Forum Replies Created
Hi Charlee
North Adelaide is safe but expensive. Places close to the city but not so expensive would include the first suburbs on the south and west side rather than the suburbs on the east and north side. Public transport is quite good for the inner suburbs (not nearly so good further out) that most suburbs within about 5 kms of the CBD or close to one of the bus GoRoutes should suit you.
Are you looking for a flat or a house? What do you consider expensive? Will you be renting or buying immediately?
Mum
Hi Devo76
There is no simple answer to your question, but here are some things to consider.
Not all IPs are negatively geared. And of those that start negatively geared, some become +ve more quickly than others. The main factors here are rent and how fast it is increasing, LVR (loan to valuation ratio) which can have a bigger influence than interest rate but both determine loan repayments, and your risk profile.
If you have an income other than from property investing, then you may be able to cope with -ve gearing. Some people are aiming to live off their property income and for them -ve cash flow is generally avoided.
Then there is the uses one can have for the debt. One doesn’t have to discharge the mortgage when you pay out the loan. The available debt can then be used as working capital for a renovation, for buying other property, for developing, or for any other investment. Dumping funds into a loan can be a convenient way to park funds from a property sale if one has a loan that works this way.
So, when would I own an IP freehold? The most likely time is when I buy it using funds from other properties. I try to hold enough funds in these other loans so I can offer cash perhaps have an advantage over others that have to include a finance condition in their purchase contract.
Would I discharge a mortgage before disposing of a property? I don’t know. It is possible and I can think of circumstances (such as estate planning) when I would consider it. But not at the moment.
I hope that helps a little.
Mum
Hi OriginalSinner
I would be wary of these units for the following reasons.
The state of the common areas would indicate that little has been spent on their upkeep for some time. Ask for a copy of the Strata accounts and minutes of the AGMs. You are entitled to the most recent but try to get more than that. Unless there is a substantial ballance in the sinking fund account for repairs and other matters, then I would be budgetting for a charge in each of the next few years. And I would also be budgetting for a big argument at each AGM for several years to get essential repairs done.
Check recent sales of units in the complex and similar units close by. Is this purchase at a discount to the others or at a premium? With the artificially inflated rent, they may be at a premium and unless you have long leases and tenants who wish to stay, your premium will evaporate very quickly. Budget for normal rents unless the area has very low vacancy rates. Never budget on your inflated rents lasting more than 3-6 months.
Many apartments have got around the limited parking by putting it on common land. I would be concerned. I got caught out with this when I came to sell a unit in a complex with not enough spaces recently. Most people have cars these days and expect to have off-street parking. I found it less of a problem with tenants than with owner-occupiers but potential landlords didn’t like the idea of hassles with tenants over the lack if parking.
Most lenders do not like multiple dwellings on the one title as the market for these is small. And, since the market for studio apartments is small, most lenders also don’t like studio apartments. If you are still having trouble with finance and you still want to purchase, try the non-bank lending sector. You just might have to use a non-conforming lender who doesn’t use the main mortgage insurers. PM or email me for details of one of the latter, if you wish.
Mum
Hi Terry
I think some banks still do valuations in house or with a tied valuer. Hence they can influence the definition of market value and hence can request they be conservative.
Not all banks and not all the time. But often enough to be a nuisance to borrowers.
Mum
Hi Breakeven.
A valuation is actually not a single number but a range based on recent sales of comparable homes and what the valuer believes the market has done since those sales. Actual sales figures are used, not what properties are listed at.
When the market is rising, values tend to come in at the top of the range. When the market is flat, values come in at the bottom of the range. And if the market is falling, values tend to be very conservative.
The closer the comparable sales are to the property being evaluated, then the narrower will be the range the valuer is looking at.
If anything goes wrong, there could be a claim against the valuer for giving an over inflated valuation. Hence the conservative valuations at this time as no valuer wants a claim against his professional indemnity insurance.
If you think who is at risk in the process, then you may be able to more easily understand the value figure.
Mum
Hi Daniel
I would concur with Marc that the next step is to vist your bank or your broker and get an idea of what you would qualify for. This will not tie you into this bank or broker and you can talk to others later. However, all you need to know at this stage is the amount you could borrow so you can then work out what you can afford to buy. The answer will be different whether you will use property as IP or PPOR.
Rough costs to purchase and finance usually work out a little more than 5% of the purchase price plus mortgage insurance less first home owner concessions and grant (if you are going to use it as your PPOR).
Calculation then becomes $24K = (purchase price)*1.055 – loan.
Or purchase price = ($24K + loan)/1.055. Add the FHO grant and concessions to the $24K if this is applicable.
Then as long as the loan/purchase price (LVR) is no more than 95% or whatever limit the bank puts on it, you have some idea of what to look for.As for books, Steve has a new one out. And you could try your local library and work your way down their shelves for a free read.
Mum
Does the boom in Tailem Bend have anything to do with the boom in Mt Barker?
Mum
Hi Meatgroup
You probably need to ask your accountant about building depreciation as I think there may be circumstances where ATO will deem you to have included it in your previous years’ deductions when they calculate your CGT even if you didn’t charge it at the time.
Mum
Hi Waratah
For me and many others I know, we all made huge mistakes on our first or second IP purchase. Those who go on to be successful property investors profit from the mistakes. Those who don’t learn, end up thinking investing is stupid and property investing is a waste of time. There doesn’t seem to be any middle ground.
So, my advice is to learn from books and seminars as much as you can before you buy the first IP, but be prepared for the tremendous amount of knowledge you will gain from making your own mistakes. There are so many and most of us “experts” easily overlook that most people don’t know much of what we know because for us some of it has become automatic.
Is that the sort of advice you are after?
Mum
Hi Daren
There are basically 2 limits to how much you can borrow – your serviceability and how much deposit you have.
Please note the following is not advice, just some play with numbers. You will need to have your broker verify the numbers as they depend very heavily on which state you are from (I have used NSW for these numbers) as to how much transfer SD you are up for. Also, the rest of your financial position has not been taken into account so these are only a very rough guide.
So, your first step should be to find a broker or mortgage originator and have your financial position analysed before you start looking for a property.
In your case, unless you have additional funds, your limit is going to be how much deposit you can achieve from the equity in your home. Increasing the loan to 80% LVR (generally the limit where LMI is not payable by you) would give you about $45K for deposit and closing costs. Again, using 80% LVR for the purchase, this would allow you to buy up to $180K. So, to purchase more, we are looking at a higher LVR. At 90% LVR, you are looking at a purchase around $275K.
Increasing the loan on your home to 90% and using 90% LVR on the purchase, then you would have around $70K for deposit and closing costs which translates into a purchase a little over $400K.
Hope that helps.
Mum.
Sorry Folks
I should have also added that demolition depends on what is being demolished and whether asbestos is involved. Can be up to $10K on top of the rest. My builder includes it in his price rather than my having to arrange for it myself so when I budget $25K for subdivision, that doesn’t include demolition.
Mum
Hi Redfox
Celeste’s figures are about right for Adelaide also. I generally budget $25K for Torrens titling. Can come in a little less but can also come in more if the water and sewer connections are more than normal.
Mum
Hi NordicSkier
We have used an airless spray gun. Not sure how much it costs as we have had ours for many years. And, my handyman (who does most of my painting these days) also uses one.
It is the only thing to use for those highly textured ceilings so popular for units in the 50s and 60s in Adelaide.
Main things to watch is the edges and overspray. And some paints may need thinning. If I remember rightly, there is less overspray than spray guns with air compressors but there is still overspray.
Mum
Hi Vluu75
You will also find there are a number of limitations imposed on the very high products. Most will only lend against properties in metropolitan regions excluding CBDs, high rise, most country towns, and certain types of properties.
The employment requirements are also higher as is also serviceability requirements.
And, many lenders that used to offer 105% products no longer do so. Once upon a time, like when the market was screaming ahead, some of the risk was covered off by the expected increase in value. Now the market has slowed or stalled, these loans are even more risky than they used to be so many lenders have stopped lending at 100% or greater.
How soon are you going to need your rainy day money? Can you factor additional savings into your investing plan so that you again build up your buffer over the next couple of years?
Mum
Hi MKC
It should be possible to get an answer in a couple of days though often it can take longer.
Did you let your broker know you had such a tight time frame? If he did know, then he should have passed on your urgency and 5 days is getting excessive. If he didn’t know, then he will have put it through the normal queue and that can take some time.
Mum
Hi Brendan
The year finishes when you sign the contract of sale, and not on the settlement date. Check with your accountant to be really sure of the rules.
Mum
Hi Row
You would be better talking to your tax accountant and getting proper advice.
I suspect that you would need to withdraw the funds clearly some time before moving out to make sure ATO does not consider you are redrawing funds for personal purposes from a loan used for investment purposes. There is some case law on this and, as I said, you should ask your accountant for a definitive answer.
Mum
Hi Adryana
It will depend on the state you are in.
Generally, when purchasing you will need to pay Transfer Stamp Duty, and a Title Registration Fee. If you borrow money, you will pay to register the mortgage and you may also pay Mortgage Stamp Duty. For the amount of these, see the website of your state governments Lands Title Office and/or State Revenue. And there are other taxes peculiar to certain states. A new property is subject to GST.
Ongoing taxes include Land Tax and Income Tax. In SA you will pay an Emergency Services Levy. Other states also charge other taxes, levies and charges. Commercial leases are subject to GST. Generally, residential leases are Input Taxed so you pay GST on supplies but you don’t charge it on rent. Talk to your accountant about these.
And, don’t forget Capital Gains Tax when you sell.
Mum
And
Hi Sharif
1. Sounds like you are looking at duplex in Adelaide? Pros are they are generally cheaper for the same size of house and land. Cons are that people seem to prefer stand alone houses in most suburbs unless the attachment is only through the garage. Also, you more or less have to agree with neighbour on external appearance as one half painted in different colours from the other half generally doesn’t look good.
2. Ask your lender for who is on their panel. Then chose one of them. That way you will not have to pay for a second valuation when you go for your loan.
3. Yellow pages. Ask for references.
4. Your valuation should have an indication of rent included. Also, chose your property manager well first and ask them.
5. Search this site using keywords of “Landlord’s Insurance”. Or, ring the main insurance companies and get a copy of their policies. Or, ask your property manager.
Mum
Hi Snowflake
It would depend on the reno. A quick in and out might net only $10-20K (after purchase and selling costs) and still be worth doing. But a complete makeover would need to promise a lot more than that as the risk of finding extra stuff that needs doing goes up exponentially.
Mum
