with a few different names for fun and it wouldn't surpirise me if you are that person/s here with yet a new name) who keep flogging the same topic, and numerous times the other (shiny, happy, people) forumites put forward the opposite argument, backed up by past history, trends and stats and personal experience.
These same 1/2/3 people still keep coming back with more 'yeah, but what if's' which are purely speculative as there is no crystal ball to verify what the future will bring.
Yes, there will be bad periods for real estate, shares, the economy; but we all know that, and take steps with our investing to minimise the risks. This is all you can do. The more knowledge you have, the more you can minimise the risk.
Experienced investors who have been through a few cycles can tell you that your view may be negative if they have come through those cycles un-scathed, and you should take on board what they say. You may not totally agree, but they have been there, done that and know the likelihoods.
Please don't turn this forum into the same mind-numbing diatribe I have witnessed over there for the last few weeks. You asked for opinions, you got them, if you don't agree then put forward your argument ONCE and move on.
Take the average of all 3
The area of a circle from memory is;
A= pi x R squared or; area equals pi x radius squared.Then, multiply this by the depth of the cylinder to get the volume – I think.
It's been a hundred years since I was in school.
Don't you love it?
I am always amazed to see that successful people are positive and focus on what they want to have happen.
Expect the best, but prepare for the worst.
There are still a number of places around where you can buy 'off the shelf' pos cashflow properties, but do lots of really thorough due diligence on the area; especially the local economy and the population flow (Central Victoria with the drought comes to mind – dying).
You may find that the cap growth is minimal, so you would need an awful lot of the cfp properties to make any real money.
