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Without thinking too hard, I can tell you there are about fifty deals to make you rich … sitting there on the market right now. There is a property that just needs to be strata divided for resale and you'll reap 500k. There is a block of land close to a country town that is being sold as four dud units, but it sits on 2500sqm of land. There are many CF+ properties even now on the market, there are properties being sold as one thing that can be redeveloped into others. There is a whole wide world of potential out there just waiting for you to reach out and touch it. You have to look for it, you have to think outside the box, and you need to know how to market it. But its there, its possible and its within easy reach.
On the other hand .. if you are happy being throttled by a landlord, chased up by an agent .. have the banks on your back with your credit card payments, and in debt up to your eyeballs .. these opportunities may not be for you.
But it doesnt mean that they arent out there.
Jake, I have re-read your first post. My apologies .. i was reading your post as someone who is going to use your carpentry to work your way into development. My apologies .. i have read a bit too much into the statement.
You want to use the FHOG grant wisely? Just remember that its used to get someone in and really exists to offset the stamp duty on a property. Its not going to be much benefit otherwise. The only time it really comes into being more to you is when the property is of a lesser value in which case the FHOG doesnt just pay for the stamp duty .. it contributes to the property as well.
The smartest thing i can give you for advice on buying your first properties .. either for investment .. living or using the FHOG is .. buy as much VALUE property as possible for your coin. Unless you are on an executive income to start with .. you'll be initially limited to around the 200-250k for borrowings from the bank. As you might guess .. that wont go very far in the current metropolitan area. If you feel you can take on an 'improver' do so. The whole idea since you are looking for a PPOR to start with is to get the maximum out of it. So look for a property you can add to … use a backyard and subdivide … a 2br you can extend cheaply to become a 3br .. something where you and your skills can provide the additional value to make it something great. Because thats the idea in the end, after a year of living in the property you can assess from that point on whether you rent it out (renters will wear out your property) or go on to sell. As your PPOR its going to be CGT free (there are conditions) but if you are looking for a base to start an investment plan .. that works great.
Catalyst wrote:I disagree with this being the "best" idea. You lose a lot by selling. If you buy, reno and revalue you can extract the equity to buy your next one, thereby retaining an asset that will appreciate (above the equity you have just created) AND have your deposit back to buy again. With this strategy you can keep on buying AND holding. Repeat, repeat, repeat.Thats nice … for someone who is planning an investment portfolio. But what a developer should be looking at (if he's looking to be a developer quickly) is rapid cash and accumulation. It means he works on situations where out of a whole deal and improvement over and above expenses, he may make 20-30k on the deal. But because he's moving quickly he can accumulate on the couple of deals within a short period of timespace. I'm aware that he loses his CGT discount .. and pays full CGT on the deal. But until he's a couple of properties in hand .. with equity and cashflow the banks wont look at him for any further development plans. I'm viewing it from a developer perspective and not a folio accumulation. Both are good, and yes .. the drawing on equity is the best strategy once you have a small pile of equity to play with.
By the way, the initial reasons for CGT discount was to keep a pattern where the purchaser holds the property for at least a year. Its a means of preventing regular flipping of properties .. which tends to ruin the value scheme underlying the property. Its a great safety blanket for our current property systems values.
Jake H wrote:At the moment I plan to buy an old house. Renovate it pretty quick and start renting it out and negative gear it and just wait on it until I can do it again. Does this sound like a good idea?Well, at that point you fall into the 'wait for appreciation' trap. The buying and renovating is good .. its buying .. and adding value, but the best idea for a budding developer is to extract as much out of the investment as quickly as possible. So .. your idea of the reno and holding really should be more like doing a reno .. then flipping it .. and doing another one. Get familiar with the tax laws relating to property .. because you'll be playing them all the time. Start sussing out real estate agents, go with the ones you trust but .. become a familiar face with a good bunch of them. Some real estate agents will turn you a deal if you come up as the most likely purchaser. Its a good way to get deals.
The other way, which some developers do .. is to skip the agent altogether and offer cash deals to homeowners. Some people just want to sell and are prepared to sell at slightly less if they dont have to deal with an agent. That slightly less allows for more of a margin for you to make on the property when you onsell.
Who says the property investment game and the building development game are separate?
First, to get any building development going you are going to be chasing the banks (or finance brokers) for money. They will want to see a reasonable asset base to lend against.
Second .. a lot of developers build their properties … sell what they need to, and keep the rest as investments .. for their next borrowing schedule to lend against. Equity appreciation happens .. and they decide they'd like to build again .. off they go !
The sheer fact you have the carpentry skills in hand works good .. as you dont have to hire a tradesman to do that. If you need to get secondary skills, get a plumbing license too. Dont worry about electrics, leave that to an expert. From having placed my pinkies into an open wall socket, I can tell you the experience is hair raising. For painting, you can either grab half a dozen painting books and learn how to do things, or chase up a decent painter. All these skills and trades you'll need at one time for doing the jobs. And each one of these is a cost that can either be incorporated .. or eliminated when developing. And developing is all about minimising costs to produce a product that is saleable at a profit.
Start your investment with building a capital base, either through .. property trading (renos) or property investing (PPOR). You need to build an equity base for startup capital. Fastest option though .. would be through successful property trading.
scotty8911 wrote:Thanks heaps guys for the reply's, its good to get some hands on advice from other people playing the game. One last question I have, is there a rough set of guidelines for doing your due diligence?The answer is yes, look for value in the deal. Look for the ability to either place value or achieve value with the property. I think anyone who tells you that you just buy what looks good on paper is delegating to someone else what the achievement will be. Know what you will buy, know what remains value. And most importantly .. if you are providing a housing service for a certain societal level, make sure that you are aware of area changes that may affect that property class. Property isnt a hold on and wish for Peter Pan to whisk you to riches Neverneverland. Take a visual snapshot of your area .. at least every 4-6 months to see how things are going. It takes less than a year or two if the area is slipping into crisis for that to become visible.
I'll be a little more explicit.
Submit an offer with the agent .. and a separate set of conditions for what u need. Your requirements for 30days for building inspections and additionals is excess. At 30 days the vendor is expecting his contract to already be unconditional, in fact .. the contract should become unconditional in less than two weeks. The vendor wants the sale to happen.
Your conditions on what should or should not be included is ENTIRELY valid. All fixtures and fittings should be requested in the contract of sale. Anything additional .. any special features (fountain, garden pots, fridge) that you want to stay should be mentioned in the contract.
Title search and validation of ownership is what the time between contract and exchange of contracts is all about. Its about making sure the names are valid, that the owner is .. who the owner says he is, any details of how to deal with cheques for distribution of payment. Leave it to the solicitiors/conveyancers to sort that out. (in QLD it will just be a solicitor)
The whole set of inspections that you want to do for costings on various items should be done by yourself. They are not inclusive as part of the sale and shouldnt be factored in as such. As i stated before .. you can drive reindeer through the property once contracts have been exchanged. However there is no reason that you cant drag a tape measure through for area measurements during your final inspection (you are entitled to a final inspection a week before settlement) and get the costs from that. The costs for anything you want to do to the property shouldnt be factored into the final sale. The price you pay the vendor should be determined on what the property in its current state is worth to you.
Australian property is dealt with on reasonable concessional terms. In most states they have some form of cooling off period so if you feel you got sold a lemon .. you can back out (forfeiting a portion the deposit). Its quite reasonable, and there are lots of times where it shapes up as not being what was wanted or needed. But in most other countries the terms are more like .. if you bought it .. you paid for it. So for future reference .. I'd make a suggestion that if you are going to purchase anything .. do your due dilligence on it first. You happen to be in a country where you have flexibility. But for purchasing .. you should be acting like you dont need to use it.
I've revised my thoughts on how you should submit it. Submit it as a page of conditions rather than within the contract. That way you can just refer to the submitted conditions attached. Make sure you cover all things you want included.
However all the 30 days extra searching for Titles and Building Inspections is really extending safety for yourself to the terms of waffle. The standard time for a Building Inspection or Pest Inspection is a week. Thats it .. thats all you need.
All due diligence on the property should be done before signing. Any people you want to bring through for any costs estimating should be done pre signing and not after.
The vendor is seeking from you as the purchaser the security of a signed and deposit paid deal. He doesnt care at the end of it whether you want to bring reindeer through the property after exchange of contract. Once you got it its yours. But he does care for the idea of getting from the agent a full ten percent deposit (indicating that he is actually proceding with the contract) and a short series of terms that can be worked out quickly. The vendor wants the sale unconditional as soon as possible. Thats when he gets his cash.
Scott No Mates wrote:Xdrew, it is generally the vendor's solicitor who prepares the contract of sale not the agent.
The Contract of Sale document is a document provided by the state real estate licensing authority for the usage by solicitors and agents respectively. It is the agents responsibility for making sure the offer is represented appropriately and all elements of the offer are represented on contract.
How the offer is submitted is really up to the purchaser.
Intrigue wrote:Below is what I am preparing to send to the agent…. thought and advise pleeeease
I would like to submit a contractual offer for the sum of x for property located x
The contract must include the chattels currently within the home (fridge, washing machine, air conditioning units, water tank, …………….) The contract must be subject to a 30day due diligence period in order to ensure the buyers complete satisfaction of the results from the following;– Building and pest inspection– Structural integrity inspection– Roof integrity inspection– Council approval checks– Title search The buyer will advise the seller of complete satisfaction prior to 5pm on the 30th day from contract date. If complete satisfaction is not obtained the buyer reserves the right to terminate this contract with a full refund of deposit payable. The contract is subject to finance 30 days. (to co-inside with the due diligence period) Settlement to be 30 days post the expiry of due diligence period I.e. 60days from contract date. Offer expires at ….Grab a formal Sale of Land contract paper or a photocopy from either an agent or your local state authority. Nothing wrong with writing it up on a blank piece of paper or a notepad aside from the legalese at the end of most compiled sale of property documents that protects you from litigation. There is a reason that most agents use them. They save their own backsides. You should too.
Gmoney336 wrote:Thanks for all your comments, I'm thinking of approaching the vendor directly and seeing if we can negotiate a private sale. It might be abit unethical but I'm having far to much trouble with this agent. Presuably due being on the market for so long it should be out of the 'exclusive period'Actually Gmoney336 .. there is no reason why you cant approach the vendor directly anyway. The agent is entitled to his commision if he introduces a purchaser to the property who eventually purchases it. If the property goes to sale with another agent and the same purchaser goes and purchases the property, the agent who had the initial dealings with the purchaser can make claims for remunerations from the proceeds of sale.
As an agent there would be times where i would chase up a property that went off the market only to find that they had sold privately to the introduced party. That wasnt acceptable and there were a few times that this was chased up.
There is no reason you cant chase up the owner for direct negotiations if you feel the agent isnt being thorough or honest. The agents job is to bring together the two parties and create a workable negotiated deal at a reasonable price. If he isnt doing that .. go direct.
From my understanding of how contract law works, you are only obliged to offer any agreement subject to placement in the sales contract. If it states within the initial sales document for a building and/or pest inspection .. a time allowance is provided for such. Once the final terms of the sale are met, the contract becomes unconditional, in other words .. there is no conditions that excuse the purchaser from proceeding. If neither a building inspection or subject to clause was placed before the signing of both parties to the contract, then the contract becomes unconditional upon full payment of deposit.
You dont have to feel suspicious about the purchaser. The purchaser is under obligation to commit to the contract now. Any variance from the legally binding terms is at your discretion. But i suggest you consult a lawyer for any conditions over and outside the terms of the contract. From this point onwards .. you dont even have to provide postage stamps for the purchaser.
By the way .. even if there are illegal building works, thats not an excuse to sever a contract. Any due dilligence is to be taken at the inspections provided by the selling agent, and any queries as to the state of the house should be dealt with as an escape clause (subject to building inspections and/or pest inspections within the period of seven days from the signing of the contract).
Thats my understanding of the situation based on Victorian law. Anything i've stated should be treated as a guidline based on my state law and should be verified against procedures for your specific state. In other words, verify with a lawyer for your specific state.
First up, i'm assuming that you paid a 10% for your initial PPOR investment a deposit of 36k. Because you are feeling smug that you have 60k invested in your house .. which means as far as you are concerned you've SAVED the difference that being 24k. Its quite a substantial difference and you should feel pride in having achieved that savings and investment in your own property.
When people come to me asking about property advice .. i dont give straight down the line advice, I base it on circumstance and direction. Is massive investing reallly good as a starter project? Only if you have funds to back it up already. Is it appropriate to go big and sell the family house to start an investment plan? Depends on investing capability and family situation. Point being, the right advice is based on where you are .. what you are capable of doing and what you want the end result to be.
Ok coming back to the existing situation, you've got less than a 20% actual investment in your current property. The banks at the moment wouldnt lend on that (its just a matter of timing) so you are left with a picture of sale to extract funds. The outcome you want (I'm assuming here) is a brand new house on a new block of land with minimal loan .. minimal fuss.
You are forgetting the little things that sit in-between all this. They are STAMP DUTY and SALE COSTS. Note there is no stamp duty on selling a place, but you'll pay about 6-12k on your new block of land, and unless you sell your property yourself, expect a drawdown on selling your place of another 10k (about 7-8k for agents costs and 3k for advertising and transfers minimum).
May I suggest in your current situation you might as well just do a 10% deposit on the land and use the house as a guarantee? Its less money out of your pocket, you get the land you want and then its more a matter of just paying out on the land. However .. combining with your existing house mortgage will be a mouthful. I think me and the banks would both think that.
From the way you are wording it, you are building for the sake of new house, not due to any immediate family pressures YET. So why not consider the idea that with what you've got, pushing the new house scenario may be achieved in other ways?
At the moment your financial structure would be considered debt heavy .. capital return only. If you were a commercial operation like that, I would be suggesting a rehaul to the whole company workings. And even as a family, you deserve no less.
There is no real reason why you cant branch out onto a new house. Except for the fact that it will bog you down with even more debt. A more creative strategy would be to look at the idea of paying a little more into your existing loan, and creating like a fridge thermometer (draw a large goal thermometer on paper and stick it to the fridge). Make the goal something realistic, like .. an extra 20k you put into the place. Splice your goal maybe into two separate thermometers .. an 80k one .. then after that .. a 100k thermometer. Point being .. at 100k .. the banks will probably allow you (banks in a year or two should be flexible again) a 60k equity drawdown for .. your land purchase. So you get to keep your existing house .. and the land too.
My basic view would be .. its a little early for contemplating your fresh new home. So maybe its time to study up and think of fresh solutions to get where you want to go. There is no single path, as i wrote above. But there is the path you will feel safest taking.
People cant compare Japan to us, their crash was different. And the US crash is caused by a severe problem exacerbated by the 'housing affordability mob'.
With Japan there were loans organised that were 90 year loans, deferring risk of actual final payment of the loans to your grandchildren or worse. This allowed people to borrow amounts that even they couldnt fathom on the basis that by paying a minimal amount they wouldnt even have to pay it off within their lifetime. There was also construction mobs that would leech money off pre-purchase building sites that would mysteriously go bust. If you have ever heard of the Japanese Mob, they have as much influence over japanese construction, as the italian mob has over the US.
In the US the sheer rush towards a 'housing affordablity scheme' regardless of the ability of owners to pay has let a large amount of housing get built with concession in places where they just wouldnt dream of building. Near deserts .. in the middle of cornfields, old toxic industrial estates. They built for the concessions, they built for the money, and they built big. Thats what led to the whole toxic loans crisis. People who couldnt afford their rent were buying two or three houses, lying about their ability to support the loans and walking away from them when they couldnt pay. This wasnt one or two people, it was thousands. And the worst part about the current crisis is that the same people who wrote the bad loans are continuing with the same procedures. There is a lot to clean up there.
In Australia, we have a situation where we just didnt do anything for 20 years on housing. No proper planning, no guidelines, no centralised transportation extensions, no infrastructure improvements when required (eastlink, citilink, brislink are all public organisation partnerships with government). Now, and only since 1993 .. we have been developing high density residential, and even then, not matching it with facilities or demands. People have seen a large growth in the value of their properties. But its not everywhere. I can verify that inner CBD property has been on a slow 8 year drag on its knees to do anything. Banks for a while would want extended guarantees or better ratios on inner city property. To make an assumption that its all been going up, its just wrong. All this long term dawdling has put immense pressure on city suburban property and development. The developers are busy now soaking up this demand, but developers usually only do residential, not infrastructure. We will reach a saturation point eventually. And this in itself will suppress house and land prices. But at the moment, we've really just got started on this.
I tell everyone the same thing. At the moment you all should be prepping a little cash tin on the side, paying off extra on your loans and clearing your credit cards. I know that the last time around the only reason I picked up some of my deals was that I had money available WHEN NO-ONE ELSE DID. Ok .. also a good rep with the bank manager helped. But .. it was still very hard to squeeze credit out of the guy.
Its not bunker down and prepare for the worst. Its bunker down and prepare for the unexpected. House prices fall 20% .. or 70%? Can you know ahead of time? Can you tell PRECISELY when? I sure cant … all i can witness is trends in movement. And that doesnt predict a crash.
Regardless of where the property cycle is, and what could happen, you should always have an emergency plan. I have a series of food cans and twelve large bottles of water in the back of my garage. I dont need it, I hope I will never need it. But if the food and water delivery systems were to stop overnight … who thinks they'd be prepared?
There is an article by some bright puppy in the Age today (you go find it i wont mention names) talking about how the US markets are responding to the idea of a double dip recession not happening, and how comforting that is. From what I've read in the overseas papers and financial reports, everything bad comes due in March. The Alt-A loans start their problem period, the US has to resolve with China its debt situation, Greece has to be worked out, the first set of figures not affected by the stimulus come out mid-March. If any breathing sighs of relief happens .. its how we make it to Easter.
I know two things, you dont feed stimulus money into a financial system without the balance of inflation, and that at the moment .. most home buyers are riding close to the wind on their payments anyway. Thats your critical pressure at the moment. Times are getting worse in the commercial sector (Gold Coast 23% vacancy?) and there isnt a sign of that clearing up yet.
I like to observe the real factors and trendlines affecting property. It helps me get an accurate picture rather than what the paper hands me. I was witnessing the precipise for a boom in 2006 and the papers were all talking crash .. doom and gloom. And we all know what happened next.
For any investors sake I'd prefer not to mention which suburb it is. Lets just say I'm aware of even worse. There was a period back in the early 80s where if a tenant in 3020 had a dispute with the landlord … he settled it by BURNING out the place.
When i started looking at property in the late 80s there were still some of these masterpieces being taken to market. Thoroughly burnt out with maximum damage done to both kitchen facilities and bedroom cupboards.
But thats history. Far as I know 3020 has been nice since the mid 90s.
It still happens though in areas with tenants who dont even know how to look after a property. In the Latrobe Valley there is a block of 8 flats doing the rounds (its been taken to market about four or five times now) where 3 of the flats have been char grilled and need a real renovator rescue just to become lettable again. And the owner is still asking a price that suggests they are ok.
I think what everyone realises at the moment is that we just piled a large load of money (March 2009) into 'saving' our economy. It doesnt matter that as a largely unaffected country .. we didnt need it. The flow-on effects for this will be a significant inflationary pressure once it spreads throughout the whole economy. And we are starting to see it already in most household items.
Bringing this back to house prices, usually house prices go up first with an influx of money washing away from stocks and bonds. People just jump onboard and usually end up borrowing to the hilt for their next property.And then .. inflation takes hold, and the whole price of money rises, flattening especially anyone who is borrowed to a point they cant afford. Its a nice stabiliser, a horrid headache .. but we are just coming due for our inflationary period now. It should straighten things out nicely. Of course .. the end result from the other side is that no-one has any spare cash for a couple of years .. but thats also usual.
As far as working out if the property market will crash .. you'd need people selling to start that off. People will sell when they really cant afford the payments any longer, otherwise they will grit their teeth .. hold on and bear it as long as they can. The only time I would be getting worried is if the Government FAKES inflationary numbers. In which case .. inflation will go on around you, and what you can buy for that dollar becomes less and less, taking wealth and minimizing it over the longer term.
We all work on perceived value in any object. The lack of valid sources for excess capital to be invested in has leant itself to movements in collectibles, housing, and of course art. But the areas where it would make a difference and it CANT be invested in are places where it would create genuine wealth. Areas such as manufacturing, farming and the creative arts, which survive and thrive off each other. The risk we face at the moment of rapidly becoming a society that cant tie its own shoelaces without overseas support is not something to take lightly.
You can have the mortgage registered on title, similar to the registered bank mortgage. A solicitor will draw this up for you, its a pretty standard piece of documentation.
The important things to lay out in the documentation is the terms of the loan (what he will be paying), the conditions of the loan (how the loan was offered from the start), and of course .. extraordinary circumstance (what happens if one of you dies or a divorce, or if there is a foreclosure).
My main reason for treating it as an informal (not registered on title) is more to do with the fact that if its anything substantial, the banks will deduct it from any further borrowing capablity that he has. If thats minor to you, then dont worry about it. Write it up as a secondary mortgage on title.
If you want to retain the capital investment in his home regardless of the initial amount, write the loan up as a percentile of the actual value of the house. That way .. regardless of the change in currency, you always will have the same percentage of the house as part of the mortgage. Sure, he'll be paying interest on the fixed amount, but if any sale is required you would be entitled to remuneration from the house at the percentage level. Of course for that you write in once the loan is paid back .. its his anyway.
I think half of Steve's book should be looked at for how he did what he was going to do, rather than how many properties he dealt with. I have no doubt his figures on what he did were real and accumulative rather than summarial (a final total). But .. from reading his book, I went back to Wendouree in 2006 when the properties were 175k for a 3br brick house and bought eight of them as rental investments. Price is now 250k (roughly) and from that i'm sitting pretty. Refinanced the 3 yr loan already so I own one of them outright. They were cheap .. TOO cheap .. and so i bought in.
The whole idea of Steve's book is to train you to recognise an opportunity and how to approach it. I've seen three people approach the same investment strategy and two of them lose on it, the other made a small fortune. What Steve recognises is that there is more than one way to make the deal .. but the whole idea is to find the deal .. then make it work for you.
I had a block of land that i purchased and divided into smaller blocks. I then went to an agent and he worked out a fee per block for selling this land. I suggested that it was a little much and could he be flexible on the commision? (he'd still have got the deal). After getting a rant as to how much his time was worth and he was a specialist in what he does, I left. And rented a campervan and a large sign for the road. Professional looking of course. Made up land contracts with a lawyer friend, sold the blocks over 3 weekends. All of them. Without an agent .. and with almost no negotiation downwards. The agent lost out on about 70k worth of commisions. I earned that for myself in the three weekends.
From Steve's books you'll learn what a deal looks like, how to make a deal .. and how to finance that deal. The rest will come from your ingenuity and your time.
Keiko, tenant is your golden goose. Flatten him with rent increases and you wont get any golden eggs. Make sure your rents are competitive and fair, but in the end you shouldnt be looking at the rents as your main supplement for income. The tenant should always be paying within 15% of the current rent level, and 10% of the current rent level if you are being strict. Make the rent change date the same each year .. so the tenant expects it.
Most of the deal with rental property is not to get rent from the tenant. Its to keep a tenant in the property, paying his way on a contribution to your welfare. The tenant leaves .. you have to re-advertise for a new tenant, repaint, fix things. There are significant costs with swapping tenants in and out of a property. So, a happy tenant is your golden goose. Respect him for this.
Dont let rentals get too far from the mark or you'll end up screwing yourself though. But a rule of thumb on increases is .. $5 a week they wont blink an eyelid, $10 a week they'll grumble and take it, $15 will see them rioting and sending you letters for the rental tribunal. So you really dont want to get into a situation where to bring it up to date you have to bring it up $15 or more.
I like to keep my rents close to the current rental level but not AT the rental level. I allow a $10 slack that i bear on the basis that he looks around .. and knows he'll be paying more if he leaves me. If he leaves me .. heck .. the NEXT guy gets the current rental level.
