Hi,

There is some good advice here. Ultimately you need to trade the passive:active nature of yourself with the passive:active nature of your rental manager.

The problem that I see investors making is that they think buying the property is the hard part. Any chop can sign a contract, the real skill kicks in when you try to achieve above market rentsor secure a good tenant looking for a place to call home.

Sadly, many investors leave that tricky task to a rental manager and this rental manager is rarely if ever ‘qualified’ by the investor before getting the business. Instead the % commission is the driving force.

Well, my aunt says that if you pay peanuts then you should expect to attract monkeys.

That’s why I recommend that, unles syou trust your rental manager, keeping a hand in qualifying your tenants is a wise thing to do.

As such, you need to get to know them, but never get caught up in personal issues other than sending Xmas and birthday cards.

Afterall, you are a landlord, not a life coach.

Cheers,

Steve McKnight

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Hi,

He’s a lawyer and probably more expensive than the average conveyancing clerk, but all our NSW deals are done via the offices of Tony Cordato.

Ph: (02) 9290-2773

Tell him I sent you as I am trying to get a free lunch out of him []

Bye,

Steve McKnight

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Hi,

Here is my response to Terry Ryder’s articles which I have submitted to Neil Jenman (at his invitation) for publication on his site:

>>>

Thanks for the opportunity to comment on Terry Ryder’s articles as published on your website.

I thank Terry for his comments, as I feel his heart is trying to protect those that might be disadvantaged by (1) the wrap investment technique and (2) involvement with the Today Tonight offer.

I began investing in May 1999, and since then have achieved great success using various real estate techniques. To a large extent, I have tried to share my knowledge and experience with others in the form of a free newsletter, running seminars, hosting a website, and, more recently, writing a book.

In no way do I profess to have all the answers, nor do I claim to have any supernatural ability. Yet, in some way I do feel empowered to share my experience and to try and help other people free themselves from the need to work.

Terry makes many claims in his articles, and knowing what I know, some of them are simply inaccurate while others are nothing short of defamatory. It’s not my intention to list these issues, individually refute them, or in any way retaliate by questioning Terry’s integrity in the manner that he has questioned mine.

Ultimately the facts, which speak for themselves, need to be separated from the opinions, which can be clouded by bias.

To this extent I draw your attention to just one paragraph from Terry’s second article:

quote:

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“He (McKnight) has challenged me with this question: Do I know anybody who has been ripped off by him? The answer is: No, I don’t.”

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Enough said.

There is a way to honourably make money using real estate and it involves creating win-win deals. Wraps can be done in a way where all parties stand to gain and I have much personal experience in constructing deals which result in this outcome.

However, sadly, not all investors adopt a win-win philosophy and instead prey on the truly disadvantaged and / or break the law. These people need to be fully and completely exposed and brought to account, which is why it is both good and encouraging that the various State authorities are investigating those who offer vendor’s finance. Only in this way can those with integrity be distinguished from those who are in it for a quick buck.

Surely it is a gross generalisation and horribly ignorant to conclude that all investors who profit from wraps are immoral and terrible citizens.

I constantly challenge myself with always adopting a position of high moral integrity. I hope in my heart of hearts that my motives are not based on greed. I believe I can have a profound and positive impact on people’s lives, which is why I continue to look for opportunities to help.

I urge you to let the facts speak, and for me to be judged by my accomplishments and not by one journalist’s opinion.

Steve McKnight

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Hi,

It would pay to check this with the State Revenue Office, but my understanding is:

1) All you need is an intention that you will live in it. To this extent there is a substance over form approach to the grant. Before you get too creative, we’re talking $7k here and, to point out the obvious, defrauding the Commonwealth is a crime.

If you only live in it for a short time then you might have a hard time explaining how it was your PP of R.

2) Probably the things that you have mentioned will do the trick. At the end of the day though, you will be making a declaration on the form that it actually is your home and as such it always pays to be 100% honest.

Cheers,

Steve McKnight

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Hi,

Just clarifying here…

We are moving from Snitz forums (on a asp platform) to new forum software (on a php platform).

What all this means is that the PI.com tech heads get to drink lots of coffee at weird hours while we sleep. In the end we will all hopefully benefit from a faster and much better website.

It shouldn’t be too much longer. A matter of days rather than weeks, hopefully even this weekend.

Regards,

Steve McKnight

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Hi,

If you are adopting a buy and hold strategy then cheaper properties will help you to maximise yield, as rent and prices do not raise at comparative rates.

For example, a 3Br home in a regional area might rent for $180 per week and be worth $90,000. A 3Br home in a metro area might rent for $250 per week, but be worth $250,000!

As such, if you are looking to invest for +ve cashflow then you might have no option but to invest from out of town. If this is the case then you want to be sure that you complete a thorough due diligence of the area (including the rental demand) before buying. It would also be essential to have a qualified builder complete an inspection for you.

Sadly, the days of buying a +ve cashflow buy and hold property within 1 hrs drive of most metro areas are over. No point lamenting about lost opportunity though… look forward to tomorrow and backwards to yesterday!

As for being difficult to manage an IP so far away… that’s what God invested rental managers for []

Thanks for your post and happy investing!

Steve McKnight

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Hi,

I thought that I’d jump in here as:

1. I know the Mackay area reasonably well (i’ve lived there for a short while and that’s where my wife is from and her parents remain!)

2. I actually looked at a similar property some years ago (near the gooseponds / Mt. Pleasant area).

So having said that, my observations were:

A. The block that I looked at came furnished, which was OK (perhaps even a bonus for potential depreciation after commissioning a building surveyor!), but it also added some complexity to the problem in that if it needed repair then I might have to be the one paying to fix it.

B. The concentration of units or similar dwellings in the area meant that a property that was vacant may be that way for a while. Indeed, as I remember the block that I looked through was half vacant!

C. The rental managers in Mackay must have spent too much time in the summer heat… they wanted what I regarded as an obscene amount of commission to manage the property. Had I gone ahead I would have immediately reported being robbed to the local police []

D. There were some serious issues associated with gaining the finance for a block of more than 4 units. The CBA wasn’t interested at all, the best I could do was a commercial loan with Suncorp Metway on a 30% deposit. This made the cash on cash return very unattractive.

E. While the town has picked up a little now, a few years ago I was worried about the continued poor yield from sugar on top of mines closing. Perhaps this was a good time to buy… but this added further weight to leaving this deal alone.

Now, as for the data that you have supplied:

Property One

$430k
Say: 30% down = $129k
Closing Costs = $20k

Approx Cash Needed = $149k

Return:

Rent: $35,620 (fully let!)
Interest: $19,565 (Interest Only Basis)
Management Fees: $2,500 (around 7%)
Repairs: $2,500 (stab in the dark)
Rates: $3,000 (say 600 p/unit)

Positive cashflow: $8,055
Cocr: 5.4%

This would seem to be marginally positive cashflow, but the key to this is leaving such a big deposit and also being able to ensure that your interest rate stays low.

Remember that you should factor in a vacancy as well… say one month p/unit p/annum to be very conservative.

Personally, this would not be enough reward for risk in my eyes, so I would try to get creative b4 ditching the deal.

Still, this property would be a better buy in my opinion than a -vely geared monstrosity.

Before writing off the deal, some questions to ponder are:

1. Can you get the rent higher? and/or
2. Can you get the price lower or leave less cash in the deal?

Well, that’s enough for now. Have a go at crunching the numbers in the second property as I have done above. I’ll look forward to reading your post.

Bye,

Steve McKnight

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Hi,

Yep – we know about this.

There used to be a forum called Meeting Point but it was taken down due to issues of people advertising in a way that might have broken ASIC requirements.

I’m looking into it and will re-establish this forum, hopefully in the very near future.

Bye,

Steve McKnight

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Hi,

The critical figure you mentioned was:

quote:

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total cash expenses 23759 (-6033)

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How many of these properties could you afford to own? Re: depreciation… read: http://www.propertyinvesting.com/depreciation

What doesn’t make you rich will end up making you poor.

I’d be looking elsewhere if you wanted a positive cashflow return.

Bye,

Steve McKnight

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Hi,

Doogs makes a very good point re: interest deductibility.

However, here’s one possible strategy you might like to discuss with your financial adviser…

Instead of redrawing 100% of your home’s purchase price against equity from investment properties, just:

1. Set up a new loan for ?%LVR you need for your home. Note that this interest will not be deductible.

2. Fund the deposit and closing costs from a redraw of equity from your investment properties. Again, the interest on the redraw will not be deductible.

At least this way you keep available equity (through your investment property) to use on any other investment assets that you might want to buy in the future instead of tying it up with the puchase of your home.

Of course, with borrowing money comes financial risk that should interest rates rise you’ll need to cover the higher repayments.

Regards,

Steve McKnight

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Remember that success comes from doing things differently.
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