Hi Steven,
Old properties would require a lot of reno work, but new properties generally speaking are sold at premium price, so I kind of feel like I am stuck in a go-no situation.
Let’s look at that sentence of yours :-
“Old properties would require a lot of reno work….” Often true
“new properties generally speaking are sold at premium price…” Also often true.
“I kind of feel like I am stuck in a go-no situation….” You are only stuck if you choose to be !!Don’t you think, somewhere between “Old” and “New” might be an age of house that is still in good shape, and yet can be bought for a good price? Guess where I was buying? About 15 – 25 years old properties, but hey, I didn’t have to see a date and count it “In or Out” – some 30 year-old properties can be in as good a shape as some 15 year-old ones.
I bought from deceased estates, from divorcees, from folks who had “already bought another place and now wanted to move on”. Then there were those who were leaving town and their place hasn’t sold yet – guess what? They wanted a quick sale !!
Steven, have a re-read of some of those other posts. Then take off that “Too hard” hat you are wearing, and put on the “Can do” hat, then go get a paper, sit down with a coffee and a pen, and look for bargains. Let me know what you saw !!
;)
Benny
Hi Benny
I have a few specific questions regarding to your suggestions.
1. Which paper do you normally read to get those sales ads? I admit this may sound like a very silly questions, but ever since I started using Internet to read news, I just haven’t touched an actual paper for years already. I recall some 10-20 years ago, my home letter boxes would be stuffed with all sorts of papers, but it just doesn’t happen now days either.
2. What would be the scope of the paper you are referring to? If we are talking about local papers that only displays properties in my local area, then that’s not very useful for me, because the area I live in happens to be a quite expensive area. While capital growth is quite good in my area and nearby area, but the rental return simply just doesn’t catch up. For example, 4 bedroom house with 600 sqm land are sold for well over 1 million, but rental income is barely over 500 per week and in some cases, not even 500, and that is definitely negatively geared. So even if I do somehow miraculously find a property that is sold below market value, I am still looking at feeding the bank black hole with my own money rather than making an income.
3. Now, onto “read paper and find for sale ads” part. My primary concern is that I am not really a fan of “competing against public”, because that would mean too much competition.
What I mean is that for example, imagine you are applying for a job, you can go to SEEK. The problem with that approach is that you can go to SEEK, so can I, and so can anybody who is applying for a job. So more often than not, those jobs on SEEK attract so many applicants that chances are you CV ends up in HR’s rubbish bin without being read properly. But if the job application is fulfilled by internal referrals, then the candidate faces far less competition and is in a much better position to negotiate salary than if the company has 10+ candidates to cherry pick from.
While the situation with Realestate is different applying for a job, but the concept more or less still applies. If you can find a good deal in “for sale ads” section of a paper, then so can anybody who reads that same section. Likewise, if you see a good deal on domain.com or realestate.com.au, then so can everybody who visits those websites. When everybody fights for this good deal, then this good deal quickly turns into a bad deal due to everybody is attracted by that deal.
So to me, looking at information and deals that are easily accessible to general public is a big no no. I want to learn how to fish out those “hidden deals”, which brings me to my next point.
4. I cannot fish out those hidden deals on my own, because from my understanding, property investment is not a individual game, but rather a team game. I can’t go very far if I go solo, I need to become part of a greater team, and I need to be able to work together with those has “existing credentials and connections and relationships” with hidden deal market.
Hi Steven,
Good morning! Yes, you make some good points above. And already I am detecting that you are beginning to appreciate that property investing is a way more complex undertaking than you might have thought. You have put some good thought into your comments, and I applaud that – shows you are thinking about it all. Conversely, I don’t believe I have any answers for the questions you put either.See, I am no longer looking for deals on a daily basis. But if I did, and I flicked a deal your way, would it be the case of “letting you have one that John West rejects?” How good or how bad would that deal likely be? How would you know?
4. I cannot fish out those hidden deals on my own, because from my understanding, property investment is not a individual game, but rather a team game. I can’t go very far if I go solo, I need to become part of a greater team, and I need to be able to work together with those has “existing credentials and connections and relationships” with hidden deal market.
Hmm, Henry Ford once said this – “If you think you can, or you think you can’t, you are right!”
But fair enough – if you think you need a team, then building one is what you should do. Maybe you can look for a Buyers Agent who can source properties that fit with your desired rental property requirements.
But first, for that to happen you need to quantify what that picture looks like.
e.g. From what I am reading, you don’t want a new house nor yet an old house. You don’t want negative geared (a la Melbourne) but what about Vic Regional? Can that work? That way it is “closer to home” – does that then make a regional reno a possibility for you? Or are reno’s just “not your thing?”
You want Growth – but often Income (positive geared) and Growth are at odds – so which would you prefer over the other? How are you for taking risks? Hell-yeah, conservative, or somewhere in between?
Would you “feel OK” about buying from someone who has to sell right away because of their life situation, and they will be losing money by doing so – can you live with yourself if you were the buyer offering a low price?
Will you be concentrating your purchases in one area or spread around? Why? Have you thought this all through? Do you yet know what the end-game looks like before you purchase your first?
Are you beginning to realise that this property investing lark is perhaps a lot more complex than you imagined? Or do you think that Benny is just being obstructionistic? I hope not the latter, as, beneath my all of questions to you, there is a light shining – it may be just a glimmer right now, but it is hidden under those questions.
In your most recent post (just before this one) I got the impression you were starting to “get it” – there’s a way to go yet, but you’re on your way. Unfortunately, this is the hard long un-exciting lead-up to your first purchase. In my case, I allowed almost a year to “bone up” so that I bought my first property already knowing where I wanted to invest, at what price-point, and what kind of investment, and with its future already mapped out. And I had spent that time reading, meeting investors, going to open inspections, meeting RE agents, getting to know “the game” before I got into it.
That is what I wish for you too Steven – that you slow down and think through where you want to go, why you want to go that way, and how it fits with your overall plan for your future and your goals. The more you read and talk with others who are doing what you want to do, the more ready you will be when you finally get to buy your first property. If you do that, there is a WAY better chance that your first purchase will kick a goal.
I have heard it said many times – the euphoria and excitement of purchasing an IP is a tiny percentage of any successful investor’s time. Don’t get hung up on “how long it takes to get going” or you run the risk of falling at the first hurdle. Make haste slowly, and good luck
Benny
Hello Benny
The thing is, if you me a question that goes “what is your strategy to reach your goal”. Rather than getting an answer, you are more likely to get a question from me: “what strategy works best according to my situation, because that’s what I don’t have a very good idea with”.
The one thing that is clear in my head is that I want to have the ability to lose my job and still be able to live on comfortable terms, and I give myself 10 years to reach that goal.
This will probably make myself sounding like I am facing a mid-life crisis, but here is the situation.
My current job income is 100K by myself and if add in my wife, that’s 180K for my family (before tax that is). While the income may appear to be good income to many people but there are lots of problems with that. Both of us feel pretty burnt out by your jobs and we are not even 40 years old yet. Add the fact that by the time we retire, the retirement age would be 70 year old at minimum, so what happens if I lose my job at age of 60 and I can no longer compete with young graduates in the job market? Will I become happy being unemployed? Not unless I have enough income to sustain myself. And the average pension for retired Australians is just a bit over 20k for single and a bit over 30k for couples, there is no way I want to live my retired life on that level of income.
So that’s the end goal I have in my mind.
Now question is which strategy is the best for me to reach that goal? I currently don’t have an answer because I am still fairly new to this and thus do not have the experience to determine the best.
To make the matter worse, I have been to different seminars, webinars, talked to different investors, etc… and the amount of information I am getting is making me more confused rather than making a clear picture for me.
For example, investor A (who has already achieve financial freedom) says: Don’t always buy negatively geared properties, because while they may have good capital growth, but they are sucking money from you every month. You are already burned out now and you have to fork out more money to fill the black hole that the bank created, you will only become more frustrated. While investor B (who also achieved financial freedom) says “even if you get positive cash flow, how could you expand your portfolio if your property has no capital growth? Don’t listen to those positive cash flow advises!”. So you see, both investors suggestions are valid as both of them are financially free already, but their advises directly contradict each other. As for me? I just end up getting lost in this whole thing…
Add to that, property market isn’t something I can “sit back and wait” either. Opportunities come and go, and there will only be that much time and that many opportunities that will present themselves before the market heats up and price becomes unbearable.
Hi Steven,
Now if your question is which strategy is the best for me to reach that goal? I currently don’t have an answer because I am still fairly new to this and thus do not have the experience to determine the best.
And right there, is where I put a whole raft of quetions to you – I was endeavouring to guide you to arrive at your goal. If you spend some time having a go at answering those questions (but not the “what is your strategy” one) then the strategy will reveal itself bit by bit.
Until this post, I had no idea at all of your financial capacity – now I know a little more, that can begin to define “What is your best move?” But really, a Mortgage Broker can do a whole lot more. Right off though, you don’t seem too restricted, so you can maybe move quite quickly – but we need to know “In which direction?” ;)
I caught a reply from Jaxon in another post (on Morayfield?) – he makes a great offer to you after outlining what he is doing. How does his way sound to you? Is it something that can work for you? It sounds to me like he spends quite a bit of time at lining up the ducks – but then, I haven’t spoken to him. Would you have that time? Are you planning on taking Jaxon up on his offer? You could learn heaps about “his way” to see if it holds any possibilities for you.
To make the matter worse, I have been to different seminars, webinars, talked to different investors, etc… and the amount of information I am getting is making me more confused rather than making a clear picture for me.
Steven, it is little wonder you are confused, as both of the scenarios you followed that with are CORRECT, and yet they say the opposite of each other. Here’s the deal:-
Growth is the way that builds wealth more quickly – but of course, you need to buy into something where that growth will happen (supply vs demand) or where you can CREATE growth by spending a bit more. BUT many such properties are negative geared, thus they detract from your current lifestyle as you grow your wealth, AND you run the risk of limiting your borrowing ability if they are all negative geared. So, you need to perhaps “do some other deals to counter the bad side of negative gearing”. That can be by positive gearing some other properties to offset the negative ones.
Often, positive geared properties are providing Income, but not much Growth – and if you aren’t getting Growth, then you aren’t growing Wealth. But look at what Jaxon is doing, or Westnblue in that “big picture” link I sent you. THEIR positive geared properties all GAINED Equity (i.e. grew wealth) because they were bought at a price point that helped that to happen, AND they reno’ed the properties too.
Now, re-read those two financially free investors, knowing that they are both right – so what can work is to “do a bit of each”. Me, I like the sound of the first investor as he seems less dogmatic, and more “rounded”. He said “Don’t always buy negatively geared…” – he inferred it might be OK to buy Positive geared, didn’t he? The second one said “even if you get positive cash flow, how could you expand your portfolio if your property has no capital growth? Don’t listen to those positive cash flow advises!”.
I think that second one is a bit short-sighted – he is also right though as you DO need Capital Growth to build wealth. Perhaps he was blessed with a HUGE income that had huge amounts of spare cash to throw at Growth properties, so he didn’t need to offset them with any cash-making ventures – or maybe he also had a business that was heavily with cashflow, and he used the negative-geared IP’s to help reduce his taxes while growing his wealth.
So, they are both right, yet both wrong too. Work out what makes sense to you. See, if you were on the average wage, and only one wage, your choices would be far fewer. With more choice, you can tend to become more confused – seminars can be very useful, but the idea is to “take from them what makes sense to you”. If they don’t fit with you, go to another one, or find a different way that IS “you” !!
Your earlier comment about newspapers no longer being the place to find deals is probably quite correct. I can’t help further, as I am not looking for deals right now, and haven’t been for some time. Again, Jaxon may be able to help, as his words indicated he is finding deals – ask him where and how.
Keep on swinging, Steven – we are getting there !!
;)
Benny
PS Have you read RDPD? (Rich Dad, Poor Dad – by Robert Kiyosaki)
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This reply was modified 7 years, 5 months ago by
Benny.
Hello Benny
Regarding to Moreyfield, that property has already been sold. I do get somewhat an itching feeling that I probably could have bought it.
Basically that property is one of those off-the-plan projects, where a dual-occupancy 4 bedroom houses is built on a land roughly around some 450 sqm. The cost of the property (the completed end product) is 480K. The Agent that I spoke to actually had a 1 hour meeting with me about 1 week ago, with a broker who did a quite detailed analysis for me, and it goes something like that:
1. Moreyfield has quite a large population of over 20K, with average age of 32, so mostly young couples or young families
2. It is between Brisbane and Gold Coast (roughly 1 hour from each), but it is near railway line so transportation in and out of capital cities are easy.
3. The area is also well established with shopping centers and facilities.
4. The off-the-plan project will be contracted in 2 phases. a) phase 1 is to settle the land only and costs close to 200k but not quite reached 200K yet, and I will pay stamp duty on that only. b) once the land is settled, then construction will begin and the construction loan will be written off in 5 years.
5. Broker believes he can pull 140k equity out of my Principle Home, and because that is my Principle Home, so the interest rate would be 3.9% (this is the interest rate ANZ charges me on my Principle Home Loan), while the remaining loan will be 4.4% (he said it may not be 4.4% exactly, but he will aim for that figure), but for sake of being conservative, he is using 4.4% to calculate all 480K rather than 140K * 3.9% interest rate + 340K * 4.4% interest rate.
6. The total rental income would be between 520-560 per week, but he is using 520 to perform the calculation.
7. Add in legal fee, water fee, council rates and insurance, then factor in loan repayments, depreciation values, inflation, etc…. he calculated a figure of roughly around 4K positive cash flow per year after doing a tax return. It may not be much, but it sounds OK.
8. The projected capital growth is 5%, and the agent admits it is not very high compare to properties with capital growth of say 10% or more. Also, agent did mention that 5% is a projected value generated by Big Data, so the actual value when taking into human factors can fluctuate too, but Big Data can give us some basic indications so Agent trusts that Big Data.
9. The vacancy rate in Moreyfield is very low, they showed me a SQM vacancy rate for that are, which says 1.3%. Agent said they stay away from areas where vacancy rate is more than 3%, but since vacancy rate here is very low, they believe if I purchase that, I should have no trouble having tenants for that property.So all in all, I had some interest in that property, just that off-the-plan part made me hesitate for a bit. Then yesterday, I took another look at that property thinking maybe it wasn’t a bad deal and put an expression of Interest, but it was already sold.
As per Jaxon’s advise, he thinks it is not a “wonderful buy” but still a “fine buy” on the assumption that the information I obtained from the agent can be trusted. Although if I can find some “wonderful buy” like he did, then that’s even better.
P.S. Yes, I have read Rich Dad and Poor Dad, it is very enlightening for me. My wife at the other hand, thinks I am being possessed by some demoniac senseless ideas that won’t work out, and she’s very skeptical of me attending all those seminars, etc… (she works in marketing department of a very well reputed company so she thinks based on her marketing knowledge and experience, the information I gathered from seminars are “evil”).
Re Morayfield OTP – here is a example why I wouldn’t be touching any OTP sales in a pink fit. It took me less than 5 minutes to find a 4/2/2 house, newish, with photos showing a really nice interior. It also happens to be on a 700m2 block, not 450m2 – and it is land that increases in value, while houses deteriorate (i.e. better Growth).
The OTP would be $480k – this one is asking $385k (neg) – take a look:-
http://www.realestate.com.au/property-house-qld-morayfield-125821030Returns for Morayfield 4bdr homes are 5.3%. But OK, that is the rental based on the Median value in Morayfield which is $350k. Some better homes can get a higher rental, for sure. But if a house is twice the price, rent received is often NOT twice the rental of the cheaper place. So, the more expensive a house is, the more negative geared it is.
So, you were comparing a $480k house yet to be built with a (said) rent of $520. Or, you could have one right now for $100k less, on a block more than 50% bigger, and a rent better than the median rent of $360/week (‘cos the house looks like it would be better than median). Call an RE agent to see what 4Bdr homes in that area of Morayfield will fetch. I doubt it will be $520 – but it could be $450 or so – I don’t know for sure, as I don’t know Caboolture/Morayfield. It looks “nearly new” so I would think you should get a rental income near to what the OTP one would have got. I also think though that $520 is likely to be too high in reality. Again, a chat with an RE agent from that area would answer that for you. Whatever, if it looks as good as a new house, then the rent should be pretty close to a new one too. That means a way better return than 5.3% as you are paying far less for it. 6.1% at asking price, based on a $450/wk rent, but you wouldn’t pay that – they are saying “Negotiable” – yay !!
Yeah, it is up for sale on the Internet, so there may be competition, but homes are not like milk – we don’t all buy a new one every day – far from it. Again, a RE agent can tell you how many homes they sell per week – it ain’t that many…..
Now, please don’t get me wrong – I really just wanted to point out what you might be missing out on by not wanting to buy second-hand. There is a LOT more to do before racing out to buy THAT one, so please don’t do that.
Don’t the numbers look a whole lot better when the price is $100k+ lower?
Benny
Hi Benny
That 4 Bedroom house is not a single dwelling with 520 per week, but it is dual occupancy and rental is divided like that:
Dwelling 1: 3b 2b 1lockup garage, 300-320 per week
Dwelling 2: 1b 1b 1lockup garage, 200-240 per weekSo the sum together makes it 520-560
The rental appraisal is done by MPM Properties. That company appears to specialize in properties in Gold Coast and Ipswitch region.
Also to respond to you, I am all good with buying second-hand, it is just that my personal experience while looking in my own area has yet to result in a property that is second hand and yet “in distress.”
I have been to quite a large number of inspections and so far the second hand properties that I have come across are:
1. Second hand properties that are close to new because the owner did a renovation before selling at above market price
2. Second hand properties that are so old that it is impossible to live without doing a complete make over. While this is a good opportunity for investors who want to “buy and flip sell”, but from my point of view, it is a terrible choice for me as renovation price is very expensive in Melbourne (my old home, which was only a 2 bedroom unit, renovated for over 70k in Melbourne, and a standard 4 bedroom house in Melbourne can easily cost double amount of money to renovate), so even if we can fork out the money to buy this sort of second hand house, we won’t be able to afford the renovation, and without renovation, the house is in a near unlivable state and would scare away tenants.
I haven’t tried to look for a second hand property interstate though, as I am not sure how I can manage renovation remotely.
While you are here, I have a question that may strike you as a silly question.
Are renovations for investment properties tax deductible?
To add to my previous post, let’s use an example
Suppose say I purchased an investment house and I am able to rent it out for a good 3-5 years.
However, after that 3-5 years, the property is getting very old and becomes less attractive to tenants, so I spend 50K to do a complete make over of that property, but I do not want to sell it… instead I want to keep renting it.
So can that 50K make over be considered as my “cost” when I do my tax return?
Hi Steven,
it sounds like the $50k you may spend renovating would be a capital cost and apportioned to your depreciation schedule. A small part of it may be able to be deducted in the first year but b=very unlikely the entire $50k.
Also on the dual occupancy dwellings, if hopefully making a few extra dollars each week is your investment strategy then great, but if you are after long term growth and cashing in on re-sale, your only potential buyers are other investors (mainly) which reduces the pool of potential buyers competing to drive up the sale price. More people are out each week in the market in SEQLD looking for detached dwellings. Just a thought.
Good luck with your search.
Creative Investment Coach | Creative Investment Solutions
http://www.creativeinvestmentsolutions.com.au
Email MeCreative Investment Solutions - The First Choice For Property Investors
Hi Steven,
The most common answer to many questions re investing is “It depends!” :pI spend 50K to do a complete make over of that property,
There are a hundred questions around that – depending on just what was spent on what, (as CIC mentioned in the last post) some may be immediately claimable (in that Fiscal Year) while the larger part may be a Capital Cost, thus it would be written off at 2.5%pa over 40 years – so maybe $1000 a year as a deduction?
Not huge, but then, only investors get to claim that – the poor old homeowner doesn’t !!
Benny
Hi Benny
I had another chance to speak to the agent that I have been speaking with. I specifically questioned them if they only do new property projects, in which case their answer is no. They deal with old properties too.
The exact wording I got from them is:
——————————- snip —————————–
we are very particular where our clients invest as we wanted to ensure their property investment portfolio has a good mix of investment properties that will generate cash flow positive income as well as capital growth. If our clients are in a position to do armchair development, we would then look at established or old properties so they could build two or three properties on this site (sometimes, retain the old property, renovate and then build another one at the back but this needs a lot of cash funding and usually over $1m by the time this project is completed).Otherwise, your old properties have no more depreciation, paying full stamp duty. In addition, if you prefer not to develop or not to renovate and just rely on collecting rent, then the ongoing repairs or maintenance costs are not likely to generate good cash flow positive income and in fact, more likely to be negative cash flow which you are not able to pull out equity to “go again”.
——————————- snip —————————–Essentially what they are saying is if I am financially that strong (they are talking about acquiring an old property and then construction 2-3 buildings to replace it, which adds up to a lot of cost), then they will look at old properties projects for me, but otherwise they think old property doesn’t sound like the right choice, given my financial situation.
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This reply was modified 7 years, 5 months ago by
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