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  • Profile photo of zizziz
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    @ziz
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    March 18, 2003 - 12:42 pm

    Hi Northy

    I tend to agree with Del and would strongly suggest that you simply concentrate on getting going on a rental property.

    Then as Peter suggest look at the potential problems that may occur and plan to negate each one.

    At the start of our investment adventure the main risk I identified for myself was the vacancy factor. So to overcome that we opened a seperate bank account which had sufficient to cover three months rent plus the expenses.

    This not only covers you for vacancies but also if for some reason the property is not habitable due to the previous tenant having trashed the house and gives you funds to do any repairs required. Helps if you can actually do some of the work yourself.

    This emergency fund also covers the no job senario and just about any other situation that could be of concern.

    hth

    Profile photo of zizziz
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    March 18, 2003 - 12:18 pm

    Hi Kristy

    You divide by two because there are 52 weeks in the year, which is close enough to 50 to be 50.

    The other way that you can look at this is if the property is for sale for $80,000 then double it and drop some zero to arrive at $160 which is a 10% return.

    I do this particular calc almost automatically to determine the ball park return for a property.

    Some other examples are where rent is the same as the price $80,000 and rent $80 then return is 5%. If rent is $120 on $80k then 7.5% etc.

    If you learn these ratios then you can very quickly determine the gross return and know based on current rents for the area whether the property in question warrent further investigation.

    Cheers

    Profile photo of zizziz
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    March 14, 2003 - 4:25 am

    Hi Robert

    Some suggestions and questions

    How is that you are not getting a response from your phone calls? Answering macine or what.

    Set your phone to not showing your number so that there is a better chance of getting picked up.

    Get involved with the strata so that you get on the committee then get the strata involved with the parts of the act that allow the strata to force the issue re maintenance. This will take some time but could be worthwhile.

    Correspond again including photos of the damage etc, a valuation of a normal unit in the complex and legitamate quotes for repairing the damage to this unit then if this comes to the amount you are prepared to pay you may get a better reponse.

    Not knowing the financial status of the owner it tend to be very hard to find what appeals tomake it a win/win negotiation.

    Failing getting any response you have set yourself up to force the strata to act and address your concerns regarding your investment.

    Cheers

    Profile photo of zizziz
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    March 11, 2003 - 6:50 am

    Generally the bank will force you to have mortgage insurance when you have less than a 20% deposit.

    Apart from the cost of the mortgage insurance there are only a limited number of ins companies that actually provide this cover (about 2 ) and they then keep a record of how much they have covered with their upper limit at about 1.5mil.

    So when you have borrowed 1.5mil the bank will refuse you any furhter loans as they can no longer obtain mortgage ins.

    Cheers

    Profile photo of zizziz
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    March 3, 2003 - 8:46 am

    Hi Neal

    It is really a subjective question as it is dependent on the reason for buying the property, whether you want to negotiate further and a miriad of other reasons.

    I will take that your not about to tear it down so as such I would be include it as a condition in the offer and only proceed with the inspection when the price/offer is accepted. This way you have a price against which you are negotiating based on the results of the inspection.

    Generally we do a quick inspection ourselves as we go through so that we have an idea of the state of repair. We then offer based on some fore knowledge with the building inspection as a tool for further negotiation.

    You need to be aware that you can get gezumped in a hot market or where dealing with a questionable agent.

    Cheers

    Profile photo of zizziz
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    March 3, 2003 - 8:27 am

    Hi micheal

    You generally need to get a depreciation schedule done by a quantity survey. These guys will do a full depreciation schedule for you taking into account the base value and the age of everything.

    The cost to get this done is $300-400. More to the point the ATO excepts this as true and correct with the fee for getting it done deductable also.

    As far as directors meetings and the like they are expenses in relation to the business but you do need to have substantial cash flows in the business or else it just looks like a holiday paid for with your money through the business.

    Your accountant should be able to advice further or maybe Steve may want to comment.

    Cheers

    Profile photo of zizziz
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    March 3, 2003 - 1:43 am

    Hi Guys (all sexes)

    Just some thoughts

    History repeats itself because people don’t learn. A classic example is the recent stock market boom where the talk was ‘this time is different’ ‘new econmy’ etc and the prices were pushed beyond reasonable investment criteria. People believe the hype get on the band wagon the axels break and low and behold a lot of people get hurt.

    As discussed before the average interest rate has been 10% over 20-30 years yet people are buying property that returns 2-3 %. Their justification, capital gain and the interest rate is <6%. What happens when we get interest rates back to historic levels. These people will suffer massively on the increased payments required with no rent increases and even see a drop in the value of the properties.

    Mitch, in relation to the one off investor the stats on property investing is 7% have 1 IP 5% have 2 ip, 3% have 3 and 1/2% have more than 3. Don’t quote me on the actual break down but it is dramatic. What I believe happens is that these people hold mainly for emotional reasons until the next boom, about 6-8 years, by which time they are absolutely fed up with the problems then they sell up just before the next big jump in capital gain. They have made 25% in capital gain for a 6-8 year hold (real loss) and the next person makes 100% for a hold of 1-2 years. The motivation for these people is the slight gain after many years of no gain. They rushed in and are then rushing out.

    The irony is that at the same time rental returns will be increasing as shortages in rental properties occur.

    By the way I think one of the reasons that this boom is going longer than normal is the influcts of baby boomers who realise they suddenly have to do something before its to late.

    In realation to the baby boomers I am doing some research to determine the correct angle to play.

    Cheers

    Profile photo of zizziz
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    March 3, 2003 - 12:55 am

    Hi Trying

    I know this thread is supposed to be about qualities for a good tenant but about your 2nd property that your having some tenant issues with. May I suggest that you start using 12 month leases rather than the standard 6 month.

    My reasoning is that with a tenant willing to sign up for 12 month you cut down the changeover work between tenants but more importantly when they sign for 12 generally they don’t have it in mind to move at the end of the 12, so they are way more committed to the property.

    The down side is that your property can be empty a little longer waiting for the right tenant.

    I use this technique with units where there tends to be a high turnover in the area.

    A recent experience was an application for a renovated unit where the applicant had sold their house. Agent spoke to me about applicant, I pointed out the 12 month lease, agent came back ‘they only want 6 months’. My answer was NO. These tenants were solely planning to an ‘in between’ move.

    Three days later we had tenant, older couple government subsidiced rent with family living in same area (block next door & up the road). Which to me means stability and with older people less wear and tear.

    So I am happy as I don’t have to worry about this unit for another year and in all likelyhood this will go for much longer.

    Cheers

    Profile photo of zizziz
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    March 2, 2003 - 2:13 am

    hi kds7arr8

    I am curious, what is the ‘red tape and zero flexibility’ you refer to?

    Cheers

    Profile photo of zizziz
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    February 28, 2003 - 12:42 am

    Hi

    On renovating the unit I lift the rents from $130 pw up to $175pw and that was in a stagnant rental market. Total spend is about $8k.

    I thought it was an interesting story in contrast as to what it looked like to what it actually was.

    Stretch, as far as inspections go you can inspect as much as you like but in the end you can not impose your standards on your tenants.

    Another example in relation to whats acceptable.

    Tenants in a newly renovated unit, kitchen 6 months old. Tenant used the bench top as a chopping board, result the bench top has major cuts in the formica.

    As tenant is fine apart from this we elected to say nothing and simply noted the damage on the property report for the subsequent claim at bond time. (Have already ordered a new top ready for when unit is vacant) This particular tenant is from the same ethnic class as the other tenants I have posted about and has now been in unit 2 years.

    My view, in general, is that you will get most damage on the move in and out so if they stay for a long time they live with their damage.

    Cheers

    Profile photo of zizziz
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    February 27, 2003 - 10:11 am

    Hi All

    Well lets be controversial my stock standard answer is ‘there is no such thing as a good tenant’ [:D]

    In a property managers eyes a good tenant pays the rent on time.

    In the property owners eyes a good tenant is one that pays the rent on time, looks after the property like it is their own rather than somebody else’s carries out any minor repairs in a most professional manner and even looks after the gardens. Oh yes, and stays for years.

    Invariably where the PM reports a tenant to be a good tenant all they are refering to is the payment side and when you go into the property at changeover the place is a pigsty or everything is broken and nothing has been reported etc. THis obviously changes the tenants status in my eyes from a good tenant to a medium tenant.

    An interesting story.

    I had a family in a 2 br unit that also had a seperate room next to the kitchen as a dining room but could be used as a bedroom. In this unit lived the parents, the youngest daughter(16-17) and various other parties that came and went. In general there were 6 or more people using the unit. Furthermore any time, day or night, the most unbelievable aromas came from this unit reflecting a good cuisine.

    Although they payed on time my impression was that with so many people living there that the property would be deteriorating excessively. They had occupied this unit for about 2 years prior to my ownership.

    As I wanted to renovate this unit and with the impression of excessive wear in this unit I evicted them. With their departure I found that the stove was beyond redemption but suprisingly the unit was very clean as if it had been painted recently.

    I have had units where 2 people have left more holes and general filth then this group.

    So in this case they were seen to be mediocre tenants that turned out to be better but unfortunately every other time the reverse has been true.

    I guess as a general comment any tenant who may be ‘good’ can turn into a bad tenant rapidly due to a change in their financial status.

    First they start slipping with the rent then they start complaining to try and cover up. Then the final stage is abandonment with a pile of mess to be cleaned up.

    Cheers

    Profile photo of zizziz
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    February 26, 2003 - 11:56 pm

    Hi Matt

    I don’t know about where Steve finds his deals but I look in the Saturday Sydney Morning Herald.

    This has a section under Commercial Property Forsale. You will find all sorts of wharehouse, commercial, DA approved property etc advertised. Amongst them generally under ‘Investment’ or ‘Flats’ are multi occupant units.

    Generally it runs to 2-3 pages of tight adds so have fun hunting.

    Cheers

    Profile photo of zizziz
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    February 24, 2003 - 10:12 am

    Hi 4walls

    What Dianne is refering to only applies to wrappee’s who occupy the wrapped property and for all intent are the bennificial owner, although they do not actually settle on the property until the end of the terms contract.

    In your case, as I understand your situation, either you or your tenant will occupy your house until settlement thus you are still the bennificial/actual owner and as such any land tax is to your account.

    If you had wrapped the property then from the point of your exchange the excemption would apply as the wrappee would take immediate possesion.

    Hope this clarifies it

    Cheers

    Profile photo of zizziz
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    February 21, 2003 - 9:05 am

    Hi Rob

    No doubt you have done the figures but they are great.

    price = $41,000
    costs? = $1,000
    purchase = $42,000
    loan = $32,000

    rent = $5980pa

    rates + levies = $1500
    loan costs(6%) =$1920
    maint = $500pa
    pm = $500pa

    income = rent – (rates + loan costs + maint + pm)

    income = 5980 – (1500 + 1920 + 500 + 500)
    = 1560

    deposit + cost = $10000
    return on this is 15.6%

    So given that I have assumed a number of figures your cash on cash return is $1560 on the $10,000 which is 15.6% return (better than the bank)

    Your gross return which is simply the rent divided by the total purchase cost is 14.2%.

    So all up not a bad little investment. The only risk is the vacancy factor but your holding costs are only $75 pw. Any immediate capital gain could be doubtful although you mention that another unit went for $50k so depending on the variables you may have a paper profit of $8k.

    Cheers

    Profile photo of zizziz
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    February 21, 2003 - 8:36 am

    Hi Nathan

    Without digging out one of my mortgage documents could please eleborate as to the ‘all moneys clause’. Are these the clauses that prohibite any transactions against the property?

    Cheers

    Profile photo of zizziz
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    February 20, 2003 - 11:38 am

    As I understand it if you have claimed depreciation on capital items, then at the time of selling the ATO adjusts your cost base subtracting the depreciation from your initial cost.

    Property cost =$100,000

    Owned for 5 years depreciation = $5,000

    Cost base for CGT calculation = $95,000

    so effectively adding $5,000 to your taxable income before the CGT rebate.

    Steve may want to verify this

    Cheers

    Profile photo of zizziz
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    February 20, 2003 - 11:32 am

    Hi Leigh

    If you want to meet up with like minded individuals you may want to try Freestylers

    wwww.freestyler.net.au

    They generally meet ones a month. You can check out their site for further details.
    Cheers

    Profile photo of zizziz
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    February 20, 2003 - 11:19 am

    Congrats Rob well done. Those figures look pretty good and certainly with a bit of a polish you should find the vacancy factor manageble.

    I would check those body corporate fees as this seems somewhat high. If it is common water then there may be a water leak. Get a budget/last years expenses from the manager. Simple check.

    Cheers

    Profile photo of zizziz
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    February 20, 2003 - 12:08 am

    I am with you Felicity.

    I think tails has finally shown his spots, simply regurgatating words without any real substance.

    If you look at his posts people have addressed his concerns, answerred his question etc but he does not acknowledge anybody instead each new post is directly aimed at Steve.

    This to me seems like he had an axe to grind the whole time and all he set out to achieve is a massive stir and attack on Steve.

    Tails I do wish you the best and that you do sort out your demons as they will get in the way of sound investing.

    Cheers

    Profile photo of zizziz
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    February 19, 2003 - 11:07 am

    Tails

    I feel that your investment philosophy is flawed as you do not take into account the erosion of tax and other costs each time you change investment strategies.

    The capital gain on real estate and shares are subject to CGT and as such you will be loosing approx 25-30% of any gain to the tax man. With interest bearing deposits this is a straight income stream and is taxed at your top marginal rate with the return after tax less than the real rate of inflation.

    Please don’t misunderstand that I find anything wrong with following the investment cycle and I do agree that the property market is overheated but there are smarter ways to do it than cashing in.

    The simplest and most cost effective manner would have been to organise a line of credit against your property capital gains and then invest that money as you see fit.

    Previously you eluded to the bank reviewing the loan this as a rule does not happen on a pure property loan. Reviews only occur where the loan is related to a business and its viability. As long as you continue to pay your mortgage the bank keeps taking your money.

    So based on the fact that you now have money from your property (and still have your property for any future capital growth against its full value) you can use this money to invest further and multiply your potential many times over.

    Cheers

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