Forum Replies Created
If you can ride out the neg cashflow for a couple more years then do that. The market and the rents will come up.
Treat the $8k as forced saving that you probably would have blown on other ‘doodads’. You haven’t made a loss until you sell.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by splosh:Originally posted by foundation:Originally posted by splosh:You could simply…
[stun]
Simply? Wayne’s a lucky bloke if he has a lazy $225,000 sitting around that he can plonk into his loan!
Yes, tounge was planted somewhat firmly in cheek, ….but seriously he could possibly sell another IP and consolidate.
I think he only owns one I.P
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Everyone seems to have this idea to sell their very successful I.P’s.
After you pay all the costs and CGT you lose a fair chunk, and it is not necessary to do this as you can use the equity you have built up.
Sell the duds and keep the winners.
Don’t sell, but refinance your existing loans to set up the correct structure for further investing in the future.
You need a property-savvy Mortgage Broker to help you here – maybe some of our learned M.B’s on this site will step in.
On a side note; can I ask you what the property is you own in Boulder and when you bought it? (I bought a couple of props in Kal and Boulder back in 2003 and I have no idea what they are worth now).
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
As far as I know they don’t unfortunately. I suppose it is because the on paper deductions are such an individual thing when combined with the income of the mortgagee. banks usually base most of their decision to provide finance on serviceability and LVR, and every bank has their own figure for this.
In my view the higher the rent return is the better your financial position will be when it comes to continued lending. The more positive your cashflow is, or near to it, the more serviceability you will have for future borrowing. neg cashflow will only allow you to borrow so much, even if you have a lot of equity as your serviceability will be affected.
I don’t understand what you mean by “neg cashflow for equity”?
Neg cashflow takes money from your pocket – money that could be used for paying down your loan and increasing your equity. Neg cashflow in any form is not good – you are losing money. You would need fantastic cap growth to justify a neg cashflow property, and even then you still have a cashflow problem. You are a slave to your real estate.Ideally you would want a good combination of pos cashflow and cap growth to increase your equity and lower your LVR.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Not much you can do I’m afraid, but three things that you can do to lessen the burden if you haven’t already done so;
1. have a depreciation schedule prepared by a quantity surveyor and give this to your accountant. Costs $400-500 to have done. This will add a lot of ‘on-paper’ deductions to your taxable income, and may nett you back thousands more per year on your tax refund.
2. Apply to the ATO (your accountant can arrange this) for your tax return to be ‘paid back’ to you each week/pay day. This will also help the cashflow.
3. look for ways to find extra money in your budget to use towards debt reduction to lessen the interest you need to pay.Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by devo76:It seems that generaly speaking people go for negative gearing or positive cash flow. Is it possible to go for both and be worth while.For example if you had a negative geared property that gave you a 5 grand tax return(that when put of the loan it covered the total loan costs) and hopefully gives a capital growth down the road.
And as well as that you have a positive cash flow property that raises your tax by 5 grand but gives you a weekly income on top of that.So the cenario above gives you a weekly income plus a property aiming at capital gain that gives no weekly financial strain. And you pay the same tax as you would with no properties. Although the figures are made up does it make sense or is it better to stick to one way or the other.What you are talking about in scenario 1 is a POSITIVE CASHFLOW property.
This is a property that is NEG GEARED, and shows an on-paper loss, but after applying the tax return, the cashflow then becomes POSITIVE. If you also re-invest the tax return back in to the property loan (as you should) then you are even more in front.
This is different to a POSITIVELY GEARED property which is one where the rent income is more than the total holding costs of the property including the loan.
Your week to week tax witholding is the same throughout the year – same as if you had no properties, but the on-paper deductions are applied to your taxable income and a new taxable income is calculated.
You can also arrange for the ATO to reimburse this tax return to you on a weekly basis so you don’t have to wait until the end of the year to receive your tax back. This helps with the cashflow, but there is a temptation for many to simply spend the weekly tax saving. I wait until the year’s end and reinvest the tax return. I treat it as money I wouldn’t have had.
It is also possible to have a positive cashflow property that experiences good cap growth – a double win. Of course, the cap growth is an unknown quantity until it happens, and I treat it as a bonus. My first priority is to buy only pos cashflow properties, so the ‘numbers’ on the property are crucial.
All of my properties are pos cashflowed (not pos geared). They show a loss on paper, but after the tax return arrives, the figures are then positive. This is the only type of property I buy. The good news is that purchased this way, and with reinvesting of the tax return, as well as active debt reduction, the property will become positively geared after a few years.
For a great explanantion of this great strategy, read all the Margaret Lomas books.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
another self-sell site is noagentproperty.com.au.
One thing that no one has talked about which is a problem with selling yourself is a lot of the enquiries will be from agents who have seen your ads and want to offer their services.[grrr]I copped this one time and my response to all was that I would be happy to give them a $1000 commission if they wanted the listing, and only for 30 days. They never bothered me after that.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
People with multiple properties can only do that two ways generally – loads of expendable income that they can use to cover shortfall on neg geared properties, or pos cashflow/pos geared properties.
With residential I.P’s; generally the cheaper the properties are, the better returns you get. Quite often 4 x $100k properties will have a better rent return than 1 x $400k property, and the problem of vacancies is far less as it is unlikely to have all 4 vacant at the same time. To me, this is maximising my return and safety for my investment dollars. It may not be the best strategy for cap growth, but a well researched area and careful property selection can maximise this also.
If you have neg geared props that cost you say, $50 p/w each then there are only so many you can afford (not many).
If every property you own has a positive cashflow, then technically there is no limit to how many you can buy.
Having said that, there are sevicability issues that need to be factored in. Most lenders only allow about 70-80% of the rent to be used towards your serviceability (as well as you income), and they usually only allow up to about 85% LVR (Loan to Value Ratio) without Loan Mortgage Insurance.
Interestingly, banks never factor in tax returns towards servicability. If you buy your I.P’s carefully, the refunds can result in several thousand dollars coming back to you each year, thus improving your cashflow/serviceability towards more properties.
The rule here though is that you MUST re-invest the refunds back into the properties (loans). Most people blow refunds on plasmas and other ‘doodads’.
The trick is to maximise every facet of each I.P purchase –
purchase price
rent return
value adding
tax benefits
cap growth prospects.
All these things when combined together will accelerate your ability to invest again sooner.Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I think if you keep second guessing yourself you will become frozen with in-action.
Many of those things you are thinking about are ‘what-ifs’, so don’t really have a relevance to your current situation.
We are living overseas at present and all our investments are back in Aus. This does not present a problem. So, if you are in a position to invest in Aus now, and it is a market you probably have a little knowledge of, then go ahead. You can have your properties managed wherever you are. You can always look at another investment when you get to your overseas destination as well.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I try to always keep this thought in mind when reading about the Real Estate market/industry in the newspapers:-
The real estate industry has an enormous stake in the major newspapers’ income by way of the advertising they do. The real estate industry even give out awards amongst themselves for whoever can generate the most revenue from their advertising.
It is fair to say that because of this relationship, the newspapers will tend to be swayed by what the real estate industry would like the public to hear about the state of their industry. Given the recent state of the market, the real estate industry would like us to believe that things are going to get better, things are fine – no need to panic. The Age article speculated that rents would rise as much as 20%. This is a total joke – I would love it to happen; I could retire, but the reality is if they did rise that much there would be thousands of people on the streets. David Morell says the high end is flying; this market is totally exclusive to the mainstream population. 90% of the people are middle class or less and these are the majority of residential property sales. Affordability for these people is very low right now.
They (r/e’s and papers) need consumer confidence to keep their machine rolling, and the newspapers want those lovely advertising dollars. It is in neither of their interests to relate bad news and gloom and doom for too long. Of course, this doesn’t mean they only tell you good news and never bad, but it is important to keep this in mind when reading media reports from newspapers. What is the real truth?
The statistic you mentioned is the ‘medium’ house price. This is the dollar cost of a house halfway between the most expensive and the cheapest. Three cheap properties which rapidly increase in price will be negated by one expensive property sold at a decent discount. So, you could have one cheaper local market experiencing a boom, and one one expensive local market experiencing a slow down and the figures will reflect no change.
It’s the same with ‘median’ prices – this is the figure put on the house which is exactly half way between the total number of all properties sold from cheapest to dearest. The same thing happens here – a lot of cheapies are sold all of a sudden, thus the median price drops. It is not an accurate description of the market. Another stat often thrown in is ‘how many’ properties sold in a given period compared to past sales. This can also be misleading – few properties sold can be due to interest rates being high, the time of year, consumer sentiment. Lots of properties sold could be because of a boom, or lots of distressed sales and a downturn as interest rates spiral upwards.
The factors which determine whether house prices rise are affordability, interest rates and rent returns, general state of the economy. At the moment the affordability rate is very low, so not many people can afford to buy. The high end of the market hasn’t been affected as much as the lower “mum and dad” or first home-buyer end of the market.
Interst rates are still low, but have been rising of recent times, thus decreasing affordability and consumer confidence. Keep in mind that most people are living pay check to pay check, so any upward movement in interest rates will affect those people more.
Sales dropped and many investors disappeared as the rent returns dropped during the boom, and even though rents are starting to move up again, the returns in many areas are still too low to entice them back yet, and it will take quite a while for the rents to increase enough to catch up to the fantastic cap growth of recent years. Many experienced investors will be waiting on the side-lines for this to occur of course.
What does all this mean for Melb? I think that overall the market will be slow this year for growth, as affordability is still poor in many areas and rent returns are still low. But there will be those little pockets that will still go well as the first home buyers will be able to afford the properties in that area.
The irony will be that as house prices rise again, rent returns will stay down, so the investors will stay away, and this will cause a rental housing shortage which will force rent ups. Then you have a situation where renters can’t get ahead enough to save for a deposit on their first home; affordability suffers again and prices stagnate.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I know what you’re talking about, but not really what is involved in foreclosures, except to say that here in the US it is a big business – for the people who supply the lists and info relating to the selling of these properties. Do a google search on ‘foreclosures’ and you will see a multitude of businesses selling info, or lists of properties. They are usually at a cost to subscribe to.
From what I have observed (which is not that much) it is not really likely to get a foreclosure very cheap. The lenders aren’t in the business of giving away their properties and taking huge losses on their loans. Also, there are many investors vying for these properties, so they force the prices up to around market value I suspect.
There is some provision for taking over the loans on these properties at cheap rates which makes them attractive. I don’t know how this works, but I have seen ads on tv almost every day advertising foreclosed properties for sale by the govt, with repayments at a round $200 per month.
The process of purchasing this way seems to be rather complicated and fraught with pitfalls for the inexperienced. Do a Wikipedia search on foreclosures for a brief explanation on how they work.
Maybe Chad (WorldChanger) can shed more light on this for you.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by maylene:Whoever would like to buy a Cheap but absolutely Brand new properties in Australia, just email me your name, address, landline number (not mobile) and available time to contact you.
Email add: [email protected]
Check my website: http://www.maylene.zoomshare.comI am happy to be proved wrong, but the above website looks like a classical two-tier marketing system with everything done for you. The properties are more than likely overpriced for the area.
BEWARE people, and insist on INDEPENDANT legal, finance, valuation and building inspections before signing anything.Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Thanks Amanda and Michael for the book!
On that note; the “Lemons” thread is noticeably short on posts. Come on you guys – put your egos in your back pocket and pull out the courage and tell how bad it was. Even “The Donald” went broke once.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by picklesam:hi marc, yeah richard’s sorting me out aright! Selling the cars is not an option for me, i’m nuts about my cars, it’s the only ‘hobby’ i have really, i don’t go on holidays for example…they dont cost much to run, one’s in storage at mum’s house…and no debt on them…i worked out if i can manage to get another ip with mum i’ll still have about $1800/month i can save, should i be putting this $$$ into my first ip becasue it’s giving me crappy yield? It’s a $410k house returning $950/month…just to save me heaps of interest and to get enough equity so i can get a loan to buy my own home?
If you have no other personal debt then that’s what I would be doing – putting the savings into the I.P loan to reduce debt, improve your return/cashflow/equity.
There are others who might say put the spare cash into another high yield investment; say, a mutual fund or other shares, and leave the investment loan untouched as all the interest is tax deductible. It is swings and round-abouts I think.
The only problem that I can see with the path you are choosing is you are going to be borrowing from the I.P equity to help fund a loan on a PPoR. The interest and holding costs on the PPoR will not be tax deductible. Ideally it would be better to be borrowing from your PPoR equity to fund an I.P, then the interest is tax deductible.
Or, better still; use the equity from the I.P you buy with your mum to fund another I.P in the future, and you continue to live at home or rent a place yourself. This may be financially smarter than buying and living in your own house, but not a lot of people do it as they are very emotionally attached to their PPoR, or can’t get past the idea of buying and living in their own home.
We have done it; our PPoR is another I.P for us now, and have no problem now (mentally) with renting a nice house in an area we like while pouring funds into investing.
Talk to Richard about these scenarios (he’s probably reading this post as you are!)
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I agree totally with Duckster, Sarge and Amanda.
If you find big, glossy ads and radio or tv coverage, or phone calls or door knocks of new developments, you need to ask yourself; who is paying for the ads and the sales people?
Clue: the developers aren’t.It is very easy to find out the value of properties in the area where the marketers want you to buy – find out the sold price of some recently sold, relatively new (less than 5 years old) properties similar to the ones that are being advertised. Because the sec/hand props are usually sold by real estate agents on the ‘open’ market, they will have sold at the more realistic market price.
The marketers may say that because it is brand new the property is worth more. Technically true, but not by much at all. For example; there are 2 properties for sale which are identical in every way, except one is 4 years old (and has been sold previously at true market value) and the other is brand new. The sec/hand prop is asking $200k, the new one is $250k.
You buy the new one, then after 1 year you need to sell due to financial hardship. Now you are selling a sec/hand house. The other sec/hand house has gone up $10k in value – it is worth $210k now.
In comparison, you 1 year old house is worth at best about $20k more than this – $230k. You have lost $20k (more when you factor in selling costs).This is simplistic, but fairly common nonetheless and the figures can be far worse.
Always use INDEPENDANT valuers, lawyers pest and building inspections and financial advice as Duckster says. The marketers will try to persuade you to use their guys (who are copping a sling).
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Good on you YBS,
The next step is to
1. save like mad for a deposit on the next property,
2. hammer away at the loan on your existing apartment,
3. wait for some capital growth and use the debt reduction to increase your equity in it. Then you can use the equity as a deposit on the next property. Or a combination of all three will do it. All 3 startegies will take time, so you need some patience.Or, you could use other more sophisticated strategies that allow you to buy with ‘no money down’, but this can be fraught with risk and you need to know what you are doing, so you would need to improve your education first. You should do this anyway as a matter of course. The more financially literate you are the safer your investing will be.
A quick short cut to your investing which is also financially more beneficial, is to use your apartment as an I.P (investment property) and you rent somewhere else. Most people won’t do this as they are emotionally attached to their PPoR (principal place of residence).
As a renter, your only cash responsibility is your rent and utilities and maybe some contents insurance if you think the contents are worth anything. clue: contents are worth next to nothing. If you don’t believe me; try to sell it all TODAY for cash.
As a home owner, you are responsible for rates, insurance, utilities, maintenance, home loan. Usually a lot more expensive than renting.
However, if you rent your PPoR to a tenant, all the outgoings on that property, including the loan interest, suddenly become tax deductible. Also add to this the Depreciation Schedule (a quantity surveyor prepares this for you) to your tax claims, which on a newer property can be significant. Switching to an interest only loan would lessen the burden on the cashflow as well, but you need professional advice from a mortgage broker and a good accountant about this.
The likely result will be that your tax return could be enough to cover any shortfall on the difference between the rent and the holding costs of your property. Bingo! you have an I.P that is costing you next to nothing, and may even make you a small profit every week. This profit is then re-invested back into the loan, thus improving your return, your cashflow, your equity increases and you can buy your next I.P a lot sooner.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
if you are new to investing you should become as involved in your investments as much as you possibly can to gain knowledge and make informed decisions. Very successful investors don’t hand over control of their ship to anyone else.
Companies like cashflowcapital.com exist to help the lazy, or time challenged, and they pay a premium for the service by way of a finder’s fee built into the price of the property. This is usually a few thousand dollars. It is easier to use a company like this, same as the reason why so many people by ‘off the shelf’ mutual funds. No work required.
If you have the time and want to maximise your investing dollars, you could find these deals on your own.
Invest those few thousand dollars in your own education and it will reap you many tens (or hundreds) of thousands of dollars over your investing career.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I’m sure Richard will sort you out on the details, but my 2c worth –
A good starting point would be to get rid of the two cars worth(?) $60k if you can – are there existing loans on them? Cars are not assets – they are liabilities, or ‘doodads’. Buy one decent sec/hand one for about $10k and put any remaining cash from the sales into the loan/s.
This is money down the drain sitting in 2 very expensive and very depreciable (but not claimable) ‘doodads’ that cost a lot to maintain. Even if your company pays for them (I’m just guessing on that), you still have to find the money for the lease/h.p payments every month; it’s just another cash draining, needless expense – stopping you from buying more assets.
Unfortunately, a lot of banks view cars and furniture and clothes etc as assets which is distorting your true net worth. I don’t know why they do that. An asset puts money in your pocket, a liability takes it from your pocket.
The reality is that all that stuff is useless and will hold back your investment potential – even if the bank thinks it is o.k.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
yeah – hearin’ that. I started that way but not now thankfully.
I still think neg geared props have their place, but only in a rapidly rising market so you can execute a well orchestrated flip. Where’s the next one??
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by ShOw_Me_ThE_MoNeY:Hi Guys,
Having a dream house ( to live) in a well planned estate has allways fascinated me. I am trying to ascertain 2 options here:Option 1. Buy a block of land (say 150K) + Ask one of our famous developers to build me a home (say 200 K). I am talking about a house and land package here.
Option 2: Buy a block of land (say 150K) + Get an architect to deign+ manually source the material required for construction.
and i strongly beleive that i would be able to save some money with option 2 as i would be doing the project management myself in regards to sourcing the materials etc etc.
What are your thoughts on these 2 options? will option 2 give me a lot of savings?
The only concern I have with Option 1 is the big boys can tend to cut corners on the quality to get the price – eg; the gaps between the wall frames are sometimes more than you would like – it is still legal, but you may get buckling in the plaster, the paint job is usually average, they use less nails etc, etc.
On top of that, you get a house which is very similar to others in the estate (maybe a different facade).
We are planning to do your Option2 on a block we own when we get back from the USA. Like you, it will be our PPoR when it is finished.
I have built a house (had it built) previously and after watching that interesting experience I don’t mind handling the management of the process myself to save a few thousand, I have the time, and it will be fun as I need a project to occupy my dull mind.
I think the critical factor in ours/your decision is time. If you are in no hurry to build, and have the time to oversee those unreliable tradesman, then go for it as I will be.
Our plan is to have an architect design the house using our preferences, then we are going to tender out each section of the building process to the relevant tradesmen. This may involve getting 3 or 4 quotes on things like framing, electrical, plumbing, roofing, etc.
I don’t know yet whether to try and source/supply the materials myself – the tradesman can usually get them cheaper than me, but quite often they over-order and take the left overs for themselves for future jobs, so you end up paying more than you should anyway. I may just call for quotes on the labour, and source the materials.
I think the overall process should save a fair amount of money. The architect design will no doubt eat into the savings I suspect, but the end result should be a good quality, unique product that was a fun? project.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
