hi guys,
my wife and i are about to commit to an investment property, we have engaged an financial adviser who has recommended the following, puchase a $260,000 property off the plan claim the tax benfits of neg gearing and depreciation, the whole deal will only cost us out of pocket $42.00 per week which we can easily afford.my question is the financial adviser is doing all the work regarding finding the property from developers using the criteria of the area has a minimium growth rate of 30% the vacency rate is below 2%, infrstructure ETC and is using the residex as a guide,should i trust their recommendation? i also understand that the adviser will recieve a commission from the developer.[
Hi gazza,
Most people on this forum are looking for ways to become financially independent through positive cashflow properties. ie after the expenses are paid on your investment property the property is putting money back into your pocket.
I appreciate the research that has been done in selecting this investment, but with negative geared properties you are betting on the capital appreciation of the property to increase your wealth. This is more uncertain if you are buying a property ‘off the plan’. How long do you have to wait until the project is complete? What will the property market be like then?
Does your financial adviser have clouded judgement since he is receiving a commission for arranging this property for you?
Are you placing too much emphasis on the tax benefits of the investment purchase rather than the merit of the investment itself?
The investment that your financial adviser has found for you may be a good one. I would rather assess a property as it stands look at the surrounding factors and know (with a high amount of confidence) that it will be putting money in my back pocket and helping me retire sooner!
Cheers and happy investing,
Nathan.[
][]Hi Gazza,
It is difficult for anyone on this forum to offer specific advice as all the details are unknown, and I guess you understand that it’s not our role to give you permission to proceed. Hopefully we can offer some thoughts to consider.
The critical thing is have you done your own independent due diligence? Have you validated the financial planners figures? What is your assessment of the area and the likelihood of future capital growth (remember the past doesn’t equal the future). What do the local real estate agents say about these types of properties in the area? Are you paying too much or are you getting genuine wholesale prices? Do the numbers still stack up if something was to go wrong – you or your parner lose a job or get sick, property remains untentanted or rents drop to get a tenant in there. Remember this is your hard earned money so take an interest in ensuring the outcomes planned are realistic. The planner will certainly get his money up front, it may take you guys years to realise any tangible benefits.
There are other types of investment strategies / opportunities that Nathan has mentioned that may have better / less risky outcomes / returns for your dollar.
Good luck with your journey, let us know what you decide.
Hi gazza17,
I would be very, very wary if i were you.
Firstly, buying off the plan is not recommended in the current market.
You could get away with this a few years ago due to the strong capital gains, but it’s highly unlikely the property will show any gain once it has been completed. When is the completion date?
You always pay a premium for a brand new property and it’s likely that you’ll have to hold this property for at least 2-3 years before it’s market value is the same as what you paid.What does your criteria of 30% growth refer to – population or median price? If it’s the latter, i strongly doubt you’ll come across anything providing such growth – it’s unrealistic if not impossible in the current market.
If it’s population growth, it sounds like the area is semi-rural or on the outskirts in a new housing estate area; both of which are bad for long term capital gains and low vacancy rates.If it’s your first foray into property investing, i would play it safe and use the tried and tested method of buying something within 5-10km of the CBD. You will get nil/minimal vacancies and good growth. If you want to invest for capital gains, the best option is to buy an older property and add value to it (sweat equity). You are also more likely to get something like this for a fairer price from a motivated seller.
To put it bluntly, i think you’re being taken for a ride by your “financial advisor” and will regret this decision if you go ahead with it.
It always sounds good when they say it will cost $x a week right down to the dollar.
If there is a rent guarantee, you can be certain that you are paying too much for it as this is built into the property price. The rents are also not usually a reflection of the market and you’ll find that once you have to let it out yourself, you’ll have to reduce the rent which will impact on your cashflow.BE VERY CAREFUL.
Hi Gazza,
There is some good advice and sound warnings here. I have met too many people take the recommendations of so-called financial advisors or investment houses only to regret it. Not that you will necessarily lose money but as your confidence and experience grows, you may find that you could have done a lot better.
A few other words of advice. Do not rely on any so-called independent valuations provided for you. Pay for your own sworn valuation from a valuer approved by the bank. You may be surprised at the differing results.
Secondly, when investing for capital growth ensure that the property is in an area which has demonstrated good capital growth over the last 10 or so years. Many of the statistics provided can look very different when averaged out over a longer period of time.
Finally, do not let this delay your desire to invest. Investing in property can not only make you a lot of money, but it is great fun too.
Regards,
AnthonyG’day Gazza17,
A possible answer to your question is another few questions :
What can this adviser person do that you cannot do for yourself ?
Why do you think that this person will do better things with your money than you can ?
Have you investigated the validity of what you have been told ” ie done your own “independent research” or due diligence ?
If you can honestly say that you have done far too much research about similar properties in similar areas, spoken to banks, real estate agents, local councils, surfed the web, and have come to the conclusion that this adviser is correct – then go for it.
Mind you, if you have done this due diligence, can you get a better deal on your own, rather than through the adviser ?
If not, then as everyone who has answered you so far have recommended – maybe you should before you go ahead.
I hope what ever you decide works well for you !
Thanks,
BDM
Hey Gazza,
Im really suprised that a so called Finacial Adviser can make calls on other peoples money when nine times out of ten they have no money themselves. Why is this so?Might be worth asking him what hes worth and how did he end up with so much abundance/lack in his life. The expression on his face will match his answer.
There are those that LET it happen, and there are those that MAKE it happen!!
Hi gazza
My personal opinion is that the property market is way over heated and that at this point of the market you can actually make loses over the shorter time frame (0-5 years). If you are willing to venture out of the main capital cities then at least you can pick up a property with cash flow but the flip side is you will wait a very long time for any real capital gain.
As I have said this is my personal opinion with my investment phylosophy for both +ve cash flow and the massive capital gain that can be achieved if you buy at the right time. (notice I did not say right place – apart from cap cities)
Getting back to your question there is a saying
‘past performance is not indication or gaurentee of future performance’
Potentially that property will have no capital gain left in it for some year, posibly as much as 5 years. So why rush the purchase just to know that you are going to loose at least 5 X 52 X $49 = $13k
Consider that if the property does not go up then you are actually loosing in real terms (inflation and costs).
I have now not bought any property for the last 18 months, with the last three purchases making $300k within 6 months. These properties were originally sold of the plan 3-4 years prior to my purchase, would have been -ve cf (and still are) with the original purchasers selling for the same price as they purchased and one even loosing $2k on the original purchase price. All have actually lost as the stamp duty and other costs were not recovered.
Now these properties would have been marketed along the same line that has been spun your way and obviously if the original owners had not become impatient then they would have eventualy made 30%, but that is over 3-4 years of ownership with the cap gain only in the space of 6 months.
Having said all this, the final decision is yours but if you do decide to proceed then make sure you can hang in there until the next boom which will be 8-10 years away.
Good luck
Gazzal, Do not proceed, you have not been told the whole story,i have been burnt by this and still recovering.I will never ever buy off the plan again.Do an independent study on the project area.
Well done guys! [
] Sounds like you have done the work and now can sleep at night knowing that you have validated many of the unknowns in the equation. Hope all continues to go well with your investment. Perhaps the next one will be a PCF property based on Steve’s investment models.Gus
re the comment
>If it’s your first foray into property investing, i would play it >safe and use the tried and tested method of buying >something within 5-10km of the CBD.
I live in Paddington, Sydney which is within 5-10k of the CBD. Our house would be worth at least 700,000. We’re renting it for $400 pw. One across the road that was similar went for 950,000 last year, and it’s not freestanding, ours it. So that figure is conservative. Do the math….
>You will get nil/minimal >vacancies and good growth.
hmmm….???
Can I have that in writing? define ‘good’….
How much does it cost you per week in losses to get this expected growth, and for how long do you have to hang on to it?As for vacancies, there are plenty of houses even in our street (very desirable part of Paddo) that are for rent and empty for weeks.
After all the learning, reading etc I’ve been doing for the last year my humble opinion is that you could do better with 10 X $70k CFP properties than 1 X negatively geared 700K property.
(just as an example, not necessarily relevant to the situation of the person who started this thread.)there was an article on PCF versus Cap gains in the last or issue before last, of Australian Property Investor magazine.
They pretty much made the same conclusion.Oh, one more thing, I went to the Investing/Property expo in Sydney last weekend and, ~~!!! talk about wall to wall advisors wanting to invest your money for some lame amount of return…!!!
I guess i should have expected that, really…they suck you in by telling you they want to make money for you, but really, they want to make money from you.cheers-
MiniGet a indipendant valuation on the place
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