Forum Replies Created
Redwing
Old saying, “To take no action is in itself an action”.
Yes with the neg gearing one tends to run out of cashflow at some stage, but with (most of) the pos stuff you want to be putting regular money into the loan else you run out of equity. I know this has not been strictly true in recent years but I think this has been an abboration and things will revert to the mean here on in.
A lot of my wife’s clients come from the farming regions and almost all of them say that their children and the younger generations are leaving and moving to the city. If true it doesn’t bode well for some of these communities.
I remember playing sporting carnivals in a lot of these areas but I believe many of the towns no longer have sufficient players to continue.Anyhow good luck with your search.
SMTM
Redwing
The example you gave does highlight the downside of a negative gearing strategy. Success with negative gearing is contingent upon astute selection of property among other things. The example you gave would be typical of a poor investment, be it due to poor location, lack of desirability etc. In fact it sounds like one of my early investments (still got it.)
This is where successful negative gearing requires much research and groundwork, just like successful positive cashflow investing.
Just as the book says, capital gains cannot be guaranteed. To my mind neither can cashflow from rent. Just because somebody pays good rent now does not guarantee they will pay next year. Having experienced the change in demand when a resource company decides to “downsize” in a regional town has taught me that lesson. Suddenly my +CF property was zero CF property and worth substantially less.
I have had the same experience with commercial property, business folding and 9 months vacancy tends to dent the cashflow a bit.
My point is there are no guarantees and no one right strategy. Choose one, or more, and do it as well as you can and I am sure you will succeed.Regards
SMTM
Redwing
Ultimately only you can decide this. It sounds to me as though you are not clear on what you want to achieve from investing in property, what your timeframe is and what your strategy is and hence the analysis paralysis.
Do you aim to replace your income with passive income in a short (as possible) timeframe or build a substantial asset base using gearing and retire debt by selling at a later date?Regards
SMTM
NATS12
Your predicament sounds rather similar to what I just went through.
I have an IP in WA which had been rented to the same people for 2 years. As I was considering selling I wanted to take a look first hand to see what needed doing and whether it could be done with house occupied.
The tenants lease agreement had expired and had now reverted to a periodic tenancy. The original agreement specified that 2 cats were allowed.
Having repainted, recarpeted and fixed the gardens only 2 years ago I thought the place would be pretty good. Upon arrival at the house I was greeted by 2 large dogs and one of them was so happy to see me it urinated on the patio. Well the place was a pigsty and the back yard looked like a motocross track, bare sandy tracks where once there was lawn and a sea of half chewed debris.
Anyway it was obvious the tenants had to go, I couldn’t work on the place with them there. As required 60 days notice was given which would have had them vacating on or before the 2nd of Feb. This was ideal as it coincided with my rostered weeks off from work, giving me until the end of Feb to spruce up the place.
Well come 2nd of Feb the tenants have gone nowhere as they can’t get another rental (why I wonder?). I have trades lined up ready to go. Tenants inform agent that they will be out by the 14th. I abuse manager who tells me that getting court order etc will take as long. Try to reschedule trades, fat chance.
Tenants finally out on 14th, I bust my behind in the summer heat fixing reticulation, digging up weeds, planting turf, ripping up carpet and jack hammering tiles. Run out of time and decide I actually want to spend time with children before returning offshore. Managed to snare a painter and tiler so place should be finished when I get home 24th March.
As for the “managing” agent well we will be having a full and frank discussion upon my return.
This isn’t the first time I have had tenants who leave at their leisure and it just makes you feel so powerless.
In your situation you did well to book the tribunal early so hopefully they will be ordered out in short time, a week after the hearing is typical here. Just hope they don’t get angry and wreck the joint.
Hope it turns out well.Regards
SMTM
Interesting topic
I am 38 and I definitely agree with Postie about the apparent need in the younger people to have everything now. Delayed gratification is a rare commodity it would seem. Many of the young first home buyers we know are getting a nice new 200 sqm plus 4bed 2bath brick tile home with all the trimmings from day one. No small houses with bare floors, bare windows and a motley collection of second hand furniture thankyou.
Of course this is understandable, credit is so easy to get. You can have just about anything now and pay later. Everywhere you turn there is advertising telling you that you must have this, or that and why wait until you can afford it.
My parents had over 30% deposit for our first house when we first came to WA but the banks still wouldn’t give them a loan. They both had jobs as well. Nowadays the banks would be offering them all sorts of money and credit cards etc.
As for home affordability well I guess we, as property investors can’t have it both ways. We invest mainly in the cities because this is where the best CG is. We aim to outpace the rate of inflation so it stands to reason that the cost of housing in and around the cities will generally become less affordable.
I purchased my first block in Mandurah in 1983 at 17, it cost 17K and I built a 4 bed 2bath brick and tile house on it for 65K. I was in the second year of my apprenticeship at BP refinery and earning around 12K a year. I paid cash for the block but borrowed for the house. I still have the house today and it is worth approx 265K. If I were a second year apprentice today could I afford this house? I think so. If it had been in a good suburb of Perth however, the story may be somewhat different.
I sometimes wonder how long our tradition of owning our own homes can continue. My wife is from Croatia and there, and elsewhere in Europe, people on average do not own the place they live in, they rent and spend their money on lifestyle. People tend to live with their parents longer as well. Will the 70/30 ratio of owner occupiers to renters continue?
Gee I have waffled on, time to stop!Regards
SMTMHey Wrappack
I thought an option wasn’t an option, so to speak.
Yours is a very bold plan. I hate to dampen your obvious enthusiasm but it is a big project for your first development. My advice would be to try something smaller to begin with like a triplex or similar. You will be surprised at what can go wrong and how the costs can get away from you, rapidly eating your margin away.
If you start on something smaller then you will learn about dealing with council, designers, builders, how much things cost and the whole process and when you make mistakes, which you will, they will not break you financially. You will then be better prepared for a project of the scale you are now contemplating.
I have been trying to get three townhouses built in Mandurah now for over 2 years. This seemingly simple project has hit all kinds of potholes.
I thought that I had finally attained building approval last week when suddenly the council want a Geotechnical report on the land. $3000 and 3 weeks delay thankyou. All the while the interest payments keep coming and building costs go up.
The bottom line is that I have survived and learnt a whole lot in the process. I may yet make a small profit (big would have been better!) but if worst comes to worst, I have 3 beautiful IPs in a good area.
Anyway I hope this isn’t too negative and if you do decide to carry on I wish you all the best.Regards
SMTMHi Wrappack
Just an idea.
What about using an option on this site you have located? Set the expiry at 6 or 12 months, long enough to arrange plans and secure your DA then sell with DA approval.
I have never used an option before but I am sure others on the forum have so they would know how they are structured etc.Regards
SMTMHi Penguin Jr
If you are looking for CF+ property then yes you are looking for a high cap rate.
There is a reason why properties have different cap rates though. As an example when McDonalds sold some stores here (WA) they sold at a price which represented a cap rate of 8.5 because purchasers were prepared to pay more for a quality tenant. In contrast there is a commercial laundry for sale in a regional town and based on the asking price the cap rate would be around 12.Regards
SMTM
Hi Frank
Websites and books specifically pertaining to commercial property investment are scarce indeed. I have not yet found one of either that impressed me. I read a book by Chris Lang and Martin Roth but it was extremely basic.
Sorry I can’t help.SMTM
Redwing
I am no commercial guru but we do have commercial property.
Because I am a bit of a sceptic, whenever I see a tenanted commercial property for sale I immediately think, why?
Of course the reason could be anything but in many of the deals we have looked at it has become apparent (after digging around) that the tenant is not going to take up the option when the lease expires.
Another reason we have found is that most of the depreciation has been used up and so the property is disposed of. Might want to check that out.
That is not to say there are not good deals. The one you quoted looks ok considering it’s location, yielding between 8.3 and 10% depending on who is paying outgoings. Any depreciation benefits will obviously sweeten it up.
If the current tenants were to vacate in 2005, would the premises appeal to a wide range of businesses?Regards
SMTMHoarel
Generally the outgoings are paid by the tenant in a commercial lease.
As for GST, if the commercial property is purchased as “a going concern” there is no GST payable. A going concern is a property that is tenanted.
I would have thought the deal you quoted would be a going concern.
As mentioned previously the quality of the tenant and the duration of the lease are very important.
Websites try http://www.nsc.com.au, http://www.cbre.com.au, http://www.dtz.com.au, http://www.mcgees.com.au. There are others but can’t recall them.SMTM
Hi Jars11
This is a position we have often pondered, usually while in Broome, Yallingup or in the snow over East.
We have made the decision that we would rather spend money on a holiday at a destination of our choice and at the time of our choice rather than be committed to one location and not at peak times. I don’t know if you have children but their school holidays have a habit of coinciding with peak holiday times.
If you let the property for short stays then the wear and tear can be quite high and management costs are higher.
You may find yourself repairing things around the place while you are supposed to be on holidays.
My advice would be to invest elsewhere and use the money saved to holiday wherever and whenever you like.Regards
SMTMGday lino
I am a Mandurah resident myself. Have bought but not sold any property in town for many years.
When you refer to experiences are you meaning with agents or the general market itself?
If you purchased the blocks 12 months or more ago then I am pretty sure you will be sitting on a reasonable capital gain. Selling them will of course incure CGT as well as agents’ fees (if you use one).
Demand still seems to be strong enough although speaking to tiling retailers and others it has definitely slowed a little.
Maybe you could trade them in for a Marina lot on Feb 28th[
]Regards
SMTM
Phil
I have a Wrap Pack and in it there is a letter from a solicitor named Jeremy Malcolm. It sounds as though he is someone to speak to.
Ph 08 9213 0800Can’t vouch for him personally as I do not do wrapping.
Regards
Clive
Hi PurpleKiss
Don’t know about a downloadable version but the Non REIWA forms can be purchased at newsagencies.
Clive
Gday Redwing and WA Investors
For the coming year the plan is to optimize our existing portfolio rather than purchase any other property. The reason being that I have not been able to find anything that makes sense and would rather wait until people are discussing their sharemarket successes again.
Plan is to complete an ongoing triplex development and draw up plans for redevelopment of a commercial property we have.
Clive
Enough to keep me working,
Not enough to stop.[]BB
How has the unit performed as an investment? Does it still make sense, are it’s future prospects good? I wouldn’t go selling a property just because it is a -ve CF investment. Has it delivered capital growth over and above the cost of owning it plus CPI?
Remember that selling will see some $$$ disappear in taxes and agents fees. As Redwing says, you can access the equity to fund further purchases.
If you are to be accumulating +CF property then the unit may make a good offset in terms of taxable income.Regards
Clive
All
This is a situation I found myself in sometime ago. The tenants said they would not be renewing their lease unless the place was airconditioned. An increase from $250 to $260 pw was negotiated. The ducted evap system was installed for $3900 and they signed on for another 12 months.
In my mind it was worth it to keep the tenants in place, particularly as there are plenty of other rental properties to choose from at the moment.
As for value added to property, that is hard to say.
To me the value was not having vacancy, a small increase in rent, appreciative tenants and no letting fees.Clive
Thanks Mel
Clive
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