due diligence on property?

Hello All,
I am hoping to get on the property investing band wagon.
I viewed an apartment unit in Blacktown NSW.

Cheers
kimc

Hi Kim

Congratulations on making a move on starting your portfolio.

Couple of areas to investigate further in my opinion before proceeding further.

1) Definately ask the selling agent about details of both the adminstration & sinking fund levies for the Body Corporate and also ask whether their is any intended expenditure due. If the Vendor wants to sell the property ask him for a copy of the last Annual minutes of the BC meeting which will reveal further details. (You seem to have some lvy information but i would want more).

Complex if fairly large do check whether you consider there is any chance of potential ongoing capital expenditure such as lift or swimming pool repairs.

If you need a further sales comparison let me know and I can email you a Residex report which will at least give you some further comparisons and statistical information.

2) You mention the propert is likely to cost you approximately $100 week but have you consider some of the non cash deductions which you claim such as Depreciation and Capital Allowances. A Quantity Surveyors report post Contract would be money well spent as you maybe suprised as to what you claim.

Dont forget loan costs are also deductible over 5 years or the term of the loan whichever is the shorter but your mortgage broker has probably indicated this to you.

3) On the financing side make sure your Broker fully understands that you dont want to cross collateralise your 2 loans.
Make sure they are au fait with investing structures. Normally your lender will want to organise a full valuation on the property so make sure the Banks valuation is disclosed to you to further check the purchase price.

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.

Hi Kim C,

I agree with the points Richard has made. 

You didn't mention if you live in the area or not but have a look at the suburb as a whole and even contact the existing tenant to ask how things are going with the property.  There may be other owners/tenants in the building that you can talk to.
Most people are happy to answer general questions especially when you mention you are thinking about buying the unit in the same complex.

Good luck.
Tracey

tracey@propertyfinanceonline.com.au | www.propertyfinanceonline.com.au | WA Mortgage Broker

www.propertyinvestornetwork.com.au | Free information for property investors.

Hi,
Thanks for you 'helpful input'
I will definately get some more BC info. I did ask the agent how much was in the sinking fund...and his reply was..... (wait for it)......."of course there's plenty....it's only four years old"....geeze they're good arn't they!!..I felt as if he thought I was being cheeky but now thanks to you I have some amo!...I now know I am quite within my rights to get all that infobefore I make an offer...if I do......and if he won't give it to me.....I will smell a rat!
  There is no swimming pool thankgoodness(I wouldn't have been interested if there was...those things are expensive!) BUT there is a lift. I suppose if you own a unit on the 3rd floor, a lift is quite attractive to a tennant but I will see how much maintenance has  had to be done over the last year.
luckily I have read many posts so the depreciation and capital allowances are a gimmee( I'm thinking of that at this stage as a bit of a bonus) Until I am actually on 'the journey'...it is quite hard to fully understand the implications of the deductions side of property investing.  My broker has already mentioned getting a quantity surveyor report if I take this further.

Richard you might be interested in the letter my broker sent me. He suggested since I was planning on buying more prop in the future I should borrow up to 90% on the current and proposed unit. I will have to spend a few $$ on LMI but it will save redoing loans down the  track and incurring the cost then, in which I can pay a deposit on a place I see rather than using a bond. He will structure so each is a seperate loan.

Hi Tracey, Thankyou for you comments. I live very close to Blacktown.( I live in a suburb between Blacktown and Parramatta) so I feel as if I know the area which helps a little, but it is still nerve wracking when you get close to the 'business end ' of a deal!! Blacktown has a fast train to the city which is a bonus.
That's a good idea...I will see if I can chat to tennants in the building.

Many Thanks to you both.
I will definatly post with an up date.

Kimc

Kim

Also not sure why you would pay cash instead of a Deposit Bond when depending on the settlement one could be clearly cheaper than the other.

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.

Hi Richard,
From what I gathered from my broker  we don't have quite have enough equity. Not sure how much our PPOR is worth. He thought about the $420000.00 mark...I would be more conservative at $410000.00. We owe $274000.00
I would really like to avoid LMI.
I'm not really sure how to work that out.

Is it mortgage owed+investment prop price (including stamp duty and costs) which in my case would be
274000.000 + 300.000 = $574000.00 then......
value of PPOR +  investment prop price and costs(money borrowed) which in my case would be
420000.00 + 300000.00 = $720000.00 then...
574000.00 divided by 720000.00 =0.79

This all seems to hang on what our PPOR is valued at.

Richard we do have 30,000.00 sitting in a redraw and we also only need to pay $500.00 a week off our PPOR mortgage but we choose to pay $1000.00 a week. Could it be that by the time we settle on the property, our mortgage owed could be a different figure to the $274000.00 it is now...or am I grabing at straws?

I will query the MB about what you raised. Thankyou

Will let you know the outcome

Regards
Kim

Please dont use your PPOR redraw to fund any shortfall as the interest will not be deductible.

Just get your mortgage broker to order a valuation for you upfront on your PPOR so you can see the numbers you have to play first.

Then when lodging the application you can decide whether you wish to cancel the redraw or not.

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.

Hi Kim,
I'm also looking at a similar type of apartment in the Blacktown area. I was going to start a new thread but the information here answered pretty much everything. All the best with your investment!

Just out of curiousity, how much more expensive is it to have an apartment with a 1) pool 2) elevator?
And how much more in costs can I expect to pay ongoing for a large complex (30+ units) vs a smaller lot (around 8 units)?

Hi Romeop,
I'm not sure how much extra you would pay in strata fees for a pool.? Personally I would bypass any block of units which had a pool, but that's just me.
The block I'm looking at does have a lift. the unit  is on the 3rd floor . The way I look at it, is if  I want to attract a tennant to the 3rd floor I will need a lift.   A pool would be a luxury. May be I would look at it differently if it was to be my PPOR.
I looked at a block of 8 with no lift and the strata fees were $5.00 a week more??
I am very new to this investment game and It is all a bit of a learning curve. I just try to do as much home work as I can.
I am awaiting the body corp annual minutes on this block to find out what is in the sinking fund and get an idea of it's history.

Good Luck

Kimc