From my limited renovation experience I’d say this:
1. You can usually get an immediate discount (even if you are not a tradesperson) by setting up an account with the local stores rather than paying cash at the counter. This has two benefits… 1. You can save your cash and 2. You get a discount []
2. If there is an absolute must when it comes to renovating it is a new front door. Don’t go for the cheapest option here.
Cheers,
Steve McKnight
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1. Can you increase the current rent (ie. sublet areas, value add etc)?
2. Can you negotiate a lower purchase price?
3. What guarantee do you have that the tenant will renew?
4. What’s VO’s mean? Outgoings? These should be paid by the tenant?
5. Banks will uusally only lend b/w 60 and 70% on commercial… can you afford the deposit + closing costs?
6. What is you minimum required return?
That’ll do for starters.
Bye
Steve McKnight
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I am an advocate of both wraps and lease options in the right circumstance.
The difference b/w the two techniques is that with a wrap the is actually a contract to buy the property… in a lease option there is only a right to buy, rather than an obligation to buy.
The different nature of the contract creates the advantages and disadvantages.
Wrap
1. Get First Home Buyers Grant (timing dependant on what State you invest in) as a deposit making it a great low down strategy.
2. You have a buyer rather than a tenant so you can legally pass on all ownership costs.
3. You own the property until the last payment is made.
Lease Option
1. Might be easier to get finance as you are just having a normal tenant relationship.
2. Can still recover part of your cost as an option fee.
3. You own the property until the right is exercised at which point you are usally cashed out.
Hopefully you can see it is ‘horses for courses’. If your client has enough of a deposit or is able to get the FHOG then I’d go the wrap.
If not then I’d go the lease option.
Bye
Steve McKnight
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I doubt that your friend is / will rip you off… but it’s likely to be a good way to start his project to have you sign on (from his perspective) since he will need some pre-sales for both his marketing and also to get financing for the project.
Tread carefully and don’t let friendship or greed (or hype) get in the way of cold are facts… and read the old editions of the newsletter before you do anything!
Bye
Steve McKnight
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Thanks for your post and welcome to the PropertyInvesting.com community.
In respect to general things to look our for, I’d strongly recommend you read my 10 Laws of property investing success that have been outlined in editions of Insider to date (the monthly newsletter).
Specifically though, you raise a good topic of converstaion about the concept of delayed equity.
These units that you mention you could buy for $460k today and might be worth as much as $700k when they are completed in 2005. Plus, being in Vic. you will also save on stamp duty.
I have no experience in buying this kind of property but I have the following concerns:
1. If you make a mistake, then given the numbers involved, it is likely to be as expensive one. If you want to invest in property I’d encourage you to start with smaller deals and then work your way up.
2. I have friends you purchased a property on St. Kilda road several years ago under the same kind of promise and recently took possession. The property is only just worth what they paid, and if they sold, less than what they paid when you factor in sale costs.
3. I believe that the type of tenant you’ll attract will be a transitory tenant, rather than the more stable family tenant. This adds to the risk in the investment.
4. Interest rates are more likely to go up than down in the medium term, which means that buy the time you settle your likely repayments will be higher than they would be now. Be sure that any financial data you inspect allows for this.
5. About your friend… I don’t want to jump the gun here, but is your friend paid a commission when you buy? ie. is he a sales agent? Hmmmm. Something doesn’t seem quite right about what you have written and smells a bit fishy.
6. Ask for some kind of comparatives with other projects in the area to see if the projections on other deals worked out as planned. There is a huge difference between a budget and reality.
Ok… it’s clear that you need some sort of plan before you do anything []
Work out what it is that you want (and try not to be greedy). Seriously, for $25 a good place to start is the Fast Track tape (available from the resources area). Even if you don’t want +ve cashflow it talks about how to find an area that would be a good place to invest.
I’m concerned by the numbers you are talking about… there seems to be too much risk for someone beginning.
Regards,
Steve McKnight
P.S. Congratulations on the new addition to the family.
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I think it highlights well how one property might just cross the line under one strategy but be a good +ve cashflow spinner under another.
Some things to think about:
1. Did you allow for vacancies in the B&H figures?
2. Did you allow for rental management in the B&H figures? At what %?
3. The lease option deposit of $1,000 seems far too low. I’d be wanting $3,000+ as a minimum
Still, you have made a good start and already learned a valuable lesson in that +ve cashflow investing is not so much about the property, but matching the right property to the right strategy to the right person.
Bye
Steve McKnight
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I was wondering if I found my own tenant (ie. the real estate didn’t find it for me) do I still have to pay the one month letting fee still to the agent as stated in the contract? If not, then I could give that to the good tenant as an incentive to stay and bring in her friends….
(thanks Steve)
I wouldn’t imagine that you would have to pay anything to the r/e agent if you found your own tenant… but at the end of the day it would depend on what the listing agreement said.
Cheers,
Steve McKnight
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If it were me I’d immediately sack the rental manager and also look to terminate the lease of the rowdy young adults (for breach of lease).
Then I’d go back to the good tenant and ask her for the names of any people she might know who might be interested in renting the units. Offer her one month’s rent free for each referral that ends up signing a lease (since that is what you would pay as a letting fee anyway).
Commit to giving the units a community theme if possible as I’ve founf that getting the right mix of tenants is the biggest success factor in a block of units.
Use the template in Buyer Beware to shop around for a new rental manager. Then offer an incentive package to new tenants to encourage them to rent with you.
Regards,
Steve McKnight
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I don’t expect that you’ll be easily able to find a conventional property within 1 hr of Sydney that’ll meet thet 11 sec solution.
So what does this mean?
Well, you either change the way you are looking or the questions that you are asking… or alternatively look to invest in a different area.
I feel that the equation remains as valid today as it was when I started investing. Indeed it is getting harder by the day to find the same sorts of property that I bought (for a similar dollar) in the areas where I invest.
But I am also mindful that a lot of deals exist that do meet the criteria. However unlike earlier days, finding these deals is not as simple as looking up realestate.com.au
That is why we talk about many stratgeies at the Masters seminar so that you can identify the right solution for the problem that you encounter.
Was I just lucky to invest at a time when the market began to boom? Maybe – as timing has a lot to do with it.
However, in the same period when investors struggle to own 5 properties… I’ve gone on to buy (with David) over 130.
I think you make your own luck and success comes from doing things differently. It’s not easy… if it was then everyone would do it.
Lance is right though… if you are prepared to look then the deals are (and always willbe) out there.
Bye
Steve McKnight
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Well said re: your comments and I love your signature!
My experience is that lenders will provide a maximum lend, since they review all loans based on risk.
The more money that you borrow, then the so too does the risk for the lender in that if you go under then they have a higher exposure.
Just what that maximum lend figure is… who can tell? It depends on policy, the nature of the security and the strength of your network.
I wouls say though that by only borrowing 80% of the purchase price I have found it easier to return to the money well time and time again as lenders know that I have something to lose if things don’t go to plan.
Nathan: Keep posting questions mate. It’s not spamming at all and you are getting some excellent feedback and comments for suggested improvement.
Regards,
Steve McKnight
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I would certainly look at the demographics of an area before blindly investing there. The idea is to use price to find an area and then to allocate the time to researching the area.
Nathan:
OK – so now you have begun looking for an area. Where / how did you look? How much time have you spent? Did you actually hit the streets? The key is to look to buy someone else’s problem and then solve it.
Positive cashflow property requires effort for which you are well paid for down the track.
No criticism of you, but lot’s of people mistake passive income for being paid to do nothing (to quote from the Grizzly Bear).
Bye
Steve McKnight
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I’d work out some budget numbers that start with how much money you plan to make and then work backwards.
This will reveal the amount of cash you can spend to acquire the home to begin with.
Avoid, at all costs, being swept up with the potential to make a lot of money.
Look at what is happening around the area where you want to invest and see what other developers are doing and also see how easily renovated / new sub-divided properties are selling.
Bye
Steve McKnight
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