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Thanks again super!
If possible could you just run through an example for me how this works?Thanks Super
I did not calculate the deposit component but also did not add the closing costs which on that amount in QLD would be $7700. This changes it to cash flow positive $25.And i do apologise for my brash statement that “in this day and age there is pretty much no such thing as positive geared property on a principle and interest loan” I was not taking into consideration having the 20% deposit when i made this statement.
That being said that was kind of by design because my thinking has been geared towards buying as many properties as possible and as fast as possible (Thanks 0-130) so my focus has been around much higher LVR to purchase more property.
Hey SuperAndrew,
As i said in my initial post I am new to this myself so only offer advice on my understanding so definitely appreciate any fixes to my incorrect statements :)
That being said i am hoping you could help clarify something. In your thread there is a property listed for 23/460Ann St for $250,000 currently renting at $360 per week. On an interest and principle loan at 5.3% that equates to $347 per week so $13 positive cashflow. That however does not take into account any holding off the property which from my little understanding is around 20% of the rental yield? Which would mean the rental would be more like $290 per week and then negatively geared?
No you would not be making money effortlessly because as far as i am aware (happy to be proved wrong) in this day and age there is pretty much no such thing as positive geared property on a principle and interest loan. What that means is if you do find a positively geared property your loan would be interest only. Your tenants would not be paying down any of the principle just the interest component which means the only way the property will be gaining equity is through capital gains which can take a long time (without things like renovations, development) OR by you putting your savings into an offset account so it brings down your interest payments as your money builds in that account.
To answer your other question then YES absolutely there is a CGT component but that is only activated when you sell. What i am saying is you buy a property lets say 210k after closing costs and its valued at 200k. You then renovate the property for 20k, so so far you have spent 230k (200k purchase, 10k closing, 20k renovate). You then get the property revalued and because you did such a good job on the reno :) the valuer says your property is now worth 260k. You now have equity in your property that you can access for your next purchase whilst you still rent it out.
Obviously during renos you have no tenant so that needs to be considered. I have not tried this strategy yet but you can do things like occupy during settlement to get around this problem i believe. From my understanding this means you purchase the property with your 10% deposit and whilst it settles you have access to the property to begin renovations. If your settlement is long enough you should be able to complete it and get a tenant straight in.
Also you have the added benefit of requesting more rent because the place is new :)Hey Pat,
I really think you should be looking for a properties you can make quick capital gains on as opposed to a buy and hold strategy. Are you handy with the tools or have access to others that could help at the fraction of the cost on a renovation?
Given you have 0 equity and your combined income is only o.k then you need to look at other options to accelerate your income. You said you worked in media, I would imagine there would be a fair bit of freelance work that could earn you extra money on the side?
Hey Pat,
Welcome aboard! As i say in all my posts i myself am new to property and like yourself have been spending extensive time researching. The reason I mention that is because any advice i give is just my opinion and may not be the right advice for you, but i like to offer it anyways as it helps me as well :)Firstly I think you are in an o.k position, you have a combined salary of around $115,000 and debt free. The only thing i would say holding you back at this stage is your deposit which you mentioned is only 15k. You did however say your parents have several properties and can act as a guarantor? I would discuss this in detail with your parents so they fully understand what a guarantor is as there is some risk to them if this is the path you take. But given your small savings then if you needed to save your own deposit you may still be a couple of years off being able to make a purchase. A guarantor will get you in the market now.
Let us say they do act as guarantor then the next thing would be the decision on whether to purchase an IP or a PPOR. Unfortunately as I do not know much about Sydney and the northern beaches it is hard for me to offer any advice here, i did a quick search though of some areas and the prices are staggering! It would seem as though a PPOR or an IP would be out of reach in these areas though. Also as i do not know your expenses it is hard to know your borrowing capacity, using a rough figure of $500 combined a week then I would guess you would be looking around the 400-450k mark (Happy for more experienced people to be more precise here)
So the decision then becomes do you compromise on where you are willing to settle (for now) and look for a PPOR outside of the northern beaches or do you stay put and buy an IP again outside of the northern beaches where you can afford. If you go down the road of an IP then my only advice would be to research long and hard and find a property that is positively or neutrally geared so your cash flow is not affected and it allows you to continue to build your savings.
If however you want my honest advice then I would personally be making a compromise on where you live and looking for a PPOR. It is great you know an area you love and that should be your goal, but you are still so young and for now its about building up to that goal. If you do not mind a bit of hard work I would be looking at other areas you do like that are in your price range and for a house you can renovate and add instant equity to. From my personal experience the sense of achievement you get when you see your run down home becoming something amazing and the equity builds is the best feeling.
Good luck :)
Hey Daniel,
I am from the west and would love the opportunity to catch-up with fellow investors.
I myself do not yet own an IP and plan on spending the next year educating myself and see this as a perfect opportunity to learn even more.So when you decide to arrange something, let me know and i am in. Just make sure wherever it is has good coffee :)
Without reading through all the pages in this post I just finished 0 -130 (LOVED IT STEVE!).
But the book makes endless mention of registering my copy along with some mentoring program that i cannot seem to find anywhere on this site?Hey Grant,
Again I am all very new to this myself so any advice I give please do not take as gospel, it is just my understanding from all the reading and research I do.
Option 1 I may be missing something but am quite confused. You say the market value is basically 1.1mil but you are going to make an offer 400k below this? I appreciate it is a distressed property but the owner would be crazy to sell at 400k below market value. This seems like a very low ball offer and in truth may really just anger the seller who will not want to deal with you afterwards.
Hey Granted,
Welcome aboard! I am fairly new myself and to property and this forum in the short time i have been a member has already given so much meaningful insight.To answer your above question then on a parcel of land of that size I would be much more inclined to go for 3 or even 4 lots if possible. The reason for this is if you split into 2 500m2 lots then you are likely going to be building large houses, let us say for arguments sake 40sq each so total build of 80sq. Then let us say you sell these (I have no idea where you plan on developing) for 800k each then you end up with 1.6m. If however you were to build 4 properties at 20sq each and then sell them for 500k each then you have 2.0m or 400k better off.
Now the build costs will be slightly higher on 4 properties but the total build area is still equal to 80sq so it is not going to be drastically different.
If it also helps I am currently in the process of sub dividing my block. I am on 650m2 and have just had council approval to build a double story dwelling at the rear. I have decided to keep the front dwelling as my PPOR even though it is quite old and instead renovate it as i have limited funds.
My planning permit took me about 6 months to get which is actually really good for a first timer (Im sure Steve gets his quicker :)). I put that down to a good draftsmen though who was just very up with the local council standards. A mate of mine got a dud draftsmen and it took 3 years of back and forths.Good luck!
Thanks Jamie
I am thinking for my first attempt I will probably try and source my own property and see how I go (you never know if you never have a go).My thinking being If i make a mistake it might cost me say 10k compared to if a BA sourced something decent for me(given I still do a lot of my own research and be very diligent, otherwise i understand the loss could be substantially more). But since the BA fee would be 6k then it would be a loss of really only 4k.
If however i get it right then i save the fee and have gained a whole lot of buying experience for my next venture.
Hey Jamie,
Thanks for the speedy reply.
It would need to be a Melbourne based purchase where i am from as I would be doing a lot of the work along with my contacts. Even better would be one close to my current location (North West Melbourne) so I can easily access it after work and during weekends.Are you saying if its a local purchase you would not be getting as much bang for your buck?
Hey guys,
Wondering if anyone knows the same but in Melbourne?
Cheers
BenHey JacM and Mattsta,
Thank you for your detailed explanations. Both scenarios make plenty of sense :)
Thanks mate, that spreadsheet is fantastic.
Cheers and i look forward to hearing more about your application.
Cheers
Hey SuperAndrew,
I am really interested to learn more about your application. How far developed is it?
Also how did my other sums stack up? Would you say i am on the right path? Or am missing a few key things?
Hey superAndrew,
These look like some really decent finds. I myself am halfway through Steves book so still learning so much.
Could i just ask what would be your sums on say the Wynard property to get the end positive cashflow result?Just roughly I would think 210k purchase including closing costs. So a 42k deposit to avoid lenders insurance which means an outstanding loan of 168k
On an interest only loan of 5.5% over 30 years the annual payment would be say $9350.
Rates and insurance around that area I really have no idea but roughly i would guess $1500.
Then minus say 7% for management fees (I have never rented a property but understand its around that?) so lets say $20 a week which means the actual rent would be $260 per week.So my sums would be 260 * 52 weeks = $13,520 incoming
$9350 loan + $1500 rates,insurance = $10,850 outgoing
Total positive cashflow = $2670I guess you also need to factor in some maintenance and repair but i have no idea how to calculate that or a rule of thumb to use.
Also just another quick question, could I ask what your search strategy is for finding these properties in realestate.com? What sort of criteria do you search for?
Thanks :)
Thanks for the quick replies.
I definitely think you are both correct and this is something I should be discussing with a property savvy accountant before we even begin the development.
Time for a Google search!
Cheers
As you mentioned yourself but a 4 bedroom home is for a fairly large family (usually 3-4 kids) and having a small backyard does not give them much to play with. Me personally from the areas i look around do not see many sub-divided blocks with 4 bedrooms so that is quite interesting.
All that being said the days of big back yards are starting to be irrelevant as kids have pretty much replaced digging holes and looking for worms, with playing xbox and on the ipad.
I am all very new to this and curious on this myself but can i just confirm is what you mean is if your home is valued at 500k and your loan is 380k then you have 120k equity in your home.
Then you go and take out that equity and use lets say use all of it for a deposit so there is now zero equity in your current property and let us say 90k in your investment property (- 30k for stamps). The market then falls over and your properties drop 100k in value and you are now on -10k equity.
Is this what you are asking? Or am i way off the mark?
If it is then i am no expert but my understanding is this would then affect your ability to borrow any further money from the banks and hence not be able to buy any other property until that equity returns.
