Forum Replies Created
Without quoting you WomeninPropMelb, I think you are right .. to a point.
The biggest mistake .. is that everyone aims for negative gearing just before a burst of inflationary pressure takes hold. And thats what the markets and the monetary cycle is geared up for right now. So what sounds like a good option 70% of the time is NOT a good option right at the moment. I would suggest that appropriate and conservative gearing is a wiser move.
And having had my thrill of both loose women and fast cars .. I agree totally. It is never to be underestimated.
Hi aturner,
You are one of the first people i've seen here for a while who actually has the right placement to do something serious with your possibility for investment. You've got a good job (now) and you got minimal expenses.
If you're playing it like anyone else who is young .. you will spend it on loose women .. fast cars .. and .. trinkets. And then wake up middle aged … not on such a good income .. an unexpected mistress / lover / baby and before you know it .. you are trapped in the extended cycle of middle aged regrets.
If you are on 200k .. work out what your REAL expenses are (barring the reasonable rental situation). Since you got time up your sleeve .. borrow to a reasonable level, buy just investment property .. and buy lots of it. With your deposit you should be able to get a half million dollar investment without question. An 800,000 dollar investment if you push it .. and you fall short of the million dollar invest simply because of the current timing. All up .. that should allow you to get a passive income of somewhere between 25k-50k (risk factors allowed for) for your investment. Thats without pushing it too hard. If its your first invest .. you should push yourself to a level where you can allow for fallibilities and unseens. If you are experienced .. you know what can be expected.
In these trying times .. your skills with negotiation will be paramount for your success. Grab a book or two on proper negotiation skills and learn how to achieve them. They'll help you work out what makes a good deal and how to gear it to become a better deal. Negotiation is not FLEECING the other party. Its understanding their needs and wants for settling the property and how to achieve win-win outcomes for both parties. An important skill with dealing in property.
It will all bounce back in time. What we have now is the feedback effect from the disaster of 2008. It just means that the capital flows will be muted until everyone feels safe again. Which may take a couple of years at least.
But historically speaking .. by the time your kids go looking for property .. it will be hard to find a decent property all over again. And banks and lending institutions will be under pressure to get a little lax and a lot more flexible.
There is no such pressure now .. its time to grit your teeth and get money any which way possible.
Legally, of course.
Anthony_Black wrote:Over the past few years, I have been to seminars and done some research online, I’ve met with a few bank mangers etc. Essentially, they tell me I don’t make enough money to get another investment property, this has pretty much zapped my progress/confidence and then there’s always the interest rate rise concerns (which I know are inevitable). My accountant tells me that when I have enough money in my offset account, it would be a good idea to get another investment property.Hate to say it Anthony .. but both your bank manager and your accountant are right.
It WOULD be a good idea to get another property. It would also be a great idea to take over Channel 9 .. in fact why not just stage a coup and become Australia's first Dictator. The options are limitless. The reality is your capabilities.
At the moment you have made a little contribution to your property and from the 428k you started with (dont forget that stamp duty) you are now with a little equity and a little bit of the loan repaid. Kudos to you, thats a great start. But your current LVR is what the banks will be looking at. And even with the best valuer in town .. he's still going to come back and tell you that your actual ownership/equity in the property is approaching 20%. There is a reason that most banks are conservative 80/20 loan issuers. It allows for a fall of up to 20% (your ownership of the property) before they call their loans in as you dont own any part of the property anymore. Banks dont like to lose. In fact they gear it so regardless of what they do, they make money.
So, talking to the banks is going to be a little hard. You've got a reasonable asset .. but with the level of gearing you are working with on it .. its going to take another market move before it does anything. So, you may be jumping into the dealing a little too fast for either using your equity .. or realising your property and making enough of a deal on it. Wherever you are in the property cycle its always about timing.
And, now is not the time to sell .. its a time to buy if you can.With whats happening in the US (and regardless how immune we think we are to whats going on .. we are NOT) we are heading for a once in a lifetime period of major inflationary pressure. The US govt is trying to pay back debts .. and printing more currency to do so. Thats a recipie for higher inflation. And in this country we are going to be exposed to similar pressures thanks to our stimulus plan.
That will change the value of money. Changing the measures of how your property is valued. Reducing the relative size of what your mortgage is. And you'll end up with more equity .. and probably more cashflow from your job. Both will mean your ability to borrow will increase.
Outside of that .. a second job … a means to increase your cashflow .. or a guarantee are all ways to push for getting that next property. Dont let a bank manager sway you … think different.
I think if you are doing things properly you should be seeing your property investment as your potential future over and above your income.
Thats the absolute answer. And for that it wont make a difference whether your kids are 4 or 40. If you want to run things so that you are prepared to make an asset base, you start as soon as possible. You allocate time. You trade experiences with other property investors. Drag a pram around at a property investment expo. You wont be the only person doing that.
Stick a good property manager on your property. One that does what needs to be done. So you can get on with passively running your property. And building a future with wealth plans.
One of the things you will always have to take into account with property is that you should be in it for the right reasons.
I happen to have had the insight of working with my father .. who has had a consistent investment in property for over 50 years. And one of the things he does (and he's VERY conservative on property) is buy when the timing is close to right. And thats his version of speculation. You dont try to judge the bottom, you'll miss it. You dont try to judge the top .. again .. its too hard to guess. But you should be able to work out what represents good value and an unseen boon to you.
Buy property with multiple uses, which meets the current and forseeable market demand. Its one thing to invest in a property for one reason .. and return is a good reason .. but it must have upside as well. And flexibility. Once divided so many times .. and beyond its feasible use, a property no longer presents as a good investment.To factor that back into what i wrote in the first paragraph .. my father's second major invest was a block of units in a then outer suburb of Bentleigh (1970) which was returning a healthy 12% (wouldnt you LOVE to turn the clock back on that one!). And yet .. 28 years later when it came to the time to sell .. he sold it to a developer who wasnt scared by the rotting wood in the windows (a major expense). For my father at the time .. it would have been prohibitively expensive to do all the windows and it was just easier to sell. The developer strata'd the block and resold them as rendered and renovated, making a quick and tidy buck. So there was a little money for everyone out of that deal.
There is a lot to learn from that deal. Bought as a positively geared cash cow (it was returning above and beyond its loan amount from day one) there was a time when even as a lucrative cash cow it was time to sell. And it hasnt stopped him from making more and extended purchases. Also .. leaving a little money in the deal made it easier to sell.
Summary .. if you are sitting on an investment and its only returning 2.4-3.2% (and a lot of inner city property has reached this level) and you are borrowing on min 6% (making sure that the property is negatively geared (= A LOSS) from day one) and the land value is rising to close to the apportioned property value (making sure that you'll be paying land tax on your overall portfolio at the higher rates) then the question comes back .. WHY ARE YOU INVESTING IN A STRATEGIC PROPERTY SOLUTION THAT DOESNT WORK?
khorasak,
I used to service the SE suburbs of Melbourne as a real estate sales agent. One of the key things that was visible in the Springvale area where there were a lot of Vietnam and Cambodian residents is that a lot of them started VERY low on the invest scale. But from the titles that kept coming up on resale it was obvious that they pooled their monies together to purchase property to get ahead.
Why is this relevant? You are thinking of your 10k as not enough. Granted if you stick out on your own .. yes .. it isnt enough. But if you act creatively and do a bit of dealmaking, your 10k can produce better results. Its never about how much money you have to start with. Its how you best represent yourself, and market what you've got.
Hi Bonnie,
The smartest investments are the ones you'll make based on your own good judgement and assesment of your situation. What you are currently doing is asking a marketeer who has nothing but his own interests at heart to do all that for you. And you can probably guess how thats going to end. Marketer and developer live happily ever after under assumed new identities, and you sit there with your half baked investment wondering how long it will take for you to recover your money. And wait … and wait.
Real Estate will always attract the undesirable types simply because there is a lot of money in each deal. So they'll always be out there, you just dont HAVE to deal with them. There are still a load of fabulous deals to be had and they are usually right under your nose in the real estate listings.
I can repeat the essentials. Learn your trading market, know your rental market, and enjoy your investing ! If you arent having fun owning a property .. making money from rentals and accruing the capital gains .. try golf ! Because if you arent enjoying the thrill of investing .. you might as well be hitting a small ball around a large green piece of acreage to keep yourself entertained.
ummester wrote:Rents aren't going up – they are stagnant and going down in some places.The dollar likely will drop back to 0.75 over the next few years. I missed my chance to short it (only hit 1.10 for a single night of trading).
Likely outcome will be fiat inflation, verging on hyperinflation, like America.
I assume someone pays you for this garbage opinion? Because as someone who invests across most markets .. I sure wouldnt.
The core reasons for the dollar boost is because at this stage the collapsing factors that the rest of the world has arent present here. America is STUFFED now. The call came for it to do something in March .. and it … extended to resetting its debt line which it did this may. The dollar in America is going to inflate .. and inflate badly. I'd be expecting anything from 30%-50% inflation for a period of up to two years. Anyone investing in America is going to feel their dollar value just collapse under them. And for your knowledge .. i've been riding the dollar upwards since it was 92 cents.
As far as the Australian market goes .. we have more money being generated in key exports to China and Vietnam than any value in our dealings with the US. Since the great Keating (barf) we havent been tied to the US or UK in any major way. Our major dealing are with East Asia and the Middle East.
With the boost to our economy with an unnecessary stimulus, we've gone and plumbed ourself for inflation whether we like it or not. We inflate normally with regular increases … we shelve a downturn of major proportions. We dont inflate … we risk devaluation of our dollar because of its buying power loss. For anyone who earns in AUS dollars .. that would be bad new indeed.
The rental scenario? Across the board in my area (dont know where you are) rents are tight .. approaching less than 1% all over again. This places significant pressure and eventually will boost rents again to even out that pressure. Leading …. to greater housing prices. I'm dealing with whats being presented to me .. not stats sheets .. not presentations of doom.
The average punter will panic when the ideal low interest climate we are now in .. lets face it .. anything under 9 is still historically low, becomes a higher interest level. Leading to the NEED .. (read that word NEED) for the property to be sold. THAT IS PRESSURE. Until then .. as long as rents are being placed under pressure … property will .. again .. go up. Sad for the doomsayers .. huh?
And as far as fiat .. dont abuse the word. Currency has been fiat either since 1929 when we left the gold standard or .. 1966 when we abandoned silver in our currency. Its a word thats been floated around alot .. but basically means that people lose trust in the currency. I dont think anyone is running for the banks in this country … and people arent tossing their dollars into the street. So stop using the word fiat for what everyone KNOWS is a fiat currency. It induces unnecessary panic and its just crap anyway.
I love making comparisons to the fruit and vegetable market .. or the fish market
(they are both good examples of markets at work)So … in the off season .. its harder to find a perfectly shiny apple … with no marks or bruises … for a low price. Well .. it still is possible to find one .. its just now a lot harder than the times when you have lots of fresh fruit available to the market at a good low price.
In that same way, in the property market post boom, you'll still be able to find your positively geared properties. It's going to take a little more legwork .. and a bit more bargaining, but not only are they out there .. as the market sours in some areas .. gradually there will be more good deals out there than .. average ones.
Thats where you want to be .. armed with cash or equity so you can rush in at a moments notice .. plonk a deposit down .. and get the good deals. So if you are being smart now .. you should be either frisking around for the positively geared properties a little harder, or starting to put a little more into your loans so you have a little less liability and a little more equity for when you approach the banks later on .. for the bargains. Or even .. GASP .. doing both !!! How creative is that !!!Just like the fruit market .. when times get tough you may not be able to find exactly what you want on the market .. as people hold out for a better price. But again … like the fruit market … the best deals dont happen on the market floor anyway. Be creative .. be belligerant .. be a dealmaker. And you'll be surprised at what deals there are out there.
Time to get out all those books on how to negotiate properly. They actually DO have a use.
Its interesting that this topic comes up now. I've just dealt with exactly this scenario. The initial tenants left the property about 6 months ago and let a friend take over paying the rent. Who then left and went out of his way to give the tenancy to another friend. Summing it up nicely the property has been now sublet twice and has no actual relationship to the listed tenancy.
A genuine nightmare.
The strict letter of the law allows you to turn around and just organise a barest minimum on removal of the tenants. However .. if the existing subletting tenants are doing the right thing .. looking after the place .. why lose them on technicalities?
In my case we redrew a tenancy agreement of 6 months and got the subletting tenants to work out who would be responsible for the leasing arrangements and bills. And stuck his name on the rental role. With a new bond.
Approach the property manager as soon as possible, explain the scenario, and get yourself as the registered tenancy. If you hesitate and wait to be discovered you may not get an extension of leasing option.
If you have issues with raising the amount of the bond, there is a scheme for rental assistance in most states from the government. Approach them if you need this sort of assistance.
With a nice clean debt free slate to work from, all I can suggest is you just start building assets.
Its all a matter of timing though, and for now I think you are marginally safer on the lower rung of properties than the upper range. I've been of the mind that we are overdue for a rate raising climate .. and in that scenario the more pricey properties start to plummet. Dont be fooled .. the WHOLE market reassesses itself, but usually the lower end doesnt get slammed so badly.
The rules are simple .. get as much quality property as you can for your buck, get a comfort level of debt you feel you can deal with, and get property that remains close to facilities and transport. And yet people keep writing megabooks on the same three rules .. over and over again.
There are properties returning up to 6-8% now in lesser desirable areas, so if you include your 40k as initial 20% deposit, you should be able to get a near neutral or positive scenario to start with. As 8% of 200k is about 16k return, on your initial investment you are getting a 40% return gross pre expenses. Go to the bank and ask for that and watch them laugh.
The other side of this scenario (assuming you are purchasing 100k properties) is that the ease of repayment on a smaller loan size means you can repay the loans quicker. And banks will allow you to include the assets and income from your properties as part of the equation for your next deal. On the premise i just cooked up in the previous paragraph .. you should be able to borrow 100k more within 4 or 5 months of that initial deal. Also with 1 or more small properties .. you can borrow or loan on one or the other without encumbering both.
Slow and steady is the current words I'd use. You must take on board that on the property clock .. the boom climate is off and we are looking towards the downturn in most Australian markets. Whatever market you choose and want to be in .. take your 5 year trend line to see where you expect the market to be in that area … in 5 years. There are no crystal balls in real estate, but trends tend to present themselves in advance.
Outside of that .. you've got the advantage of a top notch forum with many other property investors who are making judgement calls based on solid information. Take a trip through the forum and you may just glean some knowledge from it.
Best of Luck
I wouldnt let a probably necessary increase in the strate fees dissuade you from purchasing the property. The mix is always making sure that the strata fees and the water bills and the maintainence of the unit is less than what you are coughing up in rent. Thats how you make money on an investment.
HOWEVER there are lots of owner schemas (body corps, owner corporations) where they run things at a barest minimum and expect that they are saving money ! THATS WRONG TOO ! If you have a house .. every couple of years the roof may need attention .. the fence may need a new coat of paint .. etc etc. Why shouldnt you expect the same from your owner management?
Too little and you end up treating the property badly anyway. I have a couple of units in one block in Greater Dandenong which was bought cheap. And to start off .. its body corp (now owners corporation in VIC) was about 375 bucks a quarter. However this had been carried across from it being a el-cheapo set of units (around 70k a unit) in about 1997. Now this also means that the property was WAAAY underinsured. If the block had burnt down .. i would have got the 70k it was insured for .. instead of the 280k its now worth. Can you see a subtle difference?
The point is .. i've got to the owners meeting and requested that a block that is so used to being treated at one level (under 150k) start being treated at another level (the nearly 300k that it is). It means proper care .. better management .. revaluation to proper insurance levels and an increase in body corp fees per quarter to $530 per quarter. Its a big jump .. but then the properties have quadrupled in value since the last assesment. Its about time they were respected as such.
With a minor debt in the management sink fund, i wouldnt be panicking about anything. If the genuine figures add up, buy it.
Lots of body managements run underfunded and undermanaged. I'd be suggesting the idea that they are raising the fee to stabilise the debt a good sign that the management firm is now taking control of the situation and moving on. And good strata management is a key strategy to passive owner property management.
Wodonga is suffering a bit with attrition on both tenencies and pricing, simply because there is a lot of property out there in the area at the moment and really … not a lot of either working or quality tenants to fill the demand. At $195 for what you are offering you are probably well within pricing range for the type of property you have.
However, on the same note having looked at your advert, its making the place look very barebones and not very appealing. Just remember a tenant will scoop up or browse a list of 20+ properties and yours has to stand out from all the others. Otherwise he wont even go for a looksee.
My gut feeling is your property agent isnt doing enough to push your property. If you have any doubts about this, go check around and make a comparison with other agents rental lists. If you arent getting the letting or the service .. MOVE. Its your pocketbook thats bleeding, not the agents.
Aside from that, realise you are in a market in Wodonga where properties on the fringes of Wodonga (and West Wodonga is the fringes of town) will take longer to rent simply because the market demand is being satisfied by properties further in being advertised at competitive prices. Outside of selling, the idea is to get a good tenant in, and dont worry about the price. If times become good again you can worry about swapping or changing tenancies. But in a tougher market, just get someone of quality in at any decent price.
In a tougher market tenants will be a rarer commodity, and you want your property to be filled, and not empty.But even in a tougher market your property should have someone within six weeks of advertising. If it doesnt, you should be asking why.
I'm still purchasing the good ones in Albury, the good ones in Bathurst and the good ones in Orange. I'm getting good tenants in, having fantastic returns. And on avg with my 20% factored in .. i'm getting about 9.3% to 9.7% gross on my borrowed money. And yes that means for most of my deals, its near neutral or cash positive.
I have two small developments on the go in South East Melbourne bought on cheap land. I also have been doing enquiries on a couple of boarding houses that need a bit of a refresher but are solid, and still licensed (there is a current squeeze on licenses for boarding houses due to issues with effecting arrangements to the surrounding atmosphere. People still NEED this service !)
There is no such thing as a dead market unless everyone leaves it totally. As long as there are people still trading on the market and there are opportunities to be had, there will be people smart enough to take advantage of them.
Just take a look thru Steve's books. The people pluck out properties often which other people would have not seen, have not realised were good deals, or did not realise the potential. THIS is what makes you a good property investor. Recognising what you can do and what can be done with what you have got.
By the way, to anyone who is going to explain to me that Albury, Bathurt, Orange are more risky than usual, I have them only as a small part of my whole portfolio. So for me the risk is ameliorated by the sheer fact they are only a portion of a larger set of properties. They are being balanced off against quality properties and are being paid off with the profit from the cash positive outcomes. I expect most of them to be fully owned by me within 6 years.
Its been one of the reasons that I wont ever manage my properties directly in the US. There are all these people who apply whats possible in Australia and think you can just slap it down as the same recipie in the US and it will work.
News for you. The tenants have totally different expectations in the US. They will play the rules as far as they can stretch them and even play victim to get their way. You are too used to a system in Australia which has reasonable flexibility for both landlord and tenant on commitments.
They just dont have that in most parts of the US.
What scares me most about this one, is i was seriously interested in the same property about 8 months ago. I know the one he's bought and it looked good on paper. But I did my investigations of the neighbourhood and there was no way I was into it. If a property manager you ring up isnt prepared to deal with it, why should you?
There was a large green bit of vacant land at the back of the block. The units were all crammed into a block nextdoor to it, there was lots of them and they were all cramped. It was returning about 12% gross and costing about 435k all up for 22 units.
Again, there is a reason why I will stress the following. ALWAYS get a LLC for your property in the US. And always use a property manager for the property. You invest in a country you dont understand totally. But the property manager does. And knows the laws of the land. And knows what must get done. So why waste money when for a small percentage the property manager does it for you? (double reference there)
After saying I told you so .. so badly, my comiserations to his family and his wife. Its a situation that just didnt need to happen.
And just sad that it did.
Ravi, as a 17 yr old 'developer' (i think at 17 you are still developing anyway ! ), I suggest you go out and start looking at what people are doing and how they are doing it. First, dont think you can just rush in and make a mint. I used to deal with these sob stories of nutters who think the gold lies in just purchasing a property. No, it lies it buying the right property at the right price .. at the right time. A magic equation that seems to go past most property investors and developers.
From my experience, 70-80% of purchasers aim for the 'get rich slow' line, where their prospects for the properties are generally long term whether for investing or for living or FHB. The other 20% are the flippers and the renovators and the idealists/developers. These people can range from very smart in what they do …… to totally overcalculating or just being unprepared for interest rate hikes.
Make no mistake .. the core reason your properties will be worth anything at all is because there are a large bunch of people who are that 80% who hold on to their properties .. some .. for a lifetime. They provide the scarcity value for actually having a residential property.
As a developer you want to save money .. but you also want to be in a position to know when its necessary to invest it. Skimping on kitchens because you overspent on development .. a nono. A fabulous apartment layout and cheap carpets? Again .. you lose your investment because its underrated. Learn where to make deals and when to accept what you are getting because its good.
For starters, build your bank. In the current climate you arent going to be able to flip easily but you may be able to clip some vendor financed deals together. With starting out, you need to be creative. You need to see options to make a deal where someone else doesnt. Doesnt mean you lose your creativity later on, but you need to learn it to start with.
larrytheinvestor wrote:Also wanted to check whether this is correct: (i found it on this forum) For IP always use IO never P/I. Is this good advice?The whole idea of making the most of a deal is making as much of a profit as quickly as possible. And the most obvious way to do that is to maximise your leverage. So you are borrowing at a fixed rate using OPM .. the only variables you'll have is making sure tenancies remain steady and maintenance bills. The other reason is more simple … you just get tax breaks on the interest component and not the principal … so … people offset their interest bill against their income plus net rental income .. result .. lower tax paid .. rising property .. win/win. And until the fixed term expires .. a known level of payment to adhere to.
For once I'm not going to write a big script for recommendations. I'm going to make a simple one instead.
Get as much VALUE property as you can for your buck. Borrow as much as you are allowed to .. on a fixed term interest rate.
Ok .. sounds easy? It may take you several years to learn what VALUE in property really represents.
I prefer getting several little properties over a single big one. Sure .. the rises, costs and falls are greater, but thats half the fun. You also distribute the risk across several tenancies rather than being dependant on a single one.
But thats me. You'll have your own winning solution.
Treat the whole thing as a market. You know what price you'll go out and buy fish and chips at, and what price a 2 litre bottle of milk should be. Its no more complex than that.
There is a price, a product .. and a demand.
The real estate agent will know the price .. and SHOULD know the products in demand. The property manager will know the demand … and the price .. for rental proprty (rental should always be kept separate from buying .. one is tenancies .. the other is owners .. two totally different market schemes). Both markets are necessary to observe to get an idea of how things are happening.
If you are lucky .. you can pickup in an area that has already moved. So .. some of the prices do not reflect the change in the market, because the last people to be educated about a move in the market .. are usually .. the vendors themselves.
The product means assessing whether the current usage for the property or concern is valid or .. flexible. Often I have gone in with a property that is under one criteria (a 2br with big backyard and large laundry area) and converted it into a totally different product (a 3br with euro laundry and patio). It means I now cater for a totally different type of client. But .. for that to be useful .. the type of client i'm looking for changing the property to .. must actually exist.
Which of course .. leads to demand. There are usually fixed criteria for who a likely client will be. Is your area filled with FHB clients or is it leaning towards more established suitors for the property? What can you change with this property to make it more towards your clientelle. Is the area of your market still in demand .. OR IS IT SATURATED? Make sure you know this .. its no fun waiting for that situation to correct itself.
You can head into the markets blindsight .. hope to hit it lucky .. and pray that you dont lose out .. or you can do your homework .. know whats happening in your area .. and serve up the right product for the market to embrace. Its your choice. This is why its usually best to concentrate on a couple of suburbs .. know them backwards .. so when the opportunities arise .. you know they are out there. Too many burbs and you end up being an expert on none of them.
