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This Project could have some major cost blow outs,
Hi,
For your plan to work you need to find a steady source of positive cashflow investments to by and hold, that can be hard in todays market, especially if your takings out 100% finance on them.Where will you be getting the deposit money from.
Jon,
These types of properties have not existed in capitol cities for a long time, when Steve wrote his first book 0-130 properties he was buying positively geared properties around regional Victoria, How ever property prices have grown in these areas now as well, making properties that once could be bought positive cash flow from day one to negative cash flow.
As Steve says in his latest book 0- 260+ properties, today's market has changed. you can't expect to go out and "Buy" a positive cash-flow outcome any more, ( however in certain circumstances they may still exist). But what you can do is increase your level of sopistication and find deals where you will be able to create a positive cash flow outcome.
If you can find and work deals like this into your portfolio you will excelerate your growth.
I have a mate who owns a couple of retirement units, he is pretty happy with them as an investment.
His units are in a rental pool, meaning that the rents from all the properites in the complex are divided equally to the land lords, so even if his unit is vacant as long as the complex as a whole has a low vacancy rate it will still provide a good cashflow.
I don't think there is much room for capitol growth though because the price of these type of properties is normally linked to the rental yeild that it is getting, and since most of the rents are linked to a certain percentage of the tenants pension the rent is only likly to grow in line with inflation, which is not to bad I guess as the rent and the value of the property will be growing with inflation your repayment to the bank each year will be shrinking with inflation.
I think you would have to look at each development on it merits, but having one or two of this style of property would be good in a balanced portfolio, all depends on your goals and stratergy.
I can't see another way around unless you have a large cash deposit.
Steve if you are going to release your wrap kit some time soon, or if you have a copy lying around I will buy it.
I really want to learn more about wraps, But I don't know where to get some good nuts and bolts infomation
I have been doing a fair bit of research around the northern areas of the central coast nsw (just nroth of sydney). alot of people are starting to feel confident that the flat period is coming to an end, rental yeilds have growing.
I am searching for investments in this region,
Have you raised the rent recently, you way be able to get a bigger cashflow if you raise the rent as the market rent may have increased, also look at managing it yourself for a year or two,
Also is you haven't done so allready Pay to get a depreation report done, your may be able to claim back a few years depreation in this years tax return, you'll most likly get a few thousand $$$ in your tax tax return, this can offset some neg cashflow.
I agree you will have to maintain a timber home more, But I wouldn't say no to a good property just because it's timber.
1997 VT Commodore,….. LPG Converted Offcoarse.
I have spoken to a Broker that said some lender's would lend to a company based on their income provided that they had strong Financel statements for 5years, and did alot of hoop jumping, some Lenders also will lend against the purchase cost of a franchise business you own, normally 40% – 50% but up to 90% in the case of the big franchises like mcdonalds,
To answer your question 'Show me the money"
using your example, yes your payments would stay the same if you had $10,000 in an offset account. So you would still have to make your payment of $1000 a month, However because you have your money in the offset account each month you will get charged less interest, so more of your monthly payment will be coming of your principle there by reducing your loan term.
for example say for the month of june you didn't have any money in your offset account and you were charged $970 interest your monthly payment of $1000 has only reduced your loan balance by $30,
But then in July you hold $10,000 in your offset account so you only get charged $920 interest, ofcoarse your payment will still be $1000 but this month your loan balance is reduced by $80 instead of $30,
as you can see it has had a big effect, simply by holding $10,000 in your offset account for a month, plus it works like compound interest in reverse. If you think about that interest that you saved has reduced your priciple of your loan, so you might look at it and say "oh, good I saved $50 worth of interest" but really if you loan term is 25 years you have not only saved $50 interest but you have also saved 25 years worth of interest you would have had to have paid on that $50 if it were still on your loan.Number 30,
Nice big block, wide street frontage, can see a nice strip of town houses sloting in there.
Just my Thoughts,
The max loan that I would go for would be a 25 year loan, even a 30 year loan is to long, the differance between the monthly repayments of a 25year loan and a 30 year loan are so minimal, Its not really worth the interest associated with the extended loan term,
you will pay an extra $33,000 dollars in interest per $100,000 lent if you take out a 30year loan instead of a 25year loan, Thats a big differance when the repayments for the 25year loan are only $8.70 extra a week.
All of the strands above offer great advice, All I can say is educate your self, and take action.
And remember negative geared property doesn't always have to remain negatively geared, If you can find a property thats been held by a lazy investor for a while where they haven't been increasing the rent, maybe let a bit of basic maintance lapse it can be a good opportunity get in there by a bit cheaper cause of the lower rental yeild, freashen the place up increase the rent and that should bring you a bit closer to neutrel cashflow,
pay to get a deppretation report done up, this will give you a bigger tax return each year so that again helps your cash flow, then with for rental increase's in line with inflation and basic rent increases you should be able get a positive cashflow outcome, over time.
But as mentioned by the guys above the more proactive you are in finding good opportunites, adding valve, and manageing your investments the quicker you will get ahead.
Interest only loans are definatly a great tool in investers tool belt,
If you have any debt what so ever that is not tax deductable, say on personal items such as cars, your own home and stuff like that, why would you want to use even a single dollar to clear debt that is tax deductable until you have cleared all other debt that you can't claim.
For example if you have a car loan at 8% and an investment loan at 8%, you may think it doesn't matter which one you pay off first because they are both 8%, how ever after tax your car loan is still 8% because you can't claim any of it back, but because you can claim back a portion of you interest on your tax return your true interest rate on the investment loan is only 5.6%,(based on a 30% tax rate), so it comes back to the old rule of clearing debt a the highest interest rate first.
Another stratergy you can use if your planning to use property investment as a way of owning your own home one day, Is to take out an "interest only" loan on your investment with an interest offset account link to it, Find out how much you would normally pay if the loan was "Principle and Interest", pay the interest only loan each month and any extra from the P&I amount place into your interest offset account, that way your interest is reduced as the money in the offset account accumlate's.
Then in say 5 years when you want to purchase your own home use the money thats been building up in the offset account as your deposit, That way you have still got your full amount of debt against your investment which is tax deductable and you have reduced the size of the loan needed for your home which is not tax deductable.
If you believe that he has gone out of his my to make this project work for you, and you are really happy with the job I would probally give him a bit extra if only to keep him on side for future projects, try to find out if what he charged was a the lower side.
G'day ALL, "Update"
I have spoken to the council building inspector and a local builder responsible for this area and he has informed me that the most important aspects are that the there will be.
1. 2.4m clearance to the roof ( not including any beams ),
2. The floor must be elevated from the outside ground level by 300mm,
3. I must show evidence that there is a Water / Vapour proof membrane benith the existing concrete slab, ( thats the black or orange plastic lining you see them put under new slabs) other wise I must lay a 'Topping slab" over that current slab
4. The construction of the extenstion must suit the existing character of the building.
I have also spoken to a few draftsman about the cost of getting some drawings done up as no builder will give a quote till they see drawings of the renovation and their quotes ranged from $500 to $2500, the one that sounded the most professial and gave me heaps of good advice quoted me $1200 for the drawings, and also said we could perhaps get around the Topping slab issue if we marked on the plans that the extra rooms were for storage and a gym rather than bedrooms.
I am going out for another inspection to do some measurements and double check a few things so I will keep you updated,
But throw any advice my way I would love to hear any thoughts or suggestions about this project.
thanks,
Look into raising your rent if possible, even if it means changing tenant and offering incentives,
think about switching a large portion of your debt on your growth properties to interest only, with an offset account and store any extra repayments in the offset account that way your lowering your interest as the offset account builds up, but the money isn't actually coming off the priciple so it is easier to get at for further improvements or deposits on more property,
see if you can refinance at a cheaper interest rate with another lender,
maybe try writting a full budget up and a mini business or investment plan showing how you are planning to repay the debt it might help bring a marginal deal accross they line.
I just had another thought,
does any one know if it would be possible for me to enclose benith and extend out the back a bit so i would end up with two, 2bed units rather than rather than one 4 bed house, keeping in mind the building is timber construction. I wouldn't strata title it I think i would just keep it as one property with two income streams.
