Forum Replies Created
That’s a lot of money for one property, and the return is not that great. It is about standard on a rental guarantee deal. Bank loans are up around 7% now. Too scary for me.
I prefer to spend that sort of money over a few properties and spread the risk a little.
The rent return is 8% approx – what is the going rate in the area without the rental guarantee? Check out other facilities to see what they are getting.
Is there even a market for this kind of residence in the area? It may be full of young professionals – not old people needing to rent.
Yes, the rental guarantee is usually built into the purchase price, which means it is probably overpriced.
What happens if your Dad gets into financial difficulty and has to sell it in the next 1-2 years? What will it be worth then? The exit strategy is just as important as the entry.
What are the outgoings – body corp, insurance, rates etc.
I would be doing a lot of price checking on similar EXISTING residences in the immediate area. The local council will have records of recent/past sales and how much. Local agents may also manage these so ring a few to see what they are doing.
Ask the buyer’s agent to show you his title deeds of the ones he says he owns. Look them up at the council to see what he paid (if he owns any at all).
This sounds a little ‘two-tier’ to me. Beware, and don’t be pressured into a sale. If your Dad doesn’t live in the area, or lives out of state, then I’d say this is what’s going down.
Last of all, ask the buyer’s agent if he minds if your Dad gets his own bank valuation done on the property, using an independant valuer (costs a few hundred but could save some heartache). If the buyer’s agent is not keen, or tries to direct you to his guy, you know you have to run a mile.
There is another ‘deal of the century’ tomorrow.Cheers,
Marc.
[email protected]Originally posted by brendon11:Ive recently come into a bit of money from selling an IP. Im interested in getting back into the market but would prefer the rental income to be closer to covering the bank payments.
Ive been looking at 1-2 bedroom apartments and these seem to be the best thing for this.
Are there any issues with these that I might not be aware of? ie. are they still ok with capital gains etc
thanks
Brendon1 & 2 bed apartments are usually better on the rent returns than bigger ones or houses, as the purchase price is usually cheaper. Generally, as the purchase price of the property increases, the rent returns drop away.
As for capital growth, the land content is what appreciates – not the building, so it is probably better to buy units which are free standing or semi-detached. Apartments don’t have much land content (if any) so they usually appreciate more slowly.
The other factor is the suburb the units are in. You need to find one that hasn’t experienced our recent boom.
Some suburbs are showing signs of a ‘correction’ at the moment so it may be a good time to look for those.Cheers,
Marc.
[email protected]Originally posted by Milly:Some friends of mine are wanting to purchase their first home. They have 4 kids and are what you’d call battlers.
If I were them, I’d continue renting but purchase an investment house in a cheaper location. In ten yrs they would have equity for the deposit on their dream home. However they have set their sights on the great australian dream.
I was wondering if they should get an interest only loan for the PPOR. Now I know everyone says you should pay off asap your home but I was thinking that if they bought a house now for 300k and only ever paid interest, in thirty years time they would still owe 30grand but the house would be worth 1.2m. At that point they could downgrade to a unit worth 90grand and have no mortgage.
The thing is that with four kids to raise they could certainly use every cent in their pockets they can lay their hands on.
woddayarekkon?
You assume the house will be worth 1.2m.
‘Battlers’ always seem to have a flock of kids – there’s a link there.
If they are ‘battling’ (do you mean struggling?) now, buying a negatively geared I.P (’cause that’s what it is likely to be) will take more of their income than they have available now. That is very risky.
They will need to find a bank that will
(a) lend them the money at all
(b) lend them an I.O loan over a long period.
The strategy you suggested is good, if they can support the extra drain on the cashflow an I.P will usually create.
They will need to get a ‘financial statement’ organised to take to the bank, and the bank will work out what they can afford to do.
For a start, they need to find the cheapest place to rent they can, clear all credit card and car loan (and whatever else) debt.
Then they must learn to pay CASH for all their consumer items.
That is THE hardest thing for most people in this consumer debt addicted society to do.
You may need to help them with their ‘financial statement’ as well before visiting any bank. If they can’t show the bank that they are in control of their finances (it sounds like they aren’t) then they will be hard pressed to find a bank which will let them take on more debt, even though it is the right kind.Cheers,
Marc.
[email protected]Originally posted by vyaw2003:Hello,
If a property is to be +CF i need to also think about rates, water, costs, rental fees. So if interest is 7% min, i need to be investing in something that returns around 10% to cover these extras.
On $100k does 10% sound resonable?
Apart from houses and appartments, has anyone found success in other forms of property? eg. shops, commercial sheds, ect.?[biggrin]Hi vyaw2003,
sorry to reply so long after your post, but I just found yours.
Positive cashFLOW means that your property is positive after tax returns are considered. It may be negatively cashflowed initially, but becomes positively cashflowed after you receive tour tax return.
Positive GEARING refers to the total rent being more than the total expenses. In this case you would have to pay tax on the profit.
A positively geared property is very hard to find right now.
A positively cashflowed property is easier to find, and almost always involves a property built after 1987 so you can claim building depreciation. The use of a quantity surveyor is also required here. They compile a ‘depreciation schedule’ which you then give to your accountant and he/she applies the depreciation to your taxable income. This can be significant and turn a negatively geared property into a positively cashflowed one.Cheers,
Marc.
[email protected]Originally posted by Ana:Hi,
We have recently purchased a house in one of those mining towns with a rental shortage. As there are no other rental properties available or advertised anywhere we are stumpted about trying to work out what rent we should ask for it.
To provide a bit more background, we live in a different state which makes it a bit harder and we don’t really want to ask the real estate agent, as we would prefer to stive higher and set the terms rather then just accept what someone tells us.
Does anyone have any ideas or suggestions?
Kind Regards,
Ana
A good rule of thumb is to find out what the average income is for that area, and then work out 30-35% of that figure. I think you could find it out on the Residex site under suburb profiles, or maybe the local council website.
35% of income is about the cut-off point for people’s affordability for housing costs i.e mortgage or rent. After that they struggle to make ends meet. You can safely ask up to 30% without imposing undue hardship on your tenants. If the average rent is much lower than this figure, then decide on a figure somewhere in between to be safe.
You want your tenants to be able to handle the rent payments easily.Cheers,
Marc.
[email protected]They are part of the expenses you incure in obtaining an income from your I.P’s.
It is a tool/expense you are using to help run your I.P business.
Speak to your accountant for further advice, but I am reasonably sure that any publication to do with your investing education; finance magazines, education books, internet subs (this forum may be a tool), etc. are claimable.
Keep all receipts of course.Cheers,
Marc.
[email protected]Originally posted by Mortgage Hunter:Originally posted by kjs:Shares – mmmmm. I must say that trying to pick growth stocks is a terrible gamble. A small window in my experience – 3 “growth” stocks that were showing a 98% loss in my commsec position statement a few weeks ago. Scary. I would challenge even the worst Sydney property story to show a 98% loss! I am talking about one stock being 10% owned by Gerry Harvey. Tell me he is not a person that would make you think that a company had a good prospect? One of the other stocks is 9.4% owned by Linfox share investment pl I went for growth stocks after seeing the blue chip performance where aristocrat went from $6 to less than $1. It is now over $15.
You can borrow against your good stocks to buy speculative, and you can have some luck, but overall, I think stocks are scary. My opinion only, and I acknowledge that while also acknowledging the stories of others.[worried]
kjs
Wow – that certainly hasn’t been the story in my portfolio. I am holding about 7 stocks and only one is lower than my purchase price and that is Telstra.
Your growth stocks must have been on the speculative end of the range.
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks for all the info Simon. I have just read all the posts since my last one. I was interested to hear that you don’t have a ‘ceiling’ figure on your stocks, but obviously you have found that to work well.
Cheers,
Marc.
[email protected]The local council should have a plan of the land with the relevent envelopes and setbacks for it. they may be able to email it to you as well.
Probably better to get that sorted out before getting too far down the track with the dream home design.Cheers,
Marc.
[email protected]Well done Ash75.
By the sounds of it you don’t need our help to find an agent anymore!
With the townhouses, it may be a start to look at the local papers, ‘The Age’ saturday r/e sections and maybe r/e.com.au to see who’s doing some aggressive marketing at the moment.
Selling off the plan may get a quicker sale if you need to.
I have an I.P in Mentone and when I was doing the d.d I found that the local builders/developers at the time were about 50/50 on selling off the plan or on completion. It was a rising market and some were waiting until completion to see what they could get for them. They were betting on the price going up even more I expect. That was 2001 though.
Have fun with it.Cheers,
Marc.
[email protected]It’s only sixty bucks and it’s tax deductible. Just buy it.
Cheers,
Marc.
[email protected]Originally posted by ttman:on yesterday’s Today Tonight program there was a story a landlady keeps a house full of junks and does not let the tenants end the lease early (and the tenants paying $300 pw), it’s not only dangerous but also a health hazard as there are cockroaches and mices. But neither the council nor the tenancy board can do a thing about it. It makes me think when a tenant requests a repair, if it is trivial can I deny the request. As I have this tenant in NZ requested repairs non stop since he moved in and it costs me a fortune every time. What repairs are required by law ? I understand in general a rental has to be kept in liveable conditon.
It’s a tough one; do you fix it and keep them happy, or ingore it when it is trivial?
My belief is to fix it and keep them happy – karma and all that. I think once you start to go down the path of delaying or ignoring even the trivial repairs it can cause resentment and escalate the problems.
If the property returns are good my view is just absorb it, pay the repair bill and move on, but if the property is negatively geared and costing a packet anyway this may be hard to take.
When the lease is up you can put up the rent significantly to cover the costs a bit, and he will accept it or force him out. It sounds like you could do without this tenant.Cheers,
Marc.
[email protected]Originally posted by lifeX:cant name banks, it is like swearing or kicking grannies when they fall over cracks in the pavement that they wrote a letter to council complaining 2 weeks ago.
Socially unacceptable, PC and all that jazz.
I spit at them, (although I will take their money)
Just call me reckless and politically incorrect – NAB, CBA, Westpac, ANZ, HSBC, MacQuarie.
There; I said it.Cheers,
Marc.
[email protected]Originally posted by stargazer:Hi all
Insofar as stamp duty and all the costs that come with real estate would investing into a very big property and sitting on it be more profitable than buying lots of small properties like units or villas and holding them.
Cheers
SGLife should NOT be a journey to the grave with the intention of arriving safely in an attractive and well preserved body, but rather to skid in sideways Beer in one hand – Pizza in the other, body thoroughly used up, totally worn out, and screaming WOO HOO!”
there is a website called stampoutstampduty.com.au wich will allow you to calculate stamp duty on any amount in every state. You can do a comparison between one bigger purchase and a few smaller ones.
Cheers,
Marc.
[email protected]Originally posted by ScottyTav:I have just been talking to a Finance Broker about buying our first unit. We are going to spend between $400-500,000. I said to him that we would go IO and he recommended against it. He said that he has had other people before me borrow $400,000 then 3 years later when they are still there they have to change to P & I and they are still at the start.
Notice I said “have to”. He told me that it is really hard to get an IO loan for long periods and you eventually have to go P&I. Is this true? I thought you could go IO as long as you want? I said I would rather have the $100 pw difference to put toward my next investment which he said is fine “short term” but lenders don’t like IO loans on your principal place of residence and eventually I will have trouble finding a lender.
Help!!!
First thing – $500k is a lot to tie up in one property where if the tenant leaves and you can’t find another quickly you are in a bit of trouble with repayments (unless your salary is a squillion).
You will get far better rent returns with 3 or 4 (or more?) properties totalling the same amount, and the risk is spread. It is very unlikely that you will have all properties vacant at the same time.
Second, we have a line of credit on our PPoR which is split into 2 sub-accounts. One is for personal use and has a small limit, the other is for investment and has a larger limit. It makes accounting easy too. We only pay interest on the funds we actually use and there is no time frame on it as far as repaying the loan. We have had it in place for several years now and it works great.Cheers,
Marc.
[email protected]Originally posted by crusher:Hi Pizang,
At the moment I am buying a brand new positively geared house close to Melbourne with a 2 year lease and 2x 1 year options to extend the lease. I am confident that this will do very well in the long term. I will be getting a 7.5% return + huge depreciation benefits.[biggrin]
Todd Burns
http://www.freepropertyhelp.com.auIs this one of those ‘packaged’ lease back properties through companies like Harvard Securities?
Cheers,
Marc.
[email protected]Originally posted by andy28:Those of you who get Foxtel in Australia will be familiar with the British TV show ‘Property Ladder’ http://www.channel4.com/4homes/ontv/property-ladder/index.html. In Property Ladder, the perennially pregnant host Sarah Beeny follows budding property developers through property flips involving various renovation types, offering advice and wisdom. The investors appearing on the show often do exceptionally well, selling on at enormous profits, despite initial foolish forays into not following Beeny’s advice.
One of Sarah Beeny’s mantras is to complete the home improvement and sell as quickly as possible (targeting the ‘young professional market’). Capital gain through appreciation over time is not desired, as subsequent purchase costs will also have risen. Beeny strongly prefers a ‘brand new’ appearance than one that is ‘lived in’ (i.e. currently tenanted).
The tax conditions in the UK seem to favour this business model. Can such a model be profitable in Australia given the high stamp duty, capital gains tax, and other costs?
Holding a property for 12 months to lower capital gains tax would reduce the turnover of property, increase costs, and tenants would ruin ‘the look’.
[chill]Unfortunately, quite often, especially in a flat/down market the increase in the value of the property is about the same as the reno costs. This strategy works well in an up market, but so does doing nothing to the property if it is the right one in the right area.
Let’s keep the right perspective about theses property shows; their job is to get ratings, and to do that they glamorise the process. If you’ve ever renovated a property you would know it’s not that glamorous.
Also, notice that these property shows forget to mention the NETT profit after ALL of the costs, taxes etc are considered. If they did this it would look far less glamorous, and for a lot of viewers too complicated to understand. The ratings would dive. Theses shows have a nack of making the reno/flipping experience look very easy and lots of fun. It is fun; it’s my favourite hobby, but not always easy.
Holding the property for 12 mths will lower the c.g tax, but the main factor to maximise returns with this strategy is buying an undervalued property needing some work in an area that is going up or about to. That is another boring factor the shows forget to mention – the weeks/months of d.d required to select the right area and property at the right price.Cheers,
Marc.
[email protected]Originally posted by penguinchick:Hi,
can somebody recommend good builder for two story duplex, please? I have final plans drawned by architect and will be ready for quotes soon.
Thanks.
Regards,
DanielaWe too are looking to build on a block we have when we get back from L.A. Before we left, my wife and I walked around our neighborhood looking at all the newer houses for some ideas. We knocked on doors and asked the owners about their houses; who was the builder, were they efficient, the quality, how much per sq/m and so on. They were all very obliging and people love to show off their new house to interested people. We have made a few new friends out of it as well.
I suggest you give it a try. This may solve your builder problem. It’s great fun and most people don’t mind if you approach them nicely.
Good luckCheers,
Marc.
[email protected]Originally posted by mihjakon:Hi when can we afford to buy our first rental property,I Michael am 40years old on a disability pension & Helen is a 35 mother of our 5 children 3 to 11years old.
Currently we owe $187,000 on our mortgage(house worth $280,000 to be a low guess)we also owe my parents $40,000 we pay off in there name.
We have a combined income of $40,500 plus I buy & sell anything which we live off comfortably(Great aussie battler)
We live in Hastings,Victoria,3915 in the best part of,We know in 2010 that the port of Hastings will begin plus it still seems to be going well here anyway,I would think if I keep renovating here slowly that in 5 years this property to be worth $500,000 approx with the port comming.
Any help appreciated.Hi mihjakon,
good to see you are having a go!
If you approach a bank to borrow money for an I.P, they will want to know a few things;
1. what is your current total household income (and recent proof via payslips/ group certificates/ pension statements).
2. what is your total debts/loans/credit cards still outstanding.
3. they will usually calculate your credit card payments on the CREDIT LIMIT of your card/s – not what you owe. So a good idea before you start is to try and reduce your available limits on your credit card/s if possible.
4. they will want to know what the rent return is – a good guide is the bank will add around 60-80% of the rent to your current income to work out your loan servicability. This varies from bank to bank, and you will need to ask what the bank’s policy is on this figure.
Generally, banks will only allow you to borrow up to about 35% of your TOTAL income for repayments on loans (before I.P income is added). Personally, I think anything over 30% is risking making it tough to make ends meet. Any existing loan repayments are factored into this amount.
Based on the figures you have provided, you may be close to that percentage already I’m afraid.
Your income would allow approx $14k per year in repayments (using 35% of your income). At 30% of income, you can repay approx $12k.
The outstanding balance on your own mortgage ($187k), using the current interest rates (say 7%) is $13,090 – and that’s interest only. You would want to factor in at least another 1.5% on the interest rate to cover any ‘surprises’.
Michael, this will put you over the 35% limit and I haven’t mentioned your repayments towards your parents’ home, or any credit cards or car loans yet.
Your equity in your house could be used towards the purchase, and the banks will generally let you use up to 80% of your house value, less any outstanding loans. This will vary from bank to bank. Based on your figures, you don’t have any available equity you could use towards the purchase – house value $280k,
80% = $224k. You owe $227k on your own house & parents house. (cc’s and car loans not included yet).
I think at this stage you need to clear the loan to the parents at least, before you can do something. It would also be adviseable to clear the cc’s and the car loans too. Sorry.Cheers,
Marc.
[email protected]Originally posted by emptypockets:I agree with most of the above points apart from dealing with an agent that is prepared to cut their own commission.
Give me an agent that is prepared to walk away from my listing rather than cut their fee. If they are going to give away their own money, what chance have they negotiating the best price of my greatest asset?
They do it all the time – it’s no different to asking for a discount off your car or plasma tv. I have even had agents tell me their commission rate, and before I open my mouth they cut the rate to make themselves look better. I have had agents TELL ME what to offer the Vendor to close the deal – below the asking price. Who were they working for?
They will of course try to get you the best price for your house within reason, but if the house doesn’t sell they starve. Where do you think the priority REALLY is?Cheers,
Marc.
[email protected]Originally posted by Dazzling:Originally posted by L.A Aussie:A couple of tips though;
1. get the property valued professionally by a valuer first (your bank can provide one) for a few hundred dollars- don’t use an appraisal by a r/e agent to assess the value. Don’t tell the agent what the valuation was. This way you will know what the property is really worth, and you won’t fall victim to the agents’ over-quoting games to get your listing. If the property is the right price it will sell very quickly.
2. don’t tell the agent your bottom line – they will tell the purchasers to offer that much just to get the sale through quicker. In fact, after the valuation; tell the agent not to contact you until the price you stipulate has been met. That way you won’t get ‘conditioning’ phone calls every few days to try to get you to drop the price.
3. tell the agent to pay for any advertising they want to do (they hate that). Basically, your potential purchasers are already out looking, so as long as the property is listed in the agent’s window and on the internet, the buyers will see it. Don’t get sucked into the big advertising campaign that the agent will try to sell you. It is amazing how many agents say “we have a list of potential buyers waiting” then try to get you to spend thousands on ads. what the?
4. if you like to have fun, tell the agent if they try to sell it below a certain figure their commission will be 1% (or none), and above a certain figure the commission will be 2.5%. Put this in the agent’s contract. Or, offer them $5k flat rate whatever the sale price. It is up to you and make sure it is written into the contract how you want.
5. tell the agent what price to list the property for – not a price ‘range’. for example; you want $250k, they may try to advertise it as “$220k plus”. the only offer you will get will be $220k or even worse; $200k by a hopeful investor like me!
If you leave it to them they may try to advertise it as a price well below what you want, which will only attract buyers who can’t afford the property. Then they will try to get you to ‘meet the market’ and drop the price.
6. last of all – give them only 30 or 45 days to sell it with an exclusive listing. They will hate this too and try to get a longer selling period. This will keep them working to sell it. A long selling period allows them to have the property listed with them for longer, and makes their ‘inventory’ look more impressive. But they will lose interest after a month or so if they can’t get you to drop your asking price, and may even use your property as a ‘bait and switch’ to sell another property.
You are probably thinking my opinion of agents is low? Correct! Some are good though, but you want to protect yourself.
For further info on how to handle agents, look up the Neil Jenman website. It is great, and so are his books. they will save you a lot of money.
good luck.Cheers,
Marc.Excellent advice – and if you follow any of these, or heaven forbid a combination or the full set of the above you can be absolutely guaranteed that the Principal of the Agency shall never agree to such slanted conditions on their “standard” listing contract.
Sounds great of course…..but as with all things in real life, to have an agreement usually takes two parties….not one party smugly dictating conditions and the other rolling over like some fluffy puppy dog.
Good luck anyway – have a crack at the “tips” as listed above and see how far you get.
I think I hit a nerve. You’re not an agent are you, Dazzling? If you are, and you’ve taken offense, then you must be one of the nice agents out there. Sorry.
I was an agent for a time. Still hold a licence. Couldn’t sleep at night.
Whether you believe it or not, this is how I always approach the selling process with a prospective agent, and of course, we always come to a mutual agreement, as they want to sell the house in order to get paid. It’s called negotiating.
They always try to snow people with the ‘standard’ listing contract, hoping people will blindly accept it and won’t try to negotiate the terms at all.
Naturally they don’t want to accept terms slanted in my favour – but is the ‘standard’ form slanted in the agents’ favour? Of course it is.
I just try to make the playing field slant my way a little. After all, I am ultimately paying them for the tiny amount of work they do.
You may think I’m smug, but I’ve been burned as have many others; none of us asked to be. If all agents were obliging, honest and caring we wouldn’t be having this conversation.Cheers,
Marc.
[email protected]
