Hi TheCrest
Do you think there is the potential for the PM to just put any old tenant in the property using this strategy?

In your experience as a PM, what steps can an investor take to sway the PM into working to get the best tenant that they come across into your property?

Thanks,
MarkyMark

Hi Motivstorm,
You can actually do it. I sent asked the ATO and they confirmed it in an email to me. See extract from email. Check yourself if you want. The ATO are pretty good at getting back to you.

Section 14 (4) of the Act provides that an applicant is eligible for the grant if the applicant or the applicant’s spouse has, on or after 01 July2000, held a relevant interest in residential property in Australia, which was not used at any time as the residence of the applicant or the applicant’s spouse.

Cheers,

MarkyMark

Don’t make any investment decisions based on the content of this post. I am not giving advice. Check for yourself with the ATO.

I think thats a great idea by “thecrest”. Your really getting some leverage by this suggestion.

Have you used this idea before thecrest?

MarkyMark

My opinion is that if you can find property that has good cash flow and no capital gain then that is ok as long as,

– The cash flow will continue. That is the town is not turning into a ghost town
– A principal and interest loan is taken, if you have a longer term view (I know some will not agree with me on this). For me I think if the debt is going down and my cash flow is going up and its cash flow positive from day one. Then my net worth position is getting stronger daily.

– There is a fair chance of renting it
– The property is not going to fall down any time soon

Every bit of cash flow can be put to good use in other places.

I do not agree that in order to get cash flow you need to forget about capital gain. I know a few people who have managed it.

MarkyMark

Hi BJ,
I am surprised that your having trouble in Rocky. I have had no trouble at all. My property is on the North side. However, I know that there are some good areas on the south side as well.

Maybe you could offer a rent free period of 1 week. Maybe even advertise in the local paper yourself and then if you get the tenant you should not have to pay for the first week to the agent. Could I ask what you asking for rent?

MarkyMark

I’ve got a business degree major in IT. I graduated about 3 years ago. I just looked into accounting recently (actually I am still researching/thinking about if I want to do it).

Anyway, if you have done the basic business degree then you should be able to get credit for all of the base business degree subjects. The reason for this is because accounting is simply a business degree with an accounting major.

So if you are in this position then all you need to do is 8 major subjects (1 year fulltime or what ever partime). You can also get HECS by enrolling in a new degree altogether and then applying for credit. This way you avoid paying upfront uni fees.

Hope that helps,

MarkyMark

North Rocky is good, also around the hospital is a good area. I bought a place a few months ago in North Rocky near the Frenchville Sports club. It’s a good area. I got tenants immediately and it is cash flow positive. I had to do a little bit of work on the place, as it was a bit run down.

I’ve heard bad reports about Depot Hill, and I did not like the area myself, but it has had some of the best growth in the area and properties there seem cheaper. It may be an ok area to invest.

The old saying there is a price for locals and a different price for out of towners seems to apply in Rocky and there has been a big influx of southerners buying up in Rocky. I don’t care what anyone says, some of the realo’s up there love to hear your from out of town.

So I would be aware of that when you get there. If you don’t have accommodation, I would recommend this motel “the cosmopolitan” I stayed in a few different ones and this is by far the best talk to Margie the number is 49224933. (I have nothing to do with them and I don’t know them personally).

Also be aware that in QLD an electrical device, I think its called a power breaker must be installed, by law in a property that is being rented. The installation of this will cost between $120 -$190. Also most leases will require that there is a suitable lock on the front and rear doors (the place I bought was missing the key for the front door). Rents seem to be increasing in the area, however, the locals will not over pay for accommodation so make sure you get your facts right concerning rents. The good thing is that there are not many places to rent, my rental manager currently has 1 place only on his books.

Also the meat works is opening up again on low capacity to start so that’s a good thing.

Make sure you check the stove. Some of the old places up there have old stoves and an element for a stove can set you back about $90 so if there are two of them not working your up for $180 and so on.

One other thing, budgeting 5% for closing costs may not quite be enough as there is higher stamp duty on properties if their purpose is investment in QLD. My closing costs came in a bit over 5% of purchase.

My research shows that there is an estimated 8% cap growth for the area this year. Personally, I reckoned on virtually no growth as historically the growth for the area is crap.

I know it did well through the recent boom, but everything did well. If the area goes up strongly over the long term then great if not then that’s ok as well.

My investment is positve now and paying itself off on a P&I loan, about 50 000 people live in Rocky and you can get a tenant if you need it.

Good luck and let us know how you get on.

MarkyMark

Hi Steve,
I can see what your saying and I can remember you talking about this issue in your seminar.

I have a few questions that I think are best presented in an example. Feel free to shoot me down in flames. The first question is,

How did you come to the figure of 80% being the amount that you needed to borrow to ensure continued growth? I understand that you were saving on paying lenders mortgage insurance at this amount, and I know that you are more exposed the higher the LVR but why 80% why not 70% or 75%?

Here is another slant on option 1.

– Re-finance and take $20 000 out from the available $32 000. This would then look like this,
– Value: $80 000
– New Loan: $55 000
– New LVR: 69% (aprox)

Now do the second deal, buying a property for $40 000. Now it looks like this,
– Buy price: $40 000
– Deposit and closing: $10 000
– Debt: $32 000
– LVR: 80%

Portfolio summary
– Total portfolio value: $120 000
– Total portfolio debt: $87 000
– Portfolio LVR: 73% (aprox)
– Cash left over: $10 000 (enough for another deal)

The advantages of this are,
– You remained in control of an asset(deal 1) that has performed strongly in the past (i.e. capital gain) and is also cash flow positive. Plus there is a good chance that you are happy with deal 1 with regards to finding a tenant etc.

– Your portfolio LVR is only 73%. Well below the 80% target

– You are minimising risk. You have an asset that is sound why not keep it and buy 2 more deals rather than sell it and buy 2 more deals?

– No capital gains trigger

Disadvantages
– Deal 1 has a lower cash flow. (I am supposing that yield is about 14% for deal 1 so after the refinance it should still be positive. If not you can still buy the second deal and leave another $10 000 in deal 1)
– If interest rates go up and you have not fixed them then you will pay more out in repayments

Other comparisons with option 2
– Option 1 leaves us with one definite profitable investment and the available funds to purchase a second possible profitable investment
– Option 2 leaves us with no definite profitable investments but the ability to purchase 2 possible profitable investments
– Option 1 has spent $2000 (in closing costs) and leaves us with 2 properties
– Option 2 has spent $4000 (in closing costs above deal 1) and leaves us with 2 properties
– Option 1 has $23 000 more debt but option 2 has a higher LVR than option 1. (thus the debt that you do have is more exposed than in option 1. )
– Both deals allow enough money over to buy a third $40 000 property.

Looking at what I have written I think that I can see a few advantages to option 1. But the biggest one for me is, why sell an asset that has performed and served you well and will remain cash flow positive?

As the market softens the value of your portfolio may drop but in scenario 1 your less exposed as your LVR is lower. In fact, you could find that you no longer have an 80% LVR position if prices fall because there is no gap in option 2.

Option 1 has an LVR of 73%, which provides a 7% gap until you are starting to move out of your target LVR.

I know that you spoke about “conditional liability for paying tax and sale costs at a date in the future when you decide to sell” but what if you never sell? Why would you sell. If you keep your portfolio protected as much as possible from interest rate rises, and there is a reasonable chance for capital gain and the property is cash flow positive, then why ever sell?

MarkyMark

Derek,
What is a ‘puppies’ artical?