That is pretty similar to my strategy, except I favour somewhat higher yields (8-9%) and lower prices ($80-120k). Properties must be well-located within regional cities, highly tenantable, brick and <20yo.

These would tend to be slightly negatively geared (positive after tax).

This is not unlike the approach followed by Margaret Lomas. As Steve points out this sets a limit on the number of properties as your taxable income drops and there are risks if you lose your job.

But if you’re happy to live off the rent of 5 or 6 decent properties that have been paid off, then I think it’s a reasonable approach.

The main risk of selecting something in the middle is getting neither growth nor yield and ending up with an indifferent investment! Hence I like the idea of consciously selecting property for either yield or growth potential (even if sometimes yield properties can have excellent growth too!).

Peter

I lived in such a place for about 12 mths when I was 6.

30km out of town, no mains power, walls blackened by local ‘itinerants’ who’d turfed out the gas stove and lit fires on the (concrete?) loungeroom floor.

Power was either by an unreliable 32 volt generator or hurricane lamp. The radio was battery powered and the fridge and heater was kerosene.

As a kid at the time I thought nothing of it as I knew or remembered no better. Other people we knew were in a temporary tin shack. But it would have been tough on mum, especially during summer.

My tenants are housed better than I am. But the bit in Steve’s book is pertinant about the lady who loved living near a noisy busy road because it helped her sleep.

People have different priorities and what might be hovels for those with middle-class sensibilities might be an accepted way of life for others. (consider that city slum clearance programs were not necessarily a success for social reasons)

Peter

My bias would be towards unfurnished, unless you were willing to be an active PM who lives near their IPs.

Furniture can make a cf- property cf+. For example, in a town I know where unfurnished units typically yield 8-10%, furnished places can fetch 10-12%.

There are also tax benefits of having heaps of depreciating furniture, but eventually it will need to be replaced, providing more costs for you.

I can see their advantages in mining towns, remote places (eg Darwin) and capital cities where there are professionals on short term contracts.

Another issue is that PMs might charge more (10% instead of 8.5%) and tenants may be more transient with more vacancy.

I would also be concerned that a newish 1br ff property, for example would be more vulnurable to labour market changes than (say) a 2-3br u/f unit which would appeal to a wide cross-section of locals.

Also where I’ve been looking some one bedroom ff places can be almost as expensive as 2-3br u/f which I consider are overpriced.

Because I’m a fairly passive investor who wants long-term tenants my bias is thus for u/f units in a handy location. And by making that choice I don’t think I’ll be worse off than people getting higher (but more volatile) yields from f/f.

Peter

It’s not the only way, and is really only a rough approximation. No more and no less.

Use it as a filtering tool but there is no substitute for adding up the actual figures.

Will 10.4% give you positive cf? Depends. What if the HWS or A/C fails? That would be enough to make many slightly + properties negative.

What if you borrow 90% and not 80%. Again even with 10.4% you’d probably be -ve geared before tax.

Rates tend to be a much higher proportion of property value in country areas then in the cities. (eg $800/$100 000 property vs $800 out of $300 000 property), so this will influence the cf. Other costs also seem proportionately higher for cheaper properties.

As for growth and buying undervalued property, I bought one for cf and no expectation of growth. Another had a lower yield, but was in a town I thought was undervalued.

6 mths after my purchases comparable properties were sold. Both indicate a likely cg of 10-15% in 6 mths, meaning that growth can’t be predicted as easily as cf.

My higher cf property has had many more repairs needed, so overall they’re performing about the same, both for growth and cf!

Rgds, Peter

17. Re-read building inspectors report and formulate a maintenance plan, starting with the important, and finishing with the merely aesthetic.
18. Discuss with Property Manager (or tenant) your ideas for adding value and whether these would provide sufficient return
19. Set up a contingency account for unforseen expenses and have a plan for managing cashflow (assuming rates, bills all come at once)
20. Consider lodging a variation to your income tax (if your properties are neg geared before tax)
21. Monitor values of your first property so you can see if there is scope for using any increased equity for a deposit on No 2!
22. Start looking again, starting with establishing finance availablity and what you want from a property (growth – cashflow mix).

Peter

That price is not out of the question for a duplex in one of Geraldton’s housing commission suburbs, though even that would be a good buy these days. 1980s villas in good areas go for not much less than $90k (>$100k for something newer).

Geraldton is a low rent town. A 1980s duplex half in a good suburb near the beach fetches around $125pw, while one in a lesser area would be nearer to $110-115pw. If it was furnished $155 might be possible. But it would need to be in a good spot given that plenty of reasonable houses rent for about that or less.

Peter

According to Lomas (How to Create an income for life, p 114)
NT, WA and Qld have an offer and acceptance form. There are helpful paragraphs on purchasing properties in each state in the preceding pages of that book.

Don’t quote me on this, but I did read/hear somewhere that these forms can be obtained from newsagents, post offices or REA.

Or if you’ve already bought a place in one of those states, maybe some carful work with correction fluid and a photocopier (or scanner/printer) to produce a blank form might be in order!

Peter

Strongly Agree!!! Values (led by example, not by lecture) are most important!

It’s an uphill battle to change a bad habit or mindset than reinforce a good one.

Greg Smith’s ‘Unlock your money personality’ says there are three main money personalities:

1. Spender (borrow for consumer items)
2. Cautious (scrimper, saver & turn off the lights please)
3. Savvy (ie educated investor)

I was fortunate in being brought up 2. and trying to move towards 3. I am eternally thankful that I was not raised a 1. as the shift to 3 would have been much harder, as 2 will at least guarantee some capital to start your investments, whereas 1. won’t.

Regards, Peter

Excellent! You’ve demonstrated that those sorts of deals exist, which you can count as an achievement.

But the real skill is finding decent cashflows in towns that haven’t had years or decades of falling populations.

How do your favoured areas of SA stack up as far as population trends, vacancies and a sustainable long-term future go?

If those figures aren’t good, maybe it’s wise to build in a risk margin – eg for your $120pw rental, pay only $40k max, not $60k?

Regards, Peter

Originally posted by MortgageHunter:

>I think you have taken an extreme view.

Maybe it is extreme, but I thought I’d give Huey a con as the answers so far were supportive.

Another con I didn’t think of before was family politics, jealousies, etc which can flare up with money. If one child gets help, shouldn’t the sibling(s) get equal consideration, etc? Thus I would lean towards caution when it comes to large amounts.

>Helping out and giving a property are two different >things.

True. It’s up to each family to decide what’s best for them – full assistance, a little assistance or none at all.

As Huey says there are pros and cons, and though I’m glad I didn’t get parental assistance when I bought my IPs (which are considerably cheaper than the average Sydney house) others might welcome the opportunity.

>How does a young couple buy in places like Sydney now >on their own?

Difficult, but I hesitate to say it’s impossible.

Maybe they’d be better off renting in Sydney and buying IPs elsewhere first? Really depends on their aims.

Saving 10% deposit ($50k on a $500k house) should take about 5-6 years for a working couple (saving $5k pa each). Then there are other costs. Tough but not prohibitive.

>Did you teach your children to swim by leaving them >alone in the water or were you there taking some of >the weight until they could go on their own?

From what I remember swimming instructors would almost hold you under, while I would have much preferred to be left alone (feet on bottom, making a few token splashes)!

As to what I’d do if a parent, well I don’t know yet ; )

Regards, Peter