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I always wondered when this thread would come up again .. and what I would put on it.
Now I'm not going to mention all my cars .. because anyone at RTA can look me up then and put 2 and 2 together.
I have the fast cars and the work cars .. and the collectible cars .. and the gotta have cars.
But the hilarious part? If i really want to show off, I RENT an expensive car.
Because after having a nice expensive car and literally having to create a locked up carspace for it, that just wasnt for me.
So now I drive something nice and almost anonymous. I drive a 2005 Saab for regular use. Its flashy but not too flashy. And because its a work car, I dont mind driving it into the ground.
If I park it .. it doesnt get 'keyed' and it doesnt get parts taken off it. The number of times i had to replace a grille and caps on my Merc because someone had diddled with it were too numerous to mention. And yes .. it had a car alarm. Fat load of good that ever did.
I have however lost the SAAB badge about 3 times. But hey .. its actually reasonably cheap to replace.
I own a small warehouse and have 48 cars over 2 levels. The warehouse is anonymous, the concrete floors are all polished for easy clean and it has a near airtight and dust free environment thanks to a couple of ionisers. All the cars have covers and are taken out for a spin once every 2-3 months. And the warehouse has a mini-6 car garage on the bottom floor for the fun stuff.
As a renovator .. i also love to do restorations and turn semi-ugly cars back into gems. But once renovated I dont like keeping them unless they are special. Its like .. the fun part for me is brushing an ugly duckling into a swan. Once its a swan .. its there for someone else to gain the same degree of enjoyment as I did from it.
I think largely thats my feeling with houses too.
The best way to look at how to spend your 100k is to look at the overall trendline of the various areas.
Dayton Ohio looked cheap to me .. but the overall trend is down.
Detroit Michigan was considered crap by a lot of people but if you buy wisely it has an extraordinary upside. Its not dead yet.
Atlanta Georgia is a mixed bag. Overall trendline is still heading down .. but its got potential.
Los Angeles CA is down and heading further down. Because of irrational government and taxes.
Las Vegas is oversaturated and overpopulated to needs and requirements.
People are speaking with their hip pockets and moving to areas where they can do business still. So you'll find areas like Arizona and some parts of the midwest are taking off. Follow the money … and you'll make money.
Just remember .. until the handout mentality stops in the US you'll have large ghetto communities that no self respecting middle class member of society wants to live around or near. They avoid them like the plague. So cheap in those areas just really means UNWANTED. Look for areas where people are upgrading .. demolishing or vanquishing their ghettos and you'll see room for price movements.
An investment consists of money spent, time for outcome versus eventual outcome. This all revolves around how much demand exists for the current location and the property type. You may have an outcome to the positive on this .. but it will take A LOT of time.
And when it does come time to sell .. it will be hard to sell. How's that for an investment you WANT to make money off?Sell and move to something decent. It seems to be the unanimous position here.
Maybe we could be right?
I'm going to do something unusual Adiskay for this thread .. and actually try to answer your question.
If you have the flexibility of not having an immediate draw on your resources, aim for an investment property over a PPOR. The benefits are fourfold, Its a situation where your tenant will be paying for your property as well as your contributions to the investment, it makes allowance for offsetting expenses and depreciation against your income. You will have an equity draw for your future PPOR purchase .. and an income additional to your earnings for working out how much you can borrow (for the PPOR presumably).
With a PPOR your main benefit will be a principal residence deduction on capital gains. So any capital gains you get on the property you keep. However its a full set of bills, water, electricity, phone, internet, etc and additional to that you have a full payment you must produce on the property with no tax deductions. In other words .. once you have a PPOR .. its a major money dunk and will severely hamper your investment capabilities in the near future.
You want the freedom? You'll have it when you have an income producing property you can offset against your income .. and a residual income you dont have to work for .. THATS where you get your freedom. A PPOR will give you your individual space .. but will tie you down in the short term with greater expense. And with a possible 5 year period until property takes off again … you may be waiting a little time for your capital gains to justify itself for you.
On a sidenote to what i've just said. The prices for property have gone down quite a bit. The price to purchase a PPOR (or investment for that matter) is cheaper than its been in a while and thats meaning your money and borrowings buys more at a better overall return than its been buying for a while. So while the buying is good .. you can make better choices.
You are looking at the wrong factors.
If in anything you want to look at the ongoing potential. Given roughly the same position and location .. both can be good investments. The lower liability on the half block may mean lower rates and overall expenses such as heating and garden are minimised. The investment potential on the land component of the older block depends on what the councils will allow you to do with that land for subdivision.
So the correct weighing up of the investment should be in the expected ongoing potential weighed up against existing expenses and liabilities. Eventually with property you reach a point where the unit of land cant be divided up or extended any further. At that point you end up riding inflation to make your ongoing gains.
The two things you must do when purchasing property is forget sentiment and just judge the property on its current existing potential. What might have been a fabulous investment in 1980 may not be a great buy in 2012. And vice versa.
This isnt a property question really.
"I dont need to be rich" ……………….. Well … to be honest .. no-one NEEDS to be rich.
Money is just options. And with more money comes more options.
I came from a situation where for years I was very socialist in my mentality. I used to wear blank T shirts because I didn't believe in advertising or brand marketing. I would bike rather than drive because I hated feeding the oil companies. And I wouldnt accept handouts because I believed in the merits of the achievements of my own hand.
In Summary, after living a life dependant on myself and having two minute noodles as my best friend .. i decided that I wanted to be a capitalist because I WANTED MORE from my life. Did it mean working harder? Did it mean changing my core values?
One of the deciding factors was watching one of my relatives slowly perish and sell his assets to pay for his medical bills. That left me with a bad taste in my mouth. Because he hadnt ever been very wealthy .. he was now becoming very poor.
Bringing this back to your current situation .. you've decided that a vet (then locum) would give you more job satisfaction .. and eventually more income. You dont HAVE to chase wealth to make a concerted investment strategy. You need to balance a proper investment strategy with a life you enjoy. Some people forget the life is worth living part. And some people forget the investment part. You need a concerted mix of both to muddle through and come out the other end happy.
You've made money on houses in the UK so you know its possible to do it. Now what you need is to start an investment portfolio that will produce honest returns within a limited time framework. It may mean aiming for cash cows and CF+ property rather than negatively gearing your strategy. But you KNOW its possible to make money on property .. now you just need to strategise how.
Consult a good architect on how to plan a solution.
In Doncaster its not uncommon for a block to allow for more than expected number of units by substitution of things like underground parking and clever layouts for compliance with general council rules.
The correct thing to do with this is consult council on their actual requirements and allowances. And if these things have been done in Doncaster .. i have no doubt the architects concerned would be able to do this in other suburbs to meet compliance.
I have no idea which architects are doing this in Doncaster but if you ring a couple of area estate agents they probably do.
Kouts,
It really all depends on your area of expertise.
From what is set out here it sounds like you've had an unfortunate passing and found yourself lumped with an inheritance and literally no experience with how to deal with it. Thats not a good portend for the future.
To sum it up .. what if this was the family business .. a coffee shop or a manufacturing business? You'd take hold .. bring yourself up to date as quickly as possible as to what can be done, educate yourself on the ongoing possibilities for the business's future and try to steer either a path for success or a quick realisation of business assets .. depending on your actual capabilities.
Directions i could give you for further investment would be meaningless without knowing how much of an education you've been given on how to run and manage property. If you've never had such an insight .. dont jump in bareassed. Thats how you burn yourself. It costs both money and time to fix mistakes. The realistic route is just not to make them.
Three specific areas of education for you.
Bank your money on term deposit for six months (dont worry about the appreciation loss .. six month appreciation loss is technically minimal anyway on the money concerned).
(1) Learn to count.
If that sounds wierd .. its the one reason why some lottery winners become paupers. They have no idea of how to deal with figures larger than their usual set. A large inheritance is the same. Its more money than you are used to and as such you will need to get your head around what it actually buys. Thats why you need the time to do that. Its an education.
(2) Educate yourself into an area expert with your property subgroup.
If you want to be KING OF THE ORANGES .. you'd need to know who your best buyer is, where the best deals are to be sourced and what your determined market for sales will be. Its no different in property. You will need to become knowledgable in where your property lies in the market .. what will promote or detract from its future growth .. and your most likely clientelle who will be utilising the property asset. Know your tax allowances and taxable deductions. Then .. and only AFTER all this .. start looking for a property to match.
(3) Learn how to negotiate.
In real property investment … you'll be dealing with property managers .. tradesmen … tenants … and government institutions. You will need to learn how to keep any or all parties happy and working for you to produce your best result. You will find that grabbing a couple of good books and learning how to create better win-win situations will be of great benefit to you in being able to work out how to find the right solution for ongoing property bliss. If this bit sounds un-necessary its because the first time you'll realise how beneficial it is .. is the one time you never thought it would happen. Its better than Insurance for saving your ass.
I feel like doing the Dr Evil pose for you .. and going .. A MILLION DOLLARS !
Actually the whole Austin Powers first movie travelling back and forth in time gives you a good idea of what your first problem is. And thats thinking that in the early 21st century a million dollars is a lot. Its a substantial amount but its no longer a lot.
Two bits you didnt fill in that are actually extremely important. Your income .. and your liabilities. That would give an idea of what you are currently capable of. Having an equity loaded asset is fabulous, but the income stream you have minus your liabilities is your actual borrowing power.
My assessment sight unseen on those remaining details would be to look at a couple of IPs that you can use to produce near to immediate cashflow. That will probably mean you are looking at a CF+ proposition. Or a couple of them.
Your current weakness is a single entity that you are reliant on for equity. As such .. try to only borrow up to 65-70%. This allows for a fall in prices by up to 30% without the banks invoking a call on your assets. That recommendation is only for your own safety in these troubled times.
It all depends on requirement,capacity and saturation of the markets.
A unit is great l if you want a low maintainence asset that returns reasonably well proportionate to outlay. It has no backyards to maintain, and it has usually got low overheads.
A townhouse is great for fulfilling the needs of working families with the possibility of kids. It very much caters for a middle class working income or shared support (student or sub-letting). Remember this when investing in the area.
A house allows maximum storage .. gardens .. backyards .. and if its in a reasonable position within close range of the business districts (since shopping centres came into existance .. centrality is no longer as important), it allows further growth through ongoing subdivision. However it is also the highest maintenance option.
Now note the first line i wrote at the top .. and thats your market. There must be a requirement for your property, it must be satisfying the rental or purchase requirements of the purchaser or tenancy. Now the last one is the most important .. it must be a demand in the market. If there are too many of one group of properties and not enough demand .. you may find that your property remains undesirable or untenantable for extended periods of time. Happens a lot more with commercial, but in failing towns .. centrality to convenience and quality becomes pivotal in getting tenants.
kennychlorine,
Where do i start on this one?
First .. you've given WAY too much information on the property venture. With the details you supplied in this thread i've already investigated the property area thoroughly. Be more cautious on details. Property eagles swoop.
Second … why are you taking advice from a broker? Finance brokers are not allowed to produce recommendations on investment. Its actually illegal for them to do that without proper accreditation.
Third … your rushing in without proper investigation is tantamount to throwing the money away.
You do have a situation there with a nice set of properties .. most likely owned or purchased for a reason by the university for further expansion (student numbers are dropping across the country due to a combination of high dollar and the fallout from the GFC). However .. thanks to google earth (an investors best friend) did you actually notice that these blocks are all on SLOPING land? Its a series of houses on quite a substantial gradient. Also, and this sets off warning buzzers in my head almost immediately … who is pricing them? You have a series of weatherboards .. multiple bedsits .. and Brick houses .. all within a 80k range of each other.
A substantial slope can lead to very increased develelopment costs. Most of the houses that exist there arent great anyway. So what are you exactly buying? Position with bad land and bad house?
Until you find someone for a land bank resale (thats what it would be) you have decaying houses (upkeep) sloping land at a high gradient (land collapse anyone?) and remain reliant on the consistancy of student rentals (the most unstable income of the lot)
As a starter investor with a bundle of cash and a high gearing … thats a great way to turn solid possibilities back into a money pit.
This is why you must look beyond the numbers specifically and look at what you actually get when you purchase. Property investment is all about getting the most VALUE property for the least amount.
Take a step back. Opportunity WILL come along more than once. But it will take you a proper property education to get things right.
You must get a P sheet from Centrelink notifying them on a change in your property asset and income circumstances if you purchase property. The property details are only relevant to be amended on settlement of the property (actual ownership and/or receipt of rents).
If Centrelink does an audit on you and finds your representation to them of your asset amounts or income amounts is false they can claim for full refunding of benefits plus additional penalties.
You MUST notify Centrelink of any change in your assets and income from property IMMEDIATELY upon settlement of the property. Thats your requirement and onus. As far as the idea of them checking up on you … the systems for title registry and exchange can be cross-referenced with centrelink accounts on their regular audits.
Bringing what i just said back to your actual concerns.
Since you are on a low doc situation .. your long term issue remains LACK OF ASSESSABLE INCOME. Thats going to be a problem with ongoing lending unless you are coming back with a reasonable rental income in the near future.
So your immediate adjustment will be a requirement for a more solid cashflow.
Property in Tasmania is returning 8%? WONDERFUL ! Since you can currently borrow at anything up to 2% less you have a situation where the property can return a positive result and extra cashflow within a limited period of time.
The other thing to consider will be the lifestyle choice. If you find yourself going to TAS regularly anyway, you can accomodate the transit to TAS as a partial tax deduction as transit expenses for your business venture.
The correct thing to do with a low capital growth high return property is purchase it and immediately start on loan reduction over and above the tax deductible interest amount. Graduating the property to a largely debt free asset and a reasonable income return. It means you can use it for a bricks and mortar asset to lend against (that fits neatly into the ASSET column of my previous example) an ongoing and regular income from your property (that ticks the INCOME column) and a bit of expense to keep the place running ( LIABILITY but hey .. you get the other two plusses so thats ok). That puts you into a much better position for your second time going around and asking the banks for more money.
Ask the banks and lending institutions which POSTCODE areas they WONT lend against or borrow on. Thats very important. If your area is 8% and they wont lend against it .. your above equation is meaningless as the banks just wont allow you to do it.
Above all – here is the best advice – since you are going in as a new investor, DONT TAKE MY ADVICE AS GOSPEL YET. Explore whats possible. Attend open homes and get an idea of what actually is in demand. Get a broader experience sheet. This isnt to make you an instant expert .. but it will give you market understanding and market knowledge. That will allow you to make better long term decisions. And then you can come back .. read this .. and see how close i was to being right on the issues.
There are more than one way to get to a million. Starting with 600k .. a great start.
The answer comes to what else you bring to the party. Cash .. nice .. but leverage requires income. Assets? can bring those?
Bank looks at the three issues and makes their decisions on those.
ASSET
INCOME (INC RENT)
LIABILITIES AND EXPENSES (INC CREDIT CARDS)If you are an accountant .. you are probably more than familiar with these three item sets. So the broader answer to where to invest should be .. do you have a balanced portfolio of all three to go forward?
Some people find themselves committed to the house as a debt pit. Thats ok .. it'll return eventually .. but in the meantime you may have 10-15 years to wait. Thats part of your life .. like it or not.
The big mistake is assuming that a current high demand area remains a continuous demand area. That having a large outlay and large expense sheet .. actually produces a better return. That investing a large sum on a certain expensive site will lead to better returns.
Value lies in recognising potential in a given area for something its not yet established as. Transformation for profit only works when the expense vs outcome is worth the effort.
The other thing to remember is that a good property investment should never be treated as a passive concern. If its a passive concern .. you are either neglecting the property or not utilising it to its full potential. Both of which restrict your ability to produce a better result in the longer term.
If you have the ability to borrow well using the 600k as a basic deposit .. in these troubled times .. dont borrow to your limit. Leave both a safety margin in your borrowing and a buffer to your possible expenses. Where this amount lies depends on your expertise with property rather than a genuine figure.
This is where and why you need to learn negotiation when dealing with authorities and institutions.
You are dealing with a US government authority and assuming that its not corrupt or deliberately asking for bakshish. You sit there and go on your high horse about what is in the longer term a pissy amount compared to potential gains, and you'll lose either on a merit basis, or on an actual legal basis. In a more obvious realm where there is corruption .. you'd be stuffed and up against a wall.
They've sent you a high maxed accumulative penalty notice. Think they cant go higher? They can. Think that you can stand on your rights and go to court? You can. You lose and you'll be paying for that property the rest of your life.
There comes a time where you realise that you either deal with the penalty you have and try to negotiate it down on what DIDNT happen. Its a loss .. but in the long run its a minor loss. Or you can sit on your high horse on the merit of your 'rights' which they really couldnt give a nickel on. Interest will accrue. They'll have lawyers on their payroll who not only know how to win .. but every loophole in the law as well. You .. come with your basic knowledge and a prayer.
The hole gets a lot deeper Alice .. and you never know where that White Rabbit will take you.
I'm a multi property owner across several countries as well as Australia. I know that my best defense is a creative offense rather than to play the letter of my rights. I have been ridiculed in Pennsylvania .. spat on in Texas and called an exploitative 'cracker' in Atlanta GA. On each occasion not only did i work out a tenable and workable situation .. I have actually kept all of them happy. That takes experience and a great deal of tolerance. You dont HAVE to put up with other people's stuff. But if you learn what they actually want .. you might be able to get the best out of them.
JacM wrote:Not being funny, but what can they do if you choose not to pay these fines? You are not an American citizen, so what is their plan? Extradition? HehheeIts not a laughing matter. In one state I saw a property pushed all the way from being viable to being 26k in ongoing fines and interest payable. The sherriff steps in and organises a forclosure / resale on the property to recover fines and costs.
As i've always said, dont assume that the US market is like ours. Its not. Its a lot harsher in some areas and penalties on property is one of them.
I use 'minders' on my propertys. They are locals .. they are able to visit the property and they are a provisional contact for the local law enforcement. They get a small commission but they make sure that the basics are done. And they track mails.
Negotiate on the whole amount.
Say you are prepared to pay a certain amount as the fines are obviously due. However .. you say that they have had your number wrong for a significant period of time .. despite you providing the correct details. Thats not owner onus .. thats THEIR responsibility.
That actually will go well in court. Should you need to go that far.
Also .. dont assume that false details werent done deliberately. It is not unknown for these groups in other states to be in league with resale groups … so they have incentives in advancing to your forclosure. Yes .. its criminal. Just try to prove it.
Dont let them bully you. American government institutions are wonderful bullies on this stuff. Contact someone who actually has some authority within the organisation and compromise. If you get an agreement .. get a fax in writing stating that.
Negotiation is a nice way to say .. i'll pay something .. but not all of it. So they get their fine revenue .. and you get a little bit of a discount on the fines .. and everything works out. Thats what win-win situations are for.
maria jaya wrote:Hi There!I am a newbie myself and seriously considering to buy a 1BR flat since that's the only kind of property I can afford at the moment.
But they are mostly student accomodations and people's been telling me it's a bad idea.What am I to do to ever own my own property then?
Maria, in property circles there are things called BAD EGGS. From the old saying that you cant make a bad egg into an omelette.
The point being that if you purchase bad to start with, you cant possibly make a good investment as your property commodity will never be in demand !!! NEVER !!! NOT EVER !!!
There is however a dissuader to this. Sometimes a property LOOKING like a bad egg can be changed into a useful property. This is one of the areas where you can make money. Finding a run-down 2 bedroom BV and expanding it to a 3 BR with study.
I actually used to sell some of these low value student accomodation units. The sales pitch was they were 'cash cows' at 6.5% return and they would be a solid managed investment. Thats the sales pitch. Want to know the reality?
You have an 'investment' that the banks wont lend on or allow you to borrow on. You have itinerant tenancies which means that they are either one year .. or even less. You have reasonable bodycorp fees. You have almost NO growth demonstrated over a 5 year period. You have a 'fashion statement' which means students are looking for the most up-to-date unit for their money.
With any reasonable investment you want to be holding onto a valued commodity. Thats central to having an asset that will appreciate in value.
To answer your question regarding value .. i just organised an investment of 2 bedroom units for a relative. Just under 10 square units .. including a breakfast area .. a carspace .. a storage unit and even a balcony with great views to the hills. Returns just over 7%. How much you ask? Does 92k per unit sound like a good price?
I have no qualms with it being a good long term investment because – its close to facilities .. both shopping centre and industrial zones, it has a regular supply of tenants, the property can be let to just about anyone, the rent offered is affordable, and the property is comfortable to live in. With views.
For your long term investing you need to make good property judgements rather than 'adequate' ones. If you cant see your property being successful without it majorly changing its status .. then you have a long term investment bad egg.
Thats just not where you want to be.
Badlee,
The tax department divides its property categories into PPOR and Investment (as well as others)
So .. living in your property .. and registering it as your PPOR … you arent able to cost in deductions on the interest as part of your loan. So .. you'll be forced to treat it as an ongoing expense with no deductions. Thats .. kind of expensive.
The tax department believes you get enough of a concession with the current treatment of a PPOR property that you receive CGT exemption on the gains .. that you dont need any extra incentives. They're probably right on this.
With an investment property .. your property gets deductions for the interest portion of the loan (NOTE : not the principal !!!) and you can also claim any expenses that go into upkeep. As well as ongoing depreciation.
Your investment in your PPOR is a healthy real return investment .. as its all CGT exempt you add value and its like making a bigger bank account by adding value to your PPOR. But in the maintainence of the loan and ongoing upkeep … its all undeductable expense .. which does add up. This is why your accountant may be costing it in as a major ongoing liability.
alfrescodining wrote:Thanks Xdrew – great advice. I will definitely stick to something small first off, and I'm trying to save a bigger deposit than $200k.
I have a question. When you mentioned holding costs, what do you have in mind besides loan repayments, opportunity cost, and council rates?
Cheers
Holding costs includes everything outside your loan repayments .. opportunity cost .. council rates .. possible land tax inclusions .. advertising (all formats) presentation (furniture and plants) .. real estate advertising (if dealing with an agent).
When graphed out onto a spreadsheet it enables you to work out how long you have before you NEED to sell. And how long you can support them without a sale.
