Hi All,
I attended the Masters and, wow, did I get a lot out of it!!!! Thanks Steve and company…
I’ve spent a lot of time in the last week researching and have found the first target. [
] What I’d like to do is post the detail on what I’m about to do, as a sanity check, so I look forward to your feedback.There were a few guidelines I took away from what Steve spoke about and they are:
Buy in areas in growth or about to grow
Min 80% LVR
Principle and Interest Loans
Be flexible with 11 second solutionThe property I’m looking to purchase has an asking price of $195,000, with a rent return of $360 per week, so as such falls outside the solution. I am confident that the property will have capital gain, but my strategy is positive cash flow.
If I follow the above mentioned “rules” then I would have to acquire the property at below $165,000 before it would start making a positive cash flow (Yes I remember the Guerilla Negotiating Session). Cash on cash return still would not be great.
On doing a preliminary due diligence on the tenancy, there is a lease that covers the next 12 months (just signed) so little opportunity to increase the rent in next 12 months.
Here’s my solution. Use interest only loan for first 12 months in order to make the property cash flow positive from day 1. And of course use Guerilla tactics where they are win-win. If I pay the asking price, cash on cash return would be 3%.
After 12 months, switch to P+I mode (at no cost) and increase rent, which I am comfortable is possible.
I would appreciate it if you guys could comment about whether my thinking is sound.
Since I have done the financials PATTERN template in excel, are there any volounteers out there who would be prepared to receive my analysis by email and check it for me?
This is my first post and I’d like to say that it is an incredible information source. Thanks to Steve and all those who contribute and I hope to able to do the same soon…I hope to enter the exponential part of the learning curve very soon[
]Thanks for you time and effort in advance…
Ish
PS: I heard that there is now only 1 mortgage insurer in Australia …what impact if any does this have???
Which insurer dropped out?Michael
Michael
there are two general LMI companies plus several owned by and servicing only the bank which owns it.
GEMIS and PMI – they have similar policies but do differ in some significant respects, particularly their upper limits on loan amounts, which should not affect most wrap proposals. BUt if you keep under the 80% limit you won’t be paying LMI anyway.Michael and Kaye,
I’m sorry I don’t know who the insurers are, so can’t ptovide further details. I see fastainvesta has contributed more info than I could have.
Will email you my financials…thanks
Ish
Hi Ishta,
I think that’s a great return at 9.6%, and i’m sure you’ll find it IS cashflow +ive if you do your sums again.I’d also go with Interest Only finance, try and add value to the property, and then increase the rent by $10-$20 pw after 12 months.
Hi All,
Thanks for your responses so far.
Re the topic of only 1 mortgage insurer remaining, my source was my broker who mentioned it while I was talking to him about getting finance.
Alison, I certainly hope that 9.6% is the true figure, because then of course I would have no hesitation. Michael is checking this for me so I’m sure all will be revealed shortly.
Thanks again…bye for now[8D]
Ish
Hi Ish,
nice to meet you at the seminar.
If you would like to email your spreadsheet to [email protected] he can pass it on to me and I will have a look over it for you too.
cheers
the B[
]__________________
“Life is a Dance”Micheal,
I’ll send another email if you don’t mind…
Ish
Hi Ishita,
I set up my loans at 90%, IO for 5 years, I always do some improvements, with the bank setting up a condition that they then revalue the properties after 12 months and I need to take LVR to 85%, which I am confident the properties would provide via 5%CG. Because the return is greater than the bank interest rate they provided the funds for me without MI.
If you believe that there is potential for CG in the area than if your property grows by 5% in 12 months it is like you have “paid off” $9,750 off your property while having 100% of your loan tax deductable.
Good luckDear Ish,
Why are you assuming that just because there is a 12 month lease in place you cannot increase the rent. A lease is just a contract that both parties can rescind (or void) if they want to. You would probably want another lease in place first. Perhaps they need a washing machine that you can provide and in return increase the rent by $10 a week. While your adjusting the lease put a 5% automatic rental increase each year. And as an incentive if they stay for 3 years you could give them the washing machine. This may not apply directly to your situation but take the principals and fit them to your circumstances.
Wishing you well.
Brad
Hi Ishita,
This may come from the far left and I don’t know your situation but here is my two cents anyway.
Please correct me gently if anyone disagrees.
Why buy a piece of realestate at that sort of cost for such small returns? With the properties I am looking at the house/land with tenant or not as you please will cost anywhere between $30 000 – $85 000. That is not much down as deposit. You have anywhere between $120-$160 a week rent. You could buy two or possible three properties for the sort of money you are going to invest.
You mentioned that your strategy is positive cash flow so capital gain is not realy an issue.
I just don’t understand why as a newbie you would want to spend so much on one investment?
Do as Robert Kiosaki say’s, START SMALL and work up to it.OK YOU CAN SHOOTM MEDOWN NOW.
Thanks[]Thanks Red Card, Ronulas and others who have replied…
I failed to include a rather important detail in the post…this is a small block of 6 x 1 bedroom units. So its a small price to pay for (as I see it) 6 properties, where rental increases will be much easier to achieve than if it were 1 property. Michael and Kay are still helping me crunch the numbers, so the learning continues.
I do hear you Ronulas…the lower value properties do provide higher cocr’s due to lower stamp duty component which is not deductible.
I’ll let you know what I finally decide. However in the meantime, I’ve hit another snag. I had preapproval for money, but now find that because the property is on a single title and is single storey (???not sure why thats an issue), some institutions will not lend or will only lend at an LVR of 70%. They also want the property to be “Strata Able” ie. can be separated into 6 separate titles. 70% LVR still provides +ve cocr, but where am I going to get that kind of deposit!!!!!!
Currently in search for a creative and flexible lender…talking to prosolutions who are being as helpful as possible…thanks Stuart
Anyway…I post this information and hope it is/will be helpful to others at some stage…
Many, many thanks to Michael and Kaye, could not be as clear about the process and decisions without your assistance.
Ish
PS: Editing function appears to be working well on my name…and yes, I did cop heaps when I was at school[
] Maybe we can use Ish instead and then I won’t be constantly reminded…just joking[], its cool [8D]Hi All,
Just to close off on this post, I’d like to let you know that I did it!!. Infact on a different property, although very similar.
Thanks to all who replied,
Ish
Well done Ish. Here’s to the next one……
Enjoy
AD [:0)]
(Andrew)“Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, ambition inspired, and success achieved.”
] What I’d like to do is post the detail on what I’m about to do, as a sanity check, so I look forward to your feedback.
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