[wacko]
We are looking at our 1st investment property and we’re a bit confused as to wether it’s +ve or -ve cashflow. These are the numbers:Price: $100,000
Rent : $170 /week
Rates: $1200 /year (approx)
agent fees : 8% ($13.60/week)
insurance roughly $600 /yearIs there anything we’re missing? How much should we offer?
We have no idea what we’re doing as this is our 1st investment house and need lots of help and advice.
Thanks
Karl and Rita.
p.s. Where are these so-called positively geared houses?
The future belongs to those who believe in the beauty of their dreams. – Eleanor Roosevelt
Hi and welcome Karl and Rita,
Some quick calculations shows that your IP has an 8.84% rental return, which some would agree is okay, but not fantastic. I personally think it is fine, but there are those who prefer (wouldn’t we all) at least 10% returns.
This calculation is not taking into account the agent fees and/or rates. Which obviously alters the figures, but still makes for a good return. Other factors need to be considered, and there are people here which have heaps of experience is crunching numbers, looking at mortgage repayments etc. I am sure they will post some valuable info at some point (you just gotta wait a bit).
All in all, it sounds promising.
Cheers,
JO
Thanks monopoly, every piece of advice helps a lot. Thanks.
Karl and Rita.
The future belongs to those who believe in the beauty of their dreams. – Eleanor Roosevelt
Quote:Originally posted by Karl and Rita:[wacko]
We are looking at our 1st investment property and we’re a bit confused as to wether it’s +ve or -ve cashflow. These are the numbers:
Price: $100,000
Rent : $170 /week
Rates: $1200 /year (approx)
agent fees : 8% ($13.60/week)
insurance roughly $600 /yearIs there anything we’re missing? How much should we offer? We have no idea what we’re doing as this is our 1st investment house and need lots of help and advice.
Thanks
Karl and Rita.
p.s. Where are these so-called positively geared houses?Hi Karl and Rita
I have 16 properties (PPR, 3 -CF and 12 +CF). Steve McKnight would say your deal doesn’t fit the 11 sec formula, and I am mostly able to find properties now that can match or do better. What town/area is this property in? How old is the building (i.e., does it qualify for depreciation? and if so, how much?) If it the deal you’re talking about has good prospects for modest capital growth, then I’d be happy to go with it as a LEARNING EXPERIENCE.
One key point re 8% Agents Fees:
Some agents try to hit you up for 10%, 8% etc etc. I pay no more than 7% by letting agents know I’m a serious investor and if they look after me I may come back into their town and buy more properties.Try squeezing them for an extra 1% off, but you may have let it slip you’re new at this game. Remember,
1. Only 1 in 200 property investors own
more than 5 houses
2. By joining this forum, you’re well on
the path to being well ahead of the pack
3. Don’t let any agent think you’re new at
this game. Keep reading books plus ALL posts you can on this forum, and you’ll be able to pose with the rest of us!![biggrin]Cheers
Greg F
Hi Greg F.,
Thanks for remarking on that 8% agents fees…..damn, I completely glided over that one!!!!That is terrible…..8% !!!!!!![angry2][angry2]
In Victoria they will try and sting you for anything between 6-7%, and I ALWAYS INSIST on 5 (nothing higher or I walk).
Do other people pay 8% too??????[blink][blink]
Interesting point.
Jo
Yes Ma’am, I pay 8%. That means I pay a total of $16.00 a week for an onsight Manager. Before my new teant came in, my OM came into my place and painted a wall for me- for nix- and without me asking, because the previous owner did a dodgy job, and the OM didn’t like it.
$16.00 a week to have someone keep the complex absolutely immaculate is not much of a price to pay, in my book. I am not gonna haggle over a buck or two. She’s a good chick, my OM, and sometimes, if you want to get good service, then you have to pay for it. To me, that’s all about building relationships. It also helps when things go wrong. For example, I paid maxi amount to my RE agent to sell a place of mine, and then, when things weren’t working in the sale ie vendors pulled out, and things got complex, I had two of these agents working their hearts out for me. Sometimes it pays… to pay.
kay henry
Oops, Karl and Rita- in answer to your Q, as others have said, it doesn’t meet the 11 second rule/guideline thing, but if it suits *you*, and you think it’s a good deal, then go for it!!! I personally think the rental is good relative to the price. But there’s so much more to consider- the location, population, employment, age of the house, possible repairs, ongoing tenancy possibilities, is it in a floodzone?
When it comes down to it, you are the ones who will be paying it off and looking after it, so you have to decide if it’s suitable to your current financial position and to your psychology. If it is what you might consider “lowe risk” as an investment, then it might suit your “sleep at night” factor, if you are a low risk type. To me, if a place has redeeming features, then that can win me over, more than a place that might have a better return, but I worry about it because of other factors. The sleep at night factor is sooo important to me- i don’t wanna have a heart attack at 45, and not be able to enjoy the fruits of my labour (right now, my fruits are a couple of bananas). hehee.
kay henry
Mini,
The bad PMs I referred to were being paid 7% which I did not dispute due to the fact that (a) that was the going rate, and (b) I figured that seeing as my access to the properties was limited to due geographical location, what’s a few extra dollars???
So you see, it was the higher paid PMs that stuck it to me, not the ones paid 5%
And if they don’t do the job, I change PMs regardless of commission. Nevertheless, developing a healthy rapport with the PMs is always worthwhile, which has served me well, and when asking for 5% have rarely been refused.[strum][strum]
Jo
Karl and Rita, please disregard the locals bickering, it is part of the amusement, we all do it to entretain ourselvs.
As to your question. For 170 a week I wouldn’t pay more than $80k but that is just an intial mental approach, there is certainly much more than that to consider. If the property is in NSW, (and please do not reveal the location) you may be able to squeeze 10 or 15k off the price no problems in the current climate.
Have you researched the town/city for potential growht, work availabe etc? No point having the best deal in a town with no work and decreasing population. You need to research also the location itself, housing commision vicinity, local no-go-zone, contamination of the soil, roads widening, noise … not intending to scare you this are all remote possibilities.
Remember to take out building insurance plus landlord insurance. If you take out NRMA insurance they do not offer landlord so you may have to go for the one the RE agents offers. Others like CGU and Alliance have it all in one. Compare prices, CGU is on the dear side.
Do yourself a favour and buy Steve’s book, and read it, it shouldn’t take you more than 2 days to get through it. Lots of good advice there.
Good hunting!
May God prosper you always.[biggrin]
MarcThanks everyone for responding, the advice is great. I’ve read Steve’s book and Rita is about 1/2 way through.
Marc1 – the property is in QLD, and we’re thinking of offering $90k – maybe 85.
Kay Henry – thanks, good advice. Our comfort level is that we know that we’ll make mistakes and probably lose a fair bit of money at some time. That’s ok with us. We just want to get started but still do the right thing.
Gref F – I agree it would be a good learning experience, thanks. And we’ll definately keep looking.
And to everyone else, thank you.
Karl and Rita
The future belongs to those who believe in the beauty of their dreams. – Eleanor Roosevelt
Originally posted by Monopoly:Hi and welcome Karl and Rita,
Some quick calculations shows that your IP has an 8.84% rental return, which some would agree is okay, but not fantastic. I personally think it is fine, but there are those who prefer (wouldn’t we all) at least 10% returns.This calculation is not taking into account the agent fees and/or rates. Which obviously alters the figures, but still makes for a good return. Other factors need to be considered, and there are people here which have heaps of experience is crunching numbers, looking at mortgage repayments etc. I am sure they will post some valuable info at some point (you just gotta wait a bit).
All in all, it sounds promising.
Cheers,
JO***************************
Hi MonopolyI’m impressed with your Rental Yield figures. Thanks to Steve’s book, I know how to work out the CoCR (Cash on Cash Return) but in all my years of property investing, I’ve NEVER learnt how to work out the more “traditional” Rental Yield. Do you mind teaching me:
1. The formula and, if it’s not too much to ask…
2. A couple of worked examples?It’d make a good post under a new heading.
Cheers
Greg
Karl and Rita, remember that if you are not embarrassed by your offer you are offering too much hehe
May God prosper you always.[biggrin]
MarcOriginally posted by Greg F:I’m impressed with your Rental Yield figures. Thanks to Steve’s book, I know how to work out the CoCR (Cash on Cash Return) but in all my years of property investing, I’ve NEVER learnt how to work out the more “traditional” Rental Yield. Do you mind teaching me:
1. The formula and, if it’s not too much to ask…
2. A couple of worked examples?Hi Greg (it’s nothing impressive)
There are so many ways of doing it (my way; which is probably the longer way) of doing it is as so:
Weekly rent (170 x 52 = 8,840 annual rent) divided by cost base for property (100,000) multiplied by 100 = 8.84%
Using Karl and Rita’s figures:
170 * 52 / 100,000 * 100
8,840 / 100,000 = 0.0884 X 100 = 8.84Another example:
220 p/w X 52 = 11,440 (annual rent) divided by cost price of say 150,000 – hence
11,440 / 150,000 = 0.0762 X 100 = 7.62%Have fun!!!!
Jo
Originally posted by Greg F:I’m impressed with your Rental Yield figures. Thanks to Steve’s book, I know how to work out the CoCR (Cash on Cash Return) but in all my years of property investing, I’ve NEVER learnt how to work out the more “traditional” Rental Yield. Do you mind teaching me:
1. The formula and, if it’s not too much to ask…
2. A couple of worked examples?Hi Greg (it’s nothing impressive)
There are so many ways of doing it (my way; which is probably the longer way) of doing it is as so:
Weekly rent (170 x 52 = 8,840 annual rent) divided by cost base for property (100,000) multiplied by 100 = 8.84%
Using Karl and Rita’s figures:
170 * 52 / 100,000 * 100
8,840 / 100,000 = 0.0884 X 100 = 8.84Another example:
220 p/w X 52 = 11,440 (annual rent) divided by cost price of say 150,000 – hence
11,440 / 150,000 = 0.0762 X 100 = 7.62%Have fun!!!!
Jo
[/quote]Hi Jo
Awesome! Thanks for your clarity, and your worked examples.
Now I know what these RE agents are talking about when they’re trying to impress me with fancy figures about the rental yield of a property they’re trying to sell me which is nothing to write home about.
I can also see how your method compares with the 11 sec formula. Example:
$100,000 property returning $200/week rent
Rental Yield
Step 1: $200 X 52 = $10,400
Step 2:
Dividing by cost of property (100,000), then multiplying by 100 is the same as hopping the decimal point 3 places to the left$10,400 three places to left = 10.4%
Yes!!
Thanxs again, Mini
Greg F
Hi guys,
just another quick question, would you buy a property unseen?? If so on what conditions would you??
Thanks
Karl and RitaThe future belongs to those who believe in the beauty of their dreams. – Eleanor Roosevelt
Originally posted by Karl and Rita:Hi guys,
just another quick question, would you buy a property unseen?? If so on what conditions would you??
Hi Karl and Rita,
Me personally, no.
But if I had to, I would make sure I had as many photos sent to me as possible (from literally every and any angle, inside out, upside down), plus a copy of the Section 32 (which I would check thoroughly) and any documentation I could get my hands on from the governing council. And in addition, I would get a building inspection done; to provide me with a copy of its current state of condition.
Cheers,
Jo
Yes Karl and Rita, I would buy sight unseen. I would be doing every piece of research I could on the city or town I could find (google.com.au). I would compare other properties. I would ring up local RE’s and ask all manner of questions about areas in that locality. As Monopoly said, get lots of pics of the property. It does help if you have *some* indication of the area. Ask people on here if they know of the area, or do a search on here or on somersoft.com A Building and Pest Inspection will cost you about 300-400 bucks. That’s a must for sight unseen properties. I have no issue with sight unseen properties, but if the property is a bit raggedy, then you’ll have to be more diligent in your researching.
Keep the questions coming, Karl and Rita- knowledge is power
The more knowledge you have, the more confident you’ll be in your purchase Sometimes, you may have to pull out too- that takes its own type of confidence- if the plan isn’t working, you can always say no. An offer and acceptance is only binding after both parties have signed the contract (and there may or may not be a cooling-off period). If you have to pull out, do so.kay henry
Thanks heaps kay henry and jo,Greg and Marc your insight has been very helpful and the info you have given us has inspired us to keep going and not give up. much appreciated.
Karl and Rita
The future belongs to those who believe in the beauty of their dreams. – Eleanor Roosevelt
just another quick question, would you buy a property unseen??
Well I bought a Vehical from a dealership Unseen and in another state.(65K).I knew they were reputable and the vehical was un encumbered,and I am protected by many laws.That was 2 yrs ago and I still love it.
So I suppose there are cases of exception.
But for a house—-I honestly cant think of ONE!
If this is your first investment Id be particularly careful that its not your last!
Go see it!
John
Hi Karl and Rita,
Running the ’11 sec rule’ over the property is but one part of the checking process you will need to employ to see whether or not this is a good price.
Check out business, infrastructure, schools, planning intentions, population movements etc and above all check out recent comparable sales.
There is little to be gained if you pay too much in comparison to similar properties in the local area. It ay take you a while to get your ‘equity back.’
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
The more knowledge you have, the more confident you’ll be in your purchase 
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