Forum Replies Created
I tend to agree with Sanjiv.
Another point to consider with ‘off the plan’ apartments and townhouses is they are notorious for being over priced because the developers build their costs, ads and agents commissions into the price. Also beware of rental guarantees – again; built into the price.
It may be better to look at recent developments near the one you are considering (say; completed within the last 5 years) that have had some resales within the complex, and also as a better comparison on price to the one you are considering. You may find one at the same price nearby with a carspace.
The resales are more accurate in terms of value as they are sold as an existing property that people can see and inspect and compare to other existing properties in the same area.
You may find that many of them have sold for less than the original asking price; especially in the CBD after the glut of apartments that hit the market in recent years.
The only problem will be the shorter settlement as they are already built, but you can negotiate longer settlements and small deposits sometimes ($1,000 is not uncommon). You may have to compromise by offering the asking price or near it to get a long settlement and smaller deposit. Make it a win-win scenario.
Personally, I think you may be better off to go for something with land content and at least one car park, and buy within your current budget for your first foray into Property Investing.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Have you obtained a Depreciation Schedule for the I.P?
If the I.P was built after 1987 you can claim considerable depreciation on the building, fixtures and fittings.
This is compiled by a Quantity Surveyor, then you give it to your accountant. He/She will apply any ‘on paper’ depreciation claims to your taxable income. It could increase your tax return by a few thousand. You may end up with a pos cashflow or neutral cashflow situation.
The cost is around $500, but the benefits will pay for the cost in the first year.
talk to your accountant about this first.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Congratulations on deciding to invest.
There are many options, strategies, markets and more importantly; your goals. Are you looking for cap growth only or are you after cashflow as well? They don’t always go together, but the more experience you have, the better you will get at combining the two.
Once you know what you want the areas will start to appear before you as to where to buy, what type of property to buy – are you looking to reno, subdivide, do you want to buy newer, or maybe units or townhouses?
Gathering data and doing research can be done a number of ways;
Forums like this,
Investment magazines and newspapers (treat printed materials with a healthy scepticism as they have agendas).
Talk to lots of agents in your target areas (treat as above).
Visit the area by foot, car, internet and study things like rental returns, vacancy rates, past sales figures.
Talk to local councils, look for suburb profiles – some are free on the internet, ABS or you can pay for info from Residex and sites similar to this.The due diligence part takes a lot of time, but is worth it when you find the deal.
Establishing a criteria for you will help you save time when selecting potential properties; if the property doesn’t fit the criteria after a few basic checks you move on to the next one. Without this, or some sort of selection system, you will find you will be looking aimlessly and never be able to make a decision.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
You’ll probably find that unless they are strata titled the hospital won’t be able to sell them individually – they will have to be sold as one property.
Also, to change the windows would alter the look of the building, and assuming there is a body corp, they would not allow this type of change I believe unless it was approved for every unit.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I am a Destiny client and have been for nearly 4 years (in Melb).
I have found Michael and Laurel Sloan (and the team) excellent. They are very obliging and always at the end of the phone; Michael has even driven to my house (over 1 hour) at times.
They charge for their services of course, but once you sign on as a client there is unlimited and expert advice forever – free of charge, and the software program for tracking your properties is the best I have seen. They have focus groups, info nights and an impressive range of property investing related associates you can use to assist your investing process. They do not charge for any of this.
They do M.B work as well, and because they specialise in property loans their advice and help is top rate.
For someone who is a beginner in the world of investing the money is well spent, as they are mentors and guides.
But as a more experienced investor I find it is great to have them as a second opinion and to organise the finance aspects of my investments. I don’t have to spend time negotiating with lenders and ignorant bank staff – they do all that and get me good rates and more importantly; the right product.
You could say they are a little more expensive than others, but you get what you pay for and then some.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
The expenses you need to work out will include;
Loan interest
Bank, legal, accounting fees
Purchase costs
Finance costs
Rates, water
Insurance (building, contents, public liability and Landlord’s)
Management fees
Maintenance/repairs (accepted figure is 1% of property price – usually less)
Body corp fees (if in units/townhouses etc).All of these can be broadly placed into 3 headings:-
(a) Acquisition costs – allow 6% of purchase price.
includes purchase costs such as stamp duty, conveyancing etc, and finance costs such as loan application fees etc.(b) Holding costs – allow 20% of rent.
includes all expenses related to the running costs of the property such as insurances, maint/repairs, management, rates etc and even 1 month of vacancy per year.(c) Loan interest (include bank fees)
For example; A $100k property with $140 per week for rent.
Aquisition costs = $6,000 (total purchase price = $106,000)
Holding costs = $28 per week ($1,456 per year).
($140 x 20% = $28).Nett rent = $5824 per year.
You also have to include Loan Interest and bank fees as an expense (which is tax deductible). Let’s assume the current interest rate including fees is 7.5% and you have borrowed the entire amount to buy the property.
Loan interest = $7,950 per year.
– Nett rent = $5,824Total cashflow = -$2,126
If you use a cash deposit and borrow less the figures will change, but the purchase and holding cost percentages I mentioned don’t change.
The good news is that these percentages are generous estimates I have found, and we haven’t included the effect of tax returns on the cashflow either. it is possible to turn a neg cashflow property into a pos cashflow property through well selected properties to maximise ‘on paper’ and cash tax deductions. This is harder to guestimate as the amount claimed will vary and so does each person’s tax rate. This is where the accountant is needed.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Well done for looking to take the plunge!
My sister lives in Eaglehawk (suburb of Bendigo); good place.
Another option to consider rather than selling your house is to move out and rent your house out. You will rent somewhere else of course.
You access the equity in your house to fund the purchases of the properties in Bendigo and have your house as an I.P as well. This way you have cap growth and rent on 5 properties instead of 4.
The only problem is the figures will be different as you are borrowing more and using less cash, but you are getting more rent.
As a guide;
– Allow for 20% of the rent to be eaten up in holding costs of your properties (it is usually less, but this will cover any surprises and also allows for 1 month vacancy per property per year). This will cover every single expense you can think of; including management and insurances etc.
– Allow for 6% of the purchase price of the I.P’s to be extra for purchase costs (again, usually a bit less, but covers surprises).Also, look at getting Depreciation Schedules done for each property; including your own house(cost around $400-$500 per property and is tax deductible) to maximise your tax return (see an accountant about this part).
Don’t forget to get good Landlord’s Insurance on all properties (about $200 per property per year and tax deductible)
You will need to set up the right type of loan for this purpose; one of our great forum Mortgage Brokers can assist there.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I have never bought one of these investments as what I keep reading about them frightens me.
First; if they are pitching this development, then they are sales agents for the developers. Their commissions and ads are built into the price of the apartment – you will be paying too much.
What I keep reading is this;
– you will only be able to flip it for a profit in a rising market – check the status of that local market – not the wider market.
– you cannot predict the end price, thus the cap growth prediction may disappoint.
– the price you are paying now is quite often over the market odds already; the ad costs and saleperson commissions have been built into the price.
– you should only buy in blocks with less than 50 apartments as you could end up with one in a large complex that is hard to sell if everyone is trying to sell at the same time.
– same goes for renting; lots of apartments for rent means competition and either low yield or high vacancy.
– “sunset clauses” in contract allowing the developer to flick you at any stage if the market is booming and they think they can sell it for more. you have money tied up for 2 years for nothing. Or worse; the market drops and you are left with an apartment worth less than what you have to settle on.
– “swithcheroos” by the developers with the fixtures and fittings; you are shown and quoted one brand and price; they install something different (usually cheaper for them) and inferior quality.
– in developments of this size the maintenance/management costs can be very high – lifts, pools, gyms etc. This could scare away potential resale.All the above dangers will contribute to you not being able to offload the apartment at a good profit should any one of them occur (other than the sunset clause as they will flick you before settlement), and you will be left holding the bag.
I would be doing lots of independent research on this. Find out if there are other developments going on in the same area, what the rent demand is like for the area, get an independent valuation on the predicted end price (and the current value of other apartments in the area) and see what existing apartments in the same area are re-selling for now since they were first released.
Get a property lawyer to go over the contract before signing anything.
The worst case scenario is that you will get no cap growth, no-one will buy it at your expected price, and you will be stuck with the apartment at settlement. The rent may be far less than the quotes from the developer and/or his agent.
Can you raise the funds to settle on the property in this event, and can you hold it in the event of high vacancies, low rent yields and high holding costs? If the answer is no, then don’t buy it.
It must be a ‘stand alone’ deal in the WORST case scenario – not the best case. Best case quite often doesn’t happen.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by intriguing:Here’s one for the synics:
I grew up in good old “Deni”. My mother still lives there. Good town, friendly people.
The town is not doing a lot these days – slowly going backwards in population. The main industry is rice, wheat, sheep and cattle farmers. Probably not a good prospect for cap growth in short term.
There is a bit of buy, reno and sell of older period homes at the moment – you need to buy them very cheap as they usually need lots of work (my mum owns one).Houses are relatively cheap, but the rent return isn’t great and without cap growth, not a lot to shout about for investors.
Units like these are on the edge of town usually (as is this one) and quite often are rented by the not so fortunate in society. Could be high maintenance issues.
The agent says it is a “fabulous location” – it isn’t.
Do some heavy research on location and existing tenants.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
It could be a student accom deal – rent each room individually.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Excellent post.
great info regarding building projects.
Any info you might have regarding existing properties for our readers?Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I have a concern;
The product mentioned is another creative way to enable those who wouldn’t normally be able to afford to buy a home to suddenly be able to do so.
For the struggling renters this is good.
For the existing home buyers looking to upgrade this is good.Overall the demand on housing will continue and keep forcing house prices up, as the market will enjoy a whole new wave of previously unqualified buyers to buy, which is also good for investors currently in the market. We get more cap growth.
My concern is that the demand on housing will continue to escalate and so too probably the rents, albeit at a slower rate, while wages will steadily lag further behind causing more problems with affordability; worse than the current situation, down the track.
Where and how will it end? There are only so many ways that the loan structures and figures can be ‘tweaked’ to let in more otherwise renters to become buyers, and when the supply of them runs out, what next?
Prices will have to come down again, and in this day and age of 90 and 95% LVR’s, and 100+% loans, it seems to me that the market will become so highly geared that there will be a flood of forfeitures and bankruptcies from people with neg equity and loan repayments far above their capacity to repay should there be the inevitable correction.
I dare to say that the people most likely to use this product will be those struggling the most financially in both knowledge and position (if they were financially educated they wouldn’t need it).
Thus, when (and if ) the big correction comes these people will be hurt the most as they will have the most exposure, lured into taking on yet another exotic loan product at bigger and bigger risk margins, which the finance and Banking industry seem not to mind too much as they power along to even bigger shareholder’s profits.
The financially educated and those already rich will be o.k, while the uneducated will lose.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I shouldn’t be telling anyone this as my little hide-away will be gone forever;
I am from Melb and live in DROMANA on the Mornington Peninsula, an hour south of the city (currently living in L.A until next year). It is beautiful, and far better value than the ‘postcode’ seaside towns of Portsea and Sorrento further down the bay.
I have seen Dromana grow since moving there in 2000 from a nice, quiet little holiday village, and it is now really a suburb. There are many more permanent residents there now and they are mostly families moving in.
The commute traffic is always on the increase (I know this as it pisses me off). With the new Eastlink freeway underway, which will connect with the Mornington Peninsula Freeway, and the Martha Cove Marina under construction 2 km’s up the road in Safety Beach, I reckon the future for our little spot is very good. It is very near Mt. Martha which has become unaffordable (as has Safety Beach), has no amenities and no beaches; go figure! The overflow has to move south to the next cheaper area.
We have seen our house double in value since we bought it (we have bay views which increases demand), and recently there have been sales of houses over $1 mill. Even so there are still very affordable properties around for under $300k, and several of these cheaper properties are older houses, nearer the beach on bigger blocks.
Rent returns are around 5%, so nothing exciting there, but the subdivision and cap growth potential are ongoing. It has excellent beaches, shopping (bigger malls only 10 mins away in Rosebud), primary and secondary schools. Check it out.
Also, as mentioned by me and others on previous posts is FRANKSTON (we have an I.P there). This is also a sleeper, on the Bay, has excellent amenities and is within commute to Melb. Train travel to CBD is 40 mins, by car about the same. Prices have been on the increase in spite of the recent slump, but it is still very affordable. You need to buy in the right part of the city I believe.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by Pizang:Thank you for all your thoughts.
But let me ask you this: I certainly don’t deny that being rich means being rich in time. ie having the financial capacity to spend your time the way you want to. But is the financial goal you set for yourselves time related or number related?
For example, Dr.X, what goal are you striving for: having x amount of dollars in your bank account or having x amount of hours more to yourself in your week? I think it would be easier to measure a number in dollars rather than a number in time.
I hope that question makes sense [blink]
If you don’t mind; I can answer that one;
Not too long a go my wife and I were in well paid jobs that demanded a lot of our time (55+ hours per week). I have numerous friends who are like this still. If we measured richness by dollars then we would have probably passed, but our lives were hectic, stressed and not all happy.
Because we had little time to go on holidays or shopping for doodads, we used to pour much of our income into our residence and investments, thus we were asset and cash ‘rich’ – but time poor. It paid off as we accumulated some equity and assets, but we did not feel rich at all. We felt that we were on the treadmill and working to fund our house and future. We are not spenders or shoppers; actually quite the opposite, so this made the whole scene even more depressing. All work and no play.
A few years ago we restructured our lives and goals and had a child. Our goal was to be able to spend more time together and with our son, and travel. So we quit our good paying jobs.
Now my wife works part-time and I work occasionally. Our wealth still increases since then through the assets we have, but our incomes have certainly dropped. And yet we feel more rich now than ever before.
The main difference is the time available and what we do with it. Our lifestyle has improved as we have more time to go places and do things. We are still not shoppers; in fact we are pretty tight. We cut corners on spending every chance we can to save more money for the free time activities.
We feel rich now because we have both – income and time. One without the other is not much fun.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
This sounds a bit like “mezzanine finance” albeit a small amount Mark.
What sort of security or guarantees can you offer to anyone willing to put up the $30k?
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
There are some people who offer ‘lease to buy’ and ‘wraps’ options for those who wish to buy who are, for whatever reason, unable to obtain finance, or don’t have a deposit etc. These may be options for you to use to buy a property, but it will involve you living there and paying rent/mortgage payments for a while.
You could ask your parents to provide a deposit out of their home equity, or after they sell later in the year, and you obtain a loan for the balance of the funds needed.
The problem there is you will have borrowed funds on over 100% of the property value (assuming your parents charge you interest on the funds they loan you), and it is harder to find a deal that will make money from ‘day 1’ with that equation. It can be done, but you have to maximise every single angle of the purchase.
For example;
1. good land content in property for cap gain.
2. built after 1987 for maximimum depreciation claims on your tax return.
3. area of strong rental demand and return.
4. close to all amenities such as schools, malls, parks etc.
5. buy under market value.
6. property must have ‘add value’ component such as subdivision or reno to increase cap value and rent return.
7. the right loan structure for future investing.
8. potential for cap growth – local govt projects, new malls, improved transport and access to cities, undervalued suburb etc.I would be getting rid of the c/c debt as fast as possible first though. This is the most expensive money you can borrow, and Banks look unfavourably at people with high c/c debt without much savings and/or assets. Rightly or wrongly, they view this as you not being good with managing money.
Also, when you get rid of the c/c debt, reduce the limit to about $1k as the limit of your c/c – not the balance owed, is what the Banks consider when they look at your loan serviceability. In other words; if your limit is $8k, but you only owe $1k, the bank work your servicability as if you owe $8k – not good.
I wouldn’t be in too big a hurry to buy just because the rent is going up. This normally happens after a boom; it’s part of the never-ending property cycle.
Instead, look at spending the next 12 months living frugally, reducing that c/c debt and saving for a deposit. It will be a tough year, but will be worth many thousands of nett worth down the track.
Also use this time to learn more, study the market and look for areas that contain those factors mentioned above. Read all of Margaret Lomas’ books for a start; they are excellent and will help you to buy property without risk and maximum returns.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by komari:I have been cold canvassed by Global Land Bank about purchasing shares in a consortium buying undeveloped land in Chestershire in UK. Has anyone heard of them? – good bad or indifferent, I don’t care.
Many thanks,
Kylie.komari
There has been a lot of comment about a Land Banking scam by a guy named Steven Jeeves on the Neil Jenman website. I can’t remember his (Jeeves) company’s name. I just tried to load the site but had a problem with it.
Basically, the company sells very cheap agricultural land to overseas investors (locals are a wake-up to it), with the hope that one day it will be re-zoned for use as residential land. Of course, that never happens and you lose your dough.
The company you are talking about may be ligitimate, but basically I would be very, very careful.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
A quick guesstimate can be made from looking at the land plots for sale (if any) near where you are looking, on realestate.com.au.
Land prices vary enormously from area to area.
The agent probably said he/she would be ‘only guessing’ because he felt that you were only making an enquiry about values and that maybe there was no sale in it for him/her. They are a rather unhelpful bunch when there is no dollar on the horizon.
So, to get around that, a tactic is to tell the agents you are interested in buying some land and ask what they have for sale. The only problem is you will get calls from them long after you find out what you wish to know.
Finally, you could pay a valuer to value any land you are interested in. Approx cost is $300.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Off on a tangent…
Anonymous quote;
“success is – falling over 100 times and getting up 101”
I love it.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Your ‘marginal tax rate’ is the rate of tax you pay on your personal income.
So if you make a cap gain of $60k, sell after 5 years; your cap gain liability is $30k.
You pay tax on that at your marginal rate. If you pay 30% of your income to tax, then your tax bill for the cap gain will be $10k.
On another issue; as you are buying a brad new property, make sure you obtain a DEPRECIATION SCHEDULE.
A quantity surveyor will prepare one for around $500 (which is tax deductible) and the depreciation schedule is used by your accountant to minimise your tax. A brand new property has very good depreciation as a rule and can save you several thousand dollars per year in tax.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
