Hi,

I really enjoyed your post []

I think it illustrates the attitude that many agents have towards tenants.

A good friend of mine yesterday was complaining that the real estate agent he rents through knocked on his door the other day.

It was answered by his sister who was out from the US at the time. Being told that an appointment had been booked, she let the agent in.

Shortly afterwards the agent opened the door to my friend’s bedroom and there he was with his partner asleep.

He was furious. The agent has issued an unreserved apology, but the violation has already happened.

Cheers,

Steve McKnight

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Hi,

The confirmation e-mail with all the necessary information will be out this afternoon.

Bye,

Steve McKnight

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Hi,

Contrary to public opinion, I am not totally anti-negative gearing.

However, I think that’s important to see a strategy for what it is, and re: -ve gearing, it’s about capital growth.

If your goal is financial independence then I think a better model is to build cashflow assets first and then reinvest in capital growth assets out of replenishing income returns.

This way it doesn’t matter if your assets increase or decrease in value as you always have the regular income stream.

This being said, you need to weigh up the cost of selling your home vs. redrawing the equity.

However, the question of keeping or selling should boil down to answering this question…

Will keeping my property bring me closer to, or push me further away, from my investing goals?

quote:

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…I am living in my own moderate home and hold a portfolio of investment properties yielding me passive income.

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So, does turing your property into a -vely geared property help or hinder you here?

Cheers,

Steve McKnight

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Hi,

It’s not a matter of where, rather it is a matter of how!

Find problems and then match them with the appropriate real estate investing solution.

For example, you can wrap any value property – but the real art is finding a client that wants the property and can afford the repayments.

The problem solving here is finding the client, not the property. Hopefully this illustrates the point that it’s not really a matter of location.

This theme… problem solving to make money in property, is the central theme of the Property Masters seminar.

Bye,

Steve McKnight

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Hi,

FNQ… Far North Queensland?

Anyway, some good resources for you:

ANZ bank discussion of Lines of Credit (LOC)

US site that explains the concept nicely.

Bye,

Steve McKnight

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Hi Patricia,

Thanks for your post. Interesting problem you have there and it underlines the importance of due diligence in a potential acquisition.

Based on the numbers you have provided, I’d walk away. You have used some words in your post that I would think very carefully about.

That is:

quote:

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This is a gamble, but homes on the canals are rising almost weekly.

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It sounds to me like your ‘reasonable’ head is telling you that it’s a risk, maybe a big risk – while your greed gland is secreting wildly and tellling you to go for it so you don’t miss out.

Only hindsight will tell us if you would have been better of in or our of this deal.

However, here’s some financial blurb about your chances of making money.

Let’s say you buy for $330,000 on a 80% loan. Closing costs are $11603.50 plus legals and loan fees, so let’s call it an even $13,000.

Cash in you need is therefore:

Deposit: $66,000
Closing costs: $13,000
Total: $79,000

I accept that you may choose to use equity in other properties to fund your deposit, or alternatively you may borrow >80% and pay mortgage insurance. But I need to start somewhere…

Anyway, you mention that you’ll also have to tip in $700 per month. OK… and let’s say that you CAN find a tenant the second it’s finished (say the beginning of April).

Your loss until the end of the year will be 9 months * $700 = $6,300

OK – now let’s imagine that you sell after nine months. The first question I ask is why would someone buy a used apartment off you when they could probably buy a new apartment assuming they are continuing to be built.

Pushing that issue to one side, let’s assume you CAN sell for $380,000. Deducted from this needs to be agents costs, let’s assume 3% – which comes to $11,400, plus let’s say another $2,000 in solicitors fees, mortgage discharge etc.

Your numbers now look like this:

Total acquisition costs: $343,000
Add Negative cashflow: $6,300
Less sales price: ($380,000)
Add sales costs: $13,400
Profit: $17,300

Now, don’t forget the tax implications of the profit. Because you have held the property for <12 months there is no CGT discount, so up to 50% of it will be lost. Best case scenario is you’ll probably lose say 1/3rd, so your bottom line BEST CASE SCENARIO is you are betting $79,000 to make a possible $5,709.

I can see why you said this was a gamble!

To me there is far too much risk given that your key assumptions are:

1. Property continues to rise in value at current rates
2. You can find a tenant
3. The property is completed on time
4. You have access to capital and can afford the loss each month
5. Your likely gain is small compared with the risk.

Perhaps the investing Universe is telling you something by providing you with a way out of this deal.

Maybe it’s your chance to build a relationship with an agent by doing them a favour and moving on from this deal to pick up a more profitable deal later.

Finally, whatever you do, if you are making a $330,000 investing decision without a proper analysis of the numbers, such as that outlined in Financial Analysis Template in Buyer Beware, then you’re asking for trouble.

Best of luck,

Steve McKnight

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Hi Greg,

Great to see you on the forum.

Unfortunately there is generally no CGT roll-over relief in Australia for property like there is in the USA.

As for what should you do re: your property, I’d do what brought me to my investing goal the quickest.

Cheers,

Steve McKnight

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Hi,

By “NII” I assume that you mean National Investment Institute?

As I remember this is Henry Kaye’s organisation.

I have never been to one of his seminars or information nights, although I did have a private consultation some years ago with someone called Victoria.

I was ushered into a room that had Robert Kiyosaki books on the shelf and was told that Henry sold property that Robert mentioned in his books.

At the time I walked away as the numbers did not confirm the assetions made about wealth building.

However, in hindsight, because of the boom in property, provided people could absord the -ve cashflow and wanted to keep working, then they would have made substantial amounts of money.

Nevertheless, for me, making money is not enough. I wanted to make best use of my money and didn’t want the obligation of having to work.

I recommend going along and trying to glean good ideas. When the sales pitch starts, weigh up the cost vs. the benefit and see if you want to go further.

Finally, remember that people who sell property lack independence about whether or not it is a good investment. Be certain that before you ever sign a contract to buy an investment property of any sales agent that you receive independent financial advice.

Regards,

Steve McKnight

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Hi Mark,

I have not spent a lot of time investigating landlord’s insurance, however I have an understanding that may help you.

A landlord’s insurance policy covers tenancy risk – usually both from a income and potential physical damage perspective.

The cost of a policy varies with perceived risk.

Personally, unless I know that I’m dealing with a risky tenant, I will not take out landlord’s insurance. I see it as insurance for a risk I already mitigate by carefully pre-screening my tenants and also constantly managing my investment.

Whether or not insurance is right for you depends on your perceived level of risk and how active you are with your investment.

Cheers,

Steve McKnight

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