Hi,
Ive been trying my hand at property investing over the last three years.
Most of my deals have been apartments. I also bought and sold some land on a new estate and invested
in a couple of cheap places in the US.
Ive had lots of small wins but nothing major yet.My short term goal was to end up with a set of properties that paid me $40,000 per anum.
This was a figure I decided would be enough to sustain myself (rent food etc) and live a happy life.
Then I could work if I choose or try my hand at new things and have no pressure or obligations to meet at then of the week. I dont really care if I dont own a house or even a car passive income means freedom so its number one for me.I used to work in an office cubical in a boring in a well paid but boring and stressful IT job.
After three years of trading ive had some moderate success.
Ive ended up with three apartments in Brisbane which im currently renting as short term corporate leases.
They have all increased in value and have a reasonable amount of equity in them. Total Value is $710,000
total loans are 465,000. Net (in the hand after all interest and expenses) rental returns are about $15k pa.
When I originally purchased them they had incredible net rental returns which people couldn't believe one was netting 11%
after I fixed it up and kicked out the tenants in favour of short term corporate leases.
Since then the prices have gone up so then returns based on the new prices aren't that impressive.I went and bought a couple of cheap houses in San Antonio in Texas about 18 months ago because I was searching for yield. It looked good on paper but I had all sorts of troubles.
Feral tenants who wouldn't pay up , sharky agents, got totally raped on the fees of financing one property and the the USD declined 20%.
At least the last few months have been good and it looks like the rents are coming in now.
I own 1 place for cash. Its worth about 50k and nets about $4500 per year in the hand.
The other is on a mortgage its worth about 85k and the mortgage is 65k. It nets about $1000 per year in hand.So net property income is $5500 USD and $15000 AUD which is not enough to live on.
To reach my goal I have to do some more deals but ive hit some barriers.
I work for myself now and the bank wont let me borrow against my equity without mortgage insurance. Because the mortgage insurer classes my apartments as "serviced apartments" (even though they are over 50sqm strata titled and I can lease them to who ever I like or live in them) they wont insure me.
Screw them all !!!. I feel like I never want to deal with another lender again.
So I have to go back to working for somebody else to borrow against my properties and move forward.
Even if I do go back to work and borrow I cant find anything thats CFP in Australia anymore so I don't know if that would help.If I spend a bit on renovations and sell everything Ive got in US + AUS I might end up with $350,000 cash.
I could take the cash to some foreign country and aim for a 12% return (Ive heard of lots of countries where I can get it) but Ive been really put off by my US experience and don't really want to risk foreign investment again epically not with all my cash.
Im confused about the property market on one hand im certain interest rates are going up. With all that new money the world banks have released into to world economy after subprime inflation is certain.
But on the other hand places like Brisbane show no signs of slowing with massive property shortages.
How the hell can the average person afford to keep buying like they do ?I could sell up everything and just put the cash in the bank and hope for a crash. I remember friends that did that after the 2003 boom and I think they are still waiting.
Mabey I have to change tactics and sell up take the cash and find an area where I can pay somebody to build a new house and sell it off for 20% more and then just keep doing that until cash levels are high enough to invest and gain my passive income.
Does anybody have any comments or feedback.
Mark.
Mark, you shouldn't get too discouraged because you are doing so well compared with the vast majority of the population. I wish that I was as cash flow positive as you are.
You definitely need a good mortgage broker. There are not that many around that deal just with investors. There are some even on this forum and on other forums such as somersoft.com.au/forums. Fortunately, I have got a good one, but she is so busy that she can't take any more people on at the moment.
Mark, it is discouraging when you feel "stuck", but I do encourage you not to sell rashly. I've done this a few times in the past ; ) and it has always been the "sub-optimal" decision. I say it that way because I don't dwell on the past but instead look at my "mistakes" as valuable learning experiences. I'm just saying that if you can learn from somebody else's "learning experience" it's even cheaper than having your own learning experiences!
Anyway, with CGT and commissions and taxes of buying and selling, unless the properties you own are fundamentally poor investments, it's generally not a good financial proposition to sell.
I think why you're finding it so difficult is that you're trying to create so much positive cashflow in such a hurry. The people who live off their property investments – and I'm talking about passive investments, not property-based businesses such as developing and renovating etc – generally have let time do the magic for them. ie as time goes by, your rental return increases but your mortgage interest stays the same, so properties become more cashflow positive over time. This is another good reason not to get discouraged and sell – you don't give time the chance to work its magic!
I agree that you need a good mortgage broker. I'd try Investors Direct, I've found them to be innovative and knowledgable.
Good luck, and congratulations on what you've achieved thus far,
Tracey in Brisbane
I totally agree with Tracey. Don't sell, it would be better to get a line of credit and use that for further investments. Getting a line of credit is not difficult even if income is a problem. There are plenty of lenders out there who will give you one at 70% no doc.
I don't know how you got involved in investing in the USA. Unless you know what you are doing or have someone over there who does, it's crazy getting involved in such investing.
You also need to change your mindset as you appear to be frustrated, annoyed and desperate. It's not the bank's fault that you can't get loans – they have to protect themselves. There are so many property magazines, books and self help books out there that can help you. They are so cheap; tin fact, they will cost you nothing if you drop a few hints regarding presents to friends and family now that it's so close to Christmas!!.
I'm in a small property investors group which has helped me so much to get my thinking right. See if there is one close by as you'll find them invaluable and again, shouldn't cost you anything
HI Everybody,
Thanks for your comments.
If I sell tax is not really a problem from me for 2 out of the 3 Brisbane properties
If i could find a lender who would do 70/30 with no mortgage insurance I could refinance all three properties and get a small line of credit. That would allow me to add another property to my portfolio.
The problem is there is no more cash flow positive and even if there are still some more capital gains to be made I feel rising interest rates will squeeze out all the margins soon anyway. Remember rental yeilds on the typical Brisbane property are around 4% in my mind that just keeps you roughly even with inflation. So all gains are tied up in capital growth. The property must increase in value by at least the lending rate each year for me to break even. If rates get up towards 10% thats a pretty big ask
Buying properties and sitting on them for years until they become cashflow positive seems like a pretty weak stratedgy to me.
In the mean time somebody else has taken the same money and turned it over a few times by a series of developments or renovations ends up with a bigger stack of cash to invest and gain income from.Im just generally pissed of by the way the whole Australian market has gone. The best oportunities here seem to be in developing as opposed to investing.
Despite my bad experiences with the USA I still believe there is lots of oportunity there.
I went through somebody who was supposed to be trused be other australians and still got screwed. Although things could have been alot worse from what ive heard.If I was prepaired to live there for a few of years and I had good access to credit Im sure I could make a fortune.
Unlike here where markets have become very fair and efficent its still possible to be a proffessional invester there and take advantage of other peoples misfortunes (forclosures etc).Because of the cash flow positive there people can hold huge realestate portfolios and just keep adding to them by borrowing.
I wouldnt really enjoy living there though I like Australia better. And to get access to usable credit I would propably have to do something crazy like marry an American.
All fairly extreme actions.What are other people aiming for at the moment when they invest. Do people just have faith that capital growth will continue to exceed the prevailing interest rates ?
Continually buying and selling in Aus (and maybe most countries) is difficult as the costs of buying and selling, as well as the cap gains tax eat up a large chunk of the profits.
Even keeping the property for 12 months to halve the cap gains tax then selling will still savage the profits.
I know it can be done – property trading, but the market timing is critical, the buying costs and selling costs are also critical and in the end you wind up with some cash after you sell.
But then what will you do with the cash? Parking it in a bank even at higher interest rates like ING accounts are no good as you will pay tax on the interest and your capital is being eroded away by inflation. Your nett return is slightly better than crap – if at all. And forget about normal bank deposits; they are not even worth calling an investment.
The money has to be re-invested to keep on increasing your wealth. But a lot of people don't do this; they just spend it. A lot of builders do what you are doing, and get to retirement still broke after trading property all their lives. They have lots of cash go through their hands, but they don't acquire any wealth or assets; often just a bunch of toys that are worthless after a few years.
Serious wealth is made and grown through acquiring income producing assets such as shares, businesses, real estate. All the richest people in the world do this. They don't sell off assets constantly in a trading fashion. They tend to accumulate assets.
So, if you want to keep buying and selling property, think about maybe doing a strategy where you buy, subdivide, sell one and keep the other one. It could even be a multi-townhouse project; say 3, where you keep one and sell two, etc.
This way, you keep an asset, put the funds from the sold one(s) into the one you keep, which will cut down the interest, maybe make it cashflow positive, increase the equity and give you an income producing asset for life.
Then repeat the process a few more times.
From my observation of the US property market I would say that owning single family dwellings would be a nightmare. There just doesn't seem to be any sort of seriously set up system for property management of single dwellings. Most of the people I have met self-manage. The system is heavily geared towards apartment building management with live-in managers.
Markg14422, not easy to get 70% no doc line of credit without mortgage insurance at the moment. What's wrong with paying a bit of mortgage insurance to help you get another deal ? You need to look at the broader picture.
Your whole aim appears to be getting cash flow +ve positive properties. Have you questioned whether this is the right strategy? You want go cash flow positive, it appears, because you hate your job so much. If you do hate your job so much why don't you look at some other options such as retraining, getting same job but in another company. So many options out there.
As I explained above. I would pay the mortgage insurance to get a 20/80 low doc but the mortgage insurance company wont
touch me because they deem all my appartments to be "Serviced Apartments". I think this is really unfair because they all over 50sqm strat title that I can rent out to whoever I want or live in.
But I cant make them change their minds. So I can only get 60/40 low doc.I quit my job a couple of years ago and instead have my own business from home these days. Less money but no boss so I like it better.
Now I might have to go back to work for an employer just so I can get my 20/80 normal doc loan. It stinks.
The ultimate stratedgy would be to hold a $1000,000 worth of property that was cash flow netural or better and had lots of
depreciation deductions.
Then I could declare a high income each year at tax time and just use deprciation to deduct it down to nothing.Id pay almost no tax and still qualify for full doc loans even though I was self employed. And the property wouldn't really be losing any cash just on paper deprication.
I have just signed up for Steve's mega conference next year and by the looks of it, it will have have the strategies you need to get through this block. Checxk it out!
There would surely be other there also who could give you good advice on a one on one basis (as well as the sound advise you get from the experts here)
As someone else has suggested, get yourself a broker who can get past the hurdles some banks mortgage insurers like to put you over . (I use Anthony Mitchell of investorloansnetwork.com.au as they understand propert investor needs)
Heather
"Opportunity is usually found under hard work"MARKG14422 wrote:As I explained above. I would pay the mortgage insurance to get a 20/80 low doc but the mortgage insurance company wont touch me because they deem all my appartments to be "Serviced Apartments". I think this is really unfair because they all over 50sqm strat title that I can rent out to whoever I want or live in.
But I cant make them change their minds. So I can only get 60/40 low doc.
I don't have any problems getting a 70/30 no doc where you don't have to mention anything about "service apartments". Mortgage insurance is fairly low. There are some lenders who may give you even more but as Heather and I have both mentioned you need to get a decent broker. I'm sure you can do a lot better than 60/40
What about just going back to work temporarily. You could work in IT for a few months, get the loan and then quit?
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
Mark,
Can I make a suggestion? If it is purely cashflow positive your after then maybe you should look at http://www.positiverealestate.com.au
These guys deal only in cashflow positive properties that also recieve extremely good yeilds. They also have via there finance arm Source Finance a number of ways to help people with gaining finance etc.Regards
Owen64 wrote:Mark,
Can I make a suggestion? If it is purely cashflow positive your after then maybe you should look at http://www.positiverealestate.com.au
RegardsFinder's Fee: $8,995 + GST OUCH
Finder's Fee: $9,995 + GST OUCHOwen64 wrote:Mark,
Can I make a suggestion? If it is purely cashflow positive your after then maybe you should look at http://www.positiverealestate.com.au
These guys deal only in cashflow positive properties that also recieve extremely good yeilds. They also have via there finance arm Source Finance a number of ways to help people with gaining finance etc.Regards
They also deal with negatively geared properties, but with a negotiated discuount on the buy price (usually 15-20%). Has anybody in this forum actually bought a property through them? They look good, but I can't get my cash flow calculations to agree with theirs in most cases. They seem to be generally a bit optimistic with the cash flow calculations, especially depreciation.
Having said that, the finders fee is included in their cash flow calculations, and if the numbers stack up, then they stack up. You can either spend the time finding places yourself or pay someone who already has.
Daedalus.
Hi Mark
Firstly I would say take a breath and relax as you appear to have done very well and on your way to building a good portfolio. There are many ways to make money in property. All said and done to make a lot of money in property you need a greater exposure to a growing market such as SE QLD earning compound interest over time. If this means paying LMI hand it over. I have bought around 3 mill of property in the past 18 months and paid LMI on the whole lot as I know 3 mill growing exposed to a growing market at 10% will far out weigh any LMI you pay(once and is tax deductible). If paying lmi results in a higher lend and ability to purchase 1 more property then bring it on. Also there are lenders that will look at your scenario and lend against serviced apartments. Some lenders self insure also. Other strategies you can try include.
1/ Building spec homes and pocketing the 40 k the developer makes.
2/ Soft reno on smaller units and flicking on. 2-3 per year can generate 60 k easily.
3/ Student accommodation. Buy near a UNI and rent per room.
4/ Joint venture with a friend or relative. Share the servicing and bounce off each other with ideas.
I could go on and on and on.
Hope that helps
Peter Gwynne
[email protected]
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