Forum Replies Created
Buyer’s agents are generally used by home buyers rather than investors.
Serious investors do their own research and wouldn’t leave this up to someone else (JVs aside) for fear of error.
In the home buyer market you have specific needs in a home (eg. 5 bedrooms, pool, dlug, contemporary deslowign etc) so things like Capital Growth and Cash F are non-issues. The BA either finds a place that looks/feels right, or they don’t.
For investment purposes, you would have to trust that they have done their due diligence properly. If they haven’t, you stand to lose a lot of money.
Some investors with money/income but not time will opt to Joint Venture with someone who takes on the research role. The partner only stands to gain if the investment does well.
There is also something called Bird-Dogging (I only heard this term on this forum) which may be considered a form of Buyer’s Agent. They are investors who have come upon a deal that for one reason or another they cannot act on, and they offer the details of the deal to another investor for a price. You would expect a proper due diligence report from them outlining the investment property and why it is a goer. You can also recruit one of these people to look specifically for something for you – but keep in mind that they will only pass on a deal that they themselves can’t make use of.
Your message is a little confusing (why are you mentioning *his* debt levels and interest rates?), so I hope my partial response is not off track.
I would try and bargain down the price if he is as eager to sell as he sounds. Equally, I don’t know where you are buying, but a good proportion of the country has had very little capital growth over the past year, so for him to be asking for about 10%-12% increase on the property price from a year ago sounds a bit rich. You obviously know the area and are in a better position to decide this.
You should talk to a solicitor about what clauses you need in the contract if the vendor is going to rent back the the property from you – usually there is a 30 day settlement period anyway, so it would only be one month rent. This is in their benefit rather than yours (unless they sign a longer lease agreement), so you should use it as a bargaining chip to lower the property cost price.
As for the rest of the question, I am a bit confused about what exactly you are asking.
No one can tell you the *best* postcode to buy in, as we all have our different strategies and comfort/risk levels.
First you need to work out what exactly you are looking for in an investment property. eg.
Cashflow positive?
Capital growth?
Something you can do a quick reno on?
Something you can develop?
Long term, short term, or hold indefinitely?
JV or by yourself?
Using the bank’s money or your own?
Pay off debt quickly, or leverage against equity?There are large costs associated with buying and selling property, so if you are considering a short-term plan then you need to buy somewhere with good capital growth and/or something that you can ‘do up’ – otherwise you will lose any profit simply in taxes/expenses. Generally the higher CG areas have low rental yields, which means that you will have to put money in on a regular basis until you sell.
On the otherhand, you may be more interested in a slow growth area that has good positive cash flow so your day-to-day property expenses are covered. It can keep ticking even if you lose your job etc.
Major cities generally offer blue-chip CG, but have an expensive entry point and low rental yields. Rural areas (such as Broken Hill) often offer low entry price point and CF+, but low CG and greater risk of collapse.
Only you can decide which strategy is right for you.
There is plenty of data available to point you to areas that satisfy different strategies. Australian Property Investor magazine, for example, regularly publishes stats from Residex and Australian Property Monitors that list suburb by suburb capital growth, rental yields, the ‘cheapest’ suburbs’ etc etc. They also spotlight different areas and discuss the pros and cons of that area. I would recommend subscribing, and also buy the last three or four back issues.
Once you have decided upon the strategy most relevant to you, this information is a great (and easy) starting point to highlight areas that are most relevant. Then you need to do your indepth research on the shortlist to work out the most appropriate suburb/town for you, and the best areas within the town, etc etc.
Dianne,
You might want to include some more info about what you’re looking for in a JV partner, and what is in it for them.
Eg.
How much $ is the property?
What is the expected ROI, rental yield, etc?
Are you planning on developing the sub division or sell off?
Is this a long term JV or a quick turnover?
Do you want $ from the JV partner (how much?) or are you looking for someone with building/development experience?It really does depend on where you live and your investment strategy.
Most people buy in the area they live because they feel more emotionally secure that they ‘know’ the area, and it is a good area (beacause they like living there).
Benefits include better local knowledge, easier to monitor the market, manage the properties, cheaper to oversee renovations etc.
Downside is if you let your emotions get in the way of better investing. We naturally wear rose tinted glasses when looking round our home area, because it is the place we call home.
In the past I have bought in my local area because it has sound capital growth with a vibrant cafe/entertainment (re ‘trendy’) culture. Many of the reasons I chose to invest there were the same as why I live here…
But, looking round the country, I realise there are a lot of better investment opportunites further afield. While my properties have brought capital growth, they are negative cash flow and will be for many years (therefor limiting my portfolio expansion).
Additionally, investing in NSW I am lugged not only with the regular government taxes, but if I ever need to sell I will additionally have to pay a 2.5% vendor’s tax. Considering that the median property value in my investment area is over $600,000, it would be stupid to continue investing in this area.
While there will be some additional management/reno expenses from investing in other states away from where I live, I think the benefits of better cf, lower property prices, and fewer taxes outweigh this.
If you were using it as PPOR for part of the financial year, you need to deduct expenses during this time from the full year’s expenses (as non-deductible) while remaining expenses as IP are deductible.
Certainly envious that there are such great websites for areas that I’m not interested in investing in!
One more Australian paying service is Residex http://www.residex.com.au , they have a range of reports (costing different amounts) rather than an online search function.
Originally posted by viralk:Problem 1
No builders would give be the estimates without I have plan ready. I have approach surveyors etc, they said it will cost me about $4000 because we need to do the soil test etc….DO I HAVE TO DO PAY FOR THIS TO GET THE BUILDING COST?Yes and no. It depends on how accurate you want your costings to be. If you don’t get the pro’s to check out the piece of land properly, you may find that the units you have designed are not suited to the piece of land for structural or environmental reasons.
So you can get an estimate from a builder by explaining what you have in mind, but it will not be a proper quote (which is their official offer, that is a legal document if you go ahead with their service).
Equally, you need to discuss fittings and materials with the builders so they can be specific with their quote. Saying ‘x many lights’ is not the same as saying ‘x many Brand B, Model C lights” as there are huge differences in costs by brand and model. And depending on the structural implications of the ground, you may be required to use a specific material for footings that is more costly than other options.
As for unit price – tricky one. Are there any nearby towns that have units? Perhaps if you compare the % price of an x bedroom unit to the x bedroom houses in nearby towns, and then apply the same ratio to your own town it will work?
So if in a nearby town a 2 bedroom unit costs $60,000 vs 2 bedroom houses that cost $120,000 that’s a ratio of 50%. If in your own town 2 bedroom houses cost $140,000, then price your units at $70,000.
This is just an idea – I have never tried it. And the end of the day it will only ever be worth as much as people are willing to pay.
Hey Nothings Impossible,
Good on you for thinking so positive when you’re in such a difficult life situation.
Do you know anyone who might be interested in partnering up with you? If they have an income that will gain the bank’s thumbs up, and you do all the hard yards of finding a property, you have a perfect match. (However, this will make you ineligable for the FHOG if you purchase as an investment… unless your partner is okay with you both living in it for a time while it gains equity).
The other option is to look for the cheapest housing in Australia that might be more affordable for you (whereby you can put down a large deposit, reducing the risk to the banks). For example, you can buy a $30,000 house in Broken Hill. Rental returns are meant to be quite good, so it should even be cf+…
Though this is a bit of a drag if you want to use FHOG and you have to relocate there… and capital growth is likely to be crap as it has a declining population.
It is an option, however, that might help you get one foot in the door. My advice would be to look for a partner and/or look for inexpensive cf+ housing (most likely in rural areas).
And of course, if you are able to gain a new income stream (rather than the disability pension) in any way possible, this would seriously help your situation (without knowing anything of your disability it’s a bit hard to make appropriate suggestions in this regard).
Oh – third option is if you have a parent/friend who is willing to go guarentor on your loan. If you can prove to them that you are capable of servicing the debt (including if interest rates rise, etc), and they are in a financially stable position then the bank will base the loan on their income/equity rather than yours. (Do be aware that this is a big ask of someone, as they are risking their home/money to your benefit).
Forgive me if I’m wrong (I only deal in single residences), but I thought Town Planners were hired by the council, and you as an individual don’t have a choice as to which one you deal with?
Hey Bradles C,
If I were to invest *your* $420,000, I’d invest it in my back pocket…
Personally, I’d look for an area that you’re more likely to get a good rental yield. This makes the loan more servicable while the market is slow on the capital growth side.
I’d also try for a place that doesn’t force you to overextend to the maximum of $420,000. Take it one step at a time – if you can get a place for $320,000, that leaves you with some equity left over to get the next IP more quickly (as well as being a more servicable loan in the meanwhile). Also, don’t forget to factor in purchasing expenses – you haven’t mentioned if you additionally have any savings for land tax, solicitor’s fees, inspection reports, renovation costs, etc.
I don’t know your renovating experience, but it’s one of those things that – thanks to a few renovation shows – everybody thinks is pretty easy, but often blows out in both cost and time. If you’re new to this, make sure you get a place that really doesn’t need much more than a coat of paint and new carpets – and budget for a blow out. This will give you some extra equity in the house, but only if you keep your reno costs down.
A side note on the main question – if I were paying my whole year’s interest up front, I would expect a better reduction than 0.2%.
You might get the tax deduction up front, but you’ll also now have a $50k debt on your PPOR as a result, no? (perhaps reduced somewhat by the tax deduction… but depending on your tax bracket probably not by *that* much).
So the bank takes your $50k upfront and invests it to make themselves more money, when you could use the equity in your PPOR to buy another property instead – making more money for yourself while pacing your repayments.
Even if you’re not interested in that – I would be asking for at least 0.5% off if you’re going to pay your tax upfront (as the bank will make more money out of your money this way. Double dipping, so to speak).
It might be a good idea to talk to a financial adviser before you buy your first IP, as you may find that it’s better not to purchase it in your own name, but through another structure for tax effectiveness.
If you have an offset account, there’s no need to put down ‘extra’ on the loan as long as you leave the money in the account and don’t spend it. This works to your benefit financially as if you had reduced your loan, while also leaving you with the flexibility to withdraw it if you need to (which you can’t do with the excess loan repayments unless you have a withdraw facility on the loan). You may find that when it comes to purchasing your IP that the cash is more handy than having the extra equity in the house.
Congrats on the first house!
Have a look at how the real estate agents are marketing similar properties in your area, and make sure you cover the same ground. Certain buzz-words – while cliched – are effective because buyers know what the terms mean. E.g. “character” means the place is a bit of a hardsell/run down. “renovator’s delight” means the place is an utter dump. “Nothing to spend” means the place is fully and tastefully renovated.
If you’re doing a sizable ad, highlight anything that stands out as a bonus – such as an extra large block of land, a pool, close to schools etc.
Photos sell! (if you can afford it).
And don’t forget the essentials. Address, number of bedrooms, price range etc. You’d be surprised how many private ads forget these essentials. The buyer usually has a price, house size and suburb in mind and their first glance is just scanning to eliminate places that don’t match these basic needs. If you haven’t got that in your ad, you may not even be considered.
Info right at the house helps, as people often walk/drive thru an area that they’d like to buy in, and they notice For Sale signs. Even better if the sign has detailed info (number of bedrooms, ph no, open house times etc). A stack of brochures (whether professional or b+w info sheet) that they can take one of is useful – either by getting a waterproof holder, or by putting in your letterbox with a “please take leaflet” sign (and hope no one helps themselves to your mail while you’re at it!).
Brochure drop to other houses in the area – someone might be renting and thinking of buying. Also, neighbours might turn up for a sticky beak during open house so it looks like you have more interest than you really do.
I haven’t invested in holiday letting, so feel free to discount my advice (only cons, I’m afraid).
It’s not a simple matter of splitting half the year into high rental return and half into low return. You can expect to have the place sitting empty half the time between lettings – with none of the stability of a 12 month rental contract to know when your payments are coming in.
There will be higher than average letting costs – first to continually promote your unit, as well as to clean and maintain it regularly.
You’ll need to furnish it (including crockery etc), and expect bits and peices to go missing as well as increased wear and tear to a regular rental. This won’t be anyone’s home. No background checks are conducted on holiday tenants, so you’ve no control of who blows in.
I’m not sure what the pro’s are – but I’m sure someone with experience in this area will step up to the debate.
I haven’t invested there. About the only info I can give you is that like most rural areas the population is in decline as young people move to larger cities and older people die off (at least according to census 2001 figures).
The question to consider is how long you plan to invest there, and whether there is enough buffer in the cf+ if vacancy rates increase/rentals drop.
In 2001 the Moree Plains (Moree and surrounds) had a population of 16,230, next year this is expected to have dropped to 16,130, and in ten years (2016) it is expected to be 16,000. So on one hand, it’s only a couple hundred people, on the other it’s an adverse trend.
If you haven’t already, then check out what the council has been doing/is planning to overcome the decline. If they have some good initiatives to create more jobs or attract new industry then they might overcome the trend (or may already have done so, since this is 2001 data).
Also consider how the area is being affected by drought – the (severe) El Nino drought is due back on our side of the world in the next year or two so worse is to come. This will obviously have a terrible affect on agriculture unless they have implemented exceptional water saving strategies. (Moree might be saved by their bore water – but I don’t know).
Bit off topic, but…
Originally posted by The Mortgage Adviser:I have never seen anyone paying up front or building a ‘PART’ of a building before.
[/b]Sometimes a bank will only give stage by stage funding – but this is more common with a larger development (townhouses, units, etc) than a small residential house. If they’re not sure you will complete the project for the money you are asking, then rather than give you as much as you want in one lump sum they will monitor your progress so worst case scenario they won’t loose the whole lot if you mismanage it.
**On topic…
Sounds like a lot of nonsensical red tape. Can you get a loan through another lender that doesn’t require the strata title, or one that will send a Letter of Offer without it?
Depends on your needs and which architect.
It’s an extra buzz to be able to say “architecturally designed” and it should attract a higher end buyer/tenant…
So long as the design is practical. Some architects have their heads in the clouds, and what they design may look great (or may look totally bizarre), but when someone is looking for a home they want a certain amount of practicality. No-matter how streamlined you may want your residence, you need a spot for the bin (something that can be overlooked in the design phase!).
Have a look at an architect’s portfolio and think a) would someone want to live in that, b) what would they be willing to pay to live in it, c) is it sufficiently unique that it will attract a premium to outweigh the expense.
If you’re not necessarily needing an “architecturally designed” tag, you might want to consider a Designer/Builder (or Builder/Designer). They are less expensive than an architect (as an architect generally charges 10% of the job, and are therefore more inclined to build more expensive houses) while Designer Builder’s usually charge set fees based on how much it costs for them to design and build the house.
To become an Architect you need to do 5 year university degree in Architecture.
To become an accredited Designer Builder you need to be a licensed Builder (obtained through about 3 or 4 years at TAFE plus many years of on-the-job experience in a senior role) plus complete a 3 year university degree in Building Design that is recognised by the Building Designer’s Association.
The difference to my mind is that an Architect is more highly regarded (and paid), while a Designer Builder has a more practical understanding of materials and how to put them together to gain the desired affect.
**I may be somewhat biased, as my partner works in the building industry, and they are forever having to pick up on design mistakes in the plans, and are regularly in litigation as a result of Architects who have made alterations to the plans half way into the job – thereby blowing out time and costing schedules.
The agent certainly does sound unreasonable – but equally to gain maximum benefit you should think about retaining the tenants if they pay on time and look after the house.
Inner Sydney does seem to have a stronger rental market at the moment than it was about a year ago, so you may not have to wait too long to get it re-rented – however if it’s vacant even a week it’ll take a couple months for the extra rent to make up for the costs. And it’s much harder to show a rental while the tenants are still living there, as people find it harder to envision it as their ‘home’ (and they might end up chatting to the unhappy ex-tenants).
Good tenants are a valued commodity, and regardless of how much the place next door is renting for they are going to be surprised by such a huge hike in price. Interest rates have only gone up 0.5%, inflation is about 3%, but your rental increase is… about 10%? The fact that they got it in a soft market doesn’t mean anything to them.
They might find a 5% annual rise reasonable, but more than that? It might be a good idea to offer a sweetner – such as install a dishwasher into the deal.
This gives them a feeling that you’re not all take and no give, it value-adds to their home, and it gives your investment extra value if they do move on at a later date. (It will also be tax deductible for you). You can also take this opportunity to lock them in for another 12 months so that you have more security.
Costs will vary on your postcode (chance of crime, fire, etc). Why don’t you ring round a couple of insurers, and they should be able to give you a quote on the phone.
You may also be entitled to a discount if you go through a company that you already use for car insurance etc.
