blay, I think you've been incredibly fortunate with the guarantor. Given that you have no lease and no landlords insurance, things could be a LOT worse!

Don't, however, take the guarantor's advice and tell the tenants that they have to be gone by Saturday if the law says that you have to give them more notice – they could then appeal and you'd be stuck for ages. Give them the legally required notice but offer some incentive to leave earlier, eg you'll pay for the removal truck, or you'll help them move, or something that you can afford. (And remember they're costing you a lot of money to stay there if they're not paying rent.) And arrange to do a vacation inspection on the day they move out, with the guarantor and tenant present, so the tenant knows that his BIL is going to see how he's left the place.

As soon as the property's vacant, get it back up to scratch, get a condition report, get a proper lease in place, and get landlord's insurance. These are essential, IMHO. I think that a good property manager is wise, but I also know people who manage their own properties and find it OK. Depends on your personality, I guess; I prefer to spend my time looking for more investments, and find dealing with tenants unpleasant. I also don't trust myself to get all the legalities right, whereas a good property manager is very familiar with tenancy laws.

I have a feeling that your father is going to be OK. Treat it as a lesson learnt, thank God for watching out for you and giving you a relatively cheap learning experience, and get things right next time.

Hope you all had as awesome a Christmas as we did – heaps of family, not too hot, kids and pets well-behaved, everybody in good spirits (except permanently cranky Nanna) – just perfect!

Warmest regards, Tracey (visiting Mildura, from Brisbane)

I look for a broker who:

* understands the importance of finding the right lender for MY circumstances, not just the one with the lowest interest rate. (Brokers – probably reflecting the general population – seem to be obsessed with interest rate, when it's just not that important to me.)

* understands structures and how that impacts on the way finances are arranged.

* is familiar with and uses innovative, non-bank lenders, and maintains a watch on new products and lenders entering the market.

* operates predominantly in the sector I'm purchasing in, because different lenders specialise in different sectors. (I think it's nearly impossible for an individual to be as familiar as I want them to be with all market sectors. I group finance into 3 broad divisions and I have a broker for each: commercial, residential, development.)

Just in case anybody's interested, my priorities for a loan are:

1) max LVR,

2) speed of approval/settlement with minimum bureaucracy,

3) flexibility/transportability eg minimal penalties for increasing borrowings when property value increases, reducing interest rate if LVR drops, paying out, etc.

Warmest regards, Tracey in Brisbane

Terryw is right about the $15K for the reno. It depends how it was done, ie who owns the IP and who incurred the expenses.

If the IP is in a Trust and renovations were paid from its cash reserves, or if the IP is owned in an individual's name and that individual paid cash for the renovations, you're out of luck.

But if the IP is in a Trust, and you paid for the renovations personally, then you could perhaps create documentation showing that the monies expended by you personally were a loan to the Trust which the Trust has to repay. Then the $15K refinance could be used to repay you personally and would be deductible.

If you put all the reno expenses on a credit card and use the refinance to repay that credit card, you may be able to achieve deductibility, but it could get untidy if you've also put personal expenses on the credit card.

Sorry if this is confusing, but the principle is this: if the entity whose expense this is has already paid cash, then there was never a demonstrated need for that entity to borrow for the expense, and therefore interest isn't deductible. You can only claim interest if incurring that interest (ie getting a loan) was necessary to pay the expense.

ALWAYS pay expenses out of a line of credit or some kind of debt if you can – if you have heaps of spare cash, put it in an offset but don't pay off the debt, or else you lose its deductibility forever.

Warmest regards, Tracey in Brisbane

I'm also ex-military and I'd have to agree with tysonboss's assessment of virgininvestor's comment, though perhaps not the tone in which it was delivered.   The military take excellent care of their housing, are exceedingly strict with tenants (much more than any other property manager I've ever dealt with), and being the employer as well as property manager, they have good leverage to ensure that their "requests" are complied with. They will use the chain of command if necessary, ie if someone's a pig in their home, they will get hauled into their boss's office, ie "bring your hat, don't bring your coffee mug".  I know, I've been the one doing the shouting counselling!

So I would have to say that defence housing is a very easy investment. But I would share your concern about capital appreciation. Ask some military people what's happening with the base's future, because in many areas the base is the major economic centre in the area, and if it's expanding, I think your investment would be pretty sound. The area around Yamanto (near Amberley RAAF base) is one that I believe is going to expand enormously for decades – there are all sorts of expansion plans for the base, so I should think that one's pretty secure. Other bases, though, are becoming smaller.

The other reason I personally wouldn't invest in defence housing is your limited ability to add value – the military want the house pretty much as it is, and won't pay more if you improve it. Nor can you subdivide. If you need to sell, you're stuck with the lease which may affect sales price as you limit the market that you can sell to.

But as mentioned before, if you don't want to add value and want "set and forget", and it's near a solid base with expansion plans, then they can be a great investment.

Warmest regards, Tracey in Brisbane

Hi Hilly! There's only one document/contract, which is the contract of sale which includes conditions, eg subject to finance within 21 days, subject to building and pest inspection to buyer's satisfaction within 14 days, etc. The contract doesn't become binding on you – the buyer – to complete it until these conditions are fulfilled. You can put in whatever conditions you want (in a normal sale situation, not in an auction), but of course the more conditions you want, the less attractive your offer is to the seller. You have to strike a balance between protecting your interests, but ensuring the seller still sees your offer as attractive. Generally, the more conditions you put in, the higher the price you need to offer. ie If you offer to purchase unconditionally from the outset, you can perhaps obtain a significant discount on the purchase price. If you have pretty straightforward conditions like "subject to finance", you can still negotiate a reasonably favourable price, but if you have things like "subject to sale of my previous home" or other things that make the contract fairly likely to fall through, you would have to pay pretty close to the asking price (depending on the desperation or otherwise of the vendor).

Get your solicitor to look at the contract before signing it, and make sure it includes the conditions needed to protect your position. (I, and I'm sure many other investors, don't normally bother with this anymore because I now have pretty much standard clauses, but particularly when you're starting out it's a good precaution.)

Then as soon as you've signed the contract, including the conditions, normally your real estate agent will give a copy to each person's solicitor (yours and the sellers) and they begin communicating. The process is that within the time periods specified, you must advise your solicitor to advise the seller's solicitor that the various conditions have been satisfied. eg Before 14 days are up, you have to advise that you're happy with the outcome and willing to proceed, or that you're willing to proceed provided certain repairs are carried out etc. And before the 21 days (in this example) are up, you have to advise that you do have final approval on your loan, and once all the conditions are satisfied, the contract is then "unconditional" and both parties are bound to proceed with the transfer.

Your solicitor will normally remind you, but make sure that you do advise that the conditions are satisfied within the time periods, because if it rolls around to the 15th day and you haven't advised that inspections were satisfactory, the vendor could – if they wanted – pull out of the contract. Normally they wouldn't, but if another prospective buyer has popped up during that time who is willing to pay more, you could miss out on the deal.

Best wishes, Tracey in Brisbane

Hi, Robyn! I'm not sure if this is a moot point now, but I'd rethink. Certainly you should be able to purchase more property without having to sell anything; you have heaps of equity. So unless you think the property in New Farm is a fundamentally bad investment, I wouldn't sell it. You're better off to be an investor than a trader; let time work its magic.

With regards to the unit on the Gold Coast, this doesn't necessarily sound like a good business decision. Properties such as the one you describe have a number of disadvantages. Firstly, lenders will usually only lend 60%-ish on these kinds of specialist properties. I look at it this way – if I have $100K in equity, I can use that to buy a $250K holiday let apartment (60% is $150K), or I can use it as a 10% deposit on 4 x $250K houses. Yes, you get a better rental return on the holiday lets, but you also have higher expenses (cleaning, and body corporate can be HUGE), and your capital growth generally isn't as good. When your property is one of a large number of "same" units, your ability to add value is very limited, and there's usually a fairly high turnover of ownership which keeps prices down due to the constant presence of competing product.

I think you're far better off buying the 4 houses, in terms of capital growth prospects. Or even 1 house!

The fact that you love the views so much and want to stay there occasionally on holidays also suggest to me that this is being drive by emotion rather than because it's a sound business decision. Go stay there every year in somebody else's unit and pay $1000 or whatever it costs – getting a free holiday every now and again is financially insignificant compared to any potential difference between investment choices, so it shouldn't even come into consideration.

Best wishes,

Tracey in Brisbane

I think if the tree could legally be removed by any other purchaser anyway, you have no way of ensuring the tree is "saved", so I say take the cash and remove the tree. If you feel badly about removing the tree, donate the extra (ie $5K less what it costs to remove that tree) to a tree planting charity, and save a lot more trees! Though I confess that I dislike conifers… I'd rather see some awesome native forest hardwood trees saved!

Just an opinion, like any other….

Regards, Tracey in Brisbane

Mark, it is discouraging when you feel "stuck", but I do encourage you not to sell rashly. I've done this a few times in the past ; ) and it has always been the "sub-optimal" decision. I say it that way because I don't dwell on the past but instead look at my "mistakes" as valuable learning experiences. I'm just saying that if you can learn from somebody else's "learning experience" it's even cheaper than having your own learning experiences!

Anyway, with CGT and commissions and taxes of buying and selling, unless the properties you own are fundamentally poor investments, it's generally not a good financial proposition to sell.

I think why you're finding it so difficult is that you're trying to create so much positive cashflow in such a hurry. The people who live off their property investments – and I'm talking about passive investments, not property-based businesses such as developing and renovating etc – generally have let time do the magic for them. ie as time goes by, your rental return increases but your mortgage interest stays the same, so properties become more cashflow positive over time. This is another good reason not to get discouraged and sell – you don't give time the chance to work its magic!

I agree that you need a good mortgage broker. I'd try Investors Direct, I've found them to be innovative and knowledgable.

Good luck, and congratulations on what you've achieved thus far,

Tracey in Brisbane

Hi Darren Bear! Firstly, I'm sorry that some previous posters have used such a hostile tone. For some reason, many people forget their manners on forums and say things in a manner which, if they'd thought about it or if they were face-to-face, I don't think they would never say. I wish that everybody responding would assume that the poster raising the issue is intelligent and well-intentioned …. that's my idealism for the day! 

Now, having said that, I somewhat share their sentiments, if not their means of expressing them! Here's why…

Returns on property investments are modest, perhaps averaging a few per cent per year. For example, if you average rent @ 4% plus growth @ 8% less mortgage interest @ 8%, then the overall return is 4% pa. Whilst this does add up over time, it's very slow and really only worthwhile if you use LEVERAGE. Returning 4% pa isn't great, but if you've only put in 20% deposit, then you're returning 20% on your money. (The 4% profit divided by the 20% you've put in is a 20% ROI.) If you only put down a 10% deposit, you're returning 40% on your money each year.

Of course in both scenarios your situation improves every year, because the 8% capital growth and 4% rental income increase each year with the value of the property, but the mortgage interest going out remains at 8% of the initial balance. If you're confused, imagine you'd bought a home that's now worth $1M for $215K 20 years ago, using a 100% lend and an interest only loan (for simplicity). Your rental return now would be $770 per week, and your capital growth $80K per year, but because you've been paying the interest each year and the mortgage balance has not increased with your home's value, your interest expense is still only 8% of $215K, or $330 pw. So your property is now – ignoring other factors – $440pw cashflow positive, and increasing your asset base by $80K per year.

The logic behind leveraging is that the overall return on the property (ie rent plus capital growth) will be greater than mortgage interest rates. If that's the case, then instead of using other investors to fund your investment – with whom you share profits, ie they make the same return as you do – then you're much better off to pay the bank 8%. Having investment partners, without leveraging, is financially the same as paying a bank 12% interest, on the above figures. The benefit of leveraging is that the money the bank lent you EARNS you 12%, but you only have to PAY them 8%, so you make 12% on the money that you put in, PLUS 4% on the money that the bank put in.

If you are concerned that the overall turn will not be greater than mortgage interest rates, then you should forget the risk of owning property and just invest in mortgages instead, ie lend your money to others at 8% return.

And, as others have highlighted, there are many complications involved in joint ventures. But there are people whose personality type suits joint ventures.

If you want the best of both worlds, perhaps you could develop a joint venture with leveraging. For example, if you find 5 people each with $40K, instead of putting together to buy one $200K property, you could use that as, say, a 20% deposit on 5 x $200K properties.

If you could use your $40K to buy a $200K property yourself, then I think that would be a better option, but the potential advantages of a JV with leveraging are:

* you could spread your risk by buying 5 x $200K properties, for example, in different locations
* you have many minds put to the investment decision which increases your comfort level if you're not confident
* other members of the JV may have greater borrowing capacity than you do, allowing you to invest more than you would be able to do on your own (eg if you have unreliable income, or undocumented income)

Best wishes!

Tracey in Brisbane

I have a 2000 Daewoo Matiz – a tiny Korean car that I thought was very cute when new, but isn't quite so cute now it's showing it's age….

You've struck a nerve here! I had a "motivational speaker" publicly label me a "loser" in a seminar some years ago for not aspiring to own a prestige car. He said "but surely you want a better car", and I said that no, I didn't really. He asked me "if somebody offered you a Matiz or a Mercedes and there were no other differentials, what would you choose?"

I said "Mercedes, of course", and he said "see, you really do want a Mercedes". I said, "no, because I'd sell the Mercedes, buy a Matiz again, and use the excess funds for investing…" He got so furious – because I'd negated his point, perhaps? – that he felt the need to attack me, I guess, and shouted "then you're a loser and you'll always be a loser". Some example, hey? I bet they were all lining up to have him be their "life coach" after that outburst!

I don't object to anybody else having a luxury car – it's just not important to me. And after this experience, I'm more determined than ever to never drive a prestige car. And you know what, I'll be happier in my Matiz than this jerk will be driving a prestige car that he can't really afford, and only has because it's part of his "image".