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You do not have to pay for pest control on spiders etc.
Also, it is a waste of money; they come back after a few months (even weeks).
It sounds like the tenant is not on a periodic lease? When was the last rent increase? Could be a good time to incorporate all 3 things; treatment, rent increase and periodic lease.
Don't feel obligated to do it just because they are puctual payers and keep the place tidy – they are SUPPOSED to do that as part of their tenancy agreement and you kick them out if they don't comply.
At least it is tax deductible if you go ahead.Your call.
Hi paddyphil,
welcome to the forum.While rental yields are on the rise, they are not "soaring". This is a media term, and you've never known the media to use sensationalism to get ratings and sell papers have you?
You will, of course find local areas that will go up quicker than others, but generally it is a slow, but steady rise right now. (yay!)
Australian Property Investor Magazine lists average rents, house and apartment sales etc in each state every month, you can buy reports from Residex, or you can look on realestate.com.au at the rental properties to guage prices for the various property types.
Or you can simply ring all the agents in the areas you are interested in and ask for info on vacancy rates, rent yields etc.Without checking, I think average rental yeilds in Eastern subs of Melb are around 4-5%. Pretty hopeless. If anyone tells you this is "good for the area" they are an idiot, and probably an agent, or someone else trying to flog you a property. With finance at 7.5% approx at the moment, this is a terrible yield.
The only bonus is you might get some cap growth in the near future, but you need to find the right neighborhood.
I have never heard of a finace company not accepting a cheque to pay out a car loan if you present one to them.
Read your finance contract about early pay-out of the loan.Even try ringing the finance company (should be listed on the contract) and asking their policy on early repayment.
Get a Property Manager TOMORROW, but suss them out as to how they would handle this Tenant situation. They will know the current market rent for your type of property. When you find the right one, give them your instructions;
Issue a notice to the Tenant that you will increase the rent to current market level as of the minimum notice you have to give in writing, and inform the Tenant that all unauthorised changes must be returned to the condition they were in by a certain date; in line with the rent increase would be adviseable; again in writing.
This will probably cause the Tenant to want to leave, no doubt break the lease I'm tipping, and you can warn them that if they are considering this then you will report them to the National Tenancy Database if they do break the lease, and they will be still liable for rent in arrears and lose their Bond.
Make no mistake; this could get ugly. If the Tenant even looks like staying on but causing trouble, get the P.M to issue a vacation notice immediately. You never muck around with a Tenant who looks like causing trouble.
Of course; you will only do this AFTER you have taken out a Landlord's Insurance policy if you don't already have one, as the Tenant may want to leave with a parting shot; malicious damage. This is covered by insurance, and the Tenant will be blacklisted on the Database. They must be informed of this so it may deter them from destroying your property and their future rent chances.
Failing that, there are second mortgages available from solicitors and people like that. They charge more interest, but they regularly do this sort of thing. The different interest rates will affect your cashflows so you will want to re-crunch the numbers.
They can provide the extra funds to get you over the line, and later on you can refinance to a standard loan if you wish.
We did this on a largish purchase several years ago for a B&B we wanted to start up. The loan was 60% I.O, 20% our own funds, and 20% from a solicitor I.O for 5 years. The bank wouldn't lend us more due to servicability issues (I was self employed at the time). We cashed out the solicitors after 3 years.
You can find any of the properties advertised on http://www.positiverealestate.com.au on your own and save $5,995 + GST in finder's fees. What a joke; half of them are neg geared!
My 5 year old son could find one of those.
If you earn more than this per week then let them find it, if not; spend one 40 hour week on the phone and computer and find your own and save the cash. In fact; spend 20 hours in research and you'll find one.I'll do it for you for free – I've got nothing to do today. You can shout me a V.B – the shipping to L.A might be expensive though.
They only sell Fosters over here (life's tough).As for finding tenants; let the managing agent do all that. You cannot tell them by appearances; I've had bad looking tenants who are great, and good looking tenants (on paper) who I would love to hurt badly.
The first tenant we put in our PPoR when we came over here was a lovely family with 2 kids, good jobs. I met them at our house with the agent twice and showed them the ropes. Seemed ideal. After 2 months they moved out because the husband was beating his wife and she left him.You absolutely MUST have;
1. Public Liabilty Insurance – $20 mill.
2. Contents Insurance to cover fixtures and fittings; ask your insurer or broker about value. Go for more if unsure – it's a slight increase in premiums.
3. Landlord's Insurance to cover you against those dodgy tenants.You can get all-in-one packages these days, some lenders provide it, or do a google on Landlord's Insurance. The premiums expense is tax deductible.
Check the Body Corp particulars for the building insurance; they normally cover all of the building and public liability for the common areas only.
It's a bit like gamblers who always tell you about their biggest win or their recent big win. They forget to mention the same amount of money they have gambled (lost) to win it.
I know of rich people who gamble; but no people who got rich from gambling.
There are tax benefits in any I.P you own, even if you own it outright. You may have a tax bill at the end of the year from it, but so what; you are earning an income from it while you are asleep – I like that. Give me about 10 of those.
You do not have any tax benefits on a PPoR, unless you move out and put a tenant in it. Then you can claim every cost.
So with your plan you will have a new house in Bulli with a large mortgage which you cannot claim any tax benefits from, and an I.P where you are now with little tax benefit from. This situation is upside down.
You may be better off to buy another house in Bulli that you use as an I.P, and rent a nice house there for yourself. This way you have 2 x I.P's gathering cap growth, you live in the area that you want and you can choose any rental property for your own use that you like.
The other option is to sell current PPoR, buy new one in Bulli, then use equity in it to purchase another I.P. This way your PPoR mortgage which has no tax benefits will be smaller, and your I.P mortgage will be bigger, but tax deductible.
As for finding out rental returns, property values etc in that area; do what we all do; get on the internet, the phone, look in newspapers, drive down there and have a look a round, ask about 2 million questions, ring the council – all that fun stuff. Due Diligence is what is needed to find this out, or spend around $5k on a buyer's agent if you can't be bothered.
As for number crunching, here's a very basic formula for working out the numbers on an I.P –
1. purchase costs will be around 5-6% of purchase price (including stamp duty).
2. 20% of the rent will be eaten up by all costs. This will also include management and 4 weeks vacancy, rates, insurance etc. (I haven't had a property cost this much ever, but allow it anyway).NEXT:
If the property is to become an I.P, and is 100% financed, your purchase price will be around 106%.
If you use an I.O loan, your interest will be purchase price x interest rate % = total interest per year (always round up the figure for safety).
From this, deduct 80% of the rent for the year.
The remainder is your probable cashflow for the year from the I.P. I have found this to be worst-case scenario and has never occurred so far, so if the figures work based on this formula, then I know I have a safe investment and I will take it to the next step.EG:
Assume property costs $500k and rent is $400 per week. NOTE: Higher price properties usually have worse rent returns, but you MAY do well in cap growth.Purchase Price: $500k purchase costs: $30k (6%) Total purchase price = $530k.
Interest @7.5% = $39,750 per year (round it up to $40k)
Rent is $400 per week = $20,800 per year. (80% of rent = $16,640)
Subtract rent from interest = $40,000
-$16,640
Total Cashflow for year: -$23,360 (-$449 per week)This is the worst case scenario, but I haven't included tax deductions from depreciation and holding costs which will improve the figures. The other unknown factor is interest rate; you could pay less, or more; I have based it on the approx current market rate.
Rough guess is you would be a couple of hundred per week out of pocket after tax approx. Ouch!What do you plan to do with the $100k if you don't invest it? Stick it in a bank or ING account at 5%? By the time you pay tax on your interest and you and allow for inflation you will be going backwards. If you have any personal debts that are costing you interest (even your PPoR) this is where the money should go first as the interest on any personal debt will cost you more than any savings account interest you may get.
You need to invest it somewhere eventually; why not put part or all of the cash into the existing I.P loans and reduce the debt. This will improve your cashflow and your servicability greatly, as the properties will become closer to or maybe even pos cashflow.
Have you talked to your lender about how this may affect your situation? Are they aware of the cash you have?
Many property experts say never pay off the investment loans, but the main reason for this is so you can keep on investing not using your own money, and the loan interest tax deductions will be higher, but you still need to come up with the money to service the interest payments every month (other than the rent).
It is true that there is good debt and bad debt, but less of each is always good especially if you can create a positive passive income.
The only thing with this strategy of paying down the loans is you want to keep access to the cash in the event of an emergency, so you would need to look at having loans/loan that will allow you to do this.
It may work out that once you put the cash in the loans you will have a different financial position; one that your lender says will allow you to borrow again for more I.P's.
You can still go the Lo Doc route as the other boys have mentioned, but you will be doing it with a portfolio of pos cashflow properties to support your next purchase.
Isn't the idea to have your properties support you and pay you an income which allows you to exit the rat race?
Sorry everyone;
I forgot about being a subscriber.
No big deal; send an email and the entry code will be your email address, or try my email address and see if it works; I don't mind – just send me $10 each.
I would have copied and pasted it here, but it is a very long report.Incidentally; has anyone read any of Terry Ryder's books?
Pursefattener wrote:Sounds tough being a worker in california Marc . No sick pay two weeks holiday , no unfair dismissal . No wonder aus is called the lucky country eh ? I read there is a much bigger gap in the US between the rich and the poor with a huge underclass…. Diminishing middle class . Interesting a few months back Westan popped his head in saying the average American is not as financially literate as the average Aussie . What do you reckon ?There is nothing less worthy of honour than an old person who has worked all their life and has nothing to show for it at the end .
Sad really .
It gets back to education I
You're right; education is the thing, but the Yanks don't seem too interested in general. Their big deal is to get through college and get a high paying job a.s.a.p so they can start spending up.
Based on my little corner of the USA that I've been living in I'd have to say that it's a toss up who's more financially illiterate I'm afraid.
In L.A there is a hugely disproportionate number of people driving around in very expensive cars and wearing very designer clothes, sipping Starbucks non-stop and talking on Blackberries and the like (especially while driving). And yet very few people own any property.
L.A appears to be full of either high earning, but finacially dumb people, and homeless people. There is not a lot in between, and there are very few what I would call "middle class suburbs" with single family dwellings. It's all mansions or apartments, or shopping trolleys full of belongings in bus stops.The USA is now one of, if not the worst, country in the world for distribution of wealth. i.e there are fewer who have more
Vendors with no or little experience will usually refuse early access; it's no big deal and probably means nothing.
I would have thought your building inspection would have raised any issues.Look at all the taps, showers, flush all toilets, look at power points, light switches, broken roof tiles, doors that won't close or open, dishwasher, tv reception (arial problems), gas jets/electric plates on stove and oven, hot water service, is there a safety switch, smoke alarms, phone and tv ports.
You haven't physically lost money, but the comparison says that you have. You could do that every day with comparisons between a share and a house, or 2 different shares etc, etc – it will drive you mad.
There is really no need to sell the house unless your family is getting too big, or your work requires a move.
But if you must sell, the way to do it is to buy in gloom, sell in boom. Don't buy and sell in the same market.
Hey Pursefattener,
I did read "Rich Dad's Prophecy" ; I thought it was great, and I also just finished reading a novel/history book on the life and times and factors leading up to the 1929 Crash.
There are several factors mentioned in both books already in play today. One of the things covered in the '29 Crash book is the attitude of the people of the day. Everyone was spending and investing like there was no tomorrow (and no crash would ever come). They were deluded and the worst hit were the little people; the moms and pops who put all they had on a tip, or a trend. It was like if they didn't get on board they would be left behind. There were many thousands of very rich people who were wiped out as well, sadly. Even the very knowledgable who were on the "inside" didn't escape.
The advertising here is so relentless, and the general mindset is so overwhelmingly in favour of the stock market and mutual funds as the way to invest that it is scary to me. It is like in R.K's book where he talks about the "farmer and the ducks" I reckon, and I think the ducks are getting very fat.
I am not a "chicken little", but anyone who thinks that such a situation could never happen again is, at best, being a bit careless.
I'm not sure that large corps over here DON"T have to declare how the fund is doing; the info on funds is freely available online usually, but I'm sure there are many things they don't tell the employees regarding the financial health of their companies. Quite often there are massive silent sell-offs of shares by directors while companies hide the fact that they are going down the tubes; we've all seen that and I'm sure it still goes on.
Directors pay themselves multi-million dollar salaries and end of year bonuses while the minimum wage hasn't gone up since 1980.This seems to be a growing trend here; employees and the average mom and pop get told less, they seem to want to know less and/or don't seem to care. This is evident in the elections where less than half the population votes, while the special interest groups, super rich and govt work hard on saying less and covering up more, and stacking the political deck in their favour.
Being an employee is very risky; here in California there is no "unfair dismissal", no written warnings if you are bad, no union liasons or assistance, no "staff training" for repeat offenders at work. You screw up, or even if you don't; they can sack you on the spot. There is no sick pay like we have in Aus; you take holidays as days off and you only get 2 weeks holidays anyway. Now that's risky.
Let's all get educated, invest in all classes with safety, get rich and retire early.
I have been sceptical about super for many a day.
three reasons;
1. the govt is always tinkering with it and changing the rules. This gives me the impression they are fiddling with money that isn't theirs so they can work on ways to get at it for the govt's use. There is no guarantee that money "borrowed" by the govt from our funds will ever be put back. I worry that when it comes our turn to retire and look to draw out our deposits there won't be anything to withdraw.2. much of the super funds are linked to the shocks and scares. Share markets crash. Think Emron, Worldcom, dot bomb, tech wrecks. Property markets don't "crash" – never have. They have corrections which are slow and well publicised. You will never wake up in the morning and read the paper and find out your property is worth zero.
I worry that many super funds will go backwards rather than forwards due to the high weighting of shares in the superfund portfolios. I won't have any control over this.
Personally; I regard my super fund as a nothing more than a forced savings account that will provide me (hopefully) with a nice little bonus when I retire. I do not want to bet my retirement on a 'possible' amount of money that I may get. If that money is not there at the end when I ask for it, it's too late to start again and try to build up another nest egg.3. the money is locked in until you retire. I want to have control of my money, and if need be, take my profits when I want, not when the govt says I can.
I though it was signifying a hidden meaning?
I did like it, thanks.
What's a moo?
You keep smokin' dude; I'll stick to Napoleon Hill.
