Forum Replies Created
Wow; that is scary. Where is it going to stop?
Even if you bought one you may not get a renter (that can pay the rent).
I suppose at those prices the holding costs would be minimal and you could afford to be very choosy about the tenants.
I think you would need to be very brave to invest there with the hope of things to improve in the future.A friend of mine moved back to Monroeville in Pittsburgh from L.A a few months ago (he already regrets it – minus temps all the time).
The story is similar but not as bad there; house prices are going slowly backwards. At least houses are still going for over $100k there.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Due Diligence is the part where you have to get into checking out all the aspects of your proposed investment. it involves lots of time in the car, on foot, on the internet, on the phone to agents, councils etc. Not a lot of fun, but necessary to make the investment a success. You are trying to find out the truth about the area, the property, the dangers pros and cons.
Before you can start you need to establish your own criteria for what makes a good investment. Some people only want cap growth; some only cashflow; some both.
The cap growth investor would be looking at things like property prices – can they buy below market to increase equity instantly? Is the population increasing in the area which will create more demand? Is the property supply limited which further fuels the demand? What are the employment factors like- is there good opportunity for long-term employment? Can the property be improved/subdivided/renovated to add value? Are there plans by council or local/state govt to improve infrastructure such as schools etc?
The cashflow investor wants to know about rents – is there good demand? Are the returns good enough? Is there good depreciation for better tax claims? Can they buy under market to improve returns? Finance/management/holding costs are important. Can you add value to increase rents?
The cashflow/cap growth investor wants to know about all of the above and combine all things or many of the factors before deciding on a purchase.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
You could explain to any prospective tenants what you’ve explained here, and give them the option of keeping the system for extra rent, or having it removed for less rent. Done well, you could have the cost of the system paid for by the tenant.
The problem is you will be responsible for any maintenance costs on the system.
A good Landlord’s Insurance policy is also a must and would cover you for damage/theft.
Don’t assume that a “well heeled” tenant will not do any damage either.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by slapbass351:Hi Jen1 , I’m new on this site to and have just started reading steve’s book. I’v just moved to Mackay from the goldcoast.
I’v found the prices here are so expensive and rent equally expensive.Mackay is a coastal town surrounded by coal mines, therefore there’s plenty of wealthy people here, so i’m guessing thats why the markes is so high. Due to the high demand and lack of rental properties people wil just about pay any price to rent a decent place.
Average 3 bed, 1 or 2 bath houses that need renovating are between $290k and $350k and you can pretty much name your price for rent (Within reason) Because people are so desperate.
I’m only new to property investing and am going to buy my first place in a couple of months. I’m single and only earn $650 a week.
The repayments a month seem so daunting to me and is quite frightening. Can anyone give me any insightfull information about the area of Mackay as i dont have the knowledge or experience about sound investment properties.[blink]The first one is the hardest Damon.
If you do good research and –
1. purchase a property that is solid and rentable,
2. in an area that close to all amenities like parks, schools, malls, transport etc,
3. use interest only loans,
4. buy something built after 1987 to maximise “on-paper” deductions for your tax return,
5. add value to increase rent returns and cap growth;then you can’t go too far wrong.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I have never done one of these, but on the point regarding the 4 towhouses, I was under the impression that up to 4 units constitutes a residential purchase – not commercial.
Have you run this past any of the lenders yet? You may be o.k on the finance.
Just a thought.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
“Okay, so what you are saying is that we should use our existing home as our first investment property and then use the equity in that to purchase our second investment property?”
That’s correct. Move out and rent a place yourselves, then use your PPoR as your first I.P.
Many people won’t do it as they are emotionally attached to their PPoR, but if you can get past this aspect of the situation it could work out very well financially for you.
You will probably need to restructure your exisiting mortgage so you can access the equity in your PPoR, and going Interest Only with an Offset account (speak to one of the great M.B’s on this forum about this) will assist with the cashflow and debt reduction. The right loan structure will save you many dollars of interest.
You can also claim depreciation (on paper deductions) on your PPoR when it becomes an I.P, so look at whether it is worthwhile getting a Depreciation Schedule prepared on you current PPoR and any other I.P’s you acquire in the future. Any building built after 1987 qualifies for a “special building write-off” and the fixtures and fittings as well. It can save you thousands on your tax return and improve your cashflow enormously. Speak to a good property savvy accountant about this.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Hi Damon, welcome to the forum.
A good Mortgage Broker (there are few on this forum) can help with the correct loan structure; especially if you are going to keep investing long term.
As far as renting out/living in the I.P; you may do better if you can live in it for a while as your PPoR first then move out and rent it. This way, when you move out you can rent it for up to 6 years without incurring any cap gains tax if you decide to sell in the future. After 6 years you are liable for cgt, but it is pro-rated on how long you use it as an I.P.
Another factor to consider when looking for finance is your serviceability of the loan. In days gone past, Banks would only let people use up to around 30 – 35% of their income for loan repayments. It was a safety mechanism to stop people from over-extending themselves.
Of course, these days are different and the lending criteria has relaxed an awful lot. To this conservative investor the current trend is putting many people in financial danger I believe, as lending institutions allow people to repay on loans up to 50% and more of their income. Very dangerous – especially when they borrow more than 80% of the property’s value. Look at what is happening in the USA right now.
Based on your income (and my old school beliefs), (and not including any rent which does factor into your serviceability thankfully) you may be stretching to cover holding costs on a property of $340k. Don’t forget that approx 6% of the purchase price needs to be added on for purchase costs – $20k roughly.
After the rent is factored in (most banks will let you factor in up to 70% of the rent – some up to 80%) your equation changes luckily, but this old bird likes to see you younger guys starting out do it safely and surely.
You also have to find the funds for the renos as well, so it may be better to go a bit cheaper and get more cashflow through a bigger deposit in my opinion.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Most of us on this site would normally say to keep a good investment property and use the equity to keep buying more of same.
However, your PPoR is a different situation. The interest on your PPoR loan is non-tax deductible, so you should try to minimise the mortgage balance on it as much as you can.
If you use your equity from your I.P to help buy the PPoR, you cannot claim the interest, so you may be better off to sell the current I.P, use the cash left over from the sale as a deposit on your PPoR.
You will then have a decent amount of equity in the PPoR that you can use to help fund the purchase of another I.P.
The problem is you will lose a good part of the profit from the sale of your current I.P in buying (the PPoR) and selling costs (the I.P) and cap gains tax.
Another option would be to find a nice place to rent for yourself in Woolongong, then use the equity in your current I.P to buy another I.P in Woolongong. Your tenants will help pay down the loan for you, and after a while and when the loan is paid down you could move in. But not many people like this strategy as there are lots of emotional ties to a PPoR.
You would also need to run the figures to see whether you could service the loans on two I.P’s and pay rent on a place for yourself.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I went to see “The Donald” at the Convention Centre here in L.A last w’end.
He is briiliant, inspiring, straightforward with no B.S.
If he come s to Aus try and go.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I agree with F and Terry;
it is probably too soon to really tell. Maybe after 5 years you can gauge it better.
Historically, property averages around 7 – 10% per year cap growth, so after 5 years you should expect somewhere near 35 – 50% cap growth. Then you can re-assess and make a decision.
2003 was the top of the boom for many areas, so any growth since then if you are in cap cities is probably good, although, based on the purchase price I’m guessing it is not in a cap city. Regional areas and smaller towns can experience slower growth but better rent returns.
If the rent return is good I wouldn’t sell it just yet. If it doesn’t go in the next boom then maybe.
As Terry said; “where is it?”
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I am a Destiny client of nearly 4 years (in Melb). Excellent and very happy. Not the cheapest around, but service is great.
Read this thread on the forum from a few days ago:
https://www.propertyinvesting.com/forum/topic/27535.html
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
There are, from memory, 3 ways they can charge you for services:-
1. One-off financial plan – approx $300.
Takes into account the current financial position of client, assets and liabilities, income etc. Very comprehensive. You get your plan and go and do your own thing from there.2. Sign on as life-time client – approx $2,000 (when I joined).
Includes financial plan as above, Destiny ‘Property Track’ Software (best on market I.M.H.O) and online tech support, focus groups, newsletters, unlimited lifetime service in financial, property investment, mentoring and advice, free offers.3. Mortgage Brokering – trailing commissions from lenders based on loan products and lenders. And I will say on this topic that they were never at any stage high-pressure to obtain this part of my business. I had loans in place when I joined them that were good and cheap but not the best for long-term investing, and changed loans after about 15 months with them.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
My 2c;
Why on earth would you sell a property or any investment that makes a positive cashflow every week, and appreciates in value at the rate that this property has? Sure it won’t keep appreciating at the same rate, but as they say in the stock market;
“ride the winners and cut the losers”.Unfortunately many people see the increased value as money that they can get their hands on to spend.
If you are selling to free up the cash for other investments then that’s possibly o.k, but to me the sensible thing to do is use your successful investments (access equity) to help buy more of same.
That way, you retain your winning investment; it keeps making you rich while you buy more.
Interesting question; Does someone like “The Donald” sell his money making deals?
Answer; NO.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
To me, Negative Gearing only makes sense if the property is going to go up in value by more than the amount of neg gearing over the period that you own it. Many people take on neg gearing in booms with the knowledge they will recoup the money in the cap growth. But you can’t guarantee that will happen.
Many high income earners neg gear simply to get a tax break. This makes no sense – they are paying $1 to lose 50 cents (assuming they are on the highest tax rate). Of course, they are hoping for cap growth as well. But continuing to lose money every week makes you a slave to your investment; you have to keep working to support the investment, and cop a hit to your lifestyle as you have less funds to play with. Doctors and lawyers come to mind; how many of them do you see retiring at 45 or 50? Being a high income earner doesn’t automatically make you financially literate.
Why not invest for cap growth AND cashflow? You can maximise both through very careful selection of the area and the property you buy. Done correctly, you can continue to buy properties every year that cost you no money out of your pocket, and continue to grow in value. Read Margaret Lomas’ books to learn how to achieve this. They are fantastic.
To maximise returns you also re-invest the profits (rent and tax returns) into the property (or into minimising non tax deductible debt like c/cards and PPoR mortgage). This allows you to accelerate your equity faster and invest again sooner.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Investing is either for cap growth, cashflow or, my personal favourite; both.
This property has neither at the moment. Keep looking, or offer them $180k seeing as it hasn’t sold for 6 months.That’s a rent return of approx 7.8% (only just o.k – finance is 7.5%)
If they don’t accept that offer; keep looking.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Love it!
The good news for agents is that they are not as hated as lawyers and used car salesman – they are 3rd last.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
A couple of unpleasant things to consider before getting too far down the track;
I read an article about investing in regional banks in Australian Property Investor mag a few years ago (you may be able to do a search on the site for the issue with the article concerned). There were pros and cons of course, and while the returns are attractive, one of the dangers was if the bank concerned decided to not renew the lease. Apparently it is common for them not to.
In your case this shouldn’t be a problem as they have suggested a long one; but remember they have the OPTION of renewing after 7 years; it doesn’t mean they will. Then you have an empty building which will probably need to be remodeled to suit another tenant.
Have you obtained loan pre-approval from your lender/s yet?
You might want to check out the situation with how much the Banks will lend you – most will only lend up to around 70% LVR on commercial properties without ‘add-ons’;
You may be able to go higher, but then you start getting into LoDoc and NoDoc loans, higher interest rates and Loan mortgage Insurance – these extra costs eat into your returns and then you have to weigh up the value if you need to go this path.
The other thing is location; some banks are reluctant to lend in smaller country towns, and especially for ‘purpose built’ properties such as banks.
For example; I looked at buying the freehold to a very profitable petrol station/general store and residence with an acre of undeveloped land in a smaller country town a few years ago. It was the only one in town, and there were no plans in council for any others to be built. it was cfp and and an absolute winner.
But… as soon as I began the search for finance the first question I was asked by the lenders when I told them of my plans was “where is it?” I could not get finance from anyone, and even the Bank of Dubai (or was it Arab Emirates? can’t remember now), which specialised in petrol station finance wouldn’t lend on it because of the location.The criteria for lending for each bank varies a lot; it may be advisable to speak to a good Mortgage Broker first.
Sorry to throw in the bad news, but you need to know the worst case scenario an if it is worth the risk for the return.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Sometimes ‘bad’ areas can be great for cap growth.
St.Kilda, Richmond, Port Melbourne, Williamstown and Oakleigh come to mind in Melbourne.
About 3 years ago my sister-in-law bought a house for $92k in “The Pines” – a suburb of Frankston on the Mornington Peninsula southeast of Melb.
It was a bad suburb in a not -so-good bayside city. In 3 years she has doubled her money.
It has changed my views of dodgy suburbs to a degree.
There are some places that will always be bad, but if you can find an undervalued suburb in an area that is coming up, and with good public amenities, or near more expensive suburbs that are becoming unaffordable then these are the ones that can go well.
The trade-off is that you may get some bad tenants and damage etc, but everyone has to live somewhere and even poorer people in poorer areas are nice people.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I have only ever had one house built for me and I used a private builder who was recommended to me by a friend.
During our initial meeting he gave me a list of 5 different clients (other than my friend) he had built houses for; their names, addresses and phone numbers. I rang all of them to ask if I could visit their houses and of course they couldn’t wait to show it off to me. After 3 inspections I was sold. It cost a little more as he is a one man show, but there were no problems.
We are planning to build another house on our return to Aus next year and before leaving Aus we went house hunting around our neighborhood. I can’t use the same builder again as we live too far away now. We saw a great house that we both loved and I went up to the front door and knocked. I asked the lady who answered the door who built the house and was she happy with the result.
She couldn’t wait to give us a guided tour and raved about the builder. We have since met him and as before, he gave us a list of clients to contact for references. We have found our guy.I think this is the best way to find a builder. The big companies don’t do a better job; they may do a similar one, and as was said earlier, they are quite often just a front and farm out the work to an ordinary builder anyway. You may as well go straight to the source.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Try and find an account that is in tune with property investment and has some Investment Properties themselves.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
