Forum Replies Created
- Originally posted by TapFam:
Goodonya LA Aussie. The picture is coming more into focus as the discussion expands. I’m hoping my lender will let me leverage to 90-95% without mortgage insurance. How many IPs should we have with the same lender???
Good question; we have all ours with the same lender (St.G), but I know that many people run out of borrowing power with one crowd and have to approach other lenders and use different products (loans) in order to continue investing.
Don’t get too loyal to any one lender; do whatever is necessary to achieve your goal.
I don’t know that any lender will lend over 90% without LMI – I’ve never had to use it (thankfully) – maybe some of our learned forum M.B’s can answer that more accurately.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Hi S.M.T M,
don’t apologise for the long post – you should see some of mine! I’m the king of waffle.Is this block for a PPoR or an I.P? This difference has a huge influence on your mentality for the deal.
If it’s for an I.P then let’s get one thing straight right now – you are an INVESTOR. You are buying with your head and your wallet – not your heart.
Therefore you offer what you think the property is
a) worth (if you know local land values)
b) whatever you can get it for under asking price(within reason). Starting at 20% below asking is not unreasonable or uncommon. It may not be accepted, but it may be.Don’t get emotional about it – there will be another ‘deal of the century’ tomorrow. You must be prepared to walk away from any deal if it doesn’t suit you.
To answer the question though; you can offer whatever price you like and at what terms you like. He may not accept your offer, but don’t think you are locked into what he wants you to pay. For example, we bought a block of land on a 2 year settlement with a 15% discount on asking price (settling on return to Aus).
Is the land actually worth what he is asking anyway? Do some research on recent sales of land in the area (don’t ask the agent who is selling the blocks).
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Good discussion there people. If I can add my 2c worth:-
I agree with Terry – selling your PPoR to free up equity doesn’t really improve your equity position much;
– selling costs eat into some of the profit; you can access almost the same amount of equity through refinancing.
– loss of future cap growth on the property if you sell.
– move out of your PPoR and rent it; it automatically becomes another I.P and you still have access to the available equity and the ongoing cap growth it will provide.We have always used the equity from our PPoR to fund the deposits for our I.P’s.
Now that we have moved to the USA we are renting out our PPoR while here. It has become another I.P for us and has been a good move – good tenants etc. We have a loan set up which allows us to always access the available equity.There is no thought of ever selling it and this will save us considerable thousands in selling costs. We plan to continue to rent on our return and keep the PPoR as an I.P forever. Too easy!
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
the fee varies from valuer to valuer, bank to bank. But expect to pay around $300 give or take a few.
One thing, if you are getting the valuation done on your own behalf, make sure you arrange to meet the valuer at your property and come armed with as much recent sales histories from similar near-by properties to support your (hopeful) valuation.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I suggest you get your feet wet in your own backyard first. OS investing is fraught with stumbling blocks and dangers , even if you have experience.
There are plenty of markets and opportunities here in Aus. The grass is not always greener.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by fingerscrossed:sorry Mark
I was a little vauge.
There “is” a sound barrier at the back of the property.
The yield of 5% is the going rate, according to real estate.com.au and other agents that i have spoken to, for the area and the quailty and location of the house.
The block can be sub divided.
The vendor was happy to lease back for 12 months at a 5% yield – but i requested a 12 month settlement becasue this enables me to buy more property with the money that i have left after paying the 10% deposit.
It would have been negative geared at a loss to us. With the 12 month settlement I should get some capital growth and maybe a rent rise between now and then.
The properties in this area sell very quickly due to the location and land size. This has been confirmed by several agents i have spoken to.
This particular property has not hit the open market as yet.
Am I on the right track or should i be looking at the units do you think ??
I am still new to this game !!
your input is much appreciated
debbie
It all sounds good; the fact that the block is sub-dividable, and you have 12 months settlement time to get some cap growth is the winner there.
I think those factors are more compelling than the units.
As you get more experience and confidence you won’t second guess yourself. One of the biggest barriers for people to overcome when beginning to invest is to have the courage of their convictions and pull the trigger. Go for it!
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by Terryw:They generally earn a lot and buy cheap properties, thats how.
There are ways to extend your borrowing capacity, but you have to plan from the beginning. You will also need deposits or high growth, or a combination.
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.Also, if you look back, nearly all of those people did their buying during a boom, and in an area where the rent return was quite high and the purchase price was low to begin with.
I would doubt that anyone is buying 20 properties in as many months now without putting in lots of cash for deposits instead of equity. Happy to be proved wrong of course.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
If alarm bells are ringing then walk away. You need to be comfortable and sure.
You said ‘apparently’ there is a sound barrier, and ‘I could expect to achieve a 5% return’.
Is this property in an area where you can’t inspect it?
These statements are vague; you need to find out definitely that you can achieve the rent you expect and if there is a sound wall. Don’t go by the agent’s guess. Check out the actual rent returns for your type of property in the area by asking other agents and the rentals on r/e.com.au etc.
Can the block be sub-divided at that size?
Why is the settlement period so long? By not settling now you are missing out on the rent and the tax deductions that go with the property. It will probably be neg geared, so you would save on the loss but still get the cap growth of 1 year I suppose.
2 units with a better yield may still achieve good cap growth, and the risk of vacancy is spread – less likely to have both vacant at the same time.
There is still more research to be done for the area I think.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Hi James,
In1989 the interest rates were approaching 17% across Aus. People were selling homes worth $1 mill for $500k. It was bad if you were a property investor (or high-end home owner). The market was bad with no sign of recovery in the near future.
Then we had a boom in the late 90’s through to 2003. Houses doubled in price in 3-5 years. The same thing has just happened here in L.A. Houses doubled and even tripled since 2000, while in 1990 they couldn’t give away the properties! Now they are going through a slump as the affordability has deteriorated.
You bought your properties at the top of the boom, or maybe the start of the downturn. No big deal; it just slows down your progress. You are only guilty of a bit of bad timing, but the market always recovers if you wait a bit. The important thing is that you are in the game with THREE I.P’s. That’s more than 95% of the planet!!
All you need to do is ride out the current stage of the never-ending cycle; in 5 years you will be high-5ing each other over the smart thing you did.
I am a big fan of Neil Jenman, but he is a bit of a gloom and doomer; he is trying to protect the uneducated from disaster and I applaud him for it.
In 10 years time the areas you bought in (which I am very familiar with) will be part of the inner suburbs as the urban sprawl continues. I remember when Scoresby road, Stud road were the end of civilisation! I bought a house in 1985 in Boronia for $93k – it was the end of the trainline practically, and an area for first home-owners and losers (it was all I could afford). Now those houses are all high 200’s and more, and Boronia is still miles from the action.
Your houses will go up – not 10% per year for the next 5 years, but maybe 50% over the 5 after that. That’s how property cycles and markets go.
You will retire very comfortable.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Hi Ritchie,
first; my disclaimer (isn’t the whole world based on these now??) I am so sick of hearing these now – they are on almost every ad on tv and radio over here. [grrr]I am not an accountant, so don’t quote me to the lawyer when I get sued (just joking!) I’ll attempt to answer those questions for you:-
1. That’s correct; the A.T.O (or maybe the govt?) made a ruling that you can claim the depreciation on the building as of September, 1987 (I think), at 2.5% per year for 40 years.
2. With the special building write-off, the allowable deduction runs out after 40 years from the construction date, so if you buy now, you have 20 years left roughly. This should not really be a concern as you would hope that after 20 years of investing you would be so wealthy it would not be an issue. The good thing about the S.B.W-O is it is the same amount each year – 2.5% of the construction cost.
3. The fixtures and fittings have different rates of depreciation. For example, the carpet has a life span of about 5 years (I think) in the eyes of the A.T.O, while the kitchen cupboards will last much longer – I think their lifespan is about 20 years.
4. That is correct, value adding is not a normal deduction such as a plumbing repair. It is a deductible depreciation claim like the S.B.W-O and needs to be included in your Depreciation Schedule, or give all the receipts/costs of the value adding, which is called a capital addition, or improvement, to the accountant so they can apply these costs to your tax return.
The important thing to do with all of the above, and any I.P you buy, is to get a Depreciation Schedule prepared by a Quantity Surveyor. This is a cost of about $400-500 (which is tax deductible). He/She will include every item, each will have a ‘life’ for depreciation and then this schedule gets handed over to your accountant. The accountant will use the depreciation schedule for your tax return each year.
I suggest ring a few Q.S’s, and talk to your accountant about a plan of attack.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Totally agree dvane,
also, teaching the difference between an asset and a liability to the kids I think is very important. You still need to have some of both unfortunately, but at least they should know the difference and make informed decisions.
Many kids; I’m talking from high school to early 20’s (and a lot of sensible adults) don’t know the difference, and what’s worse is their bank tells them the wrong info as well. Your banks asks you to list your assets when you want a loan, and they give you the list to fill out; it includes house contents, cars, clothes, electronics etc, etc.
An asset is something that appreciates in value and provides you with an income.
A liability is everything else – even savings in the bank. By the time you factor in inflation, bank fees and tax on the interest, your $1,000 deposit is worth around $950 or even less after 1 year in the account.
The problem is that people are taught that a their home, car, plasma, new lounge suite, jet-ski, clothes, even jewelery are assets. Except for their home which usually appreciates in value (but doesn’t provide an income) everything else depreciates. Many people think that jewelery appreciates, but the reality is that you are never going to sell that diamond engagement ring left to you by your great grandmother, and the one you paid $5k for last year is worth maybe half that (if you sold it and you wouldn’t). It is a huge waste of money (sorry girls).
Giving the younger kids in school the right mindset will stop them from leaving school with the consumer mentality I believe.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
This is the standard ‘try on’ by the agent. There is no law (that I know of) saying you must pay 10% deposit. I and many other forumites pay $1,000 as a deposit all the time. The Vendor doesn’t care usually – only the agent.
The agents don’t like this, especially if the settlement is a long one, as they can’t apply to have the deposit released and get their commission as there is not enough money in the deposit to cover it.
The agent must supply a copy of the tenancy agreement if you request it as part of the conditions. Maybe there is no contract; I have heard stories of agents passing their brother or cousin off as a tenant to get a sale from an investor. You take settlement and find out the place is empty.
You need to write your conditions that you want on the contract yourself – don’t rely on the agent to do it. You can even write the conditions on a separate sheet and staple it to the contract and write in ‘as per attached sheet of conditions’. Control as much of the purchase as you can.
If you want to be really nasty you could contact the Vendor directly and suggest that the agent is not following your instructions and is endangering the Vendor’s sale, and if you haven’t signed the contract yet you could simply inform the agent that the offer is withdrawn and tell him/her why, and inform the Vendor directly about this as well. They will probably come running back, and if you want to be even nastier, you can drop your offer by another $5k for the ‘inconvenience and extra stress’ they have placed on you. I love upsetting slimy agents.
Stick to your guns, and threaten to take your cheque-book elsewhere. And you should be able to comfortably say this – there should be no emotion on your apart; you are an investor and there is another deal of the century tomorrow. You are in the position of control, play it by your rules or no play.
By the way; how much under the asking price did you offer? If it wasn’t AT LEAST 10% then you are probably paying too much. Judging by the quick acceptance of your offer, I would say this is the case.
Also, I agree with Julie; look at the Neil Jenman site and read his books. I suggest you send him a direct email; he is very approachable and happy to help people like you. I am a big fan of Neil’s – have been for years, and have used his Homeseller’s Protection Guarantee on every sale I’ve made.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by wealth4life.com:Thank you so much L.A what an interesting responce …
As to following the USA i think we are already there … What about Kiyosakais teachings or isn’t he that big over there as we imagine he is ?
Lets put a prediction on when Australia will hit $50bn credit debt.
There are some great bargins here, even in Sydney we just bought 3 houses in Cambeltown in great locations and all are positive cash flowed because we offered stupid cash 30 day settlement prices. People and banks are crazy, you can’t buy land and build a cheapie on them for what we paid and we didn’t have to resort to investing in mining towns which now the ROI is drastically changing.
D
From what I’ve seen, R.K is not as big here as he is in Aus. He probably has a profile, but I think that the size of the population and the country here, and the fact that the Yanks seem to be wrapped up in their own little worlds is holding back the impact he is having on the education process. He is on tv very occasionally, but that’s it. It’s a bit like ads for eating salad, or eating maccas. He is the salad ad; you know it’s good for you, but it’s just too hard and uninteresting.The average punter is going to take notice of the maccas ads every time unfortunately.
The advertising on t.v is relentless and disgusting, and I’m afraid that the uneducated, or lazy, or don’t care, or ‘it’s too hard’ brigade just cave in and follow the message.
The other problem is the poor seem to think that their way of life is cool and hip. It’s more important to have your jeans hangin’ down around yo knees, your shirt 14 sizes too big, your car stereo on 200 decibels, and yo hat on sardwayz y’all; yanowerdarmsayin?
There is no desire to be smart or to lose weight (unless there is a pill that will do it) or to learn some financial intelligence. This is the majority of people who are poor. The middle class are all spending like there is no tomorrow, which leaves the rich, or financially intelligent, left to scoop up all the treasure.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Hi W.4.L.com,
Totally agree with your post. Here in the U.S I have observed Aus 10 or 15 years down the road in my opinion (maybe less).
The norm over here is for people to rent, buy the most expensive car they can afford, live on take-out and restaurant food and shop all weekend at the malls buying clothes and electronic devices. “Keeping up with Jones” is out of control here – it’s actually laughable, but sad as well. I live in an apartment building where the 2 bedders are $3,000 p/m, and there is a proliferation of 20 somethings living here and driving in and out in BMW’s and Mercs. It is astounding.
The material trappings are everywhere; everyone has a mobile phone – many kids at my son’s elementary (primary) school have mobile phones, ipods.
The only investing products advertised are the ‘packaged’ products of the stock market – mutual funds and 401k’s (super funds). The Yanks love this as there is no work required; simply sign up and hand over your cash each month. The advertising is unrelenting on this, as well as cars, prescription drugs, fast food and electronics.
This week there was an announcement that the U.S has a negative savings rate for the first time in it’s history. The average American has $8,000 in credit card debt, and is spending around 110% of their income.
Foreclosures are in a boom at the moment, with personal bankruptcies topping 50,000 per month across the country. Interestingly, the main cause of these bankruptcies is health care bills from hospitals and loss of jobs, which forces people out of their homes. This is partly due to exorbitant health care costs and operation costs, and the people aren’t/can’t saving any money towards these eventualities. Most people are one or two paychecks away from homeless if the truth be told.
House prices across the country are still in decline, and the interest rates are rising. This is not directly related to the mindset of the ‘doodad brigade’, and is probably part of the normal post-boom cycle, but it has an effect in that they fall further behind on the road to home ownership.
The younger generation has largely given up on home ownership, and elect to simply rent and party and look cool. They are referred to here as ‘the forever young’. The problem is they are not saving any of the excess income towards retirement or financial improvement.
The middle class is disappearing, with the gap between the rich and poor widening even further. The USA is one of the worst countries in the world for this scenario now.
Not bragging here, but my wife is 36 years old, and in a hospital of the reputation and wealth of Cedars-Sinai in Beverly Hills where she works, she is the only woman her age who actually owns ANY property. My wife earns $85k per year – this is normal at this hospital! There are many nurses over 65 who are still working because they have to – some own no property or have savings, some are still paying off home mortgages.
The relevance to Aus with all this is that after living here for 18 months, I have observed that our society closely follows and mimics the USA. We are heading down the same path in my opinion. It is a worrying trend, and here, as with Aus, no-one is trying to teach the kids some financial literacy in high school when it is most important.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Loved your enthusiasm and positive attitude Lea. Glad you have done well in your investing.
Must take you to task about the property in Victoria though. I’m tipping the other properties in the other states are in the same bracket as the Vic property too.
My brother lives 10 mins away from Ararat in Great Western. He and his wife work in Ararat. They grew up in a country town and have no airs and graces. My sister-in-law works for a Mortgage Broker and spends her day trying to get loans approved for the local townsfolk.
I have seen the place several times and from my (and theirs) observation, Ararat is a town that will not enjoy any decent cap growth in my lifetime, and is a hive of welfare recipients, single mums with a half doz kids… you get the picture. There is very little employment and the town is dying slowly.
My point is; yes there are areas that will provide a 10% return, but at what cost? Hi chance of tenant default, damage, vacancy, no cap growth – not my idea of a good investment; I would want 20% return from a place like Ararat to even think about it.
Simply showing the other forumites such properties is at best misleading – the newbies may think this is a good investment and jump in on your recommendation, when it is most likely a terrible investment.
At worst, this is reckless and dangerous advice.
I could get on the net and find a few of these myself in 5 or 10 mins too, but I would never even think about telling someone else about it – if they find it themselves, then they can make their own decision.
I know you are trying to illustrate how easy it is to find a good returning property, but that is only one aspect of a good investment.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Don’t confuse POSITIVE CASHFLOW with POSITIVE GEARING. It sounds from your post like you are looking for pos GEARING?
These are two totally different things. I have posted on this before, but will attempt to explain again.
POSITIVE GEARING is when the rent covers the TOTAL COSTS BEFORE TAX of holding the property. There is a profit, so the investor has to pay tax on this profit. These properties are almost impossible to find in Aus these days, and if so, they are probably in an area that you should not invest in.
POSITIVE CASHFLOW is when the the rent does not cover the holding costs of the property. It is a negatively geared property intially, but when the ‘on paper’ deductions together with the the normal tax deductions for the holding costs are applied to the investor’s taxable income, the resulting tax return brings in more cashflow. The end result is that AFTER TAX, the property has a positive cashflow.
Speaking for myself, this is all I buy. My properties cost me nothing out of my pocket, and I pay no tax on them (legally).
Yes, they are harder to find than they were a few years ago, but they are still out there. One of the critical factors is the property must have a building/residence which was constructed AFTER 1987 to maximise the ‘special building write-off’. A Depreciation Schedule is a must with this strategy, so that the on-paper deductions can be maximised. Many investors don’t have this and cost themselves potentially thousands of dollars every year in lost tax refunds.
Ideally, something built about 5-10 years ago is good (but not critical) as there are still many years of depreciation left on the building and fixtures, but there is a good chance that these properties are almost ready for some ‘value adding’, thus you can buy and increase the value and rent return almost immediately, while enjoying the maximised tax returns to improve the cashflow.
You will find it very difficult to locate these properties in major cities and metro areas as the rent returns in these areas are usually too low. You need to look to regional areas, satellite towns and bigger country towns.
Finally, to maximise your investment, you should look to buy properties in potential cap growth areas which are near all amenities and with some land content.
Margaret’s books will explain this strategy very well. I have been a fan of hers for several years.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Be very careful.
6% is not a good return for a start (to me). You can get nearly that in an I.N.G account with no risk.
Hard to get finance if the apartment is not over 50 sq/m.
High manangement/holding costs.Read Margaret Lomas’ books and see sections on Serviced Apartments.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
How old id the building on the property?
If the building on the property was constructed after 1987, you can claim depreciation against your income tax on every part of it. Even if it was built pre ’87, there still may be some depreciable items there for tax purposes. Ring a qualified Quantity Surveyor to discuss your options.
Every aspect of the building will have different depreciation rates and values. You can obtain a Depreciation Schedule from a Quantity Surveyor for about $400-500 (which is tax deductible). This is then handed to your accountant and he/she applies the claims to your taxable income.
As well as this, all your holding costs are tax deductible at your marginal rate of tax.
Combined, these deductions may allow you to generate a significant tax return, thus cutting down your cashflow shortfall.
Finally, if you can add value to the property through some renos or improvements this can allow you to increase the rent.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
You can do a lot of the renos yourself, or farm out the work to other contractors.
Getting the contractors will cost more than what you can do them for most likely, which will eat into your investment returns.
If you are a high income earner and have no time available, then this may be your only option to have the work carried out. It may be more cost effective for the high income earners to go to work and earn more than what they may pay the contractors.
Many of us are semi-retired, or work part-time and have the time, energy and passion to do the renos ourselves. It can be hard work, but it is still fun and our returns are maximised.
Having said that, there are some things that only the professionals should do – electrical work and plumbing for example.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Here’s a few more (I like reading prop investment books):-
1. Robert Kiyosaki – all books; they’re all great in different ways.
2. Think and Grow Rich – Napoleon Hill.
2. Richest Man in Babylon.
3. Millionaire next Door – Stanley and Danko.
4. Michael Yardney – all books.
5. Margaret Lomas – all books.
6. Jan Somers – all books.
7. Money Secrets of the Rich (Australian Edition) – John Burley.
8. Monique Wakelin – all books.
9. Noel Whittaker – all books.
10. The Warren Buffet Way – not property, but interesting.
11. Neil Jenman – all books
12. Terry Ryder – all books.
13. Peter Spann – not bad
14. Steve Mcnight – all books.
15. Property Investor Magazine.Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
