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What's NLP?
AdoubleU wrote:Thanks for your response.Well you didn't just give me a flat out NO CHANCE! lol … thats a start
Yes, the property is intended to be an investment property.
I was thinking, would it be a better idea if I partner up with somebody? To gain access to another income or even equity in an existing property to use as a deposit. Servicing the mortgage would be split in 2 as well as the cost, fees etc. and of course any profits realized either through cap gains or cash flow?
Otherwise I'm goin gto have to be patient and pay off my debt before I get started… how boring!
cheers
Being patient, paying off personal debt IS boring I agree.
That's why most of the western world never do it and never get rich.
If you've just joined the workforce and are still renting, I assume you haven't got much of a deposit together yet?
If this is the case, I'd suggest that while you are saving, keep reading lots of books etc, there are a few posts on this forum about which ones to read. Use the search button in the top right hand corner.
But back to the finances; it's not much point looking at values, and areas, until you establish what your borrowing capabilities are, and you have a deposit saved. There is also the FHOG, but there are restrictions on using it for investment properties.
Also, with your first effort, especially if it an IP, you don't want to go too mad. You can buy plenty of places for around $200k which will be a fairly safe start, and go from there.
Spending $600k on one property is not necessary in the beginning. That's a lot of deposit required and big repayments if you have vacancies. You would be better off to buy 3 x $200k, or 2 x $300k properties; same returns or better, and spread the risk a bit more.
When you are ready to buy, and you know your budget etc, then pick an area that you think is affordable for you, will show signs of good cap growth, hopefully a decent rent return to help with the cashflow, and research the hell out of it to find the good value, the best positions, what the rental demand is like, what types of properties are in demand there etc.
Do your own research on prices of comparable existing properties on the open market before signing anything with any company like this.
Sounds like a classic two-tier marketing scam to me. Why is a CANBERRA buyer's agent flogging you an apartment in QUEENSLAND?
There's no way in the world it would be cashflow positive.
Assuming the absolute best case scenario of $1100 per week.
The fees associated with these types of investments are often around 50% of the rent. So, the absolute best you'll get will be around $550 per week nett.
If you borrowed the entire amount plus purchase costs which is normally around 5% of purchase price, your finance will be around $441k. Let's call it $440k.
At 8% interest only, that's around $676 per week.
So, your best case scenario for out of pocket cash to cover expenses is going to be around $126 per week – or more.
Never buy on opinion; especially an agent. They are there to sell. So what if she has bought one herself; does that make it a good investment?
Do your own research and find out the facts.
For a start, get the sale rices of the apartments sold in that complex in the last 3 months, and for at least 3 other complexes in the immediate area of similar design, size and age.
Get a list of ALL the outgoings for each Landlord for the complex, and don't forget that you will need insurance as well, and Landlord's insurance probably.
Also; check the size of the apartment; if it's less than 50 sq/m, you will have lots of trouble getting finance for it.
Absolutely.
Vendors often think their property is worth more than it is, and get annoyed if people offer low.
But if you can provide proof that it is only worth $x. then they hopefully will be sensible and negotiate.
If it a 5 x 5 x 5 lease arrangement, it sounds like it could be a serviced apartment that is managed by a company who manages the whole complex ?
If so; be very careful.
A few things to consider:
1. if it is under 50 sq/m in size, lenders are reluctant to provide finance, or they will lend you much less, meaning you will need a bigger deposit; maybe 40%.
2. if the returns are bad due to poor management or whatever, it may be hard to sell.
3. often there is limited cap growth.
4. little control over any aspect of the investment.No offence to Jon, but you'll never hear an agent say they aren't worth the money they are paid.
Anyone with some marketing skills and training (not me) could do a better job than most agencies, and if the project is of the size you are describing, then it would be worth it to employ someone who is a professional; especially if you are considering advertising overseas.
Agents are not marketing gurus. I used to be one for a time. They are basically salespeople. The best ones are good negotiators, but are they worth twice the going rate to make a sale? No.
If your property is advertised at the correct price from day one, it will sell quickly, with or without a massive ad campaign, or the better agent.
The buyers are already out and about, looking in the agent's window, on the internet, driving around the area looking at signs on front fences, looking in the papers.
Save the money and sell it at the right price from the beginning with a few well-placed and inexpensive ads.
Agents are simply the place people go to to buy property because they are the only industry that facilitates the sale.
Like going to Bunnings to buy a hammer. But Bunnings employ professional marketing consultants.
Just employ the agent (you already have one as your partner) to handle enquiries and inspections, and Sale Contracts etc.
If you must employ an outside agent to handle the sales, then so be it, but 4.5% is a total joke.
You'll get someone for around 2% soon enough, and they will do just as good (or bad) a job as someone who is stiffing you for 4.5%.
Well said G.O.C,
But I think you're wasting your time;
We haven't heard from Pete for a while now; I think he has folded up the tent.
Good story about your Son though!
One thing; if he has committed to this caper, then get in touch with a good property savvy Mortgage Broker (there are a few on this site) to check his Loan structure to make sure it is set up correctly for the future. Get a few second opinions too.
You need to work out TO THE CENT what your budget for living expenses is per month.
Every expense, spending money, pertol, insurances, curent loans, credit card balances; the lot.
After you've worked out what you can live on after tax, then you will have a figure left over for the mortgage.
Don't forget to include all the loans into that figure.
In my opinion, if your income is $60k, you wouldn't want to go much over 35% of your income for all loan payments, otherwise you will have no lifestyle.
Have a look at this site:
I would have thought that a project like yours would be an absolute rubbing the hands together deal for the agents; they get instant listing for 61 properties. How good is that?
With that in mind, I would expect that they would be sharpening their commission pencil to get it.
Name your own figure. Someone will accept for sure.
Or, do the r/e stuff yourself through your colleague, and what you will save on agent's commissions you can put towards more and better marketing.
At the end of the day, the buyers don't care who the agent is that's selling the development; so why bother with a "high profile" agency. They aren't necessarily better for a start, and all you want is exposure to the market. You can do that yourself.
If you want to do renos then you need to get rid of them, so as Terry says; buy with vacant possession, and with luck, you may be able to time your settlement for when the tenants have left (longer settlement).
F;
I think you've been hangin' out over at GHPC too long.
Great theories and graphs and academic guff, but at the end of the day, property has averaged between 7 and 10% growth per year for a very long time; world wars, depressions, recessions, bombings and interest rate spikes nothwithstanding.
And, as this is an AVERAGE, it therefore means that some properties must have performed well above the average at some point in time. Obviously some performed well below.
This can be attributed to poor position, design, quality, demand, and maybe the economic climate had an influence on those properties during these periods as well. In bad times the better properties will still be in demand for shelter.
As an investor with knowledge, we can identify these attributes or factors and and avoid them and buy well. This makes our returns at least the average in the long term.
Does this all mean that, based on your theories, the next 10 years will bad for property?
No it won't; only for certain properties, and if bought by the uneducated with the wrong set of circumstances, such as paid too much, and at the top of the cycle, with too much leverage and poor cashflow.
For others; it will be a great time to buy. Just like it was 30 years ago, or 50.
I think what you are planning to do borders on tax evasion; illegal.
As far as I know, you can't rent your IP to yourself and claim the deductions on it.
Otherwise everyone would be declaring their PPoR an IP and pay "rent" back to themselves and get the deductions. I'm sure the ATO would close up that loophole quick smart.
Also, you can't claim the reno costs on your IP while you are living there and renovating, unless it has been advertised for rent while you are there. But again; this is treading on dangerous ground; the ATO may not allow the deductions as you are living in it at the time.
There are certain ways you can do it where you own a company, run a business. You then buy property and rent the property to the company to conduct its business. Talk to your accountant about that one.
If you are earning a taxable income, it would probably work out better for you to declare the rental income from your PPoR as you can also deduct the costs to hold your PPoR from your taxable income. You can do this for up to 6 years before you are liable for any cap gains tax on the PPoR should you decide to sell it. Again; talk to the accountant.
You pay CGT on the sale price of the IP, minus the purchase price.
Any depreciation gets added back onto the gain, and then the tax is worked out at 50% of the gain, at your marginal rate of tax.
So, you paid $255k, it's now worth $380k; you're up for tax on a gain of $125k, plus any depreciation; say it's $10k.
You will pay tax on 50% of $135k at your marginal rate of tax. Say you pay 40% tax; you will pay 40% tax on $62.5k.
$62.5k x 40% = $25k.
Of course; you will need to tlk to your accountant about this situation so that he/she can work out a way to minimise your tax.
If you sell your IP you will have a good deal of cash as a deposit for the new PPoR, but…
Financially, it is better to keep the IP, and keep renting the place in Sydney, unless the deposit on the new PPoR after you sell the IP will give you repayments that are less than the rent you are currently paying.
Problem is, most people want to buy and live in their own place, so there is a strong emotional factor in all this.
You are not going to find a decent rent return in any cap city at the moment due to the recent booms.
Elwood is a high demand area, and the cap growth is generally good, but you won't find anything underpirced there.
What/where are you comparing the prices to?
As Lalibella says RRRRRUUUUUUUNNNNN!!!!!
As Neil Jenman says: "DO NOT SIGN ANYTHING".
You are about to buy your first IP, spend a half a million dollars and you don't have any knowldege of the area where the property is, the local rent returns, the values of the properties, the rental demand etc.
On top of all that, you are going to be seriously out of pocket in cashflow every month on an average income. The rent return they are predicitng is around 5%; you can do better than that and spend way less for the property anywhere, so give these sharks a big miss.
Send a copy of both our responses by email to the "financial advisor" (who is just a salesperson for the developer) today, with a note saying : "THANKS, BUT NO THANKS".
The LOC idea is not a bad one; many of us here do it, but you can set that up with any Mortgage Broker (there are a few good ones here on the forum),.
And you can find a better deal on your own anywhere.
Serviced apartments are something to look into VERY carefully.
The thing that always sends up alalrm bells for me with an investment offered and marketed to the public, and with rent returns as well, makes me think; "who is paying for all the advertising and the rent return?".
It sure isn't the developers. They're there to make money.No; it's YOU usually.
So this means that the cost of the ads and the rent return is most likely built into the price of the apartment and is over the market. How much by? Especially if it a 10% return on the rent; that's fantastic in today's rental climates, where in most cap cities the rent returns are less than 5%.I would be researching the selling price of similar existing apartments in the immediate area first (at least 3 years old, and sold in the last 3 months). What are they selling for, and what are the rent returns for similar serviced apartments?
The other concern is the size of the unit, and it's use. Banks wil generally not lend on apartments smaller than 50sq/m, and if it's use is for serviced apartments, which is more specialised, you may struggle to get any finance, or if you do, you will possibly pay a premium for it in the form of higher interest rates, loan mortgage insurance, a lower LVR, or all 3. That will eat into your nett profits.
Also, the holding costs for these apartments can be high; on-site manager, lifts, pool, gym, room service, body corp, maintenance etc.
Lastly; make sure of who you are buying the apartment from. You don't want to be buying the apartment from a management group (Azimuth cloud be just a management company), as it may be just a shelf company, that is run by who knows, who is buying it from another enitiy and trying to on-sell it to you efore their settlement, and could at anytime go broke and leave you with nothing.
Check out the entire list of outgoings for the building. It may surprise you.
Your place is worth $330k, and you owe $70k.
In normal circumstances, Banks will allow you to use 80% of the value of your property ($264k).
You still owe $70k so the USEABLE equity you have is $194k.
If you buy the sister's property, the Banks will lend you 80% ($344k) and you can put in the rest plus purchase costs. This is usually around the 5% of purchase price so you would need to come up with $107,500 approx.
So, you would have enough equity to cover the deposit and costs.
The big question is SERVICABILITY of the loans.
If you keep both properties you can rent out the current one and live in the sister's house, and rent the granny flat to your dad, and neg gear it, but there wouldn't be a lot of tax deductions on the granny flat.
You would actually be better to live in the granny flat with your dad (could be crowded and difficult) and rent out the two houses, which will have significantly more rent and tax deductions.
Or even buy the sister's house, rent out both it and the granny flat, as well as your townhouse, and rent somewhere else with your dad so you can be with him. You would get more rent for the house and the granny flat this way.
You will need to talk to a good Mortgage Broker (there are a few on this forum who will come forward for sure) to assess your borrowing capabilities etc.
It may be that you might have to sell the town house and buy the sister's house to do this.
