Hello everyone, I have just finished reading "from 0 to 130 properties in 3.5 years" and I am very excited to start following these steps to securing positive cash flow investment properties. However, I am not sure if I am in any position to do so and need advice on where to go from here.
First of all i have $110,000 in my bank at the moment, i inhereited $100,000 and saved $10,000 of it. Here's the downside, I am a single mum on a pension and a full time student (so i have not time to work). This is where i think i am stuck. I do not have any debts and I am very good with my money (hence my saving) and live currently at my mothers house and do not pay any rent. My mother would help me out in any way she can to help me. What do i need to do to start securing my financial freedom?!!
Any help would be great. I am all very new to this
Hi Anna
Firstly welcome to the forum and I hope you enjoy your time with us.
Certainly the amount of deposit will aid your cause but the biggest hurdle i can see is showing sufficient serviceability to borrow anything as the new Credit Act which came into play Jan 1 places greater emphasis on your ability to repay the loan.
Of course you will be able to factor in a percentage of the rent received but there are also othr expenditure considerations.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thankyou so much for your reply! I thought that would be the case. Just another question, I have found a studio apartment in sydney for $145,000 with rent of $298 p/w if i could come up with the the money to buy this for example, could owning property help me at all when it comes to borrowing money?
Thanks <br /
=)” title=”>=)” class=”bbcode_smiley” />annacm_88 wrote:Thankyou so much for your reply! I thought that would be the case. Just another question, I have found a studio apartment in sydney for $145,000 with rent of $298 p/w if i could come up with the the money to buy this for example, could owning property help me at all when it comes to borrowing money?
Thanks <br /
=)” title=”>=)” class=”bbcode_smiley” />I don't understand the question about owning a property helping with borrowing money?
The above sounds like serviced apartment to me. Be careful.
Also check out the effects of rent on your pension. They seem to take the rent as your income but don't decuct loan costs and outgoings.
annacm_88 wrote:Thankyou so much for your reply! I thought that would be the case. Just another question, I have found a studio apartment in sydney for $145,000 with rent of $298 p/w if i could come up with the the money to buy this for example, could owning property help me at all when it comes to borrowing money?
Thanks <br /
=)” title=”>=)” class=”bbcode_smiley” />Answer is yes, but to a point. First the correct answer to your wanting to purchase a studio apartment. These apartments are usually student-only apartments with dedicated management groups doing the servicing and letting arrangements. They are compact start from 22m2 to a max of about 55m2 depending on quality. They are fully furnished .. high quality finishes and .. really lousy investments.
Why lousy investments? First .. you have a dedicated (fixed use) property being run by management services that hold the management rights to your property. It breaks all the rules about running your own investment. You want the ability to let the property out to any tenant you want to .. and you want to be in control of your investment. Finally .. since most of them fall under the 49m2 .. the banks wont deal with them nicely. In fact .. as of very recently .. most banks wont deal with them at all. Just imagine what that means to the next person you want to sell to. These are the duds of the future.
Did i mention that they are also fashion icons? Since the developers do so well with selling them .. they keep upping the ante with quality and features. Better Tiles … and better fittings, greater appliances. So the older ones end up looking like last years fashion.
I will mention the other thing with letting to students. Students are traditionally 1 or 2 year itinerants. They are usually fresh out from living at home .. which means they sometimes (not always) dont know how to look after respect or treat a house or unit. So you are leaving yourself with unstable income sources, additional letting fees and extra damages/repairs requirements. THIS IS WHY YOU AIM FOR GOOD LONG TERM TENANCIES. And students just dont provide that.
Dont let the fact that you are on a pension stop you from buying right. If you are having trouble with the first stepping stone .. try some of the more classic measures for working around the banks. Some dont exist thanks to the GFC .. but most do. I'm sure that you could run a vendor finance deal somewhere that works for you. Or .. being creative .. advertise in the money column of the newspaper. Some of steve's early ventures in the book you read should have given you ideas on how to work a deal.
The answer is yes .. to the idea that having actual income and substantial equity from a property will help you borrow more. But at the end of the day, the banks will ADD that to your existing income. And the banks are really looking for the existing income to generate a record of serviceability.
Stay away from investing in serviced apartments. Do a search on this site…. there is plenty of info to read on why it is a bad idea. In a nutshell, they just don't have the all-essential capital growth (in fact just by watching http://www.realestate.com.au, I've observed a particular serviced apartment building's dwellings actually go down in value!)
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
xdrew- some valid points IF it is a serviced apartment.
Not ALL studios are a bad investment. Yes they are small and finance is harder to get but ones near the city are in hot demand and if you choose a good one (not in giant complexes with pools) you can make some nice CG.
It would not be my choice as a first investment though. To restrictive with the banks.
Catalyst .. the only student units that i've seen move in a substantial fashion was the ones in North Carlton where they removed the students only clause from the living requirements. When that happened the properties shot up from 125k – 135k to around the 200k mark.
Its a sector that I not only have been watching but I was actually selling at one stage. And from my ongoing observations, none of the student accommodation places with restrictions has moved upwards in CG over the period of 5 years i've been watching it. And as you might be aware .. there has been lots of growth going around.
Dont get me wrong, for the right investor there is no doubt that a good cash return property that you havent any need to sell may prove a boon. But if the banks wont let you borrow on it .. they probably also wont lend against it. It falls short in all sorts of ways from being an ideal investment base. That remains my problem with them.
Not all serviced apartments or student accommodation are bad so I wouldnt let that put you off. Just make sure you do your due diligence regarding body corp, managment fees, advertising costs, laundry etc. You might find theres not much of your $298 a week left.
Also, if student accommodation, find out what happens during the 2-3 month holiday period over Christmas/New Year. You may find you are without an income over this time so, as good as the $298 pw sounds, it may only be for 40 or 44 weeks of the year, not 52, in which case, its not that great.
It might be worth even looking into a 'Rent to Buy' type situation which might help you get over the lending hurdle. Knowing this is an investment for you, you could possibly pay the difference between rent from tenants, and repayments, also meaning you may not have to get rid of your $100,000 in one lump sum as deposit. There are some dodgy operators out there but others who are honest and it can be a win win for all concerned. Just be careful, do your homework and dont be afraid to pay for good legal advice from someone who understands these types of deals.
Good Luck…..
xdrew wrote:Catalyst .. But if the banks wont let you borrow on it .. they probably also wont lend against it. It falls short in all sorts of ways from being an ideal investment base. That remains my problem with them.Very good point by Catalyst. If you can not use the property to leverage into more property, then it would very likely be a poor investment. Any capital gain you do get might be trapped in the investment and you would not be able to get a LOC established against it to fund another purchase.
Cheers,
LukeSorry- good point by xdrew I meant!!!!
Certainly agree capital growth is key. But with little or no ability to repay a loan then we need to be cash flow positive from day one – or at least close to neutral so that all can see that servicing the loan is straight forward – (OR no loan at all !!).
Meaning we need to buy a house with reasonable capital growth prospects AND be low priced. Two places spring to mind.
1) Tasmania (CG ??)
2) USAOf course the second option is a lot more involved (especially in regards to property management). Also, issue of being able to use any capital growth to re-invest (unless in USA again).
10% growth on 40k is still 10% growth.
Good Luck with it all
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