Forum Replies Created
Thanks so much for all your advice everyone. Obviously I need to think/talk many things through with other partner-to-bes (how to value each partners input is always going to be the most difficult and subjective), but the multilayered structured seems the best if we do go forward.
Thanks again,
Luci
Any exisitning house in my area (inner west Sydney) is likely to have a report of some previous termite damage. As yours is old damage, then you don’t have to worry about termites, just checking for damage.
It’s true that this is an unknown factor, and can potentially become blown out to huge expense – but seeing as termites have some clear behaviour patterns then you can lower the risk by ‘following the water’. If you thoroughly check areas that are damp (bathroom, under the house, any area that you notice gathers runoff) and they aren’t too bad then you’re probably safe.
We had a property that we bought with inactive termite damage. It was a victorian terrace, and there was more damage done by damp leaking in in certain areas than by termites.
During renovations we had to dig a trench down the side path to put in new stormwater drain, and during that process it created waterflow against one wall and under the house… giving termites a perfect ‘in’. We soon after found some live ones in this section of the (already rotten) windowframe.
We sealed up the access point, finished the drainwork, and brought in the spray guys. They dug small trenches under the house around the brickwork for the spray to soak into, and doused the ground and woodwork under the house. You’re meant to spray every year as a preventative, and it would be smart to do this in many areas even if your house has never had termite problems. (Though new houses often employ other termite resistent methods in construction, such as ‘caps’ on the brickwork, that reduce the need to spray).
Living in a fairly dense urban area, we have no idea whose house had the termite nest as it could be several streets over. So much of Australia has been affected by termites at one point or another that, if there is no significant damage evident when you check key ‘damp’ areas, it would be silly to not buy simply because of this.
Once you’ve bought, make sure you termite proof the property as much as possible, and check regularly for signs of infestation. This might cost a couple grand but is rather insignificant when you consider the average cost of property (upwards of $500,000 where I live).
However, use it to your advantage – try and negotiate a lower sale price using the termite damage as reason. Get a quote on the cost of replacing the skirting and wardrobes, and include it when you request a house price reduction.
Good luck.
I’d suggest you download council development requirements from your council’s website and go through it before talking to them. Anything you don’t understand in the document, or that specifies something different to what you want, ask about.
A few things to check: how long it usually takes to receive development approval if all goes okay; how much distance must be left between new structures and your neighbours border/buildings; regulations on shadow lines; building footprint to undeveloped land ratio; etc.
Does QLD have different tenancy norms from NSW? In NSW the tenants would be paying for electricity and gas, not the landlord. If you are paying these, then you should be folding the costs into their rent.
I haven’t bought in Perth, but just a quick comment on expected cycle.
Sydney led the field with the hot property growth, which then started affecting other areas of Australia, first the Sydney spill and then other capital cities, and then other capital city spillover areas…
Then Sydney growth dropped and has had a couple of dud years… which was followed in the Sydney hinterland, then some of the other capital cities and their hinterlands…and so on.
It is generally expected that it is all the one cycle, just hitting different parts of the country in a domino affect. You may find that the Perth market is about to run out of steam as it follows the cycle set by most of the other country. If this is the case, you can expect to lose money if you purchase on the assumption that the capital growth will catch up with your overspending to get into the market. It will then take several years for the market to pick up again.
Sydney is now beginning to recover growth slowly (starting in the more desirable suburbs) which is expected to fan out… etc etc
Having bought a property at the peak of the Sydney heat, I have to say I am glad I had the sense at the time to only pay what I believed a property was worth, ignoring others who outbid me on property after property. Many of those people are now sitting on properties worth less than what they paid, as they all bought with the notion that “with this growth rate, capital value will have increased the property by $100,000 within a year, so I may as well pay extra to secure the property”.
Look hard for the property that won’t lose you money if capital growth stalls for a couple years. It’s only sheep who are led to the slaughter.
If you do decide to make an offer – in addition to others advice of including a clause about passing the building and pest inspection – offer a lowball initial figure. The worst they can do is say ‘no’, in which case you can increase the offer. On the otherhand, they may accept a lower price.
Do a google search on the property address to see if any info comes up – such as past asking prices, or how long it’s been on the market.
There are a number of property info services that can give you the recent sales history of a property or suburb for a reasonable range of prices (though this won’t be of as much use if the house has not been bought/sold in recent years).
http://www.residex.com.au
http://www.propertyvalue.com.au
http://www.homepriceguide.com.au
http://www.rpdata.com.auYou can also get some sales and valuation information from the State Valuer General – also for a range of prices. But be aware, that the valuations are generally on unimproved land, the amount on which people are charged their land tax/rates, and doesn’t necessarily reflect market values.
http://www.nrm.qld.gov.au
http://www.dli.wa.gov.au
http://www.lands.nsw.gov.au
http://www.allhomes.com.au (ACT)It would be unwise to purchase without a building/pest inspection if it looks like it needs work (as there will be more to do than your eye will pick up on). Fixing up a place can be very expensive – especially putting on a new roof – but will be necessary if you own it.
While it may currently be tenanted (in a ‘livable’ condition) the property will continue to deteriorate if it isn’t fixed. You can’t live in the house if it gets a leaky roof, if support structures are destabilised by white ant, if the hot water system doesn’t work , if the plumbing is shot… and a house is a long term investment. You could end up paying many times its asking price in fixing it up.
Have you checked out council and water rates for the area? There are many expenses associated with owning a home that as a tenant you will not have had to pay before. Make sure you go over all expenses associated with buying and owning a home (taxes, duties, interest rates, etc).
Have you checked with the agent whether the tenant is on a lease? If there is already a contract in place you may not be able to move in as planned.
On a personal note, I wouldn’t purchase a home without knowing the area. You may find that you hate the rural town in which the house is located, and you will be far away from family and friends. The long distance will make it difficult to visit anyone, and some small towns are very clique – you’re either a local or an outsider, and it can be a very isolating experience. Only visiting the town will give you a sense of what it is like – whether people greet you in the street or treat you with suspicion.
$10 per week cash flow positive might not seem like a lot of money (aprox $520 per year), but when you buy multiple properties, and overtime rental income goes up while your outgoings remain static, then it generates exponentially increasing cash flow. On top of this, most property over a reasonable period of time will go up in capital value.
Compare this to negative cash flow propety, where you are constantly paying out more money (hindering your ability to purchase more property than your job income can sustain) based soley on the expectation of capital growth.
Obviously cf+ property is more sustainable.
You can also artificially increase cf on a property through creative means – usually methods that also increase the capital value. For example, will your tenant agree to a rental rise if you provide a white goods package for them? If you furnish the property? If you allow pets? If you provide a gardner to mow the lawn on a regular basis? Put in another car space? Find out what they want from a property, and see if you can provide it for a win win situation.
Luke,
Your topic “Buying off the plan: general info” suggests a fair discussion on buying off the plan.
But your response to the potential concerns (that I posted to even out the biased ‘benfits’ listed on your link) would indicate that this thread is actually not an invitation for a fair and balanced discussion but simply an opportunity for you to spruik PLP property.
None of my off-the-plan concerns were directed specifically at PLP – though I do find some of the info on the link dubious (most specifically the lifestyle arguements for purchasing holiday letting, as if it is legitimate to purchase an IP for personal use).
The issues I raised are common pitfalls amongst unwitting off-the-plan investors, and therefor they ought to be mentioned as potential threats if we are to have a thread on off-the-plan purchasing.
There are many off-the-plan developers who use agressive marketing techniques to target investors and make it look like their development is of top quality and will gain good returns. These developments occur all around Australia, including the Gold Coast. Many off them are complete rip-offs.
And I know this not just from a few ‘horror’ stories, but because as an investor it is not unusual to look at planned developments in an area before they are built (and hear the marketing spiel) only to return a couple years later and see that the brand new property already has design and building flaws, too many units are trying to sell or sitting untennanted, and the prices have come down. Depreciation schedules that are released with the marketing info are iffy because they list tax deductions as if they were a source of income – which is very confusing to the average punter who would not realise that the depreciation is only gained at tax time and only fully if they have an income in the highest tax bracket.
Originally posted by plproperty:I say be wary of spotters. A licenced real estate agent should be well trained and is bound by law to provide a fair professional service.
Real estate agents represent vendors, not buyers. They are salespeople and have a duty to try and sell the property on their list – which may not necessarily be the best property for you.
Certainly let them know what you are looking for, and ask them to let you know if something appropriate comes up, but do your own research and don’t take their word at face value.
I haven’t looked into commercial realestate – residential is obviously a more familiar option and therefor more comfortable. Couple of specifically commercial property sites you can check out (haven’t explored them extensively, so not sure which are best)…
http://www.commercialrealestate.com.au
http://www.propertylook.com.au
http://www.commercialpriceguide.com.auA google search can turn up all kinds of things you never expected, both good and bad.
One thing I’ve found (usually through google) is if there is a business/development related site for the area. This is mostly for outside the state capitals, where smaller cities or areas are trying to attract business.
Depending on which suburb, there may be a tourism related site that can give you a little info. Obviously this will be biased towards a good image, and mostly talking about beautiful beaches etc, but sometimes there are a few good figures you haven’t seen elsewhere.
You can also try searching this forum for the suburb, and see what previous people have had to say about it.
Don’t go before 11am for your suburb inspection. Anyone or thing that may be a problem will still be in bed.I remember the most disturbing Auction, taking place at the residence at midday, with a problem neighbour. Auctioneers are well known for having their voice carry, and within a couple minutes an irrate voice could be heard “Shut the f#%* up!”. A guy emerged on the balcony opposite the house and proceeded to shout at the auctioneer and crowd, yelling threats to try and make the auctioneer stop. The auctioneer continued with the auction, as is his job, and the man stormed out of the house, over to the auctioneer and threw a glass of water over him! I seriously thought he was going to get violent, but perhaps the large crowd put him off doing anything more than yelling viscious and rude threats.
Not a neighbour many people would want.
Usually you would only buy an option if you expected the property price to go up substantially before settelement – so you could sell for a profit.
This might occur in a very hot market, or if you negotiated early access to the property and did it up before onselling the option.
Because there are many expenses with buying and selling (even an option costs money), you would want to ensure that you would gain a healthy profit in this short amount of time – for if you don’t find a buyer who is willing to settle on exactly the same date then you are stuck with buying the property yourself or forgoing your deposit. It’s a high risk strategy.
Aside from the mortgage info the others have suggested…
Work some figures out on paper, and see if costs associated with selling Perth property and purchasing new IP will add up to greater expense than tax benefits.
In all fairness, you should add a list of the potential concerns of buying off the plan…
*Property overpriced in the belief that property values will have increased by the time settlement comes round.
*Property usually cash flow negative.
*The depreciation schedule flashed round by the developer is only of full benefit to those who earn in the highest income bracket.
*Rental guarentee gives a false idea of rental yields, but once the guarentee is over it is impossible to gain such a yield.
*Developer/property manager/builder can go bust leaving investor with a defective property and no way to recoop money.
*Difficult to sell property when new, as there are several hundred identical properties in the block also for sale. This can also bring prices down, resulting in capital loss rather than appreciation.
*Holiday let investments gain greater wear and tear, don’t provide a regular income, and are often empty half the year. However, they will probably be in demand at the times in which you and your family might feel inclined to use it so don’t count on ‘enjoying the lifestyle’ as argued by Pacific Lifestyle Property.
Buying off the plan was a great investment opportunity until both the market slowed (giving less capital growth) and property developers caught on to investors and inflated their selling prices as well as deciding to spend heaps on aggressive marketing.
There are still some good deals off-the-plan, but investors need to research current market prices, the developer, the property managment company, the builder, rental potential, etc thoroughly to ensure they are not ripped off. Under no circumstance should one believe the brochures, websites, or salespeople.
Australian Property Investor publishes data from both Residex and Australian Property Monitors (this is written alongside the tables in the magazine). They both offer data on a user-pays system.
Different states have government websites that give some data on the property in their state.
One such site for NSW is http://www.housing.nsw.gov.au
Auction clearance rates are regularly published in major newspapers – though only a minority of properties sell at auction.
I would ask the vendor/vendor’s agent to show you the rental history case file. This should give you comprehensive information on all tenant dealings, including damage claims, complaints, tenant turn over, late payments etc.
Check the contracts held with the tenants to see how much longer they are valid for, and under what conditions. This will let you know how long you can definitely expect to continue receiving the current rental return, as well as any liabilities you as owner may be under if damage is done to the property.
You could also ring an insurance agency and ask for a quote – they should be able to tell you whether they would or wouldn’t insure that area.
It’s a small town where about a third of the population is aboriginal. There are a lot of problems with alcohol & drugs and so an abonormally high level of physical abuse, car theft, and all the stuff that goes along with it.Has the property had previous damage, or are you jumping to conclusions based on your perception of what the area is like?
My PPOR is in an area deemed by insurance agencies as being ‘high risk’, yet I have never had any problems in living here for 5 years. I do pay a higher insurance premium, but it is a popular place to live and doesn’t worry anyone. Businesses don’t seem to have any problem either.
You might want to mention where the property is.
Ask to see the tenant’s rental file and find out how much longer they will be on the lease and under what conditions – as well as if there are any non-payment or property damage issues.
Do get a building and pest inspection to make sure the property isn’t on it’s last legs and due for an expensive overhaul (or put a clause in the contract to that effect).
With the warnings aside – congrats on finding a great deal. They are out there.
If you have also lost money on the IP capital value, then I don’t believe there would be any tax on it either if you choose to sell (double check with an accountant).
Seeing there are always both buying and selling costs associated with property, I would do some research before rushing to sell.
Is is likly that your IP will continue to cost you money? Would it be more financially beneficial to move into your IP and rent out your PPOR? Can you increase the returns on your IP by getting creative?
It is generally smarter to leverage from your existing properties to purchase new IPs, as paper value can be worth more than after-cost liquidation.
I.e. on paper you might have a property worth $400k, but if you try to sell it in a slow market (especially an off the plan apartment that has several hundred identical units in the block as competition) you may only get $380k and then you need to pay the agent’s commisson, legal fees, etc leaving you with maybe $360k. If your mortgage is greater than this then suddenly you have no property but plenty of (non tax deductible) debt.
Didn’t the wrapee have a solicitor look over the contract and make sure it was legit? He certainly should now – under what circumstances could someone charge $3k up front for a standard rental agreement?! If he can’t fight under the fair trade practices act, then he should at least be able to use the tenancy tribunal to get some of his money back.
If you were wanting to approach him with a wrap agreement, I would ask to have a meeting with him and his solicitor so that you could go through the proposed wrap agreement and show how he is protected. This way you could prove that no matter how burnt he got from this other group of people, you are offering a legit and legal deal that will be of benefit to him.
