Forum Replies Created
ajayayyar … its interesting that you are thinking about other materials outside of brick. First .. most immigrants from europe wont deal with anything LESS than brick. Australians themselves are prepared to take on the old weatherboard simply because a lot of the time its cheaper and usually has a fraction more area inside the place. The real differences come out with ongoing asset depreciation. Unless regularly maintained, a weatherboard will move and warp in ways that a brick house just wont do. Sure a brick house still can crack silt and fracture, but its usually ok unless built on poor foundations. On the returns side .. a weatherboard is usually calculated as almost land value. HOWEVER the returns are based upon the number of rooms and bathrooms. In answer .. a weatherboard produces better returns for long term … less property.
Assess both corrugated iron and weatherboard as land value potential only. It saves on trying to keep the house. However a further insight .. the best upgrades i've ever done were devalued weatherboards into premium weatherboards. The rules on position and transport still apply.
I think the funniest thing with this little thread is it started in 2008.
Since then the properties in my area have added another 28% to their market value. And people are STILL quoting doom and gloom.
There are two real possibilities for the near future ..
Firstly in 2012 the world will end in a fiery blaze as predicted by the Mayans and this will seriously depreciate the values of my properties. Not only the end of the world .. but a decreased capital value !!!
Or .. the world still remains wholesome and lush .. more people are born .. more properties are made and i have to continue making and re-assessing my portfolio.
I prefer the second scenario somehow. Not only does it mean i get to keep my properties but i'm allergic to hellfire.
pmack, you are travelling on blandishments.
First .. The labour government CANT possibly tank the Australian Economy. The Australian Economy HAD to change in nature during the 90s to accomodate what was coming. Lets be 100% realistic .. when China produces the goods at up to 1/5th of the cost as the same Australian product with the same quality or better, there is no way you can compete on the manufacturing side of things. So the economy had to be redirected to other industries .. and in those .. its functioning reasonably well.
As far as property markets are concerned .. THE AUSTRALIAN COMMUNITY ( what a wonderfully meaningless uniting voice that is) is a wonderful multicultural bag of people from all over the place. And there is no one specific market that is more vulnerable or stable than any other.
Second .. the gift horse of the first home buyers grant was only ever meant to be temporary. Taking it on board as a permanent uplift in the price bracket would have distorted not only prices for the longer term .. there would have been a need to BOOST the FHBG to a point where it kept stimulating a false economic lift. And that .. would be how u get a nice big plummet. The government can stimulate .. but then it has to adjust back to normal conditions. Its like the Kennett $100 property tax implemented in the 90s. To keep it for any length of time would start to affect property prices downwards.
The Australian Government (Liberal or Labour it really doesnt matter) had every right to stabilise and guarantee the strength of the banks during the GFC. And it not only probably saved our economy from plummeting .. it gave our creditors some degree of comfort with our current backing arrangement. The same cannot be said for the US, it has lost a lot of key markets due to a TOTAL lack of trust in its fiscal machinery as it now stands. The worst part for the US .. it has done nothing to accurately remedy the measure. And that for the US spells more long term gloom.
The same can be said for the foreign purchase of property rules being tightened. Up until 2009 there was a constant stream of foreigners from various countries using the current foreign purchase laws to buy apartments off the plan AT ANY PRICE for the vehicle of citizenship to be gained at a later stage. Often these properties were later to be sold at a loss .. for the privelege of gaining citizenship. As you might guess that scenario creates a false market.
Two things we did bad for a long time (in Victoria at least) was to ban flats because of the fear of high density living. It meant that a lot of areas ended up being built with medium density living (late 80s onwards) instead of the appropriate high density living that would improve the transit of strip shopping and the wider viability of commercial areas in the vicinity. This is even now only just starting to get remedied. And it means that a lot of the high prices that we have for housing are because we didnt build up when it was necessary.
Its one thing for a bunch of Armadale residents (Vic) to put up their NIMBY signs for a large block of apartments in their area. But due to the fact that rents are constantly rising in the nearby High St commercial area, there are large shops vacant because the rents are unaffordable DUE TO LACK OF STREET TRAFFIC JUSTIFYING THE RENTAL. It eventually affects commercial rentals .. which in turn affects residential rentals. With the increased density there is enough street traffic flow to justify the increased rentals. Managed properly .. increased densities are also an asset to the rich in the area as well.
The final thing that will save our banking butts is the fact that the banks have got extremely tight on lending again. And that in turn will protect the value of owning an asset currently. Two things keep the value of a property up, the lack of property available on the market .. and the lack of people willing to sell. The hammering of the credit market means that only people who can really afford to make a solid purchase will be able to buy property in the short term. That strengthens the merit and value for the long term. However it also means that there will be less solid buyers out there. And there will be a minor pricing adjustment to reflect that.
Bowenvale .. there are two big possiblities in the next 24 months. One is .. from all the heavy spending that the US (and in its own right Australia) has been doing .. that there is a period of rapid inflation. So the 2011 value of 750k will probably not be the 2014 value of 750k .. in that the buying power may be nowhere the same amount.
The other possiblity is that the value just drops out of the property market .. which means if you are exposed at any significant loan level you could be facing margin payments on your loans. Its the more unlikely scenario .. but then .. so was the 2008 crash for the US.
My suggestion would be to go the investment route for your money at the moment. Simple because in both of these scenarios its a win-win environment for you. Make your LVR a min of 50% so option 2 never happens to you. Grab a small unit block in a nice suburb where the rents are affordable.
Advantages? With school age kids .. the bills only get more expensive. 5 years down the track .. any investment you've taken on will be paying its own way quite nicely and contributing to school fees .. holidays .. and the next big ticket Xmas item they need. You'll also be securing a retirement package that most people would be dreaming of .. indexed to inflation. It should be possible at this point in time to get a stable portfolio of units returning between 4.3 – 6% depending on the suburb u go to. On 1m – 1.2m thats an income of anything up to 80k (net maybe 65k). For your own security however .. do two things. FIX THE LOAN (5yrs + .. you've got time on your side) and .. build a reserve of up to 10k for 'expenses'.
Oh i should mention .. there are three reasons i'm mentioning multiple units. One – low maintainence (save your repair monies on other things). Two – distribution of risk over multiple properties .. hence lowering the chances of major losses due to vacancies. Three – As long as they are on separate titles, you can sell off as u need to, reducing CGT exposure.
This system wont make you rich immediately. But it almost guarantees you wealth for the long term. And thats not half bad.
Where to start? Somewhere in all that mess .. is an entrepreneur just waiting to get out.
First, you are treading water at the moment with your income situation. This is hardly the correct approach to starting an investment scenario. Second .. to sell into the plunging Brisbane market is the WORST possible scenario.
I had hard times two years ago and was thinking selling a couple of my units. I sat down and went thru what i could do. I decided that selling wouldnt really do anything for my REAL financial picture. The units have gone up by another 200k in the meantime. Which means my LVR on the whole deal is looking kinda pitiful now. And the income is up 9k so my financial probs that i had just dont exist.
Grab a Kiyosaki volume. RICH DAD POOR DAD is the obvious choice but they are all inspirational.
And lastly .. do simple accounting. If you got a MONEY DUNK property it remains a liability until you can convert it into a working asset. Dont have the finance to make it work? THEN DONT DO IT.
Finally .. whatever you do .. dont listen to the WORK HARD, BE REALISTIC, SAVE MONEY crowd. They just drag you down. You've made the big decision. Now the next step is to innovate to create workable solutions to make money.
Remember the longest journey starts with the first step.
I've done similar scenarios before. My gut feeling with your deal is .. if you cant do it directly .. and you own the asset, approach a young cashed up builder and work out a profit sharing arrangement on this deal. It will mean you lose a little profit but you will be able to get subdivision and building through. Like every good real estate agreement GET IT ALL IN WRITING. Walk around nearby building sites .. take notes of who is building. Ring them up. There are ways and means to get things done.
Oh ya .. if you cant trust the builder face to face .. dont employ him for anything. Cant trust is usually a good instinct.
Finally .. until you have a situation where your properties are returning AN INCOME you can live off .. you'll still need a job. Mow lawns .. deliver pizzas … tap dance in a mall for pennies. Do something u like to get the income u want .. to service your dream. Money is options, and without the money .. you have lost out on your options to carry the property deal through yourself.
Lastly, its ok to get a couple of credit cards to use just for building expenses. You use them to complete the deal, and refinance them from the proceeds of sale. Calculate the interest costs involved with maintaining them. This is a step for when you are working though .. its a way of having extra finance you dont need to ask the banks for. Treat them as available credit and not a free lunch and .. credit cards can be your best friend.
Finally .. real estate is all about thinking outside the box. And having some idea of how to market a property too. Grab some sales and marketing books. You need to learn how not just to buy and sell .. which any clown can do .. but .. who to sell to .. and how to make it all work. Some of my best purchasers were also my tenants, think about that.
Louiero .. the one word that has me shivering in my boots is .. inexperienced. I have an expression that i use … BITE AND CHEW. Because its something that people can understand. BITE – get an investment that isnt a mouthful for you. CHEW – take on board the intricasies of your existing investment before moving onto the next one. As experienced .. you can usually Bite N Chew quite quickly and you'll know whats working for you. But as a novice .. i would seriously suggest taking smaller bites. You have the ability to negative gear? Cool … allow the leverage to get you a FIXED term deal thats a bit of work in the early years but you'll know what you are paying. A five or seven year fixed deal will allow you to get familiar with investment expectations .. rental depreciations .. deductions, and even capital growth WITHOUT sitting there praying for no more interest rate rises. Its a neat way of making sure you are in charge of your property and not the banks.
Do your research .. and make sure that you become your own expert in your area. Aside from that .. GOOD LUCK.
YASH_K wrote:HELLOi AM WANTING TO FIND OUT HOW TO SOURCE A LIST OF PROPERTIES WITH MIN 5 ACRES OF LAND, PREFERABLY IN SE QLD WHICH WOULD HAVE DA POTENTIAL.
LOOK FORWARD TO YOUR REPLY
REGARDS
YASH
A dingy .. a snorkel .. and a rubber duckie. Or you can wait until the current floods recede.
All these clauses are there to give you time to legally go OOPS and withdraw from the contract legitimately. It however DOES mean that you need to READ them before you start hopping into a signing session. As you might guess .. the more 'subject to' clauses you have in an offer .. the more wary the vendor is at the possiblity of the whole sale not happening. If you are the only offer thats ok, but if there is multiple offers at the same price, an unconditional offer looks a lot more appealing to a vendor.
Like all things .. if you ever get presented with a pile of paper instead of a one-sheet .. READ what you are getting. I find that the number of people who just plough into a contract 'because the sales agent was so friendly' and then work out what they bought is too many .. and too often. For instance .. the most common 'forgotten' clause .. is on land in an up and coming estate. The one that says you gotta start building in 6 months at least.
Tripsy … i'll give you an excellent idea of why the saving up to afford property fails.
In 1999 i was given 15k for investing. With my savings it amounted to 25k i could have invested
in 2000 I could purchase a 2br flat in Dandenong, Vic for about 65k the amount i had was a 30% interest (after stamp duty)
in 2004 similar 2 bedroom flats were trading in the 120k range. my amount would only have been 17%
in 2006 the 2br flats in the area were now 150k. my amount now buys barely 13% of the property value
in 2010 the 2br flats now trade around the 270k mark .. my 25k deposit wouldnt even buy 8%
To sum all that up .. i DID actually purchase in 2000 .. i got greedy and bought TWO. So now my asset base is half a million of investment money over and above what i paid. Oh yeh .. and it returns .. wait for it .. 25k per annum.
You move when the moving is good. In that time i've gone thru at least two actual booms .. the 2000-2001 boom and the 2006 boom. But there were times in 2004 when i could have kicked out on the basis of not feeling confident and a slowing of the market. If i was looking for investing .. i'd be putting my money into something ASAP. Something you can afford. And an investment not a live-in. Your tenant can help pay for your investment for you.
Money is about to move. And any figures you are used to now will look pitiful when its moved. So will any deposit you have waiting for property to come meet it halfway.
Talking 1 on 1 with my tenants instead of going thru the property manager. There is a reason why you have an inbetween. Tenants who get annoyed turn up at your doorstep all of a sudden.
Never again.
fWord .. the real answer is a lot deeper and complex
firstly .. simple is 100% right. They have rental controls enforced in the US in a lot of areas, New York, Michigan. I'd hesitate to name all the areas but rental controls are a no-no for long term investing. It means that they pay a FIXED rate by the govt for that type of property. So your gas bills your water bills all go up BUT THE RENTS REMAIN THE SAME. It kills both the long term value of the property and the incentive for the landlord to improve the property. Just for your information we had rental control in Australia in the middle of last century. And it killed the rental and investment market STONE DEAD. If you look at all the 60s apartment building in places like St Kilda and surrounds .. that was based purely on catchup.
What happens with rental control is .. you have all these people looking .. but NO-ONE wants to move. Why would you? The rent is fixed and if you do want to move, you sub-let it to a 'relative' while raking in the difference. At the expense of the landlord .. who graduates to a position of just wanting to DUMP the property to get something for his money. Thats part of the problem in the US now. There is too much ranting about cruel landlords and tenants as victims. The end result is a socialised market in which property for rental is hard to get and landlords are a dying business. Of course eventually people realise they stuffed up, and review the rental controls. But tenants vote too and lots of times they vote rental controls back in. If the situation changes .. jump in. But until then .. be 100% wary of this.
How bad can it get? I can get you a 21 apartment complex in Detroit Michigan, a mix of singles and studios in reasonable condition, fully tenanted with rent controls for a mere 435k .. thats 21 apartments returning 56k. On paper it all looks good but once u know the real cost its a hot potato just to be holding it.
JacM wrote:PS yes, if you are going with an apartment, positioning it near the train station and shops is a must. This is because apartment dwellers are more likely to have lower incomes and thus no car. I'm not convinced an apartment needs to be near a school, but a house does. Think about what you'd want if you lived in a place. You would not want it to be an epic getting to work, the shops etc. Better again if there is a nice park for you to sit in when you feel like it.I think Jac is right on a couple of issues. Think about this place as if its your own home. It helps you look at it properly. For instance I wont invest in less than a 4.0 x 4.0 (roughly) bedroom. Its got to be big enough to get the queen sized bed in plus legroom. And confrontational hallways (bedrooms open to other bedrooms or direct into the lounge) are bad ideas. The other thing is having moving room in the bathroom. If you have to step across the toilet to get to the shower .. or worse .. the first thought that enters your mind is .. I WANT TO BE SOMEWHERE ELSE. And guess what .. thats what a tenant thinks too.
Fixtures can be changed. Laundry and sink can become eurolaundry (this saves space majorly in bathrooms). Lack of cupboards in either bathroom or bedroom can be solved. But major structural failiures cant be remedied.
I've got a basic equation that works for me. Local shop (milk bar or seven eleven – NOT petrolsupermarket). Walk to a bus stop, short walk to a train. Shopping Centre within 5 mins drive. The area must have at least 5 major industries active within the local area. I know thats a lot but it prevents me getting stuck in a dying country town or suburb unless it meets that criteria. That prevents me from relying on a one horse town – where they rely on a single market for the whole towns income. And of course .. three major working roadways to get into and from the area. Sounds like a lot but its proven valid for the long term. Think of roadways like arteries .. they keep the transport lifeblood flowing.
Hi Mr Jaydee !
Nice to see someone pepped and ready to go into an investing / living cycle ! Fresh from university .. thats a big goal to be exercising !!!
But you are looking from the DUNK MONEY approach to investing. First … any first home u purchase at this stage will be heading for the downturn and this may mean that either interest rates fly up around you .. making the investment hard to maintain .. or the PPOR easier to rent out rather than live in. Neither of these provide a good start to your property journey.
Second, why not think OUTSIDE the box? You are early 20s (i assume) just starting your major career moves .. why not gear up instead for .. an investment folio. As i keep telling people, once an investment property takes off .. its money YOU NEVER NEED TO WORK FOR AGAIN. And as a 20+ that would mean you would have a residual income at an earlier stage.
If I was 20+ again and getting going … at 300k I'd be looking for one or TWO properties that are reasonably nice that are good renters. At this stage you dont NEED either the income returns, or the debt whack to make your life a misery.
300k should be able to get you about 12-18k return (risk proportionate). At this stage .. for you .. the FHBG would be there to get you into the property cycle and THATS it.
Regardless .. whatever you do .. gear at least 80/20 (20 is your money). It may sound conservative but it also means you can weather a downturn. And with your first property you'll also need to budget for unexpecteds. Either allocate 20% (or 3k)of income for unexpecteds PER PROPERTY. Insure the contents of the property !
More importantly .. do your research as to current market conditions. Become your own analyst, as in the end .. you'll need to make your own recommendations.
Outside of that .. GIVE IT A GO ! The best insight for wealth building only comes with experience .. and the sooner the better !
Your current scheme of taking blocks of vacant land and building on them is great.
Except its not.
Reading between the lines, you have a good job, are building equity in your house (a big beautiful TICK – its always good), have a partner who is building equity in her house, and you really just want to get moving in the property world.
Well, congratulations .. actually MOVING in the property world is the first step. But the way you are doing it and NOW is wrong.
I'm betting (and i'm rarely wrong) that the interest rates will still be moving a year from now .. upwards. This will take any bracketed investment profit you have on a block of land and either minimise it or nullify it. And so in 5 years time of the property doing nothing you can be one of these people who turn around having got burnt by an interest rate rise and say .. PROPERTY? BEEN THERE DONE THAT ITS A MONEYPIT. Woo hoo all that time and effort peed down the drain. And didnt it feel good?
Building on vacant land adds value, but you still trade on margin over and above money invested. In times when money is flowing and property is booming its great, sometimes you fall into a boom and the margin is doubled or tripled. But in steady or downtimes its almost like laying a fiscal egg. You'll plug money into it and the margin u want just evaporates, or even worse, the properties fall below a level and the banks call in their loans. Or you'll sit there waiting for your price to come back .. waiting .. waiting … waiting …
Life is too short for that kind of stuff.
There are deals to be made still and there is money to be made. But how you do it is the key. I suggest grabbing Steve's book (260k) and reading what to do in down times. Keep the fire for doing stuff in property alive. But do it different. Most of the time its the only way you make money .. working AGAINST the grain.
I think the one most important part of training that you need to take on board is .. LIABILITY vs ASSET. If you are paying mucho dollars out of your back pocket in the hope of great capital gains or increased cashflow, thats a losers game. If you can find a property that with a short amount of input from yourself can be held and work for you regardless of the amount of time you will hold it, thats classed as a workable asset. You would be surprised at how many people i see who start with the DUNK CASH mode and then find that however they work it property becomes a losing game for them.
Land can be subdivided, Units can be refurbished (even strata'd), Old houses can be given a lick of paint, a new kitchen and a funky fireplace. Each one of these produces a better class of asset and cash for you in the long run. Budget for extras and overrun and you should be doing fine. And get a swag of honest tradies in your back pocket .. they are more valuable than gold bars.
Just to clarify on my previous post .. 80/20 is 80% from the BANK and 20% of your own money. Its conservative as a starter block but the banks dont need LMI (Loan Mortgage Insurance) on that. And the market needs to go down by at least 20% before they call their loan in or ask for extra money. Its a reasonable safety net.
Clappy, congrats on thinking ahead before heading to university. I'd suggest plugging yourself into some literature on your home state. Learning from a mate how to paint, plumb and what good and bad electricals and houses look like. The first step is learning the good AND the bad. And that only comes thru experience. I'm sure there are deals to be made and had in the US right now. But you would have to be up with what the whole deal is in America. Americans are MUCH more litigious and both tenancies and management can be very difficult over distance. I should also mention that there are areas that are more than willing to use and abuse EMINANT DOMAIN on neglected properties in the US. Its a very different market.
Start by going to properties that need work, that are open for inspection. Maybe 60s flats or deceased estates. Work out what can be done to the property. Grab the brochure and see what you could do to the property. WORK OUT COSTS ! Even if you arent doing this yet .. its training and knowing what is possible and how its done that is the priceless training you can use later. How much a kitchen? Is it necessary? what will it cost to repaint a wall? A whole room? This is invaluable experience. The faster you can collaborate this knowledge in the future makes deals quicker and easier to organise. Plug in figures based on existing interest rates and various levels of borrowings. You'll learn what can be done.
Aim to make your first deal solid with at least an 80/20 borrowing level. I know its a lot to have saved but its also a secure foundation for future investing. The first deal you always scrape for .. the rest are usually a lot easier.
Grab a property in Australia. Somewhere close enough for you to visit within the same day should problems arise or you want to inspect. Know your tax laws and deductions. There are so many people who get in under one scheme and get out on another. Tax laws and concessions with property is always changing. Its a must to keep on top of this.
The most important thing regardless of where it is remains to KNOW YOUR MARKET. If you are an expert on your market and know how to deal with tenants and property managers properly, you can invest just about anywhere with a degree of success. As long as you can fulfil the above criteria, you should be enough of an expert to take on any property.
Having been in the real estate industry, I can tell you that whatever the reporting data services offer it is very haphazard at best.
For one thing .. most real estate agents DONT report their sales to these organisations unless its for their benefit, a substantial price over the estimate or .. a property of substance. The rest of the time they just cant be bothered.
Does this influence things? YES it means that the stats you get are based on these potch statistics based on false numbers. To get a reliable set of numbers you would need a respectable set of figures to start with.
So I'd be treating the numbers you get in most property reports with a due degree of suspicion. I'm sure you can get a feel by going to any agent and asking for price comparisons for your property. They can do a report for you to show you comparatives.
However, due to the privacy act, they are not allowed to let you hold the data or keep it.The papers have been doing doom and gloom since 2001. Its not a good guide. What i can say is a good guide is the ability for a tenant of a property to be able to pay the rent .. and the ability for a landlord to pay the existing loan. When either of these two situations change then the market will too. The leverage for property from banks has reverted back to a conservative platform of 80/20 again and some banks are even going to 70/30 if there is any degree of risk with the client. In other words .. the banking conditions are more rigorous, the current climate allows for both the rent to be affordable (steep but affordable) and the landlord(owner) can still pay his bills.
That doesnt point to a crisis yet. When people have stacked their properties onto the market and NO-ONE is buying .. thats when you'll see a downturn. When people cant afford to rent a property .. the rents will come back in price also affecting the overall property value. But none of this is the undercutting of the market that was done in the US. We have reasonable preventative measures designed to prevent rapid flipping of houses (stamp duty, capital gains) that make it harder to just flip a house for quick money. Thats keeping the market full of solid value in the houses. And that works for everyone.
If you want to see a downturn .. watch the bottom drop out of the student accomodation. The banks and institutions wont lend on them now and that means you need the FULL amount to buy them (inc stamp duty). That means there will be loads of duds that are just waiting for someone to sell and will reduce price to meet the market. To anyone thinking of investing in these now .. BEWARE.
