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Thanks for the comments every one.
I have given some more thought to this idea and I think I still would like to pursue it. I really think there is still some merit in this kind of property. I think where I am going to come unstuck is in relation to the borrowings area. Discussing this issue with some other property investors I am going to have trouble getting the funds from a bank if I need to borrow 90%. I mentioned earlier I could have a go at getting the funds from my family, but its a lot different borrowing from a bank than the family, at least there is no emotional attachment when the funds come from the bank. Just purely business. I dont know how my chances of getting the funds from the family would go either, I've got a bit of borrowings for some share market purchasing I've been doing lately.
I've tried to get back to your questions as best I could. Please find following:
Terryw wrote:Montefanno wrote:Sorry, it should have read 'repayments', its the interest & principle on approx $190,000 over 30 years at 7.8% interest.Why pay PI on an investment loan? If you are an accountant think about the tax implications.
I like the prospect of getting to my 50s and knowing that I won't owe any money on this property then. If I can manage to keep my cashflow positive, while still servicing principle repayments, I don't see why I wouldn't do this.
demkel wrote:HelloAre you entitled to any depreciation deduction/allowance on this property or is it too old?
Regards
Demkel
I imagine there would be an element of decline in value that I would be able to claim as a tax deduction, at this stage I am more interested in cashflow though and have ignored that for my purposes.
wade anthony wrote:Why not do what Steve done and try in a rural area? There are decent properties around the $150 to $200k even lower, how ever the capital gains are lower but if your looking for +ve property worth a try.I wish I had a business partner that would work during the week while I toured various country suburban centres. At this stage the only touring I can do is online, so my search is only really limited by places I can access on weekends and inspect myself. I use Steve's formula for positive gearing when I look at purchase price and rental return : divide purchase price by 1000, times by 2 and that is what your rental should be. This property fell within that ratio.
EPI_Den wrote:Hi Steven,My advice for a beginner property investor is to avoid this kind of property. A few years ago I fell into the trap of buying something similar (I had 20% deposit and loaned 80%) because the numbers were great as far as cashflow was concerned. Not long after I bought the property the bank changed its lending requirements and would only loan 50% on this kind of property – due to its size, not its purpose. The bank said that for any property under 50 sq.m. they would only loan 50%, or allow the owner to use 50% as equity.
What this meant is that I could no longer access a considerable amount of equity. This dramatically reduced my ability to grow my portfolio as quickly as I would have liked to. While the bank might currently loan enough for you to purchase this property (are you sure they'll loan 90%?) they can change their rules and this could impact you the same way.
I would suggest that you look at more conventional kinds of property that you can be more certain will help you grow your portfolio. It's also less likely that lending rules will change for these more traditional properties.
I hope this helps you. Good luck with your investing!
Cheers,I would like to have a go at buying some more "conventional" properties, but at the moment a lot of my cashflow is tied into share investing. That's why I like the idea of outlaying a little bit of cash, then setting up a mechanism so the rental income will cover the other expenses. It doesnt really work the same way with shares, I have to wait 6 months before I get my return on investment, if I get a dividend at all.
Sorry Its such a big post. I've been absent from my computer for a few days. Thanks for all the help everyone.
Regards,
Steven.
The real estate agent told me that the place was originally set up as student accomodation, but apparently it is now strata titled and anyone can live there. Its being advertised as being perfect for a first home buyer. I dont think I would stuff my my first home buyers grant and stamp duty reduction on this place though.
Is there anyone out there that has had a go of trying to make a property in this range work as a positively geared property?
There are a number of these units available for sale. The one I have selected is probably one of the better priced ones. I have noticed that one guy was trying to sell his for $250,000. I am curious as to why noone would jump on something like this if the posibility of a positively geared investment was present. Is there something that I should be looking out for?
Regards,
Steven.bjsaust wrote:How did you come up with that interest figure? Is that your conservative "what if?" number? It seems to be over 9% p/a.Sorry, it should have read 'repayments', its the interest & principle on approx $190,000 over 30 years at 7.8% interest.
