Hi Sooshie,

I have finished the editing and the master CDs are being duplicated as I type.

It is still about two weeks away by the time that we mail it out.

Sorry for the delay, but these things take time…

Regards,

Steve McKnight

Hi Sean,

Thanks for your post and welcome to the Property Investing.Com community.

Let’s see abouyt answering those questions…

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1 could you send me a formula for princ&interest loans?

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The formula is actually that of an annuity calculation, which makes it quite complicated. If you really want I can look up the formula, but these days there are that many online loan calculators as well as financial calculators that you don’t need to know it.

Nevertheless, if you want a statistics lesson, then try:

http://www.duke.edu/~charvey/Classes/ba350_1997/preassignment/preassign.htm

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2 when purchasing a pos geared property do you use interest only loans?

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I use both interest only loans (primarily on my commercial properties) and P & I loans. My decision on which loan to use depends on a number of factors including the investment strategy, prevailing interest rates and the risk assessment of the property.

There is a body of thought out there suggests interest only is the way to go since you maximise your cashflow. However, I am of the belief that repaying debt is a good thing since it reduces investment risk and also increases cahflow by reducing the interest cost.

quote:

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3 does the 11sec rule apply to duplexs/blocks of flats/multiple dwelling blocks?

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I think it should. But remember that this is only a filtering tool. There are times when properties outside the formula will still work, and certainly times when deals inside the forumla will not.

Do you think it should apply? Why or why not? I’d be interested in discussing this more if you like.

Thanks again for your post and I hope to see more contributions from you in the future.

Regards

Steve McKnight

Hello Jason,

Thanks for joinging the community and for making your post.

Let’s see if I can help you with your questions…

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How do I go about getting financing for this ? Bank ? Finacial Broker? Mortgage Broker?

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Since the deregulation of the banking industry here in Australia there has been a boom in the number of lenders and the products that they offer.

I believe that if you have an existing relationship with a lender then you should start there as a prior banking history doesn’t count for a lot, but it counts for something.

Next I’d suggest a mortgage broker – they are paid for getting the deal over the line and can help you fill in the forms to ensure you get the best chance of success.

As far as products go… you’ll probably need a standard mortgage loan for the home and then some sort of line of credit (LOC) to cover the renovation budget. If you own your own home then a LOC should be quite easy and pain-free to set up and most major lenders offer them.

Of course another strategy might be to renovate and then onsell a property during the settlement period, in which case you may only need a LOC if you’s don’t plan to settle.

Be sure to look at the worst case scenario if you can’t sell and make sure it’s affordable.

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And with the way the financing is structured can I do this full time ?

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Only you can answer this, but I’d be hesitant to go full time until you have done at least one full deal. You may find you don’t like the risk etc. I’d try to go part-time to start with so that you have a mix of wage income to pay the bills (unless your wife can cover that + enough for your joint lifestyles). Lenders will like that regular income too… so if you plan to do this on multiple occasions then be sure that you have proof of regular income.

It’s difficult to show that you are a full time successful renovator on your first deal.

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My wife and I have just bought our first house for 250k and we owe 237k .I have done some renovations to it already and have had a real estate agent value it at a little over 300k so can I use this equity to start out?

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There’s a big difference between what a r/e agent values a property for and what an independent valuer comes up with. The lender will have their own valuer and to have them provide a figure will cost between $0 and $300, depending on the lender.

I’d do this first so you know how much you can play with for your renovation budget.

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As far as tax purposes what would be the best way? a company and incorporate it?

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This is almost impossible to answer since ‘it depends’ is as close as you can get without knowing more about your situation. Having said that… I recommend going to an accountant and getting some advice before starting.

Other Issues

I’m a little bit worried that your timing might be too late in some housing markets given that the boom seems to be starting to level out.

I don’t want to give you a reason to do nothing… but, be very careful about getting in over your head. That’s why before I mentioned that it may be a good idea to consider what happens if you can’t sell and whether or not you can afford to hang on given that you will be living off your wife’s income.

Bottom line.. you need more of a plan.

Finally, if you’d like more experience in renovations then I suggest you come along to the Masters seminar in November (Sydney). The Renovation Kings have an excellent presentation and I’m confident that you would recoup the cost of attending in your first deal alone.

To find out more visit:

https://www.propertyinvesting.com/files/content.asp?cid=mpi

Bye,

Steve McKnight

Hello Michael,

Welcome to the property investing.com forum.

After discussing your post with several independent people I have decided to edit your link as I feel it is disrespectful to community members.

My reasons for this are:

1. While you may have interesting and insightful comments to make on the forum, your only post has been to promote your own site and add no other value in return.

2. Sooshie went to great lengths to independently review sites that she thought were useful. You have made an unsolicitored advertisement of your website which is in clear breach of the acceptable advertising policy. For more information see the Forum Rules.

However I do encourage you to make posts on this forum and indeed promote your website in the acceptable manner which is by way of a signature file. This offer is made subject to:

1. Future posts being insightful, helpful and generally beneficial to the wider community; and

2. Your posts being subject to the same rules and constraints as all other posts.

If as you say you have 30 years of experience then I’m sure that you have plenty to offer the members of this site. I would ask that you be respectful of the forum rules and adhere to our acceptable advertising policy.

If you have any questions then please e-mail me at [email protected]

Sincerely,

Steve McKnight

Hi Glenn,

Light 5 hunjies and smoke them? []

Perhaps I need to get to Perth a bit more often…???…

Why not go with the lawyer then… ’cause stuffing around is something to be avoided at all costs.

It might be a bit more expensive, but not compared with missing out on a deal that could make $$$$ and pay for all those hunjies!

Learn and move on!

Bye

Steve

P.S. Brent in our office wants to know what a ‘hunjie’ is. And to think… he’s going to Uni… what do they teach the youth of today anyway?

Hi Felicity,

Thanks for the clarifying post.

In fact, this site does not necessarily owe any affiliate to me and I certainly don’t want it to be the “Steve McKnight” site – such as Somersoft is Jan Somer’s site etc.

I’m more than happy to be an expert, but all visitors should appreciate that my thoughts are my opinion and need to be considered and debated rather than swallowed as unquestionable fact.

This web site facility is available to any and every investor – and while the theme is +ve cashflow, I welcome any posts on any matter relating to property investing.

Indeed, I welcome constructive criticism about me [], since I’m always trying to improve too.

Bye

Steve McKnight

P.S. Re: land tax – I understand it to be a State by State based tax and that there is no connection between databases. That is, NSW land holdings are not added to Vic. to form one assessment base, rather there are two assessment basis.

The rates, thresholds etc. vary from State to State too.

Hello Jarrod,

Thanks for your post and welcome to the forum.

Let’s see if I can help you with a few of your concerns…

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I have a quick cash deal that I would like to complete on a property in Melbourne’s northern suburbs. I have a few problems with the deal, that I thought someone from the forum might be able to help me with.

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It might be wise to spell out a little more about what you mean by ‘quick cash’ – as these days that tern can mean a number of things. I expect that you mean a flip, that is, buy it and then resell it during the settlement period.

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The property is being sold because the owner has relocated to another state. It is a brand new house from a house and land package. The house is valued at 225,000-235,000 and I believe I can purchase it for about 195,000 based on conversations with the owner.

The problem is I would like to sell the house straight away but I am concerned the closing costs will make the deal not worth much at all.

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Hmmmm – it’s an interesting situation here. You have found a potentially under-priced property (I would due more due diligence to establish this) and you seem to have a sale figure in mind too (again, I suggest more due diligence to get a more reliable figure).

Your due diligence is designed to remove ‘approximates’ and thurn them into certainties. For example, stamp duty at $195,000 would be $7,360 + a $570 Transfer Fee.

The more you know about the figures the better your investment decision would be.

As for the other costs, get written quotes and turn estimates into definites.

Now let’s look at those numbers, working backwards…

Sale Price $235,000
Closing Costs ($7,930)
Legals ($500)
Landscaping ($3,000)
Agent’s Commisison ($15,000)
Purchase Price ($195,000)

Balance $13,570

Now only you can make a decision as to whether the investment is worth the risk… but if the place sells for less than $235k then in my opinion you are starting to look a bit skinny.

Alternatives

Perhaps a better idea is to try and buy an option over the property at the low price and then sell the option to someone else. This raises some issues about being a licensed real estate agent that you should investigate… but it may allow you to by-pass stamp duty and also agent’s costs if you can deal direct with the buyer.

This means you will have to mount your own advertising campaign, but more work will probably mean higher profits.

Exit Stratgey

If you go ahead, I’d also work on Plan B for the investment on the basis that you have to close… what would you do with it then and what would the financial consequences be?

I commend you on finding a deal, but would encourage you to work hard to develop a realistic plan that deals with more certain numbers and evaluates how easy it would be to find a seller willing to pay $235k in a presumably new housing estate where builders / developers might be cutting deals left, right and centre.

Good luck. I’m sure the forum would love to know how you get on.

Bye

Steve McKnight

Hi Kita,

Thanks for your post and welcome to the Property Investing.Com community.

Re: your question about wrapping…

You can do either, but I have used it to fuel the cash needed on other deals. This allows you to finance the deposit for property #2 from the wrap deposit received from property #1 and generally fast track your property investing empire.

Hope to see more posts from you again soon.

Bye

Steve McKnight

Hi Michael,

Thanks for your post.

This topic is now covered in much detail as part of the Masters seminar (about 26 pages of comprehensive notes!). It is also briefly covered in the Wrap Library.

As such I don’t plan to recover it here and potentially dilute the value of those products. AD… you can look forward to receiving all the information in Sydney in November!

However – I would say that the structure that we use is a company / trust multiple entity version.

We look to replicate the structure when we feel that we have more to lose than the cost of setting up a new structure and maintaining it with tax returns, ASIC lodgement fees etc.

Have an AWESOME day!

Bye

Steve McKnight

Hello Ian,

Thanks for making your post and welcome to the Property Investing.Com commmunity.

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Anyway my situation is that I have enough equity in my own home to borrow 110% of an investment property. Therefore when calculating cashflow on prospective properties the loan repayments include all the costs of purchasing the property. When doing this I am unable to find anything cashflow positive. My question is this, and I guess I’m looking for a yardstick here- am I being unrealistic with my expectations? Should I be paying a deposit and/or purchase costs out of my own kick so that the actual loan is less, and overall the property is then more likely to be cashflow positive? What do you think???

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You raise a very interesting question.

I think that finding a positive geared property and also gaining a 100%+ lend is a very difficult task. The 11 Sec. solution assumes that you will contribute a 20% deposit – that is, your loan will be about 80%.

I think that the answer to your question requires that you separate your property investing into at least two distinct phases.

Phase One

Finding properties that in the ordinary course of events would provide positive cashflow based on an 80% lend.

Phase Two

Working out the best and most creative way to finance those properties.

Doing this will at least allow you to find properties that in the ordinary course of investing would be +ve cashflow.

Cash On Cash Returns

If you use 100% financing then you really can’t calculate a cash-on-cash return as it is infinity.

Perhaps a way forward is to assume that you contribute x% as a deposit and then annually adjust the amount of your deposit by your interest so that you work off an accurate denominator.

The danger in what you are describing here is that you become so highly leveraged and may be prone to a collapse in a high interest rate environment.

I think that you will be OK so long as part of your strategy also involves a plan for repaying the debt and bringing your overall borrowings down.

Perhaps look at the 100%+ financing as an interim way to get into the property and then soon after look to pump some equity in that will:

1. Improve your cashflow return
2. Reduce your overall credit risk from overgearing

I believe buying properties based on 100% lends is a dangerous strategy given the liklihood of capital appreciation becoming flat and potential interest rates rises.

Has this helped?

Regards

Steve McKnight