Forum Replies Created
That is, if the ATO will take the money back.
Geez, no sooner had the previous tenant moved out but a new mob has moved in.
If I was spending $500 then I wouldn't be seeking advice, but property investment is worth a lot more than that. The advice provided not only relates to your purchase but also to your exit strategy – you may have to sell, sometimes unexpectedly. If there are some issues which may affect your purchase (and you are unaware of them by not having recieved advice) these will be obvious to a purchaser who has recieved the advice and has developed a strategy to resolve the issues.
Issues may be as simple as having a beneficial easement on adjoining land (no harm done) to having half of your block subject to a proposed road widening scheme (major detriment to property value). If purchasing commercial property with existing leases, then the content of these should be explained (they are income generating property and you should be informed as to your rights).
A few dollars spent in the beginning will save you a lot of heartache later on.
Age is a good indicator – but no certainty (if you can inspect the back of the sheets, 'asbestos free' should be stamped on them). Generally anything predating 1987 or thereabouts when its use was banned in bonded asbestos products – the use of loose asbestos was banned earlier (I think).
Without testing for chrysotile, ammosite or crocidolite (brown, white or blue) asbestos via a testing laboratory, there is no 'free' conclusive testing method.
Why would ac be of such a big concern unless it is in poor condition and requires replacement?
Asbestos is commonly found in the following building products pre-1987 – asbestos cement sheeting (used in fascias, eaves, wall panelling/lining/cladding, packers), vinyl floor tiles, bakelite switchboards, lagging to pipework on boilers, corrugated roof sheeting (supa 6) – also used for fences, stormwater pipes, ducts & duct covers.
If you are that concerned have a registered testing company take samples.
PS what are you going to do if you do discove AC? Replace, encapsulate or protect for mechanical damage? Are you going to maintain an asbestos register & make it a notifiable hazard? What is your plan of management?
Rus is this a case of 'who diess with the most toys wins' regardless of the fact that you will also be the one with the most debe (ie net asset value = $0)?
As Foundation points out, there may be some long term capital growth (positive thinking), however as you continue to increase your leaverage (way ahead of capital growth) you are dramatically increasing your risk profile. If you aren't repaying your interest on your facility, the financier does have a right to foreclose and take suffient assets to cover its debt – mortgage insurance doesn't cover you – it is your lender & the insurers who are protected (twofold). The bank/financier will review your portfolio annually (if prudent) or every 3 years at the worst, at this time they can call your accounts into question if they are dissatisfied with the return to the investor (ie the financier). They can reduce your loan, or call in your loans – tread wearily!
You sound like you are falling into the sub-primes category here (but unlike in the US aren't subject to a resetting loan portfolio, just rising inflation, rising interest rates, falling AUD, tightening liquidity market etc).
SNM
With regards to the first point, if all investment properties changed hands simultaneously at a premium, it does not hold that rents would increase to reflect increased prices – firstly properties may have transferred on vacant possession leading to increased competition for vacant premises prior to the settlement date, then after settlement there may be a glut of vacant property lending downward pressure on rents. If they are not sold with VP then either expired leases have a 60 day notification period for rent increases (then to the tribunal etc for disputes) or longer periods if the properties are still under a lease without review provisions. If rents were to increase uniformly, there would be a mass exodus of renters to areas which they could afford.
As an investor, if your capacity to invest increased by 30% you would not necessarily be buying the same property, you would have considerably more options available to consider eg: 2 properties, lower level of gearing, better/more expensive property, divest & seek alternative strategies or do nothing. Just because the bank will lend you $1.3M doesn't mean you are obliged to take them up on the offer cf: I don't max out my credit card every month, why would I do it with my loans?
Taking your example (sounds like the economy with falling interest rates) – borrowers capacity increases ie interest rates fall (this affects all borrowers & potential borrowers as the banks won't selectively change their lending criteria for a small part of their market/client base) then more people – including those 'renters' may enter the market without any change to their income. Conversely, if rates rise a borrower's capacity & ability to repay decreases (renter's ability to pay rent remains unchanged until their rent is reviewed – not always possible in the short term).
I'd recommend a subscription service like RP Data, Residex etc. Alternatively, you may have to go to one of the online providers (after working out the lot & dp) and getting a title seach done through Legallink & others (emailed to your PC). Then, you will have some leg work to do – white pages, ASIC etc to find business address/directors, Water Board etc.
Briganti, if you sign a building contract with a licensed builder, regardless of whether it is Metricon, Abigcon, or Joe Nobody they are required to have a builder's licence and are regulated by the department of Fair Trading/VCat etc in your state. They are obliged to effect Home Warranty Insurance (to cover you/homeowner) for 6-7 years on structural faults.
If National Nobodies are only a front, then they are only a marketing body – at the end of the day, you must be happy to sign with the appointed builder – so check out the builder to confirm the quality of their work and don't get too stressed about how the contract comes into being. Think about this, if Biggest House Builder in the country has one supervisor and does 2000 houses per year how much time does that supervisor spend on each site as opposed to Joe Small builder who does 2 or three per year?
If you haven't recieved full documentation as to the inclusions, how do you know what you are buying? Is there any way of incorporating the council approved house plans, spec & schedule of finishes as an attachment to the purchase contract? is there a copy of the builder's home warranty insurance attached as well?
A lack of these documents will lead to disagrements at settlement. It may be worth contacting VCat to find out what the obligations on the vendor/developer are?
Foundation, I come back to a couple of points that I raised earlier but you have not taken into account:
1) changing demographics – lower earning people will be priced out of inner city areas, those who can afford to buy prime locations will continue to do so, it is not based solely on wages.
2) development will lead to greater densities in the inner city/middle ring, thus improving affordability (next level of income earners)
3) Something will give (ie bubble will burst) however it will continually be artifically inflated by several sources: tax system offering incentives (neg gearing, deprn allowances etc), continued move towards dual income families (adding to their ability to generate household incomes including taking on 2nd and third jobs), foreseeable move towards greater reliance upon extended families (better utilisation of larger older houses with mortages being supplemented by income from the grey army).If you move away from residential property to consider retail assets, lessors generate rent in 2 ways – firstly base rental (the rent that you believe that you can extract from a tenant who is an average/good operator), secondly % rent (rent achieved by a good/excellent operator). If the tenant is consistently paying turnover rent, then you have set your hurdle too low (base rent) and the future new lease will be based on the previous year's total rent. Using this analogy, a centre/shop which performs well will have an increasing rental return – existing tenants consistently pay a higher rental than 'new tenants' and are cheaper to maintain ie you are not covering costs of vacancies, incentives or agent finders fees.
Aaron, you are considering spending $175k without advice – hmmm. GST – specialist tax area, might just be worth getting an accountant (& a solicitor) – it'll save you $17.5k in one foul swoop (are you purchasing the property as a 'going concern & will it pass the test?).
11 seconds to carry out due dilligence????? It took me longer than that to read your question, check your projected return & get motivated.
As it is commercial property you will get a loan for about 70% of its valuation – risk is higher & the financiers realise this
a) do you have access to the 30% deposit, about $52,500 + gst; or are you securing the loan with other assets
b) is it a gross or nett return? – ie. who is responsible for the outgoings, what are they & how much will they be costing?;
c) How long has the tenant been on holdover?
d) Has the rent been reviewed in accordance with the holdover provisions of the lease?
e) Assuming that the tenant vacates before settlement, what rent will be achievable?
f) How long will you be waiting for a tenant?
g) What incentives will you have to offer to lease the premises?
h) Can you sustain the lack of cashflow for 6-12 months? Assuming 3 months + vacancy, 3 month incentive/rent free & 3 months
gross rent commission paid to the agent?
i) Do you need to register for gst? What are the advantages/drawbacks of registering/not registering?
h) Prepare a cashflow analysis of the property (DCF & IRR) and itemised budget, factor in rent, vacancies, outgoings, management fees, insurance, interest etc. This will help your case with your financier to show that you are aware of what you are getting yourself into.Hopefully the above might give you some inkling as to what to think about.
A couple of options present themselves – a dual rental (retain existing PPOR), live in one/rent the other + rent (or sell) existing PPOR.
You will need to check how large a duplex you can build on the site considering that the block is only 450 m2 – there probably won't be much site left over once you take into account setbacks and private open space requirements. It will most likely need a site based solution rather than a project style building so the usual $200-250k may not be enough (although they may be quite small).
It may not be a direct correlation however it is closer than any relationship between wages, cpi and rent. That is, as an investor would you be happy that ROI is dropping? (regardless of whether you consider rent in isolation or as part of the combined capital & rental returns)
foundation wrote:I've given a rambling explanation of my concerns over using simple extrapolation of recent trends to predict house prices over long-term over on this thread as part of a debate with one of our most prominent property analysts. Let me know what you think. My proposition is that house price movements are driven primarily by debt, that recent trends in debt are unsustainable, and beyond a certain limit further price increases will rely on income growth. This is why it doesn’t make sense to expect house prices to forever grow in compound fashion at a faster rate than wages.Cheers, F. [cowboy2]
Foundation, it may not make sense, as you have put it, for prices to grow at a faster rate than wages however you fail to consider one aspect – profit/reward for risk.
If I undertake work on a property, I am exposing myself to some degree of risk, the builder who carries out the work takes a risk (that he will be paid), bank takes a risk I will repay them (interest). This degree of risk (and subsequent reward) mustl far outstrip wages growth and the reward of wages for labour inputs.
If debt is harder to come by, eg credit squeeze, then there are a few possible outcomes: turnover of properties stagnates (due to tightness of funds), prices drop due to lack of funds and ability of geared buyers to enter the market, other sources of funds are found (creative financing).
Foundation, which graph? Rent v Interest or Rent v CPI – neither of these equate house prices to yield. If rents tracked wages (and were linked to cpi) then property prices would grow at the same rate ie at cpi and yields would remain constant.
What you fail to take into account is that land (in the major centres) is a finite resource, demand for well located property will increase due to population growth, desireablity, access to services etc (locational factors). The price of these properties will accordingly increase due to demand for scarce resources (outer lying areas will increase but not at the same pace). A person on average income, a number of years ago, could afford to be located closer to the centre of cities as these areas were 'less desireable' than other options available to them. These inner city locations have now been gentrified and are out of reach for a large proportion of buyers and renters – however this has not reduced overall demand for these properties nor their price.
I do agree in part, prices do fall in markets when they have reached unsustainable levels ie property bubble/stockmarket bubble/tech crash etc.
All of the recent research available (housing industry assoc, abs etc) indicates that housing affordability has decreased that is, the proportion of household income going towards either rent or mortgage repayment has increased. This is symptomatic of 2 issues – firstly the cost of rent/property has increased more quickly than any increase in wages (if this is cpi, then house prices have increased faster than cpi), secondly that interest rates (hence repayments) have risen faster than cpi [an increase of 0.25% on a loan rate of 7.0% to 7.25% is actually a 3.57% hike in repayments].
Yes and No. The offset decreases the amount of interest that you are charged in the current month, thus putting more money from your normal repayment back onto the principal ie building equity.
The term of your loan remains fixed, the time it takes for you to repay the loan will decrease.
KRudd will have to weave some magic if he is to look good (& not be playing the blame game over the next 36 months).
Firstly, he will have to contend with a weakening AUD which has been making the rising cost and extent of our imports including rising oil prices.
Secondly, once new workplace laws are passed, how will he address the lack of growth in employment (3.4%)
Thirdly, interest rates are currently respectfully low due to the strong economy & the reserve bank using the rate to temper the markets even though it has made warnings about the need to continue to increase rates.
The costs of meeting climate change requirements will require alot of government investment (possibly borrowings).
The bail out of the state health and education systems will lead to further government spending.
Has KRudd been set up for a fall? Highlighting his inexperience at the helm?
What a great platform for the next election – interest rates UP, unemployment UP, inflation UP, Business confidence DOWN, economic growth DOWN, AUD DOWN.
I will sit back and wait…..
Have I missed some basic prinicple here? Rent tracks wages. What happened to the arguments of ROI & yield ie rent reflected as a % of the property price – whose growth far outstrips CPI or wages growth.
Sure there are dips in yield when property prices take off and rents are lagging however in times of a tight rental market, yield plays catchup at a pace far greater than cpi.
Whereas, in the commercial market place there are many other options for rent increases including fixed %, %+cpi, % of turnover etc as the leases are of a much greater duration and you play with commercially parties.
Mick, is there any chance of rebuilding at Paddington whilst you still rent elsewhere? – minimal disturbance to yourselves and you get a well located house without the costs of stampduty & agent commission etc?
Alternatively how are Milton, Bulimba & Hawthorn stacking up at the moment?
Well at least he will have your interests at heart.
