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Hi Nonnie
If you are still out there I would be interested in knowing what path you took. Did you use Destiny Financial Solutions and/or did you seek the advice of a financial adviser that can advise on all investment opportunities not just one?
Being a financial adviser myself I am always interested in knowing why or why not potential investors do or don't seek advice rather than finding a investment provider that suits the potential investors bias.
Hope whatever you did went well.
Beware of short selling – anything.
The idea is that you "borrow" someone elses asset to sell it now at todays price and then buy it at a cheaper price in the future – an arse about way of speculating on prices going down rather than up.
If you are into punting and don't mind getting stuck with a lemon – refer share short selling like happened with ABC Childcare etc.
This is speculating, not investing therefore the stakes are high.
Interest rate rises take time to have an effect – especially when banks are still throwing credit cards at people and the old 4 year interest free loans are around.
We are starting to see the affects of the latest rounds of increases now.
We live in a capitalist society, whilst the government spruiks about historically low unemployment – not necessarily low underemployment – they are prepared to accept that up to 6% or 7% is acceptable to control a burgeoning economy. Too bad if you are in that 7%. We have ourselves to blame for this buying things today with tommorrows money. At some stage there is a day of reckoning.
If the interest rates rise again, hold onto your hats, the rollercoaster will take off (down rather than up). There is classic signs of a teetering economy (albeit 2 speed economy) – debtor payments to businesses getting longer, loan payment defaults increasing, closed signs on businesses increasing, property listings up, property sales down, sharemarket volatile.
NOW of course if you have been prudent over the binge cycle there is great opportunities arising, properties more accessable (in some areas) and shares in quality companies at more realistic prices and better percentage income returns.
Survival of the fittest – have you been doing your training!
One minute the agents are getting blamed for overinflating appraisals, the next minute they are accused of lowballing. Give them a break – they don't have a crystal ball – they can only go on what the latest trend is in any given area.
The general issue with property is that due to human nature the owners often get emotionally attached to the property – generally causing over valuing in their minds – I know – we did it with our first renovation – we had a figure in mind – got a solid offer in the first 2 weeks – unconditional and held off on the sale because we had worked so hard on the property etc etc. The bottomline was that we ended up accepting $10.000 less than that offer 6 months down the track.
Look for agents that have been around for a long time – they know how it works and that is their life – screw it up and they have no job!
With so called "independent" valuers you will often get a lower value as they have a professional indemnity risk – they can get sued! Especially at the moment with current interest rates rises, low consumer sentiment, low retail sales, higher number of listings etc.
In the end serious buyers will know the market and if the price is reasonable will buy it within the first month of listing.
As it is an investment property any compensation you get will basically be the sale price of your property – don't forget the capital gains tax issues (check if there is an exemption in this case – don't think so though). Make sure if it does happen that you remember that you will have to pay the CGT in that financial years tax return – budget for it.
Investing in property is like running a business. Are you getting adequate return on investment from the funds you have tied up in the property? It should not only be about inflation or local rent returns.
Do the math – what percentage return are you getting today on the "value" of the property and compare it to the "risk free" rate of return from bank deposits (take into account an average capital growth factor of course on the property). Add a "risk premium" to the bank deposit rate.
The issue I see is that the landlord has stretched themselves so far that they can't afford to "take the risk" of the tenant leaving as they are so negatively geared. So they don't increase the rents.
You could use your net equity for something else – you are taking the investment risk, cashflow risk, liability (injury onsite) risk. So charge appropriately for it! Don't go overboard but be rewarded for the risks you are taking!
Just because the next landlord might want to go to the wall and have no life as they are providing "cheap" accomodation for their tenant you don't have to! Don't get personally involved – it is a business transaction.
You probably bitch about the fuel price rising, the tenant may bitch about the rent rising – its human nature. Believe me they won't come to you and say "look you not charging enough rent why don't you increase it".
The reason why property investing works for many is that it is a forced savings plan using the tenants money, the investors money and in most cases the investors tax money (negatively geared).
As already stated, to have a positively geared property the income from the property needs to be more than ALL the expenses of the property, as most rental yields are still under 5% and interest rates are at about 9.5% you need to have enogh cash for a deposit that is over half the property purchase price plus costs. That is the issue for most – they don't have any cash to invest that is their own and not someone elses. Depending on your marginal tax rate you might actually need a lot more deposit as for many now on the 30% tax rate $70 per $100 of interest is raw investment cost.
Maybe try teaming up with some other investors – have a good investor agreement though!!
There is hope – just think outside the square!
