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Hi Joyce
I'm a stickler for having a good property manager on any of my properties. When my last property needed to be re-let i went down to the local agents and went through what they offered one by one. Yes .. it was about 2 hours worth of sitting and listening to each agent talk about how good his business was. I also picked up their rental lists (its how the property will be presented to tenants) and with one .. even pretended that i was a tenant to see how they would react. One gave me an interview and a brochure (i still have both) but was missing the enthusiasm. I ended up going for the guy who when i walked in said .. the price is X dollars but i'm sure i can get you X dollars more. I want a guy who will inform me on the phone when my rents are too low compared to market, who gets a guy in to fix things, who handles tenants complaints rather than letting them lapse. After all, thats why you have a property manager in the first place, he's just a substitute for yourself !
Tough but honest, presentable but accessable. If you cant deal with the property manager .. how can your tenant?
propertyjockey wrote:Hi all,As we all know, one of the golden rules is to buy in an area that has demonstrated consistent capital growth over a period of years.
I am guessing there was a time these areas where not good performers.
What made them good performers?
PJ
You'd be surprised what areas should have been good performers that werent. And the initial reasons for avoiding them were good. For instance in the late 70s to late 80s … St Kilda was too cosmopolitan for its own good. It had the location but it had drugs and crime and theft like it was going out of style. Elwood had a sewer issue that meant on warm days the outlet into the bay just STANK. Port Melbourne had industrial and toxic waste dumps that were cleaned up at great expense by the Victorian government to create a new area in the suburb. And finally Footscray 90s was vietnamese gang central. If you was a westie and wanted your various poisons ..u got them in Footscray. But like most areas, once the crime and/or problem was cleaned up, the area went thru a realisation of how liveable it was. It should also be recognised that at the same time there are areas that get worse. And their prices will suffer accordingly. The sheer idea that all areas go up or go down in sync is just madness.
Take a snapshot of the area you want to invest in. Walk the streets, look for new developments. Check out whats being built. Bad apartments eventually attract bad tenants because no-one else will live in them. New transport or industry can rebuild a dead area. Watch out for too many FOR LEASE signs appearing .. its a portent of danger. Grab the local paper .. ask for it at the real estate agent. Is it full with local ads? Are there signs of business .. or crime? Are new factories being built? Is there a new shopping centre? Talk to an agent in the area he'll give you a quick summary of how he sees things. Talk to a shop owner .. he'll give you what the agent wont.
Your best golden rule is to KNOW your market. If you were buying a car you'd ask about the brakes the seats the color scheme and the mileage. Buying a property is no different.
An explanation is due for presenting evidence so shallow, jontapp
Presenting evidence for the market changing .. showing off a failiure for selling STUDIO apartments in Cairns … thats not even a guide to market conditions.
Lets start with the obvious on the property concerned. First its a 40sqm Hotel room (sold as studio, managed by hotel). As banks get twitchy at the 50sqm for lending anyway in GOOD times, in bad times (and at the moment almost NO lenders will deal with 49sqm or under) these properties are literally lemons.
Second, the Gold Coast is sour because the usual thing for most australians to do .. is have 1 house and 1 holiday hut in the Gold Coast. When times get tough .. people put the holiday hut on the market. Combine this with a glut in 1 million dollar plus apartments and the area will take a while to sort out. There is a lot of stock on the market at the moment. But thats not a standard market at any time. Ask any developer. What looks good outside the Gold Coast often doesnt sit well within the Gold Coast.
I'm still keen on some areas of Brisbane even now. With Kedron coming together with improved infrastructure and transportation, its on my Xmas list. I'm even listening to where the floods are taking place, there are people there that will sell out because of the flooding and are prepared to accept less to exit the area.
The words market mean just that. Good, bad and ugly all exist when you take your property to market. But knowing what your property is or can be is the first step to making money in any market condition.
I hope Wicki my info was helpful.
My basic premise is that an investment property should be a means of future sustenance for your wellbeing. I think thats what most people gear it for in the long run anyway. So think of it this way, any money you make from your investment property (over and above interest payments) is money you will never have to work for again. So, to get to a decent wage income with your work, you probably sat thru hours of tests .. graduated with a cert saying how wonderful you were and then marketed TO WHAT YOU THOUGHT YOU WERE WORTH. And yet, you are prepared to compromise on an income you will pay yourself for the rest of your life. Sounds a bit like studying for 3 yrs for a drive-in position at McDonalds.
Make the loan repayment something you feel comfortable paying above and beyond the rental income from the investment property. On the 5% return basis .. a 300k property will return you 15k income, and a 500k property will return you 25k income. Ask yourself which is a better starting block for your long term future. 15k or 25k. Check with your accountant before your bank manager as to what strategy works best for you. Bank managers will not hesitate to say a yes regardless of whether its in your best interests.Whichever method you choose i wish you the best of luck,
To be honest with you .. neither of your suggestions are for a creative investment environment. Let me explain.
Option 1
Your investment would be conservative to start with (lets be realistic if you are on 150k gross a 300k investment is very conservative. And on the other side it would only be returning a barest of 5%. Now since borrowings start at a 6.99%+ now .. you'd be working with a minimum 2% over income as your initial figure. So .. your strategy would be slightly negatively geared to start with. Its a great conservative invest, but since your rough borrowing power should be around the 600k mark off stated incomes .. its nowhere near gearing to a maximum benefit. Of course like all investment possibilities its how u gear it that matters. But running it together with a 25k pa lease isnt too bad a starter folio.
Option 2
Its now your house .. and you are going to be living in it. Its also based on a reliance of both your incomes for the period of the loan, barring any fractures in relationships. So its a full dunk into maxxing your borrowing to gear it as the best that u can purchase. BUT YOU ARE PAYING BIG FROM YOUR BACK POCKET. So this leaves you with a total reliance on a framework of interest rate stabililty (DONT GO VARIABLE ON A HOME LOAN) and the possibility that in a downturn you dont lose your valued deposit due to a slimming down in house prices. Why do i mention both of these? BOTH or EITHER are likely within the next 24 months.
You'll work out what situation is best for you. But neither a conservative investment OR a highly extended home PPR is a good investment strategy. The investment doesnt do enough, and the highly extended home locks your investment freedom for a LONG period of time.
Best of luck,
Change your thinking.
Stop putting the IF in there and start putting the WHEN.
WHEN i become a millionaire. …….
if you dont even believe yourself that you can become a millionaire .. how can you convince a bank to lend to you?
Set goals … and when .. and targets .. and when .. and follow thru.
Hint .. there are the 250k Bargains .. the 500k Bargains and the Million dollar Bargains. And each can be found.
CheevesFinancial wrote:I'd like to see some of this 20-25% ROI real estate.It comes with its risks .. but thats what a deal looks like on the US market
Its a block of 136 units (think housing commission style but worse) on 6 acres in the middle of forgetmeville. Each unit returns 550 per month and that amounts to $897,600 gross (on a 2.35 million purchase that sounds like 38.19% gross)
risk components? most likely an all-black set of tenants .. allow for increased FIRE insurance (you'd need it) and employ a property manager AT ALL COSTS.
For anyone investing its a hard deal to conquer .. but i find those the most profitable too. Not one designed for the amateur investor, but most of its pitfalls are conquerable with the right training and working up to these sorts of deals.
So thats 38.19% Gross .. which after taxes and expenses should pull you close to your 20-25% ROI margin. Sure its high value and high risk, but you'd be surprised at what low risk areas are now .. risky .. in America.
The point being .. do your homework. Dont go on past performance or reputation. Go on actually robust factors leading to your deal being worthwhile 5 years down the track. America has changed quickly and not all sectors will come back. Which means not all towns will either.
Student accom goes into the same deal as aged care and hotel room leasebacks. They are for the investor who hasnt a clue. And as such, they exploit that with leasing fees. Not to mention the fact they are dependant on a single sector of the possible leasing market. If I was looking for an investment i'd want something i can stick just about anyone in, not wait (in vain?) for the next student boom (which may or may not happen). In 20 years when any or all of these places will have failed in the market these will be the first contenders for the next generation of slum housing.Banks know it, they are hard to sell (you need at least 35% deposit minimum to get a loan on these) and they arent showing much of a capital growth.
That just comes from me as an ex-real estate salesperson. Of course .. geared right .. it may just work for you. But .. you've been warned.
Oh yeah .. think i'm making this up? Check out the current flops in Hawaii .. Florida .. New York … California .. (hotel leasebacks). Its easy to find them .. they are usually the bottom of the market.
Cheers
Two obvious mistakes come to mind with this series of transactions. First .. if you have an itinerant tenant someone who is slow or late on paying rent .. he should be affecting the balance in your bank account and not the draw against for the loan. Remember the loan remains your responsibility and any penalties you are incurring is because you havent structured your payment system right.
If you run an investment property .. allow for at least 2 payments excess (two months equivalent) to be in the drawing account at ALL times ! This allows you to absorb late payers and emergencies without running into crisis. You've been accepting that running into crisis is HIS fault. The bank doesnt care .. all they want is to get paid. And his not paying is costing you your credit worthiness for the longer term. It may not affect you directly now aside from penalties .. but for your long term borrowing status it never looks good.
Second is gearing to a maximum for your investment/ home property. I'm sure before the investment went into penalties and such you were very highly geared to start with. Its cool if you have asset backing to start with. Or you plan on a fast moving market (if its boom times). Otherwise its just a pain to deal with, its major stress for everyone and it makes you age faster than you need to.
The path to financial freedom is realising that if you persist now you will end up with equity in the long term .. beyond the term of the lease agreement. Once that tenant leaves, the rental levels will have improved and both the debt and the equity situations will have changed. To sellout now lands you with a 30k debt .. no house .. and a continual repayment until the 30k is covered. It does mean a little pain and stress. But if your property moves steadily .. the debt you have now still will seem miniscule in proportion to the asset. REMEMBER .. your monetary incomes will change with inflation and the debt will not seem as bad. And you have by law seven years to move back in and it still remains capital gains tax free (as principal place of residence) So whatever you end up earning on the house .. will be ALL yours. Its a tough equation to weigh up. But as long as the trend of houses moving upwards .. it doesnt make sense to dismiss a deal that will STILL work for you long term.
You dont need to be paying penalties. Shore up your payment account so that you arent totally reliant on the one monthly payment (or fortnightly) to satisfy the bank. With current stated debt levels you cant refinance with anyone so the correct approach is to just soldier through realising that it will be a little tough but a lot rewarding.
I'm an ex realestate salesperson. The most common thing i heard from people who sold is the IF ONLY as prices go up around them. You are in the market and with a 42 SQ house .. with a good asset at that. Weigh up the stress on your lives and the financial concerns to you. Starting again is always a possibility. But .. how long would it take you to save a deposit?
Like anything its a matter of timing. For instance .. my current invest is back in the US where prices have gone too cheap and i'm buying big. I've got the 15-20 years to wait and i'm not dependant on any income from them or debt payment. So its for me all an upside.
From having invested in both silver and gold when they were cheap to now .. i'm one of those people who says to ignore the sheep when they are flocking and work against the sheep market. Usually the sheep can turn on you when u least expect it.
Buy in markets where there are undervalued commodities or appropriately valued commodities. I think gold and silver are both rough standards to work with as the major demands for both (currency, jewellery, photography and computers) have softened as people buy the hard metal. In a good market in good times .. they would be worth substantially less. The major pressure on gold and silver now is the revaluation of a depreciated dollar. If you check across most metals markets the values for most metals have gone up at a minimum percentile level relative to the US dollar. Since traded goods are based on a US currency exchange at the moment … it doesnt mean they are all appreciating in demand. This is the casual observers first mistake.
If the people arent getting a good dollar for GREAT property in good locations. (the major rules still apply in any property market). I keep seeing the doomsayers bagging the property market as either too volatile or too dangerous. Its a market and as such there are always deals to be made.
Mike .. i would tend to follow the arteries in the city.
Take a look at a broad spectrum map (Melways or streetdirectory.com.au) to get a wider perspective on the city. People tend to find comfort and demand in ease of access thoroughfares. If you think of the roads as veins or arteries allowing traffic flows to build around them, it usually corresponds to property and demands.
On this perspective I'd take Pakenham over Cranbourne for the near future. Cranbourne ends up being a low income area due to its cul-de sac limits for growth DUE TO THE TRANSPORT around it. (I know its got a freeway but thats the ONLY access through it thats easy). Its just like looking at Hampton Park. When they fix the roads it'll be great. Until then .. its a nightmare after 4pm to get into or out of. When they start looking at fixing it .. THEN prices will change. Its like Elwood and the fixed sewerage .. or Port Melbourne and the toxic dumps near the foreshore.Definite investor upsides? The deepwater port being dredged now near Hastings will require new roadways to and from it for transit. It will plump up Hastings .. but .. read the local news relating to the roadways linking the deepwater port. It will open up access to a couple of suburbs along the way (methinks officer and yes .. cranbourne) and improve prices.
Check the skyways too. Its good to use Google Earth sometimes just to get an idea of what a good district looks like from up above at 20,000 feet. Check for white spots (industrial zones) and good roadways. Its usually a good guideline.
Cheers
What are the relevant conditions to cause a bubble?
(1) Overvalued properties and the lack of available funds to contribute to it.
(2) The lack of supportable tenancies or income to provide for supporting the loan.
(3) A rapid rise in interest rates forcing marginal buyers to offload their properties ALL AT THE SAME TIMEWhat are the actual current conditions?
(1) Properties remain at a proportionate rate to incomes. An average property still remains in the 400k-600k zone despite price rises. Thats proportionate to the average household income of 10x that .. (gross) of 35-60k per person (dual income) in the house. Which means its still damn affordable.
(2) Rents are still approaching the near 0-1% vacancy in most capital cities with little room for flexibility. There are still queues of up to 30-40 people attending a house for rent in most suburbs. That signifies not only rental demand .. but still growth.
(3) In Australia we have had much tougher conditions on borrowers since the 2008 crisis in america for lending. This in itself has prevented a possible downturn or marginal seller release reaching the market. We also have had slow movements on rates .. a factor which has allowed for a slowing rather than a rapid sell. It helps not to have a Keating in charge of running the show this time around.There are still basic pressures on standard commodites. Building expenses are up, which makes older housing more valuable to upgrade rather than build new. Raw foodstuffs are all rising rapidly .. putting pressure on wages and inflation. But if you have a folio geared for growth as well as a slight downturn, none of this should affect you badly. However .. tight margin lending at high borrowings should be actively discouraged at this point.
Barring all that strategy .. its still a market. Just like a fishmarket there is always a fresh fish and always a stinky fish. So .. grab your rod and go fishing where the fishing is good! (or will be good?)
Cheers.
