I need to sound this off someone,,,possibile first +’ve cash flow for us.
property cost 53,000.rental income 110 p.w.,,,so it meets Steve’s 11 sec rule,,,
futher investigating,,rental management 10%,this is huge and makes a massive difference to the bottom line,,
rates 400per an.=$7.70p.w.
Next is the bank interest rates,,,7.24 fixed for 5 years or 6.99 for 3 years.Also to note the banks wants to lend me 105%..
i calculate at 105% that loan repayments at 7.24%
77.48 loan repayments
11 rental management
7.70 rates
________
96.38 rental income 110=14+’ve cash flow,,,
thats not good in my mind even though the cost is zero.now if i put down 10% deposit and re work the same figures at 7.24% i get a +’ve cash flow of 24.90p.w.and a cash on cash return of 24.4%,,,this seems better in my mind ,even with 4 years till my money returns,,
at 20% deposit the coc return drops off to 15%,,,
Thoughts at this stage,,,i asked the agent what could be done to quickly improve the place ,,he said bathroom and carpets,,,,what i think i need to do now is ask the agent what he thinks it could rent for after $6,000 spent on the property,,,
i think i’m trying to look at using the banks 105% loan but then spend the 10% deposit,that i’m happy to use on make-up to increase the rent for a better return,I figure if the reno money of 6k is my expenditure i need rent of 135p.w. to give 34% coc return.
Anyadvise at this stage welcome,this is the only property that my wife and i have found that meets the 11second rule,we’ve got a verbal on 53k with a deposit to be paid tomorrow,,,
Also to note i’ve made 24k trading shares so far this financial year and this property would be in my name and therefore spending some of the tax mans money before i have to give it to him is ok with me but there must be a line.
My wife is the main income earner and has a neg geared with positve cash flow after tax in her name,
Over to you,i know your not a legal advisor but i don’t care,,,brains and smarts is what is needed,,,please advise.
Paul RadgePaul, if you put no money in, and it makes you some money each week – What’s the problem again?
If you’ve got the money for the deposit, why don’t you look at perhaps spending some of that on some minor renos, rather than putting in a deposit, and having to then find the $$ for the reno.
If you buy this one, with no money down, that leaves you in a better income position, and still some cash in hand to buy another property, I would go for it.
Cheers
MelHi Mel,
thanks for ur response,,one main concern is that it’s 3 hours away from Melb. and my mind is telling me,,
1 with all these top gun investors around scouting everywhere how did we manage to find this place,
2 being 3 hours away leaves me over a barrel
3 if i try manage it myself ,refer to concern #2
4 it’s not like a stock where there’s always a buyer,
5 it must be a dud refer to concern #1
6 this could quickly turn into a flee
So this is the torment my mind is giving me,
PaulGet a PM to manage it.
did you find it on the internet or did you physically find it?
have you done your research on the area, the jobs, the people, the vacancies etc.
If it’s your first, unless you jump in and bite the bullet, these anxieties will always stop you.
As I said, if the numbers and your research stack up, do it. there’s lots of investors, but there are lots of houses too.
Cheers
MelMel,
Found it on the internet but it’s in a area that we’ve been watching for a while.The town has several schools 1 private and a hospital.We got the referral on the area last year from a friend of a friend who’s an agent bought for one 48k and gets 100pw rent.(2 bedroom)
I just got off the phone to the agent,asked him about increasing rent to what i would need after spending ,not much chance of pushing it that far,120pw max.
he also suggested managing myself with a payment book and if i loose the tennant call him and he will help find new ones ,,providing if/when i sell i use him he’ll not charge fee’s.
called a mortgage broker,,his advice was don’t take any fixed interest only loan for 5 years,,only take the 3 year if variable interest only if it’s more than 6.99
otherwise looks like i should bite the bullet,i don’t think i can do much more now,,,
anything i’ve missed or should contemplate,,,
the only thing i can think that i’ve missed ,,is take the 105% ,spend the reno money and try learn how to do a wrap,,
Mel ,thanks for your time,thoughts and advise anything more?????????
PaulHi Paul
My first thoughts are – why is the bank going to finance you 105%, I assume that they are going to tie it to the equity in your home. To that I would suggest that you set up a line of credit using this same equity but it isn’t directly tied to your PPOR. and can then be used as you see fit.
Then I wonder about the town, what type of industry exsists there what is teh population? You mentioned it has 2 or 3 schools and a hospital, that sound like a town we have invested in and also were told that we wouldn’t get rents of more than $110pw, but all 3 are $130, $140, and $150pw because the shools and hospital bring doctors and teachers in from interstate and OS and these people are used to paying higher rents. So long as your property is presented very well you can ask any price it really comes down to will someone pay it.
Good luck
Cheers
Leigh K[
]Carve your own path and lead the way …
thanks Leigh,
i have 2 mortgages at the moment ,one being the home.
they are separate both p&i with cba,
invest fixed till 2006, home fixed for another 3 months.
the home one is only about 30% of home value,
the invest i financed off the plan a year ago and may carry some equity too.
i think they think i’m eddible and may taste nice,
when i’m just a careful begginer,,
PaulLeigh,
thanks also for the other info on rentals acheived,,you got me on a couple that’s embarassing main cash flow of the town,,
population i was told that a near by town called wicherproof had about 800 and this town was double that with schools /hospitals,,
I think i’ll do the do and walk the walk ,,been great meeting you guys and thanks ,,we’re off to have a look inside tommorrow with a deposit in hand,,
really appreciated the advise look forward to giving you guys the feed back,
thanks again
Paulwhat a great opertunity!
I would jump right in!
you have all the figures u need and even with no money down, you’re gaining a +’ve return!
I feel that you should take the 105% loan, renovate and put it on the market with a PM and let it appreciate in value!
Sell it in 7-10 years and enjoy the CG left after CGT!That’s what i’d do!
But u have to also take into consideration the manainance costs and repairs for the property! What’s the population of the town and r there many ppl in the town that are renting?
You should find out the appreciation rates of that townt 2.Karan[
]*****
Please reply to [email protected]
*****Paul,
If you’re into calculating all costs, don’t forget landlords protection insurance (about 300 bucks) and a QS report for depreciation- even if the property was built before 1985 (i presume this is the case) which will cost you from $300-450, but which will get you back much more than your accountant can. Plus insurance for your place if the roof falls off
Also, keep asidse some money for repairs. On a lot of older properties, you may have to do rewiring, restumping etc- structural things. Cosmetic stuff like doing a bit of reno is great [^] but don’t forget other (major) repairs that might be needed too.
kay henry
Hi Paul,
Just a couple of points to consider…Sorry to be a wet blanket! [
](1) Have you done your proper due diligence on the town? There are quite a lot of severely drought affected towns in Victoria, that are really declining. What is the population? Are people moving in, or moving out.
(2) If you get a 105% loan, and the property value decreases, you will be in a position of owing more money than the property is worth if you are forced to sell. I only ever do 80 / 20 loans, which enables us to continue buying more property. I really believe that with the current property market, you would possilby be taking too larger risk, by borrowing 105%. My opinion, for what it’s worth, is if you don’t have at least 20% deposit – walk away. There will be lots of great deals coming….
If you have done all your homework, and it feels right, then go for it, but don’t just believe everything that an agent tells you about rents & vacancy rates etc.. They are simply there to sell the property.. Not to do you any favours.
Good luck,
Del
feedback time,,,where to start,
i inspected the house met the tennant,there’s plenty of areas for me to dump some of my trading profits,rotten timbers, rusty gutters,broken gas heater,stumps in the bathroom gone,but
the tennat is happy to pay the rent he even offered to paint the house room by room,(vegy patch,lol)tennant also happy to go direct debit request for payments,so no PM fee’s,
the person that sold me the property was in fact the publican,,i learnt more over 3 beers than anything the agent said,,i also met the town restumper ,painter and mechanic,,then i was offered a tennat by another bloke who was trying to find accomodation for a shoolteacher,after getting the card for the stumper,the vendor wouldn’t move his price much the house advertised for 54,500 at 110pw rent with new hotwater and stove,,,agreed price ended up at 53,000 with the agrement to remove the old hotwater/stove from the backyard,
my bank manager told me i can have 6.57 interest only variable,personaly maybe we will have another rise in Feb then i don’t think we’ll see another for a while,
done away with the PM fee’s as it’s a weekly cost,,yearly costs i’ll pay for from trading profits,
i’m going to take 100% loan and pay my own costs for the same reason,if i take 90/10 and get $40pw or 100% at $30pw ,the difference is $10 giving almost a 10% return on my money,even though the coc return is abt 40%,and i can not claim a cash deposit made from trading.
i plan on fixing up the house where i can call it a repair,and then loading it up with white goods and try market it to the schoolteacher’s as they wouldn’t be carrying whitegoods with them,i’m not sure but i guess the white goods will depreciate or something similar and provide a better return.the learning curve continues,,,,i need to thank Mel and others that helped me move through the mud on Friday,i’ve come out the other end better off.
On sat my wife and kids drove from Melb to Ballarat then up to Donald where we spent several hours then worked our way acroos to Shep Bendigo Wang and then to our caravan in Bright,,what a drive.
Just to think i will now get paid for that drive for a long long time and we got to take notes on other towns on the way .
I feel as if i’ve just moved up another rung on my ladder now having 3 mortgages,2 of which are investment and almost balance each other out,i think if i put in the E221d form that in fact the positive meets the negative,
Feeling like i’ve just been born,
Paulmaybe u were just in the right place at the right time.
Thats half the trick!!!!!!!!!!
Regards Bear
Originally posted by scruffy1837:Hi Mel,
thanks for ur response,,one main concern is that it’s 3 hours away from Melb. and my mind is telling me,,
1 with all these top gun investors around scouting everywhere how did we manage to find this place,
2 being 3 hours away leaves me over a barrel
3 if i try manage it myself ,refer to concern #2
4 it’s not like a stock where there’s always a buyer,
5 it must be a dud refer to concern #1
6 this could quickly turn into a flee
So this is the torment my mind is giving me,
PaulGood on you Paul! thanks for the feedback on how you went too.
Cheers
MelPaul
Well done pal!
There is plenty more for you to think about with future investments but we’ll get to that later …
Again well done[^]
Cheers
Leigh K[]Carve your own path and lead the way …
Hi there…
Sounds great that the bank is lending you the 105% !!
Are they using your other homes as securities? If so, that would explain the great interest rates you are recieving. Usually on a no deposit loan you would pay a 1% margain on the std variable. If they aren’t using the other properties as sec then it’s simply a great deal! Just ask about an advance. Usually with a no deposit loan the bank will ask for a 2.5% advance instead of lenders mortgage insurance.
You could then still use part of you deposit for the advance and the rest for renos??…..Just my 2cents…
Good luck!
ELIt sounds like you’ve already decided on the place. It is not good getting all of your loans mixed up like that, but you can fix it down the track by appliying for a release of security.
Cross securitising also doesn’t show you how much the bank is willing to lend in that area. eg it may have a policy of 80% LVR in that area. this may affect resale value.
Personally $14 per week is not much, unless it is in an area which will grow substantially.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
thanks all,
no doubt the bank is using up equity in my PPOR,
you could feel the air when i told the bank manager i could wipe out my home loan with my share portfolio at the moment,
great positive encouraging feedback from you guys,there’s plenty more for me to learn,Aussie offered 6.45 over the phone so i’m going to try squeeze the bank manger from his 6.57.
I’v been reading alot of posts here there’s heaps of great info,looking forward getting this one sorted and then learning some more,[]Scruffy
Scruffy one question, did all these townfolk you meet all kinda look the same?.[8][
]
Seriously, I`d be a bit wary, should the tenant move on are there many prospective tenants in the town?.
If so go for it!, but these kinds of properties main worry is type of tenant and the fact that should they leave it may remain vacant for some time, it only takes a few weeks before your house is CF-, and a few more before it becomes a bad investment.[8D]
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