Forum Replies Created
To answer your question on cap growth:
No one can predict whether values will grow or not. But there has been growth in the last 18 mths or so.
I bought my first in March 03. The yield was 9% but I knew the rent was a little below market value (its now returning 10.2%). An identical property next door sold for 13% more than I paid for mine in Oct 03. I returned in March-Apr 04 and prices appeared to have risen further. However since then they appear to have flattened or maybe retreated a little.
Kalgoorlie is attractive for the cashflow investor as it combines high gross yields with a large number of post-85 properties (so you can claim depreciation). Most other country towns don’t have so much newer property.
But beware of 1br f/f places in large complexes that are advertised for about the same as a 3br u/f place in a smaller complex. The rents may be about the same, but to my way of thinking the u/f place is much better value, and if you really want to you can always furnish it later on if required (though most f/f places are 1 or 2 br – there seem few 3br f/f).
rgds, Peter
Hi Francois
I have IPs in Kalgoorlie and offer the following:
$260pw rent would probably be for a fully furnished place. Sure you’d get depreciation benefits, but there’s the risk of shorter term tenants, more wear and tear AND much higher management costs.
I think I know the area and it’s not easy walking distance (maybe 30 min) to much at all.
I have gone for somewhat older (but still post 1987) 3br places that were not furnished. Either in very small complexes or in none at all.
One is in a small group of 4 approx 5-10 min walk from the CBD while the other is further out, but a duplex half (no body corp fees). One gives 10.2% gross yield, and the other gives approx 9% (I think the rent on this is a little low, but Kalgoorlie seemed to go through a vacant patch around May-June).
$132k is not unreasonable, but if it was unfurnished, you’d only get $180-200pw, which is quite a poor yield. Maybe see if you can get something nearer to $110-120k?
Also I have a bias against buying places in large complexes (like this one) as at any one time one unit will be for sale or for lease.
Also beware of 1br f/f places that some agents try to sell for as much as 3br u/f places!!!
Regards, Peter
Originally posted by agent smith:[biggrin]Hi There,
Can anyone recommend a good Quantity Surveyor in inner Melb?
Thanks in advance…….[biggrin]I’ve found BMT are very good.
If your IP is in a remote area and they can’t go there, they will send you forms to fill in and request you take photos of each room. Cost is $440 per property.
Rgds, Peter
I think it’s a good point about buying newer units/apartments in those areas- particuarly larger ones. Often, land in the outback can be worth only a few hundred bucks, or a few thousand. I think it was depreciator (please correct me if I’m wrong, depreciator) who said he was concerned people were paying too much money- even if they were cheap properties, when one thought of the value of land in remote areas, and the houses accompanying the land.
Agreed. The better 4×2 houses in this particular city might cost $250-300k and fetch maybe $400pw rent. I’d imagine the land component would be in the $20-50k region. This gives big building depreciation benefits (if it’s newish), but for me was too much to tie up in one IP in a regional city (when you could buy in a capital for that). But a well-located and presented unit or duplex half around $100k and getting a higher yield than the above is a different story.
Though the city would be considered risky, the high rents and the high number of post ’85 properties (in various sizes) made it attractive.
Peter, I would say that it seems to be very good value to get a post-1987 3-bedder that is CF+. I’d undertake that strategy myself… but I’m still concerned about areas that are too remote/isolated.
Wasn’t it Paul Keating who said ‘if you don’t live in Sydney, you’re just camping out’?!
But you can balance your remote or mining IPs with IPs elsewhere. Between the two mentioned above I bought a 2br place near the beach in another major regional city (with a more diversified economy). This is my ‘growth’ IP as it’s pre-85 & -ve geared because it only gets 8.3% yield.
So far (mainly due to maintenance probs) cashflow has been poorer than expected (though still manageable) but growth has been much better than expected [biggrin]
Despite modern household trends, ideally I’d prefer to buy stand-alone houses, but my budget and my desired pace of buying mean that units or duplex halves will have to do for the time being. However at least with duplex halves there’s no body corporate, so there’s more control than with a strata unit.
Regards, Peter
Originally posted by DEANNA:Thank you all for your great advice. The town is in WA ( I’m in Victoria) and it is 30km outside the largest regional center in Australia,
Hi Deanna – if you meant to say ‘the largest city in outback (or inland) Australia’ I think I know the one!
As others have pointed out, there are considerable risks there. However if you’ve done your research, don’t let that stop you.
I have two IPs in that particular city. Their yields are 9 and 10.2%. Both are 3br unfurnished villas or duplex halves and were built post ’87. One is located 10 min walk from the CBD and the other is in a newer suburb about 6km from the CBD. I deliberately avoided buying newer 1br fully furnished places in large complexes (pitched at investors) as their prices weren’t much different to my 3br places and I suspect tenant turnover would be higher, which I didn’t want (the tenants for my #1 recently signed up for 2 years!).
I knew I could have got higher yields by going to surrounding towns, but being aware that the area was volatile, I opted for fairly ‘safe’ choices within the city, with additional benefits being proximity to property managers, tradesmen, and ease of access when I visit.
I also assumed that vacancies would be lower in the city than in surrounding towns. Assuming a recession, I’d imagine the surrounding towns would be hit harder than the city, which has a more diverse workforce. Also assuming tenants want somewhere convenient, they’d choose the city property.
Thus though I was buying in a potentially risky area, I was ensuring that my choices were as safe as possible in that context, and not ‘risky risky’.
Yours would probably be cf+ before tax, but you didn’t mention if it was new enough for building depreciation or not. If it is, I would regard it as a good deal, provided other research stacked up. If it is an older property, it could be OK, but could easily be cf- if there are maintenance expenses and you don’t get building depreciation.
Regards, Peter
Originally posted by aussierogue:the big problem is that access to public transport is pretty crappy. the mitcham-frankston freeway due to open in 3-5 years will be a big plus though and you shld be able to drive to the cbd in 30 mins….
Wantirna, Rowville, etc has the worst public transport in Melbourne, with large areas lacking service much after 7pm or on Sundays- see http://www.alphalink.com.au/~parkerp/melsubu.htm
The area is in Fare Zone 3 and the freeway will be tolled, so together with registration for two or three cars, your transport costs will be higher there than almost anywhere else.
Rgds Peter
The mortgage industry is the best ever. The overheads are low (unless you open a shop). When rates go down, more people buy… when rates go up, more people refinance. It is a CAN’T LOSE business!!!
That is until the unemployed REAs join the laid off bank managers and the dotcom refugees and become mortgate brokers.
Then there’ll be more brokers than loans ; )
Peter
When I bought in Geraldton (Sept 2003) my budget permitted me either a house in Rangeway/Spalding or a 1980s brick duplex half in Bluff Pt (7 min walk to beach and near all other facilities).
Neither would have been cashflow positive. At the time yields in ‘good’ areas like were commonly around 6-7% and maybe 8-9% in Rangeway or Spalding. Thus both would have been negatively geared.
Already having a higher yielding property (not in Geraldton) I chose the duplex half in the better suburb. Even back then the 8.3% yield stuck out as being better than for other properties in ‘good’ suburbs.
Yes it is negatively geared, but the advantages outweighed this (i. good stable tenant, ii. excellent suburb, iii. no body corp fees, iv. highly lettable according to local PMs, v. higher cap growth potential than Rangeway/Spalding).
To date I have not been disappointed and the property has been a pleasure to own!
The alternative, of a Rangeway house returning (maybe) 9% gross didn’t appeal so much. Even though there are some quite nice streets in Rangeway (eg Tuart St behind the shops), I would have wanted 10-11% yield and a brick property to compensate. That I couldn’t find when I was there, but those before me who did (around 2002/early 2003) have done well provided they had a good tenant.
Also my thinking at the time was that the price differential between properties in the ‘better’ areas and in the ‘worse’ areas was quite small when I visited. Since then investors targetting the cheaper areas would have made the difference even less, as Rangeway & Spalding prices rise.
But long-term, as interstate investors stop buying as yields in Geraldton drop to fairly ordinary levels (ie 5-6%), I think the differential between the better and worse suburbs will increase, with low capital growth in Rangeway/Spalding and higher growth in areas like Bluff Pt, Tarcoola Bch & Mahomets.
Rgds,
Peter
Originally posted by devilcv8:Also, (and correct me if Im wrong) but I think the banks have a lower LVR here (60 – 70%)
I had no probs getting 80% LVR there (in Sept 2003).
According to my PM the main rental demand at the moment is good quality family homes. These will not be cf+ as Geraldton is a low rent town. You’d be doing well to get 7%.
A few months ago I saw a 2br unit in a nice suburb for sale for about $60k. This was fully furnished and had been rented at $135pw.
11.7% yield – whooppee – that’s what IP dreams are made of!
I regard that as high rent for the area as you can rent a whole house (u/f) a stone’s throw away for less than that.
Then ust a few days ago I heard that (presumably) the new buyer was desperately hoping to find a tenant to pay $120pw for the place.
That’s 10.4% gross rtn, but if you look at
(a) the 1% extra the PM’s charge for fully furnished,(b) body corporate fees, (c) the high proportional council rates on small units, (d) the likely transience of tenants of f/f units
your cashflow will be soon gobbled up and you will almost certainly NOT be +ve cf.There are previous threads in the archives about Geraldton. If you have any questions arising, just post them here.
Regards, Peter
1. For a mining city (pop >20000): 9-10% (on a post 1985 IP for building depreciation benefits)
2. For a regional coastal city (pop >20 000): 8% (pre-85 building acceptable if well-located)
3. Capital city: 7-8%
4. Small country town: 10%+++
Note that I haven’t purchased in 3 & 4 and won’t do so unless yields are right and/or it’s undervalued and/or has potential.
Regards, Peter
Originally posted by darkon:Current Situation
• Share a house, rental $130 per week, I do not want to leave the house I am at.
• Earn about $1700 after Tax per fortnight.
• About $5000 available for deposit.The reason I would prefer to do it this way, is that I know that I would never be able to save close to $46K by the end of this year. I find it harder to save then paying back a loan, especailly with the great holidays you can buy for $10K.
Think of the great holidays you could have every year if you bought enough assets to give you $10k pa in passive income.
Let’s see: $1700 fn = $850pw income, $130pw rent, difference >$700pw.
Of that you should be able to save $400-500 per week easily (more if you sell the car). That would give you at least $10-15k more by the end of the year which is enough for a 10% deposit on something.
My final thought: It’s no use investing if you haven’t developed good money habits first!
Regards, Peter
Originally posted by Salubrious:In the 4 Crn’s story they interview a Gentlemen who purchased a new home in the then new sub-division of Mt Druitt, he paid 10k for the property, his gross income was 8.5K!!!!
What would be the situation today? Mt Druitt 3 bedda 320k income 35k……wow simple but effective.
IIRC, the $10k/$8.5k example was from the early 1960s. $8.5k would have been a huge wage back then, and the average wage would have been nearer $2k pa.
So the house was worth about 5 times the average wage.
Assuming an average wage of $35k, then a multiple of 5 becomes $175k. But if we assume both partners working and a household income of $60k, then the house beocomes $300k.
Relative to household income the real price of property has increased, and it appears more expensive relative to household incomes than in the past. But maybe only 20-50%, no more (to the disappointment of spruikers that claim 10% cap growth per year). And the big city markets are maintained by the steady flow of migrants, the largest number of whom want to live in Sydney.
Another thing is that finance now is easier to get than 30 years ago and you can get low-doc loans, high LVRs, FHOG, etc.
Prices are set by what people are willing to pay. Willingness to pay is determined by what people can afford. What people can afford is determined by how much the banks are willing to lend. Thus the banks control house prices.
If the banks said ‘You must have 20% cash deposit and can only borrow up three times your annual income’ you can bet that this would kill the housing market as only first home buyers with good savings and investors with significant equity could afford to buy.
Peter
Ablaz – Yes it is worrying, but people will still need a place to live.
One could easily have taken the same attitude during the cold war – everyone will die through nuclear war, so why invest?
Should nuclear war occur, you’d have nothing. Should it not occur, you’d still have nothing. So on balance it’s better to invest even though the future looks uncertain.
Fuel security is a valid issue. I would suggest further reading on this and other related subjects eg urban planning, transport systems, etc.
Then only buy IPs within walking distance of town (regional centre) or public transport (capital city).
Should the scenario about an oil shortage/higher petrol prices prove correct, you will enjoy capital gains as everyone will be wanting to live in handy, walkable locations.
Regards, Peter
On insurance, I would consider:
1. risk
2. consequencesIf the risks are high and/or the consequences are severe then it’s worth insuring. If the risk is very low and/or you can handle the consequences, then it’s not worth insuring.
Re self-insurance, let’s say it’s a retail chain with many stores. Even the complete loss of one store might only make a small dent in finances.
Insurance can also (sometimes) mean that you subsidise the foolishness of others. If you can manage wisely and reduce your own risks, then you will get back less than what you pay out.
Given the large number of contingencies that could occur, self-insurance by building up a sinking fund might work out better, especially if you can get a return on that capital in the meantime.
I fully insure my IPs (incl landlords insurance) but have opted to avoid some other insurances, as I prefer to self-insure through having an available liquid portfolio that can be drawn on in emergencies (none happened yet – touch wood).
Peter
Steve wrote:
New Forum Contributor: 0 – 19 Posts
Infrequent Contributor: 20 – 59
Occassional Contributor: 60 – 199
Frequent Contributor: 200 – 599
Valued Forum Contributor: 600 – 999
Forum Superstar!: 1000+The first four are fine. The last two equate quantity with quality, which is not always so.
Thus for the last two I would suggest:
Very Frequent Forum Contributor 600-999
Addicted poster: 1000+To really split hairs, it should be noted that ‘infrequent contributor’ or ‘frequent contributor’ tells little about the posters’s behaviour. An ‘infrequent poster’ could either be a long-standing but inactive member, or alternatively a newish but prolific poster.
Thus the word ‘prolific’ is a more accurate description than ‘frequent’. The best measure of frequency is average posts per day (since the member first registered).
Peter
When I was at uni all I did was save, save, save. Oh and opened my first term deposit. And marvelled at my first real passive income ($93) when it matured. Never mind the interest rate was a measley 5.35%.
It wasn’t much but was a sign of better things. So continued to save and bought shares, managed funds, more term deposits, etc. And kept saving & investing a set proportion of income (normally 25-40%) when working.
Then after all that was doing alright, though some IPs would be good, so raided part of the portfolio for deposits and kept saving/investing all along.
All this has taken approx 10 years. Not very fast but this isn’t a race and I’m not complaining.
Peter
Originally posted by Monopoly:(My husband just sold his Qld property yesterday, and the purchaser only has to pay 5% deposit – Man that’s cheap….I am soooo used to paying 10% deposits.Poor thing! In WA, I’m used to paying either $500 or $1000 deposit (they request $1000 but the last two times, $500 has been fine).
See the section in 0-130 about their ‘office policy’ re paying low deposits which says that such deposits should work anywhere.
IIRC for capital gains tax purposes the date is from when contracts are signed.
Regards, Peter
A quote I got for the inside of an 90m2 3br villa in regional WA was $2500. This was for two coats. The quote was from a handyman company. My PM said that painters tended to be cheaper – I rang two to give a rough estimate and one said around $1200-2000 and another said $2000.
Regards, Peter
That’s ANZAC Day – lot of businesses are closed until 1pm.
Apologies if it’s a silly question, but have you checked the hotel’s opening hours?
Regards, Peter
Originally posted by Cremin:Sorry just put that title there so you would read my post[devilish]he he!
Help me out here i’m confused. There are so many posts about people having to save for eternity just for their fist deposit. Yet there are numerous posts of people racking up a few IPs in a matter of months. How do they do it?.By doing one or more of the following:
1. Saving 30-40% of income (not the 10% often recommended)
2. High (90%+) LVRs, meaning that only small deposits are required
3. Finding the deposit by selling shares or managed fund investments
4. Using the equity in your PPOR (or other IP) to fund the deposit
5. And, more adventurously, ‘No money down deals’ or vendor financeRegards, Peter
