Hello,
My name is Steven. I am in my early 20s and just finishing off a uni degree, I also work in Accounting in Sydney.
I am interested in different investing strategies and thought I would seek the opinion of more seasoned property investors.
I read Steve's book '0 to 130 Properties in 3.5 Years when I was 18 and it certainly captured my imagination. I have always wanted to have a go at purchasing some property, but my studies and lack of funds have prevented me from pursuing this.
Because I lack sufficient capital to have a go at investing in properties that will achieve capital growth. I am interested in investing in properties that are positively geared instead.
I have had my eye on a single bedroom apartment in the inner west, it has been advertised at around the $200k mark for a few months. I think I would be able to get the price down to $190k at least. The property is near Sydney Uni and rental prospects are in the $380-$420 p/week range. I can't buy the property out-right so I will need to obtain finance for 90%. The property is tiny, at about 35 sqm , but the area is very popular for international and interstate students.
I prepared an annual estimate of earnings and expenses, these are as follows.
Rental Income 19,760
Strata 1,761
Council Rates 817
Interest 16,320
Water 606Net Income 255
I know its a tiny margin, but if it has little impact on my current cashflow, whats the problem. Rent prices are only ever going up in Sydney at the current rate.
I would appreciate your comments with regard to the above. I am particularly interested to know if a bank would even lend me money for a property that is so small. Or am I going to have to ask my family for it instead.
Regards,
Steven.How did you come up with that interest figure? Is that your conservative "what if?" number? It seems to be over 9% p/a.
Hi Steven,
Welcome
Is this property just student accommodation – or can anyone live there? 35 sqm sounds small for many lenders to lend on much less at 90%. Why has it been on the market for several months? What happens if you need to sell it? How long will it take to sell.
Have a quick search on here for student accommodation and you will quickly come up with the pros-cons of investing it that type of property.
There are many questions you need to ask and those are just a few
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email Mebjsaust wrote:How did you come up with that interest figure? Is that your conservative "what if?" number? It seems to be over 9% p/a.Sorry, it should have read 'repayments', its the interest & principle on approx $190,000 over 30 years at 7.8% interest.
The real estate agent told me that the place was originally set up as student accomodation, but apparently it is now strata titled and anyone can live there. Its being advertised as being perfect for a first home buyer. I dont think I would stuff my my first home buyers grant and stamp duty reduction on this place though.
Is there anyone out there that has had a go of trying to make a property in this range work as a positively geared property?
There are a number of these units available for sale. The one I have selected is probably one of the better priced ones. I have noticed that one guy was trying to sell his for $250,000. I am curious as to why noone would jump on something like this if the posibility of a positively geared investment was present. Is there something that I should be looking out for?
Regards,
Steven.The guy who is trying to sell for $250k… has he actually sold it?
It is essentially worth $0 till you find a buyer…
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Oversupply? Limited capacity for growth in both rent and resale price?
I think you have answered some of your own questions…… "There are a number of these units for sale" …….. says something. If you wouldn't buy it as a first home buyer then the resale market is smaller, only investors.
You still have to think of your exit at the same time as your buy in.
JacM – point.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeHi steve,
I think i know which property your taking about is it the Uni lodge?? Our firm is the main brokering company for that apartment and if your trying to buy that at a 90% LVR then it would be impossible without a bit of equity from your own IP1? or your parents place etc..
Either way any apartment under 40 squ meters would need to be under 80% LVR, the smaller it is the less the LVR needs to be.
About student accommodation:
1. You cant live there ( uni lodge one is fine, as it’s not bound by the management)
2. Strata are higher – because there are more things for strata to maintain…ie shares toilets and kitchen
3. Its hard to sell later on and close to no capital growthTo be honest, there are much better buy out there, that allows good rental yield + better financial leverage at 95% LVR + potential growth.
I would only suggest a student accommodation to a investor who has a few another property under their belt and is looking for a +ve one without “replying” on it too much.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Last point, the uni lodge is strata titled – but it’s still zoned as board accommodation 2 ( which is the same as student accommodation) However anybody can live there as the agent mentioned.
If the place your looking at is not the uni lodge, feel free to post the address/building name so we can give you a better answer
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Hello
Are you entitled to any depreciation deduction/allowance on this property or is it too old?
Regards
Demkel
Montefanno wrote:bjsaust wrote:How did you come up with that interest figure? Is that your conservative "what if?" number? It seems to be over 9% p/a.Sorry, it should have read 'repayments', its the interest & principle on approx $190,000 over 30 years at 7.8% interest.
Why pay PI on an investment loan? If you are an accountant think about the tax implications.
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
Hi Steven,
My advice for a beginner property investor is to avoid this kind of property. A few years ago I fell into the trap of buying something similar (I had 20% deposit and loaned 80%) because the numbers were great as far as cashflow was concerned. Not long after I bought the property the bank changed its lending requirements and would only loan 50% on this kind of property – due to its size, not its purpose. The bank said that for any property under 50 sq.m. they would only loan 50%, or allow the owner to use 50% as equity.
What this meant is that I could no longer access a considerable amount of equity. This dramatically reduced my ability to grow my portfolio as quickly as I would have liked to. While the bank might currently loan enough for you to purchase this property (are you sure they'll loan 90%?) they can change their rules and this could impact you the same way.
I would suggest that you look at more conventional kinds of property that you can be more certain will help you grow your portfolio. It's also less likely that lending rules will change for these more traditional properties.
I hope this helps you. Good luck with your investing!
Cheers,Why not do what Steve done and try in a rural area? There are decent properties around the $150 to $200k even lower, how ever the capital gains are lower but if your looking for +ve property worth a try.
I dont' think Steve bought in a rural area. But residential areas in large regional towns.
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
Thanks for the comments every one.
I have given some more thought to this idea and I think I still would like to pursue it. I really think there is still some merit in this kind of property. I think where I am going to come unstuck is in relation to the borrowings area. Discussing this issue with some other property investors I am going to have trouble getting the funds from a bank if I need to borrow 90%. I mentioned earlier I could have a go at getting the funds from my family, but its a lot different borrowing from a bank than the family, at least there is no emotional attachment when the funds come from the bank. Just purely business. I dont know how my chances of getting the funds from the family would go either, I've got a bit of borrowings for some share market purchasing I've been doing lately.
I've tried to get back to your questions as best I could. Please find following:
Terryw wrote:Montefanno wrote:Sorry, it should have read 'repayments', its the interest & principle on approx $190,000 over 30 years at 7.8% interest.Why pay PI on an investment loan? If you are an accountant think about the tax implications.
I like the prospect of getting to my 50s and knowing that I won't owe any money on this property then. If I can manage to keep my cashflow positive, while still servicing principle repayments, I don't see why I wouldn't do this.
demkel wrote:HelloAre you entitled to any depreciation deduction/allowance on this property or is it too old?
Regards
Demkel
I imagine there would be an element of decline in value that I would be able to claim as a tax deduction, at this stage I am more interested in cashflow though and have ignored that for my purposes.
wade anthony wrote:Why not do what Steve done and try in a rural area? There are decent properties around the $150 to $200k even lower, how ever the capital gains are lower but if your looking for +ve property worth a try.I wish I had a business partner that would work during the week while I toured various country suburban centres. At this stage the only touring I can do is online, so my search is only really limited by places I can access on weekends and inspect myself. I use Steve's formula for positive gearing when I look at purchase price and rental return : divide purchase price by 1000, times by 2 and that is what your rental should be. This property fell within that ratio.
EPI_Den wrote:Hi Steven,My advice for a beginner property investor is to avoid this kind of property. A few years ago I fell into the trap of buying something similar (I had 20% deposit and loaned 80%) because the numbers were great as far as cashflow was concerned. Not long after I bought the property the bank changed its lending requirements and would only loan 50% on this kind of property – due to its size, not its purpose. The bank said that for any property under 50 sq.m. they would only loan 50%, or allow the owner to use 50% as equity.
What this meant is that I could no longer access a considerable amount of equity. This dramatically reduced my ability to grow my portfolio as quickly as I would have liked to. While the bank might currently loan enough for you to purchase this property (are you sure they'll loan 90%?) they can change their rules and this could impact you the same way.
I would suggest that you look at more conventional kinds of property that you can be more certain will help you grow your portfolio. It's also less likely that lending rules will change for these more traditional properties.
I hope this helps you. Good luck with your investing!
Cheers,I would like to have a go at buying some more "conventional" properties, but at the moment a lot of my cashflow is tied into share investing. That's why I like the idea of outlaying a little bit of cash, then setting up a mechanism so the rental income will cover the other expenses. It doesnt really work the same way with shares, I have to wait 6 months before I get my return on investment, if I get a dividend at all.
Sorry Its such a big post. I've been absent from my computer for a few days. Thanks for all the help everyone.
Regards,
Steven.
You neglected to add management fees. Some of these managed blocks charge a huge amount. Check whether you can lease it independently.
Banks will usually lend 60-80% on that size. Depending on the bank.
Also what's the CG indications? What's been the growth in the past? I know it sounds attractive but you need to look at ALL the information.
You still have a lot to learn. You're ignoring depreciation BECAUSE you're focused on cash flow? THAT can GIVE you cash flow.
Also paying down the loan will decrease you tax offsets. Put the money elsewhere or at least in an offset account so you can take it out if you need to.
Ask yourself why there are so many for sale if it costs nothing for owners to hold them AND why we aren't rushing to buy them.
In term of borrowing; target for an 75% LVR, the lower the better…but no higher then 75.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
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