Forum Replies Created
I think in any climate you must be prepared for a change in circumstances.
Regardless of your race, religion, political views or position in society, events can occur which can occur which either negate your existing wealth position and may force you to change your strategy or approach to maintain a reasonable situation.
So, on that marker .. does gold and silver hoarding stack up as a backstop against the 'eventual' fall of property?
Out of that line .. I will address the inevitability of the fall of property.
Dont think that Australia is immune to all the plusses and minuses of an active property market.
It has all the strengths and weaknesses of ANY market. And as an overall governing strategy .. the legislation surrounding property has failed both landlords and tenants many times, before we came to the current regulation and implementation of what we now use.
And its not a bad system.
As stated in previous posts .. I've had tenancies who are literally scared of me and my possible capabilities as a landlord, simply because they have come from systems where the landlord is favoured in the legal parameters. They just want to rent and live in their homes. Not feel pressured or terrorised by the landlord.
And our overall system of rules and regulations largely prevents a landlord from effective terrorism of a tenant.
On the other side of the coin .. there is the system that favours the tenancy.
And in that system the landlord is played by the tenant who knows what he can and cant get away with and exploits it to the maximum capability. Ever seen a house stripped back to bare framework and the copper wiring and piping stripped out by the tenant? I hadnt until i started owning US property.
We have relatively decent means of protecting the tenant from doing stuff like this here. And thats a good thing too.
So, the 'inevitablity' of a property crash on the same merits as the US downturn are largely unfounded. We have tighter controls on lending, better co-operative laws on property cohabitation and leasing, and extend liability of loans to the owner of the property via a mortgage on title held by the bank.
So now to whether gold and silver is a good 'backstop' in hard times.
Answer : Its just another commodity. Treat it with all the merits and respect that a commodity should.
There is a Twilight Zone (1960s) episode where some criminals steal some gold bars and transport themselves into the distant future. However .. in the future .. gold is near worthless and WATER is the really desirable commodity. They have nothing to trade.
When cash (fiat) money becomes difficult as a means of conducting commerce, people will find other substitutes. We've used things like buttons, shells, rum, cigarettes, postage stamps, tokens and finally cattle to trade when money fails.
The answer is :- In difficult times, make sure you own commodities that other people will READILY purchase from you in fair trade. If starving you may find a tin of beans buys a lot more than a gold bar. And clothing that keeps you warm is worth more than silver.
Hello Radicals,
In terms of building a property portfolio, you start like everyone else. One property at a time, and one deal at a time. Once you know what to expect and how to achieve it .. you can do all sorts of things you wouldnt be able to do otherwise. Multiple deals at once. Purchasing sight unseen (you'll know the area). Multiple properties financing multiple deals, in amounts you'd have only dreamed about years earlier.
Where is a guy to begin with property investing? Well, start with working out what an 'expert' is going to offer you, what skills you can bring to the party yourself (handy tradesman? accountant?). The skills you arent super dooper skilled up in, grab at least a layman's understanding of the skillset. You wont need to become a tiler, you will need to know what a tiler is meant to DO. And what a GOOD tiler does. Same with a plumber, and an electrician, and a painter. And even a *cough* property manager.
And you can always learn from an 'expert'. The vital bits of information you glean from someone else's property experience can add perspective and knowhow to your own. Dont buy anything from a spruiker until you understand what he's selling. Dont rush into a market until you understand its requirements. Nothing hurts more than being left with a dud property you just cant even discount to get rid of it.
But the space you create .. the investments you take, and the outcomes you produce, will be based on making sure you act on matching a knowledge base to an existing market potential and your effective budget controls. For all the 'guff' the 'hype' and the brash marketing .. thats all it boils down to.
Fivemajix,
If you are earning well and have the ability to construct an effective portfolio .. you will need to base it on YOUR needs and requirements.
I can come in and show you cash cows (positive cashflow properties) or negatively geared gems (great for reducing both tax AND income). It really is the choice of how YOU want to live in the time where you are waiting for your investments to come good.
There are always the basic criteria to making a property an ongoing success and thats the fact that IT MUST BE LIVEABLE to the tenancy.
Which of course makes it attractive for the potential owner too.
Outside of that .. the rules are pretty simple .. treat main streets as arteries, public transport as a necessity, and shops nearby as a requirement. And you'll find you'll please most people, have strong tenancies and 90% of the time wont shoot yourself in the financial foot.
He went bankrupt to protect himself from legal action brought against him, in a case that he lost against the Learning Annex.
He was required by a judge to pay the Learning Annex $20 Million because 'they wanted a piece of his action'.
He has enough protective structures in place that he'll pay his way and not end up too badly out of it.
It has nothing to do with his actual methods .. his teaching or any information he may have passed on. Its purely a grab for a slice of what he's achieved.
The information he teaches is still very relevant. Glean what wisdom you can from any one of his books. He tends to duplicate on issues over the series, however he does actually go into increased detail across all his titles.
Its like any book. Grab what wisdom you didnt know .. increase your knowledge in what you did know .. and discard bad practises.
Buy one book for the shelf and borrow the others from the library.
Despite what you may think .. book authors need to eat occasionally.
CG will come with improvement to infrastructure and the capture of ongoing investment through business dedicated to working in the area.
Mildura is sorely lacking in both at the moment and at this stage this only leads to the possibility of riding a decade or two of stagnation.
You will be living that decade, so keep an eye on it for observation .. but make the judgement to purchase only when the above criteria are being met.
Can you still get the deal with the Unlimited Tim Tams?
I think what you actually need is a someone who will answer your actual requirements going into the renovation. Last time I dealt with them, Archicentre was absolutely suberb on actually not only answering the questions required but providing enough detail that you could take that report to a builder and have him verify the issues.
And I have dealt with a couple of clowns who dont deserve the merit badge in the past.
I found them to produce clear and easy to follow reports relating to the structural integrity and issues relating to the property. It was so good in one case it actually provided the mental security for a potential purchaser (finalised the sale).
And no .. I dont work for them. But anyone who does things competently in the building game, earns a worthy recommendation.
Sundeep I have my answer in Hawthorn 3122 for you.
grab the local listings in 3122 .. and scroll to the lowest priced properties.
I will now mention some addresses, and its almost guaranteed you will find one or more properties from these addresses on the market.
71 Riversdale Road
383 Burwood Road
1 Queens Road
But wait .. werent they offering at least 6.5% return? So why is everyone selling?
Some are now offering up to 10% return (thats how much discounting has happened on them)
As I have been watching them I can tell you that most were sold initially between the 160k – 250k mark depending on facilities and size. With a GUARANTEED return of 6.5%
The answer is simple .. Six years after they were built .. they just CANT BE SOLD.
People literally have been selling some of these places for anything up to a year or more. Without success.
There are two legitimate reasons why. Banks require 35% or higher as initial deposit on them. And thats a lot of money.
Second reason is more simple. After six years .. there has been no movement on pricing on these places.
Except for .. down.
If you reduce the price to a level where it just becomes too cheap .. people will purchase on the premise the initial numbers work. Except .. thats what the previous owners thought too.
And thats where you come into the scene .. you are someone who is looking at a bad property invest .. albeit in the city and not Hawthorn … which has been discounted so the 6.5% original return is now more like 8 or 10%. Wow .. big numbers ! .. Ok .. lets assume you can pump together the 35% on 175k = 61,750 dollars. And you can borrow the rest. You'll be working away to repay money on an investment that already is proven to move nowhere on pricing. So considering what you'll be putting in .. you are guaranteed to start with a loss vs initial amount invested.
Geelong suburbs, Sunshine and Albion, Greater Dandenong. All still have investment properties that qualify for bank loans, are under 250k and can produce returns of up to 6%, with the possibility of ongoing growth. And because they qualify you can borrow at normal limits from as low as 10% (depending on financial situation)
The reason i qualify the above Hawthorn area scenario is because I have watched these properties stagnate now for years .. waiting for something to make them turn around. In the meantime my investments elsewhere have done the right thing .. because they were quality investments to start with.
So you've been approved for a certain amount? (i'm assuming its 465k and not what seems to be 4,465k)
So you'd like to create a reasonable starter portfolio?
Well .. lets look at what your existing conditions are and what your goals are so we can match your wants to your goals.
You're young .. so you dont really have any deadlines for retirement or illness or work related issues yet. So you've got a degree of flexibility. But on the same front .. you've got a newbie out and about and you want one or more in the near future. Thats going to create its own bed of initial expense. In your investment, your family is ALSO an investment strategy.
I keep one frame of mind when people ask me what to invest in .. and thats where your goals and your situation will lead you. And believe it or not .. for each person i've ever dealt with .. its rare for two people to have the same needs and requirements.
I would actually suggest a close to neutral or positive cashflow investment to start off with. Simply because of your timing involved. You want more of your money in the next few years to be towards nappies .. kindergartens and crayons rather than having it tied down in financing property.
Buy with the 'buzz'. I hear from a lot of people that Elizabeth is picking up quite nicely .. but then i also hear that it has its fair share of problems still. So like any investment you will take … you should dip your feet into the area and get to know what your 'lifestyle' will be surrounding your investment. Become so familiar with the local shopping and transport routes .. the new activity in the area .. that you should be able to test the local agents on it. The most important part in the whole investing scene is working out where your gain will be made. Undervalued property? Property in demand? Scarcity?
I cant tell you this. A real estate agent cant tell you this fully. Your best decisions will always need to come down to your best education.
Dont buy premium, OTP, or managed schemas on the premise of 'investment'. An investment has to be attractive to the next purchaser too. And high management fees dont impress anyone. Premium has to be justified on future resale, and OTP remains 'airspace with a promise' until construction is complete. Also OTP is actually indeterminate on actual market value until the first resales take place. A resale places an accurate point on market demand.
Grab a couple of suburbs you consider interesting and possible investment areas. Become expert in their prices for various levels of housing. Know before you make your purchase .. that your reason for purchase was sound .. based on your new experience.
Oh .. and since you are going to be relying on a property manager since you want to spend time in the mines and not driving out to loose tenancy complaints .. do your property manager interviews to get the property manager that works right for you.
The difference between Strata and Stratum came simply because the state of ownership on property gradually changed and the issues that arose created different conditions for usage.
Its really the same reason that body corporations are now owners corporations. The reason is that the existing body corp framework had limitations based largely on the requirements for smaller shared facilities.
Before the concept of strata title was introduced in the 1960s, company title had developed to provide for the separate ownership of apartments. For the first time, this allowed people to buy an apartment rather than a house with the majority of company title home units set up in the 1920s and 1930s (ty LoanMarket for this definition)
Stratum (a continuation from Company title) left you with ownership of the unit title, plus a share in a company that managed the shared spaces of all the units. In other words .. you'd have shared responsibility, management and ownership of the shared spaces through the management company.
Strata changes this by allocating the common areas to a Body Corporate .. split into proportionate share and responsibility by liability and voting decisions proportionate. It renders the requirements of management separate from direct owner responsiblity. However .. liability from body corporate decisions and actions is still at owners expense.
There was a reason for mentioning the change from Body Corporate to Owners Corporation as well. Body corporation was fine up to a certain point (lets call it roughly 50 units). After that it fell to a situation where it was insufficient and required too much paperwork. Because of the need to address much larger shared spaces (some buildings now cater for 200+ units) there was a need to change conditions to match existing requirements.
There is a 4 point sequence that any lending institution is going to be looking at to assess your possiblities to borrow.
(1) Assets
(2) Residual Income
(3) Ongoing Support Income
(4) Payments and Loan Support Credit History.
Now people think i'm nuts when I have asked them to take out a small credit card and run it up with a small payment .. but as far as the lending institutions go .. that actually completes Number 4 ! What the banks are looking for is someone who is serious about paying back their money. And a Credit Card actually does that !
Assets is anything you have that the bank is prepared to lend on. Ask an accountant what qualifies as an Asset.
Residual income is the stuff which comes in and complements your Ongoing Support Income. This can be through fully franked share dividends, carspace rental, housing rental or any other source of income thats passive in its accrual.
Ongoing Support Income is regular income you get that either requires you to work for it or comply with requirements. Now this does not have to be a job ! .. it just needs to be an ongoing and consistant incoming payment for the banks or lending institutions to take notice.
To start your accreditation in these categories .. change your circumstances so you qualify better in any or all of these categories. And you will find the banks sit up and take notice of you.
Drop the section 8 subsidy .. clear out the gangs .. bulldoze the wasted houses .. install a functional police force .. and you'll have a place worth living and investing in.
A byline on a well watched area. Kmart made inroads into southwest detroit about eight years ago and had to pack up because of a problem of inhouse theft from the store .. from the staff. There was a 65% loss to inhouse theft. They closed up and its now another store.
Things need to change there. And there will be a point. But its not yet.
I have invested in there recently. But where I have invested was previously a five star area, not that its any overall protection. However it still attracts better clientele .. and you pay a premium for it. But for a gross 44% return .. all i need to do is mow the lawn .. pay the bills .. provide a couple of years of catchup maintainence .. and i'm sitting pretty. I have onsite management crew and tenancies who i trust to report back on issues. My property will go on without me having to look over it every month.
I view it that the whole Detroit scenario one way or the other has about another six or seven years to run out. I have the energy and the time to wait that long. And with over 200+ units at less than 8.5k each .. i'm sitting pretty for gains.
Dont forget the slab of taxes on property and the enforcement for upkeep. Its not cheap owning in Detroit with the additional levies they pull. But if you have a reasonable deal to start with you have a reasonable solution long term anyway. Same basic rules still apply.
Hello CCMaxwell,
I would suggest running around a couple of open homes with your dad and getting an idea of what works and what doesnt. The most important thing will be of course .. understanding what makes a genuinely nice kitchen .. and a genuinely nice bathroom. Outside of that its knowing when people have spent too much for a result .. and when they have underspent to achieve the desired result.
This doesnt happen overnight. It will take looking at many properties before you start seeing every issue that can occur .. or every problem that will at first not be apparent. Gain that experience and stop your development from being a dud.
Gain work experience from builders. Get an idea of what sort of products can be purchased and at what sort of price. Get the numbers for construction into your head so you can literally walk out onto a blank canvas and map out a solution in your head.
Walk through floorplans in open homes (this is what i was referring to before). Notice renovation trends .. materials used .. why one carpet makes a property look cheap .. another may work for presentation and sale .. and another will attract a live-in owner.
The idea is at the end of all this .. you can do half of the figures onsite .. or punch up what you need on a spreadsheet.
Banks love preparedness when it comes to development. They like to see developers who know their stuff and have a track record of proving it. That last part may take a bit of thinking as how to create a body of proof. Once you have it however .. they deal with you a lot easier.
I think the one key ingredient you leave out of the mix is flexibility (as addressed by JacM).
The only safety net you could really offer on that is not using the net income from the property for anything in the first couple of years aside from building up a safety bank.
This classifies the whole deal as high risk. ANY major upsets and you are shunting for cash to supplement the deal.
The other way to do it is to get a job and start creating your safety margin for the property.
Either way JacM is spot on. You'll need an income to support a property, one way or the other.
I would check the bodycorp and rates to make sure your purchase remains viable. Outside from that .. if you can manage the purchase with whatever income you are receiving, most lenders will take into account any allowance paid by the government as possible income.
I have had a cousin that couldnt borrow at all first time around and was receiving benefits from the government. However she did have an inheritance .. but nil ability to borrow.
My suggestion at the time was to buy at 100% buying small apartments and get as many as possible. She did this .. borrowing a small amount from family (a borrowing from family whilst still a borrowing is not officially against the title). So she managed to get two apartments at 90k a piece .. returning 150 per unit (7500pa). Nine months later she used the fact she had 100% in the two properties to borrow against them and purchase two more, returning roughly the same amount and borrowing the 180k in total .. lending against ONE of the two flats she had (its all the security they needed).
Summary .. in a year and a half .. 360k spread across four flats with one debt free should she need it .. and 31k in gross income. Not a bad deal for a two year stint with no existing previous income.
Disadvantages? They are relatively small flats in a country town. So the growth isnt ever going to be expected to be that great. However .. 90k for a 94sqm 2BR flat with a balcony, breakfast area and carspace is mighty good value. There is definitely an upside there. The council rates is almost TWICE what i'm paying on my investments for similar in Melbourne. I'm paying just under 700pa in rates .. she's paying 1600pa. Significant differences. Body corp works out roughly the same at about 350pq
Make sure you know your expenses and outcomes when heading into your purchase. And if you find issues with lending with no actual job .. approach vendor financing if necessary. Some people on lower investment levels may find that acceptable.
Your lending level increases dramatically with a job. Simple as that. You'll go from being able to borrow 90k max with no job and a residual 13k from government benefits .. to around 200k+ with a job more than 30,000. Of course .. that means increased bills to support .. but also .. very much increased gains to appreciate.
SherJava .. as a newbie armed with what can be anything up to a 5% deposit you could gear heavily or you could gear to a level that you decide is an acceptable risk.
(1) Work out your acceptable risk level. Allow for the possiblity of loss of income .. loss of tenancies .. extended wait periods inbetween tenancies and finally instant or ongoing maintainence.
(2) If you want to borrow .. make allowance for payment of the loan at 9%. Why 9%??? Because historically the fluctuation of interest rate levels waver +3 or -3 on this rate level .. averaging out at a little higher than 9%. So if you accept your ability to approach the loan at that rate .. then you should be able to take on the loan. Take a lower interest period as a bonus and not a granted period of acceptance.
(3) The third is substantially more difficult in the current climate .. but very much still possible. That is .. use the 50k as a method of deposit with the possibility to improve .. either through negotiated best terms ..or creating appropriate solutions to make significant profits on enhancing a property. As stated .. in this period of the property clock .. its not impossible .. just a lot harder.
My suggestion considering you are currently living with your parents would be to create value added solutions. Your level of available cash would limit you to smaller propositions .. but .. thats always a good start. In this period of low interest you might want to consider high level borrowing so as to maximise your longer term passive income results.
Build a bank, so that your options when you approach the next opportunity .. you are more flexible on what you can achieve. Or build that bank to create a reasonable deposit for a house.
The options remain up to you. Its the time you allocate to achieve the outcome that will further the possibility of achieving a winning .. profitable and strategically acceptable result.
You have no liability.
Inspection took place with no adjustment pre-settlement, and the properties full price was paid on settlement.
The property remains theirs in name, liability and ownership, and any deficits or damages that were not dealt with pre-settlement are their concern and not yours. If the place burnt to the ground on January 30th and they hadnt claimed fire insurance yet, they would be totally liable for the rebuild costs. And yes .. occasionally this actually happens.
They can take it to a court, but thats the lay of the law. You'll win and be able to claim out of pocket for the inconvenience.
As this is strictly a legal matter once it heads into arbitration, i make this only as an interpretation of the law and not a full recommendation. For proper arbitration of this matter you should always seek legal advice.
Doesnt anyone realise THATS what a final inspection is for???
Lets read back into your leading statement, and then put that out as the wrong criteria.
in fact .. its so important i'm going to quote it word for word.
It is obviously that there is no capital growth for the apartment but I guess the rental return would be fine
So .. on a realistic basis that you've worked for the money (or parents chucked you something as a goodwill gift) you are prepared to say that the value of the money in asset holdings can dissipate or deterioirate on the possibility of making a minor return?
The money .. that you worked long hours for .. slaved in a hot kitchen for, waited on tables for .. or dealt with crazy bosses for .. is not worth retaining or increasing its value?
Even in todays market with little to purchase for 150k there are significantly better options than a studio apartment. If you feel that your lending criteria will restrict you with banks for the initial purchase .. you might want to consider a vendor terms property in the shorter term. You might be able to negotiate better terms or leverage dealing direct with an owner.
Also, once you have some sort of job .. you will find your lending ability (and therefore purchasing power) will increase dramatically. A 150k initial amount allows you a deposit of 20% plus stamp duty on anything up to 600k using leverage. Now isnt that a more attractive portfolio goal?
Never restrict your investing by purchasing poor property based on price or circumstance limitations. Always purchase on the basis of ongoing potential, possibility of improved capital appreciation (or valuation), or ongoing demand.
For your own benefit and for the sake of not repeating myself .. search for studio apartments within the site. Its been a much talked about topic, and you can make better judgements based on what you will learn.
Positive cashflow should always be seen as an opportunity and not an expectation.
The most importatnt single rule I have learnt about property is to class my investments as dependencies (I need them to be producing CASH) and as ongoing strategic investments (they make money .. thats nice .. no expectations).
With my positively geared properties .. historically I have used the excess cashflow to actually reverse the situation and buy something solid in a good area of town with a low net percentile return working at a loss. So basically buying Grade A properties using Grade C income.
I have no expectations of my positively geared properties except for the ongoing income and lack of hassles. Outside of that they just sit there and do their thing.
Once you have ANY format of extended cashflow OR INCOME over and above making a break-even, the way you offset what will eventually be a taxable income is up to you. But .. as I have always stated previously .. its a very brave individual who doesnt back himself up with a 'just in case' scenario. Always leave flexibility in your options.
Negative gearing? Nice idea, but gearing to the hilt is like trying to max out the roulette board and then pray that it wont land on double zeros. Most of the time you'll be good, and then .. there are times you wont be. Always leave flexibility in your options. Did i just repeat myself? No, it requires the same flexibility.
The single biggest mistake you can do in any format of property investing is not leave the capability to reinforce your investment should something happen. Leaving yourself this safety zone allows your risk element to be minimised and your property enjoyment to be sustained.
Isnt there only one problem everyone seems to have forgotten in the USA goes broke saga?
The US has been the most consistant provider of ongoing capital in the world for the past sixty years. Reliable .. ongoing capital. And that just doesnt disappear overnight.
The US has been the financing source for a great deal of the world's activities. And however you like to think about it .. the debt structure its facing is not the burden people make it out to be.
What happens when a competant and strong country goes broke to its debtors? It either restructures its debts or invalidates them depending on ongoing terms. Cant happen you say? Ask Argentina how that works in recent times. Nestor Kirchner waved a hammer and the World Bank settled for what it got.
A rethinking of the rules and conditions of states probably needs to be enforced. The working environment in the United States is being made too difficult .. and thats just legalese. That sort of stuff can be straightened out by the wave of a pen.
Do you think in the longer term America will be broke? Hardly. The more likely scenario is it will invalidate the debt holding with the creditor concerned .. or change the relationship of the debt payment structure.
Until it totally rules itself out as a superpower by devaluing its own weath creation structures .. the US will continue to be a major influence .. both in consumption of consumer goods, creation of consumer goods and export of intellectual and scientific solutions.
The wealth of its property market is still quite valid and based on solid foundations. But again .. referring to what i've written above .. the 'fairness' concept needs to be ironed out of its property market. Rents should be indexed and market driven not rated by government agencies. Rental Controls have bankrupted many a landlord and will do so again if not kept under appropriate measures.
America still has the best possible structure in place for ongoing property wealth. It just has to change its legal structures relating to property to make that effort worthwhile to renter, investor and builder.
