I am looking at the bottom end of the market. The ugly duckling houses. I notice that all the good deals get snapped up before they even go online. It leads me to think that anything left advertised for a week or more is not a good deal for some reason. As I have no 'foot in the door' and only have weekends to arrange inspections I am left with only looking at the slower to sell houses.
I notice that these houses are very run down looking. I wonder if they don't sell so quickly as they require more 'elbow grease'/cash to get them up to scratch. I am a painter so I don't mind a bit of hard work but really, what is the limit of how much work I should put into an ugly duckling to prepare for a good rental return?
I am really worried about buying a lemon. I cannot afford a lemon. This is our first investment property. Our first house(the one we live in) was an ugly duckling which was on the market for months. Eventually the price came down and we bought it. It's still quite ugly but is now increased in value $150k in four years. Obviously we hope for a similar outcome. Maybe not as good though as it was a 'boom'.
Am I not really getting a good investment house if I am not on a real estate call list?
How low is too low to go on an offer?
We put in an offer $30k below on a house and the owner was disgusted. How often do you put in offers? Once a week?Yes an offer or two a week is about right for serious investors.
As long as you make sure your contract is subject to building & pest inspection, finance etc you should be fine.
Most finance applications will require a Bank valuation as they certainly wont want to be lending you more than the property is worth in the current climate.Make sure your Broker structures your loan properly and the Bank dont cross collateralise the securities otherwise they may just lend against your current equity and you be unaware that the valuation came in less than the purchase price. (Usually mostlenders allow a 5% variance).
Richard Taylor | Australia's leading private lender
We don't have a broker. The loan has been pre-approved from the bank using the equity from our home.
Could you please explain this to me as I am a total dummy when it comes to this part.
" Bank dont cross collateralise the securities otherwise they may just lend against your current e"quity and you be unaware that the valuation came in less than the purchase price. (Usually mostlenders allow a 5% variance)."
My husband called the bank and arranged all this and I have trouble understanding it all. I would like it all to be set up right before we take the plunge.
I have been trying to learn so much but a lot of it just goes over my head. I get my husband to try and clarify it for me. There is so much to think about I think my head is going to explode.
Cross-collateralisation means that the bank uses both properties as the combined security for you loan. If each loan is 'stand alone' the bank can only take whichever property is secured against the loan which you have defaulted against.
SNM has beaten me to it.
Unlikely it is in your Banks interest to protect you when they can protect themselves.
Richard Taylor | Australia's leading private lender
Take it all in your stride cosmic.
Don't try to rush it.
There will always be lots to learn, and this is a good place to gain some of the knowledge required.
And you will always learn by doing.David
cosmic wrote:How low is too low to go on an offer?
We put in an offer $30k below on a house and the owner was disgusted.pretty standard stuff these days for houses, don't be too put off. I know some vendors can take it to heart. Move on and keep trying until you find the vendor who needs to sell. Just don't be too stuck on the idea of having to have it 30K or whatever under the price. Do the homework, take the time to research a property, see what else is available and compare and remember a good buy doesn't necessarily mean you have to beat the vendor round the head, you may find it is well priced to begin with.
And that is my own philosophy not just my RE agent hat on.
I have just met with my broker to buy my first IP, and he suggested i do cross-colaterise mine because of cost saving/easier and easier for tax reasons, should i change this do u think…
???
I realise Richard knows a hell of a lot more then me, but im just learning, this will be my first IP, im just enquiring why it is a sin to do it, i can understand if you have a few properties, even 2, but unless me and my partnesr loose our jobs(not likely), and cross collateralising is saving dollars and some headache i dont see why not. but as i said, im here to learn.
Cheers,
Why would it save you any $$? Just get a LOC on your existing place (to draw out some equity) and get a separate loan on the IP, nothing too hard about it. Losing a job is one thing, death/injury/illness may be harder to avoid.
Why is your broker giving you tax advice? How would he know? It just makes the deal easier for them to sell to the financier if they can offer 2 properties as security rather than one. Interest is interest but being able to show that it has been borrowed for investment purposes if it is all in one account is much more difficult unless you keep immaculate records.
Shaunous wrote:I have just met with my broker to buy my first IP, and he suggested i do cross-colaterise mine because of cost saving/easier and easier for tax reasons, should i change this do u think…I think you should change your broker – yes.
There are some very limited occassions where x-coll has helped people move ahead. Then down the track they usually try to undo the x-coll. Buying your first IP would not be a situation where x-coll would be useful for any reason.
cosmic wrote:I am looking at the bottom end of the market. The ugly duckling houses.OK. You are competeing with FHBs at this lower priced end of the market. The thing in your favour is that most FHBs being Gen Y want evertyhing in their first home and no work to do.
cosmic wrote:I notice that all the good deals get snapped up before they even go online.Yes, as buyers Agents we regularly do this. Think of it this way: Why would a Real Estate Agency spend time, effort & money advertising a property, putting up signs and window displays and holding “Open For Inspections”, when they could make one or two simple phone calls to their “contacts” (Buyers Agents and investors) to gain a quick sale on a good property?
cosmic wrote:It leads me to think that anything left advertised for a week or more is not a good deal for some reason.That can indeed be the case. Or it may be that it is "ugly" and does not have wide market appeal. If you, with your knowledge of how to change it, can make it attractive, then this could represent good buying for you.
cosmic wrote:what is the limit of how much work I should put into an ugly duckling to prepare for a good rental return?For every $1 spent on your reno you need a min of $1.50 back in end valuation but more normally $2 – $3 back in end val. This should also translate into better rental return and quality of tenant you attract. Remember to include the price of your own time into the reno costs for the calcs.
cosmic wrote:I am really worried about buying a lemon. I cannot afford a lemon. This is our first investment property.So either hire a professional – like a BA – who do this all day everyday for a living OR get more practice yourself OR enlist the help of a trusted experienced friend BUT certainly when you do find something that you think fits the bill – get a pest & building report done.
cosmic wrote:Am I not really getting a good investment house if I am not on a real estate call list?Yes, probably and No, not necessarily. Look ,the FHB market price range is still hot. Most REAs are lazy – they do not bother calling people back at the moment anyway. We work with them all the time and 50% of them don't call us back – we have to chase them. The good ones call back and those that know they get repeat business from you will tend to call you back. But most will only keep you in mind if you keep putting yourself in front of them.
cosmic wrote:We put in an offer $30k below on a house and the owner was disgusted.Who cares? Owners have an emotional attachment to their home – yes they will get offended. If you care too much they will walk all over you. You need some emotional detachment.
cosmic wrote:How often do you put in offers? Once a week?For us in our business and even when buying for ourselves, we will do a search and get maybe 120 properties that are possibilities. Then we do more reseach on each one – on our desktop PC and this gets us maybe 2 to 3 dozen properties. Then we go inspect each one of these and make a short-list of sometimes only 1 property – at most 2 – 3 properties. Sometimes zero properties!
So depending on our inspections we might only make one offer on one property. We might negotiate a bit backwards and forwards on this one property but we will never offer more than we have worked out what the market worth is. If this results in a purchase – fine. If not we move to property #2 and so on.We are not really into putting multiple low ball offers out into the marketplace. We can't afford the reputation that gets us. It is a strategy that can work though. You might be able to make it work for you if you are comfortable with it.
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