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No it is 8 x 2 bedrooms each renting for $120/week. Is it really that scary? I will probaby drive down next week to have a look at Moree. 12% is a might attractive carrot to go down and have a look.
Has anyone got investments in Moree? Is 12% return for the Moree area a good return (this is a block of 8 villas for sale)?
I have spoken to the agent there and he said it wasn't in the worst part of town, but it wasn't in the best part of town either. The villas are half empty but that is because the owner hasn't put any time or money into maintaining thoes villas.
Anyone have any thoughts?
If you are thinking about investing in the Eastern inner Suburbs places like Alexander and Green Square, I believe are starting to shrink in value. The whole sydney market, in my oppinion only, is seeing a fall or stagnet in price.
Alexander is currently over developed. This can be seen by high vacencies and falling rent prices. Terraces that were renting 1 year ago was renting for $550/week. That exact same terrace is now on the market for $380/week and 4 weeks later its still on the market.
A quick question for you to help you make up your own mind.
1. With the four rental properties, how much time have you put into the management of these properties.
2. Are you still working?
a. If you are still working, do you enjoy going to work? and do you hate your boss?
b. Would you rather be working than spending time with you family or be lazing around the beach?
If your answer to the first question is not much time and the answer to question to answer 2 is I hate my boss, he/she is driving me insane and I want to kill him or I don’t have enough time to spend time with my loved ones – then you have to ask yourself what can I do with this 800k to help me achive these.
What I would do is try and establish an investment portfolio to help subsidise my pay packet. Once I am nolonger in need of the pay packet I can either tell my boss to stick it or to quit my job and spend more time with the family.
If you ask youself this question evertime you purchase an investment and you weigh up all the pros and cons, your investment strat will become alot clearer.
What do I gain for a “potential” capital gain – notice it is not a sure thing yet. Some people call it buy and prey strat. and in the meantime I still have to go to work everyday and put up with all that garbage that happens at work for the next how every many years. or
I can convert this equity into something that will produce x amount of dollars for the rest of my life nomatter what I do, and it will still rise in value with the market.
What you are saying is technically correct. But and this is something that most bankers don’t like talking about ( I use to be a banker ) Approvals over a certain amount can’t be approved via the normal paths. They are sent to a different team that looks after the bigger players – what they call high value customers. These guys play buy another set of rules and they like to see a general progression into large loans. The don’t like to give millions away to people, who to them, look as if they are reletively inexperienced in the game of property.
They like to build up relationships, or see that you have large amounts of experience.
Also when Banks loan money, generally they don’t view blocks of dewelling as a home loan, they see it as a business loan hence a new set of rules apply like the 60% LVR.
Well wheather vacant land is good or depends on your strat to building wealth. If you strat is wraps, then this is not for you as you make your money via buy then on selling.
If your wealth strat is to buy and hold then live off the rent produced by these properties then vacant land is the next phase after you have enough properties for you to retire and the property boom is going on all around you.
With a buy and hold strat you eventually get to a phase where it is very difficult to find cash positive investments. Back 3 years ago – the good old days where you could buy cheap units that was cash positive all over the place including the major cities you could quite easilly continue this strat. Back then fortunelly I was able to buy units that was cash positive around $40/unit/week. I could do this in Sydney quite easily. It was easy to get returns of 12-15%. But now in a booming market returns are more like 3-5% which dosen’t suit the buy and hold and live off rent strat. You end up having to go further and further afield -eg. rural centers and sooner or later you end up having to travel 5+ hours or even flying to visit you investments.
The good thing about this strat is that in a booming market when you investments double in value you can either sell up and move your investments further afield or you can tap into the equity.
Sooner or later even the regional centers – especially along the coast line gets increadiably expensive with returns comming down to 2% returns. This is when the vacant land comes into play.
Property development is something this is very difficult for the ordinary moms and dads to get into, hence you end up with less competition so it easier to find bargins out there.
With a sucessful buy and hold and live off rent strat you could end up with quite a large equity base that you can tap into.
Without even lookin at the develop and sell strat that most property developers tend to use – because thats all they know and the fact that they don’t like maintaining properties. If you did the sums with the buy and hold and live off the rent strat the sums look like this.
Cost of building a 3 bedroom villa – retail price $100,000
Cost of land – depending on area +$40,000.
If choses correctly you could end up putting in a package together for about $140,000. Yes it is more work and your cash flow will suffer when this the project is commencing till completion but you could end up with a property renting out for about $300/week.
After completion you could end up with
1. Another cash flow positive property
2. The $140,000/property that cost you to build could be worth +$200,000. You can then go to the bank and ask for more money to do the next project.Duplexes and Triplexes are good starting point but you will need about $500,000 worth of equity that you can tap into.
The biggest thing is the starting point – the $500,000. But with patence and hard work a good buy and hold and live off the rent strat you can get there in a few years.
If you don’t have the equity to tap into and you were starting from scratch – borrowing money from the bank for land these days is quite easy. They will be looking at your income, expenses and most of all your savings record. I runs against you because 1st at pointed out by Steve you generate no money from this property, 2nd you expenses are greatly increased because you still have to pay interest on the loan and all the costs associated with holding the block of land (rates/lawnmowing…..)
Also they don’t like lending you more than 70%. What is worse if its an investment then all your costs are not tax deductiable unless you build within 2 years of purchasing the land.
That was the exact same situation my wife and I were facing not so long ago in 2000. We were faced with the situation of
1. either buy a unit for ourselves in Sydney CDB (we both worked in Sydney). 2 Bedroom units with single bath was costing about $450,000. Which meant that with $80,000 we begged/borrowed/stealed/saved the morgage repayments would have been around $650/week. Strata and council rates was another $100/week resulting in a total dent to our disposal income of $750.
2. buy the equilivant of $450,000 worth of units in the suburbs of Sydney. Fortunelly we found a suburb in sydney where units were selling for $70,000 but was renting for $140/week. With thoes rations we could buy 7 units returning us $980/week. Outgoings would cost us about $300 per week. So holding onto 7 units in the suburbs accually was paying us $30/week. With that we could rent the same unit we were gonna buy for ourselves – except on a higher level for $380/week. This meant that we would only loose $350/week from our disposal income for rent insetead of of $750. We were happy with that because it means we still have heaps of money left over to save some more. We thought that the CDB would grow much faster than the suburbs, so even though we could save more, our assessts wouldn’t grow as fast.
In the enddecided to buy in the suburbs, CDB prices stagnitated if not dropped a bit and suburb prices went through the roof. We were luck I guess. But the though that someone was subsidising us to live in the city by $300/week was a very attractive to us.
With commercial properties you have to be very careful – especially if you have a limited cash flow. By looking at it you only getting something like $13,200 annual return = 8.3%, which I believe is quite low. I try to aim at about 12% with commercial properties. Oh I forgot to ask who pays the outgoings?
Another funny thing with commercial properties is that usually towards the end of the lease, the amount of rent charged is that of above the current market rental price. This is due to the rachet clause that most commercial leases have. ie rent goes up each year to the amount of CPI or 8% which ever is greater. So with a 5 year lease by the 5th year, the rental price has gone up by around 50% of the 1st years lease. So if the commercial rental market hasn’t gone up due to recession, slow economic growth….. when the vendor is trying to sell in its last year the rent may seem high but if the tenant does not renew then your gonna have to drop the rental price buy quite a bit, which may result in a money loosing deal.
Its only another 3 months to the end of the lease, a good indication of wheather the tenenat is going to leave or not, simpilly go up to the tenant and ask him, if I purchase will you renew? If he says yes – ask for it in writing via a heads of agreement that you can ask you solicitor to draw up, if no well then what more can I say.
Commercial properties are very good investments if you find the right ones, the wrong ones just end up costing you a lot of money – especially if they are empty for 6 months.
With most T.L.C, one of best things that can be done to the property is a fresh coat of paint. Because I have mostly purchased units I cannot do too much to the exterior (strata managers have a fit when you do things without their approval).
When painting (I believe that everyone can do it who has a little time and paitence) decide what type of market you are aiming for first. If you are buying and holding – paint it one neutral colour on all walls. Usually and very light green, blue or pink is common amounst investors. Painting the doors a high gloss white does wonders as it makes the room a lot brighter. This leaves us with the skirtings and door frames – a high gloss light grey is a neutral colour that goes with almost everything. Keep this theme with all your investment properties that you are buying and holding. So when you need to repain a wall 5 years down the track by keeping only these three colours you can paint any of you units saving you heaps of money – rather than going out and buying paint every time a tenant moves out. I think paint has a recommened shelf life of only 2 years.
If you are trying to put a wrap together or on selling the property, go down to visit the show rooms. Masterton…etc. Go into their show rooms and have a good look around. Its always good to know what the competition is doing, especially if they are spending lots of money on research to keep up with fashion. Look at what colour they are painting their walls – feature walls are the in thing at the moment. Try to find out what colours they are using. Ikea is another good place to go and find inspiring colours.
I have had a few years experience in DIY now so I can pretty much fix almost every thing now. I usually find out the hard way of how to fix things, making mistakes then calling in the professionals to fix it for me. Funny enough the second time round, after looking at how the professionals do it is alot easier, especially if you keep asking them questions when there fixing your mistakes.
If you are thinking of finding you own tenant never ever… I mean never ever give your telephone number or contact details to the tenant or else you have broken the golden rule. You will end up hating yourself for this sole descision. It may look harmless but that tenant may accidently give it to another then another and before you know it you may recieve phone calls in the middle of the night complaining that their toilet is blocked, or a neighbour is noisy ….. etc.
Unless you are a trades person or you enjoy recieve strange phone calls… never ever give out your contact details. Let the agents earn their money.
