interestingly, what both kay and monopoly said they’d need to confidently buy sight unseen is actually everything we provide when bird-dogging a property. from 20-40 pics of everything from the switchboard to the hot water cylinder, to a graph of the property market for the last 6-8 years, info sheet on the town etc, (every single relevant thing and picture i can find) – and I find buying sight unseen to be extremely time-efficient – you pay others to inspect on the ground, which I don’t personally think is much fun, so I ‘outsource it’ to people much more qualified anyway, i.e. a building inspector.
joy to the world
Hi Karl and Rita,
Concerning your deal, as mentioned if you follow what Steve teaches, I think that one would not take that deal as it stands.I am finding that there are 2 sorts of CF+ deals those you find and those you create. If this property is in a good area, with good population and easily rentable, I think with a yield of 8.84 you may find that there are buyers around that will jump on this. So offering a real low price may result in your loosing the deal.
Depending on the area and the property etc maybe there is the potential to buy it at a little bit of a higher price and then doing some work on it and thus renting it at a higher return possibly pushing the property into a +CV status.
In addition, again depending on the market and your timing you may be able to re-value and access some equity as well, or not access the equity but bring your LVR down(I’m not sure what your LVR is for this deal).
A higher value and thus lower LVR can protect you if prices come down and the bank says ” hey this security is not worth what we originally thought it was” and thus hitting you up for more security to bring into line. (like an option call)
Concerning buying a property site unseen, I personally would never do this. Simply because I don’t think I have the experience to be confident to buy using this method.
I understand that some investors do this successfully. Buying though a buyers agents brings my personal fear of this down a little bit. But I sort of think, I need to make sure every investment decision will make money, I cant tick that box if I have not seen the place. That’s my personal thing.
Anyway, hope that helps a bit.
One other thing, you may want to make sure your rent calculations include a period of no rent (like while your trying to get a tenant etc) . This will effect you cash flow.
Just wanted to mention that this is not advice just my opinions and speculations. My suggestion is to get professional advice on these sorts of matters.
Cheers,
MarkyMark
Hi all,
Rental yield is a vital number no doubt, I also consider capital growth and tax benifits to be of equal weight in considering any property.
Its almost an expanded formula that gives me a indication of a properties true worth.
There is more to it than the 11sec rule in my experience, and ignoring a property on such a basic calculation could be something i regret later.Cheers
Karl and Rita
Something i think of when i’m looking at yields… I’m happy with 6% innercity capital city; 8% regional; and 10% country.
It’s a different way of looking at things. It’s like a standard inversion of how I see rental yield and it’s relation to potential capital growth.
This is for me in 2004- not in the boom days. If I bought properties in 2004, those are the yields which would act as a guideline for me.
kay henry
Hi Rob,
Yes, my terminology is not correct. I did mean “Margin” call, not “option”. Thanks for picking that up. But the concept is still intact.As far as I am aware I am correct with this and it is in fact possible. If the asset (house and land) that the financial institution has secured against drops in value beyond an acceptable ratio then the financial institution CAN ask you to bring the loan back to a specified LVR.
I first heard about this from Steve at his seminar. He also warned us that it does happen.
As I understand it, in the case of one of these “margin” type calls, the equity has to come from your pocket, or I imagine “other” acceptable security to reduce the LVR.
Steve also said that they will give you a certain amount of time to come up with the additional security. I don’t think it was long though, but I suppose that has allot to do with the particular bank policy.
MarkyMark
Rob,
My friendly bank manager told me that the bank can in fact take the property or extra security if prices crash. Think commercial, and apply to residential.
However, they are far more reluctant to do this to residential homeowners, as it gives banks a bad (worse?) name, and they don’t want that sort of publicity. Possible, definitely – likely, not really.
Cheers
MelActually if you take a close look at your mortage agreement with the bank you will find they can pretty much sell it whenever they want to by simply asking you to repay the loan right now! Now I agree that in general they won’t because a mortagee sale is the last resort of a bank but they do happen, and are a great way of picking up bargains…
BTW I have heard in NZ banks are coming to see investment loans as better business than PPOR loans, it turns out that there is a lower default rate on IP loans.
Cheers David
On and on the being cashflow positive front the best thing to do is to budget out all the expected costs and all the expected profits (How you calculate these is upto you and your level of risk aversity, we wouldn’t usually take depreciation or capital gains into consideration… but we would count the principal repayments) if there is more expected profits than expected costs well done thats cashflow positive…
Cheers David
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