[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

June 14, 2010 - 12:59 pm

Hi johann

I can't profess to be an expert on the whole development side of things, but here is my understanding…

1.  When you decide to do the whole company structure is entirely up to you, and different people will advise different things.  Accountants who charge to set them up will often advise setting them up ASAP, while other investors may advise to hold off on the whole company thing until you've made some money first.  Without knowing your whole situation, I'd probably suggest it's time you got your structures underway. 

If you set up your structures correctly, there should be some serious tax benefits, assuming you make some serious money from the whole thing.  If your fiance isn't working, you should be able to distribute the profits to her until she has as much income as you, and then split the profits from then on.  It can get a lot more technical than that, but that would take pages of explanation.

If you build and sell straight away, I think not only are there CGT issues, but GST issues as well.  Again, I'm not an accountant either!  To get the 50% CGT reduction, I think you have to hold them for at least 12 months, not 6.  However, I must admit I have no idea how CGT applies to a new build scenario.  The other issue is how many of these you can do before you lose the 50% concession.  I think once the ATO sees it as a business, then you may lose that.

2.  If you're renovating IPs you've had for a while, then you'll already get that 50% CGT concession unless it's judged to be your fiance's business.  As for GST, I believe you've got to do some really serious structural work on an established property for that to have to come into consideration.

Like I said, don't take my word as gospel.  I'll be reading the rest of this post too to see how wrong I was!

Andrew

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

June 8, 2010 - 7:27 am

Hi Danielle

It is a lot of money, isn't it?  Although these days it's a bit cheaper than it used to be! 

We put ourselves in a position where we HAD to make money from it, because otherwise we wouldn't be able to eat with the $2700 per month that we were paying Rick for nearly all of 2008!  Assuming we had to eat, we probably would have lost one of the houses to be honest. 

I dare say that if Go Direct was cheaper, then a much smaller percentage of graduates would actually make it work, because it wouldn't be as big a sacrifice.

You've gotta do the work though – there are plenty of people who pay the money, go to the meetings, and still never do anything with it.  They must have had more money than me to start with though, otherwise they wouldn't be eating either! 

Andrew

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

June 8, 2010 - 7:20 am

Hi Steve and all

I've done a few of these in Qld, and am a bit confused about your accountant's advice re: GST on buying houses to sell on vendor finance terms.  

Apparently your accountant said – " if i am seen to be in "the business" of developing or buying property to sell on vendor terms – the property is seen as trading stock – therefore have GST implications".

With developing property, there are obviously GST implications there, but buying an established property to sell on vendor terms has GST implications?  Really?  Anyone else out there understand this to be the case?

Personally, I've never dealt with new properties and have never had any GST issues arise – I'll let you all know if I'm arrested for massive tax fraud.  However, if you are worried about paying GST because the property is new, would doing it as a lease option work, so the house is no longer viewed as "new" when they exercise the option?  Would this also mean you get to keep your depreciation benefits??

New houses definitely not my area of expertise, just a thought.

Andrew

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

May 17, 2010 - 1:37 pm

Hey dorky

I'm a little confused about what you're planning here.

You seem to be planning on buying the property on a 2 year LO, and asking how to make money from it?  I assume you're also planning on selling it on a LO as well??

If that's what you're planning, it's good that you aren't after much back end profit – because I can't see you getting any.  If you're paying 6-7% higher than what the property is worth, that leaves you very little room to put the price up even further – even just to recoup your costs.
 
You could make the cashflow you're after if you can get away with only paying market rent to the owner.  You could also negotiate a massive rent credit which you don't pass on to the person buying from you.

I will tell you one thing though – the first LO I did was a 2 year period, and I couldn't get finance in time – even after renovating the house.  That kind of sucked!

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

May 17, 2010 - 1:26 pm

Ahh yes, the FHOG….

I finally received my first one last December, and have two more coming through this month – might go skiing this year after all!

Contract must be in existence for 12 months or more, they must have made payments totalling at least 10% of the purchase price and they must not be in default.  Then they have to sign a stat dec saying all that's true, provide proof, and also swear they'll pay back the FHOG if they move out of the house at any time in the next 6 months, or if the Instalment Contract falls over – that's always a fun one to explain to the buyer!  

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

April 9, 2010 - 3:01 pm

Hi guys

Ahh, you gotta be careful bagging vendor finance in the creative forum!

Actually Paul, this isn't the first time I've heard Rick's wrap pack is no longer available.  I'm not 100% sure on it, but Rick did say recently he was moving to just teaching the one strategy (LOs) because two strategies leads to more confusion than action!

As for RE commentators bagging wraps, I have heard 2nd and 3rd hand stories of bad apples doing deals that probably wouldn't allow me to sleep well at night.  I know a couple of hundred people who do this stuff or are trying to, and I haven't heard anything untowards from any of them.  In any case, if the buyer wants to pay what they're asking then I guess that's up to them.

Also, it's been a couple of years since I've read Steve's books, but I can't think of anything in it that is no longer relevant?  Anyone?  Sounds a little like an excuse for inaction to me.

Where are you looking at doing wraps Damian??

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

April 9, 2010 - 2:49 pm

lol

Good luck finding a lawyer familiar with the new legislation at this point!  After Tonly talking to us for 2 hours a couple of months ago, I'm not sure who was more confused at the end of it all!

In any case, I'll certainly be registering sooner rather than later, even though it may be a while before I would be technically required to.

Aside from the added credibility that ASIC registration will give us, I also believe that at the beginning registration will be a much easier process than it will be a few years down the track.  I could be wrong, but that's what I'm betting on.

Andrew

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

April 9, 2010 - 2:40 pm

Yeah, I'm all for the idea of using credit cards for your deposit – although I haven't done it yet. 

As Terry mentioned, it will SEVERELY effect your borrowing capacity – because of higher interest rates and shorter terms, 20 grand on your credit card is going to decrease your borrowing capacity by a LOT more than 20 grand – closer to 100 grand I'm guessing?

The other issue is, that if you have enough cash flow to pay off the credit card afterwards, then why didn't you have the cashflow to save a deposit in the first place?  If you don't have the cash flow to pay it out, then you'd need to have a very close look at your numbers before jumping in.  I'd probably only use a credit card for a short term chunk deal where I could pay the credit card back with the profits within a few months. 

I've been dealing with a few sellers lately who just jumped into property at any cost, with little idea of what they were doing, just because they heard you could make money from it.  I'm talking 13-14% loans for an investment property!  WTF??  Again though, it is all about your numbers – massive interest rates are fine for short term deals, although most rates like that also have massive exit charges, etc etc.  DO NOT get yourself into a position where you are banking on capital growth to be able to feed your children at the moment (unless they're overweight!).

I am interested in the balance transfer idea, although I wouldn't bank on it.  It's very easy to get one of those cards for a smaller limit of $5000 or so, but if you're looking for $20K plus it's a whole different story I believe.

Anyway, I'm ranting again…  so in summary, the credit card idea is fine, but do your numbers, know what it is costing you, and preferably don't end up paying 21% pa for 20% of the property for more than a few months. 

Good luck with it.

Andrew

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

March 8, 2010 - 1:55 pm

Hi guys

I've done a couple (of dozen) of these, and I work them out a little differently.

I start by working out what the property is costing me per week, and then come up with an amount per week above that I think is reasonable.  I then work out all my figures around that in reverse.

eg, I have a property worth, say, $250K on the open market, with $225K debt on it.  I'm paying 6.5% interest only – $281.47 per week.

Now, I generally want at least $100 per week cash flow, so I stuck $398 per week on this one, just to keep it under the $400 per week.  This was before I had even decided for sure what the total price was, or what the deposit was going to be.

I then decided on a price of $280K, the buyer gave us $5000 deposit, and we worked out the interest rate with $275K as the loan balance.

Could I have gotten more cash flow by adding 2% per annum to my base rate and going from there?  Maybe, but then who's going to pay $550 per week to live in a $250K house??  Probably someone, but not as many people who will pay $400. 

Normally, there is no right (or wrong) answer for these things.  However, if you've got someone who is interested, then the right answer is probably a negotiation with them.  Just make sure you understand your figures a bit better than your originaly post before you get to that negotiation.

Have fun!

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

February 10, 2010 - 10:41 am

Hi All

Guys, if you're serious about wanting to purchase a property using vendor finance do a bit of Math and work out what the payments would be on the kind of house you're after, before hunting around looking for someone to sell you a house for payments that just aren't going to be feasible.

The same goes for Rent-buys.

The fact is that in most situations the seller is going to want payments that are around what you'd pay if you got a low-doc loan through a bank.  So we're looking at 8% plus at the moment.  So even if you can find a place for around 300K, the payments would have to be around $500pw at least.

Have a think about what's in it for the seller/investor.  If there's nothing in it for them, well it's just not going to happen. 

Hope this helps,

Andrew

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

February 10, 2010 - 10:31 am

Ahhh, you've gotta love this thread…

The original poster wants us to tell him how it works, but is not prepared to spend the money to find out – that's just great!

I can add another voice to the "yes it works" column if you like, but passing on my training I've paid $60 000 for?… I think not!

In any case, you can get more information about how it works from any free seminar where the guys who teach this stuff guest speak than any of us can teach you through this medium in a couple of hundred words. 

I suspect the reason you haven't been able to find anyone who can say that they've done it successfully in the real world though, is that you're not moving in the right circles.  I don't know any successful wrappers who scoff at the idea of paying for training or good advice!

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

February 10, 2010 - 10:21 am

Hi All

The "Massive Passive Pack" does NOT teach you how to do wraps – that's a totally different product.  This product does teach lease options and sandwich leases though.

Cheers

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

September 10, 2009 - 2:29 pm

Ok, this may be a stupid question – but why are you so worried about whether you make a small loss or come out even?  Is it just a pride thing, so you don't have to say you made a loss on the property? 

I would think that if you want to sell the thing, then just sell it.  If you can't even work out whether you're making a loss or not (I agree it's tricky) then who cares?

Am I oversimplyfying here??

If you have legitimate reasons for selling, then do so.  I wouldn't be too concerned about calculating numbers that are largely irrelevant in my opinion.  Personally, I like to hold properties forever.  I've only ever sold one property the "traditional" way, and all my other properties I've sold using vendor finance, because it suits my goals better.

Can I ask why you are selling??

Andrew 

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

September 10, 2009 - 2:21 pm

Hi again

Gotta agree with thecrest about property selection.

We went looking at open houses on the weekend, and somehow we ended up at this little dump for $250 000 (and it was still overpriced!)

Anyway, the agent asked me what I thought of it, and I told her that "scummy houses attract scummy tenants".  She didn't appear to appreciate my thougths.  The whole "worst house in the best street" idea may be great for capital growth, but the worst house in the street will probably have the worst people in it. 

Six years ago I bought a crappy house for myself to live in – I like to think I lived within my means, as opposed to being a crappy home owner. .  Anyhoo, when I found myself with more money, I bought a nicer house for myself, and rented out the crap-box I'd been living in without doing any work on it.  Suffice to say, it was a mistake.  I ended up on a first name basis with the kind of people I never thought I'd have to meet!

Andrew

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

September 10, 2009 - 2:05 pm

Hi Helen

I must agree with pully on this one – what on earth is a challenging rental??  I'm going to guess that you mean the amount of the rental is too high for most tenants?  Although, that's probably not where I'd start looking for VF deals, as obviously the owner has to like the whole idea, and chances are if they're asking too much to rent the place, they're not going to want to give away future profit by selling it today for basically high rent payments??

Anyhoo, vendor finance certainly isn't a scam.  There are some legal difficulties with it in South Australia, and I think in WA you have to be registered, but I'm pretty sure it's still open slather in Vic.  However, I certainly wouldn't be suggesting it as a strategy to a real estate agent if I had no idea about how to go ahead with it.  Your chances of just bumping into an agent who can put a VF deal together are non existent.

Somehow the real estate agent profession has positioned themselves as experts in the marketplace, when most salespeople got their qualifications in a week long course that cost them around $500!  Unless they've been working successfully in the industry for many years, then your agent just isn't the expert they are promoting themselves to be.  I would suggest that most  investors with more than 2 houses have more knowledge about real estate than most agents these days.

As for who I know in Victoria, I certainly know a few people doing VF down there, but I'm not sure if they're in south west Vic.  The other issue is, they're not what you'd call advisors, but some of them do take on JV partners to show them how to do VF deals if it's going to be profitable enough for them.

Cheers,

Andrew

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

September 9, 2009 - 2:30 pm

lol

Don't let Mr Fair Go fool you with his "inside scoop" guys. 

There IS no such thing as a typical LO payment.  I've got a LO at the moment where NONE of the payments are going towards the house.  LOs are just so flexible, that no two people do them the same.  In fact, no two of mine are even the same! 

You can make any percentage of the payment go towards the house, from zero to 100%.  You can even make it so it starts at one amount, and changes to another (ie, if everything is agreed at the beginning). 

The people selling these to you have done their numbers – MOST of them aren't idiots.  They're going to know which deal is better for them, and you're not going to fool them into 33% of your payment going towards the house, instead of 5% which is about where it starts with a "typical" 30 year instalment contract. 

Sometimes, a seller will let you THINK you've had a win in a negotiation, only to alter the terms/price somewhere else that you aren't aware of. 

Just don't think you're going to one-up someone who does this stuff professionally – it won't happen.

Andrew

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

September 9, 2009 - 2:08 pm

Hi all

Yeah, my first ever tenant as a 25 year old was dodgy – enough to turn most people that age off property investing I would think!  But (as my wife keeps telling me) this isn't about me….

Firstly, you have to make a decision for yourself if it's worth all the effort for this amount of money.  Or if you think it's worth the effort purely to be punitive to the naughty tenant.  Personally, I'd think it wasn't.  You end up wasting a whole lot of your time and life energy pursuing this, for what is likely to be very little chance at a reasonably small reward.  Chasing after a bad tenant just to get them back, bring them to justice, or save the next landlord all feel negative to me, and that negativity will undoubtedly bring you down.  Only you can decide if it's worth $3000.

Recently, I had a judgement made against me by the OSR who deemed that some properties I bought were worth more than I said they were in a non-arm's-length transaction.  (ie, my company bought them from me).  The judgement was totally ludicrous, quite unjust, and bordering on corrupt.  I fought it for a while, but in the end decided to just let it go.  I realised that the cost to me of pursuing "justice" further was too great, and just paid the six grand.  I decided instead to put that same energy into making more money, and made more than double that amount in a short period with far less effort, and with much more positivity attached.  Am I sounding too much like a hippy here??

What you do need to take from the experience however, is the lesson.  Or, in this case, lessons.  At the risk of sounding like a pious know-it-all, I would suggest your lessons are as follows:

1 – Property management is a skill.  If you are going to manage your own properties, then you do not ever put up with people damaging your property.  Deal with it immediately.  Damage to your property is like an ice berg.  There's always more going on than is visible to the naked eye.

2 – Choosing a property manager is a skill as well.  Unless you live in an area where there are only a couple of potential property managers, you're always going to be able to find a good one if you look hard – and you should look.  I think of my properties as my children, and I don't just hand them over to anyone to be looked after.  I always interview prospective PMs, and choose the best one from the pool that I interview.  It should be like a job application, with you as the potential employer. 

3 – Being under insured is always a bad idea.  The problems with claims often come from the need to prove malicious damage.  This is another reason to not put up with the gradual deterioration of your property just because someone has lived there for a few years.

Good luck!

Andrew

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

September 3, 2009 - 2:40 pm

Hi Danny

Obviously it's hard for anyone to give you specific advice when it comes to your exact circumstances.  I guess that's why financial planners get you to give them all that information before they start mapping out your whole financial life! 

As for my two cents, the only time I would sell an investment property is if I was planning on retiring.  If you don't believe in property growing in the long term, then why the hell are you buying another one?  If you do believe in property growing long term, then why the hell would you sell the first one?  If you only want one investment property to keep your debt exposure down, then I'd probably just be keeping the first one, and not buying another one. 

I know, this is oversimplified, and there could be lots of reasons for what you're suggesting – but with little info I've got, that's all I can really see as suitable options.

Lots of beginners want to get in and buy and sell houses all over the place so that something is happening with their portfolio.  Patience grasshopper.  Property is a long term thing.  If you want exciting, buy a racecar! 

If I was in your situation and decided that I just didn't want to service that much debt, I'd probably sell one of them using vendor finance to help out with my cash flow.  However, I must warn you that using vendor finance in one way or another is pretty much my stock answer for everything!

Andrew

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

August 28, 2009 - 2:24 pm

Ahoy hoy

Well of course the traditional method is better IF you have the money or the borrowing power.  If you are buying anything with cash, you have more bargaining power, and can therefore negotiate a lower price.

If you don't have the ability to come up with all the cash to buy a house, and you want to get into the property market, then these sorts of arrangements are all you've got.  Unless the seller enters into the arrangement with the knowledge (or plan) that the buyer will never be able to refinance and own the home, then the seller isn't taking advantage of anyone.  If the buyer doesn't work out their own situation and gets taken in by a less than savoury character with more brains than them, well I do have some sympathy for them – but chances are if they buy a $300 000 house on impulse, it's not going to be the first time they get ripped off.

Do you know what percentage of people in Australia can get a home loan at the moment?  It's around 13%.  That leaves 87% of people who can not buy a house the "traditional" way.  I'm not sure you've thought through the implications of only 13% of Australians owning real estate.  Now, if you have to save for another 5 years to accumulate a 10% deposit, or you can "buy" a house using a creative way for only 10% more than it's really worth now, then that's a decision only the buyer can make.  Personally, I see it as a no-brainer.  There aren't a lot of 5 year periods in the last 60 years where property hasn't gone up more than 10%. 

Is Harvey Norman taking advantage of people by offering them "4 years interest free"?  Harvey Norman know this is profitable for them, because a vast majority of people don't get the price paid off in the four years, and end up paying 25%+.  But if you don't have the cash and want a TV…… 

Oh, by the way, the "traditional" way is only a relatively new thing in terms of buying and selling houses.  Banks haven't always been so happy to lend money on real estate.  Buying a house on terms, however, has been around for hundreds of years.

I really don't understand why people who aren't interested in creative techniques come in here and bag them.

I also find it interesting that you would stay away from the whole idea because it could become legally messy.  I think if you avoided everything in life that could become legally messy, you would have an extremely boring existence. 

The risks we are talking about with these sort of transactions, while very real, are very low.  Certainly much lower than the risk of people getting shut out of the real estate market FOREVER because they hold off buying for another 5 years.

But hey, that's just my point of view….  (apparently you can say whatever you like with no proof whatsoever if you say it's just your point of view).

I also noticed you didn't respond to any of my queries about how these things were "way over market value". 

Interesting

[AndrewBuysHousesParticipant@andrewbuyshousesJoin Date: 2009Post Count: 54]

August 24, 2009 - 2:29 pm

Ahhh, bummer!

"Licence to occupy" is not something I can claim to be familiar with.  I was told that licence to occupy was originally how people started doing rent to buys in QLD.  However, some people who should be trustworthy say some crazy stuff about VF that is just plain wrong.  For example, the SA governement in a recent piece of legislation says that "Rent to Buy" schemes are known as wraps in the Eastern States!  ha ha ha

Anyway, I can tell you about Rent-to-Buys if you like, but there is a whole other thread on that at the next topic.  Have a read of that stuff and get back to me with any more specific questions.  It's the way I'd go if the stamp duty issue was a concern.

Having said that – what was your contract price going to be?  Were you going to live there as your PPR?  Has one or both of you owned a house before?

Andrew