Forum Replies Created
Hi Ben,
I would think timing might be of some importance…. By that, I mean it may be better to buy the IP and THEN go and buy the other investment with the remaining cash, rather than taking the cash out first, which might impact your borrowing for the IP. e.g. you wouldn’t want to spend $25k then find your deposit needed to be $80k. First things first, and you should be OK I would think….. ;)
Note – I’m not an adviser of any kind, so check with the right professionals re that.
Benny
Hi Norman,
Just a thought – have you found a new property manager as yet? If you have, is it possible they might be able to provide an easier path for you? e.g. like switching banks – don’t deal with the bank you are leaving, deal with the bank you want to go to (they want your business, so may well handle the “shift” in large part for you). Or not….
I haven’t tried this personally – I figure it was worth sharing the thought, and someone else might step in if they have tried this themselves…..
Good luck,
Benny
As we start to explore the “Millionaire Next Door” along with its comments on frugality, this topic came back to me. This describes just how expenses can also compound to cruel one’s efforts at gaining wealth. Start back at the first post and test your guesses against the reality of compounding growth – less compounding expenses !!!! It shocked me when I went through it.
Of course, in that example we used a simple “doubling every year” of income to show its compounding benefits – but also look at how a defined percentage of expenses plays havoc with those compounding income figures. Shows that frugality is every bit as important as is growing your income.
Steve, perhaps you could provide a simple Excel example where differing values can be tested? And of course, even as we take a simple doubling of income, it might be that we can more than double it each year, with (say) a 20% uplift offsetting many expenses to prevent the decimation of the growing wealth.
I’m sure there are many other new thoughts that can be derived from this example – greater minds than my own will no doubt add much more value around this fascinating subject. With the Millionaire Next Door being studied, I’d like to see what added value might appear right here !!! Please…. ;)
Go for it !!!
Benny
Just a reminder for those wanting to meet up with others in Brisbane…. someone was asking on the webinar…..
A recent foray into Steve’s book “Millionaire” led me to a brilliant discovery. I’d written “Gold!” in the margin of the book (it’s on page170) right by the lesson in the last two paragraphs. Steve had said, ask for a discount if you can leave a 50% deposit when purchasing. The beauty of such a large deposit is that finance is pretty much assured at any bank, thus giving the contract a much more solid grounding. So,ask the vendor or RE agent “If I left a 50% deposit, what discount could I get on the purchase price?” and he went on to explain that doing so would be a much better ROI than having a heap of lazy cash in a term deposit at 3%. Steve then showed how well a 10% discount plays out (see below).
You might be thinking “Why would a vendor willingly provide a further discount on a sale?” The answer lies in what their situation is. Steve suggested “They might have already had two failed contracts, they NEED to quit this property, and they want assurance that this one won’t fail.” By providing a 50% deposit, you’re showing a healthy ability to go ahead from the finance side of things – any lender would bend over backward to finance you if you’ve already covered 50% of the value in cash. The simpler finance (no LMI, and an LVR at 40% or less) should speed things up immensely. This allows quicker settlement times. Maybe the vendor would relish a 30 day contract, and will discount the price even more to make that happen instead of waiting on a 60 or 90 day settlement.
As an example, I then expanded on Steve’s thoughts by considering the purchase of a property for $400k. Assume a 10% discount if we put down 50% deposit on contract. So, we put in $200k cash on a $360k purchase – and it immediately returns $40k (the discount) on that $200k – that’s a 20% return on paper. Nice !!
But wait, what if we refinance later on:-
We take out an 80% loan on a $360k value – $72k is the 20% deposit, so $288k comes back to us as cash – this repays our original $200k, giving us $88k profit, and our tenant then pays for the new mortgage via the rent they pay us.So, didn’t we just make a 44% return on our $200k in a matter of months? Isn’t that GOLD? Thanks Steve – an awesome thought that became a catalyst for more thoughts.
But wait – there’s more….
OK, what if you can only get 5% discount? It is still way better than 3% in a Term Deposit, but there is so much more too. Like, the above example didn’t entertain the idea that:-
1. We bought the place to renovate then rent, so the VALUE jumps way above the $360k we’ve paid.
2. We were expecting $400/week rent, but were able to get $500/week after renos.
Doing it again then, we buy a place for $400k, but then we get 5% discount for a 50% deposit – so paying $380k with a $200k deposit. We also spend $60k to renovate, lifting its value and renting for more. The fact that we bought a discount gives us a $20k profit on our initial $200k (or 10% return on paper). The renovation also adds $100k value to a $400k house, so now valued at $500k. (Our spend of $60k generated $100k more in equity on paper).
So a few months later, with the house now renovated, we refinance at 80% LVR with a lender. This gives us back $400k to reimburse our initial $260k spent. So, $140k profit on a $260k spend is over 50% return – perhaps in just 3 or 4 months. Is that better than 3%? Are there other costs in there? Sure, but there’s quite a bit of cream too, right?
What if we did 2 or 3 of these per year? ;) Good hunting.
Benny
Hi Harley,
On a quick revisit of your post, I noted a bunch of things that told me you really need to chart your course before setting off on it. You have some of the “basics” there, which is great, but missing the overall “big picture”. This is where Steve’s offer could work so well. Real Estate investing is a B-R-O-A-D subject – one can get some quick ideas by asking around, but you can’t beat applying some diligence in educating yourself. Reading books is good too, but you can’t ask it questions. Meeting up with other investors has its place too, and we can learn from each other. Webinars can add depth to any book learning, as can seminars – but even these aren’t enough, if only doing the odd one here and there, to build real knowledge – that comes from experience.
So, how should you go? To me, a “starting out webinar” (or a series of webinars) sounds like a smart move – if you only learn enough to stay away from the “cliff edges” that can have you fall over, then you can commence investing in relative safety. You’ve started in the right way (by asking how) but the subject is so great that it will take time. That tells me you are already aware that “cliff edges” exist. Steve’s offer sounds terrific – but for mine, I’d be happy to pay for such info if 100 or so others aren’t ready right now. You too? One of my favourite quotes is this – “If you think education is expensive, try ignorance!” :)
Steve wasn’t doing webinars when I started out – he hadn’t even written his first book. But back then, I spent nearly a year of reading, researching, meeting investors, seminars, etc before I bought my first IP. You could short-cut that time with something like Steve’s proposing – better some instruction at the top of the cliff, than an ambulance at the bottom…. :)
Meantime, try the Training Centre for some useful reading – go to the Home Page and look around…. and check out for investor Meetings in Mel and Bne that seem to occur regularly.
Benny
Hi Vyaw,
Well, it looks like the 2.5% (add GST to that, so 2.75%) IS still the norm in Qld eh? So that would save you $10k if you run with an agent who isn’t wanting to stiff you for 3.5% like the one you first tried.
Benny
Hi Vyaw,
Back in the day (pre-GST days – circa 1990’s) the word in Brisbane was “Add $18k to the Sale Price then take 2.5% of that total”. The wording went something like “That is the maximum amount an RE agent can charge for a property sale”. Naturally enough, the maximum became the norm over time. Even though the word was “you may negotiate” we didn’t find many RE agents that would.
I thought at 2.5% they should be happy, as, with any/every lift in values they would get a pay increase (nice work if you can get it). Back when we started buying, the house prices were around $100k, so 2.5% wasn’t too onerous at all ($2500 commission). The year 2000 saw GST introduced so (naturally) the 2.5% became 2.75%. From the 1990’s through to 2010 though median values in Brisbane hiked up several times – from $100k to around $450k so they were being well paid still at their 2.5% (with the extra 0.25% as the GST going to the Govt).
Even in those times I’d thought that those selling higher priced houses should/could negotiate a better deal as it takes almost as much for an agent to sell a $500k house as a $1500k one, surely. Why should an agent get 3 times as much for fractionally more work?
And now, you say they want 3.5%? Some of that will be GST but even their 3.18% slice is a huge lift on 2.5% – let’s see, that’s a 27% increase on “the old norm” AND they have that “higher value sale” advantage too. So, I’m with you – I can’t see how they deserve such a large slice. And aren’t their costs today lower than ever, with the Internet advertising and all? They want it all – did they boost their percentage to make up for recent falls in value? If not, WHAT is their justification?
And what do the REIQ say about it – ask them “what happened to that maximum percentage rate?” Has the law been changed? Or do the Agents know you’ll likely need to wear a 10% drop in asking price, and they want their commission to be more plumped up to avoid taking the hit along with you????? Cheeky blighters…. whichever excuse they come up with.
It may be worth ringing around – like, check with Gecko – do they still do a “flat rate to sell”? It’s worth spending a bit of time to gather facts to offer to any agent who is pushing a 3.5% rate !! Like with Bunnings – have them match any “lower rate you find”. :) Good luck,
Benny
Another thing that tends to be overlooked/ignored by reporting media is the relevance of the Covid death rates. Aussie’s death rate is WAY low compared to other nations – thus we should be able to get back to business sooner.
Instead, let’s look at a nation who is currently seeing a really high death rate – the USA. From what I’ve learned, their death rate is like 3% of all those who get Covid – quite high compared to most. Their current total deaths from Covid are said to be 85,000 in about 3 months. On the other hand, their yearly death rate in 2018 (latest “numbers” available) was 2.8 million people, or about 240,000 per month. Covid is less than 30,000 a month on average. OK, that’s an extra 12% – or IS IT? Do we even know it is “extra”? Couldn’t it be that these were folk who were likely to pass away anyway due to other health issues, or age?
Did the 30,000/month die OF Covid, or WITH Covid? Is anyone looking at that? Should our economies continue to be shut down over what could be “just another flu” in reality? What about Aussie’s case?
The deaths from Covid in Aussie are still below 100 in total (say 30 per month). The Australian death rate per year (also 2018 for consistency) is seen to be 165,000 or 13,750 per month.
Say wha’ ? We have stalled our economy for 30 deaths (extra? Who says?) on a total of 13,750 ????
Back to work folks. State Govts – are you listening?
Benny
Hi Steven,
Thank you – that is the bit I was missing – that makes sense to me, and now the 15 minutes sounds more reasonable. Obviously then, the onus remains on us to keep our distance as was always the case. The app was never going to keep us safe – more like an insurance policy that kicks in when an affected “someone” has been near us for longer than a chance passing by. And of course, it is only if/when one of us (them or me) becomes infected that the other is notified to get checked.
I’m cool with that – and thanks again. Case closed :)
Benny
Well, with a little more time having passed, in Qld the State Govt has begun re-introducing some activities that had been locked down. i.e. We are now allowed to visit a beach or a park, can take a trip up to 50Km from home (rather than just “stay home” as has been the message). Re the Rest Home that we like to visit, they are now allowing family members to visit their loved ones in the home (they had previously been locked out – how stupid!).
Schools are starting to “allow” students to come back for face-to-face education once more. Is sanity returning? Hope so. But let me share with you something I heard on radio this morning:-
A microbiologist with some 40 years experience was saying “We shouldn’t have wrapped everyone in cottonwool and hid them in their homes. Humankind does its best by sharing viruses and bacterii among ourselves and we should be returning to this way of life.” He asserts that “the longer we stay in our homes and, when venturing out to buy goods, we meet only sanitised surfaces and we don’t shake hands or touch things, our personal immunity becomes weaker. We should be out in the Sun, and should still be shaking hands, having normal interactions with others, and just living.”
Now, I think I know the reasoning behind the Fed Govt’s initial “lockdown” – the fear was that this virus was moving so quickly that it would overwhelm our hospital services, including beds, medical supplies, and even staffing numbers. So, fair enough, the decision to lockdown was made with all good intentions initially. And yes, this virus has indeed moved quickly. So, top marks for the initial “lockdown” – closed borders, limiting travel and human interactions as much as possible.
The closing down of so many businesses – well, the jury is still out on that one. Comes back to my previous comment (went something like “For every one death we have had from covid, 10,000 workers have lost their job”). Since Govt now knows that parameter, I would think the re-opening of businesses should be put on the fast track now. Yes, I know it has risk attached, but there is risk in not re-opening them too. Mental health is a big subject that hasn’t been widely considered in all this – but, as gregarious animals, us being out of touch with others is not such a good thing. It may be somewhat OK for those with families perhaps – but some just don’t have family nearby, or at all.
Time to re-open restaurants, etc? Is it time to chance our arm once more, risk getting crook, and going out to rebuild our personal immunity systems? I say Yes – how about you?
Benny
Hi Azalia,
Thanks for having a go. I agree with all you say re the app. However, the tenet of my question is around that “15 minutes” and its validity. I don’t see why they chose 15 minutes as the “key timeframe” to measure. It just seems wildly wrong, even inadequate, to me (see my whole spiel re my concerns).
e.g. I wouldn’t want to be within 1.5 metres of anyone for even a few seconds right now (save for my family) – just in case. :)
Benny
Hi Property Boy,
I know nothing of Vic’s laws, but we had a similar moratorium mentioned in Qld (being unable to evict a tenant). When the law actually passed I heard it was NOT stopping landlords from taking back property to reside in, or for other lawful reasons (e.g. selling, tenant damaging property, etc) – but only to prevent a landlord evicting a tenant for non-payment due to their loss of job.
I’d advise that you check with your solicitor though as hearsay isn’t law. But I thought my post might give you a bit of heart while you wait to call your adviser. :)
Benny
Hi propertyboy,
“I hope the government is reasonable on this.”
Yep, me too – I’d recently heard the comment that commonsense is also in lockdown, and, though sarcastic, it did make sense to me at the time !! Was it to do with Govts? Not sure – I think it was more to do with the hoarding/blackmarketing of toilet paper.
From where I sit, I would have thought that the injection of dollars that is occurring would (should?) have been to minimise the pain that is being felt all over. Or, in other words, that we all should be tightening the belts a little, so that no one group is shouldering all of the burden. And if Govts are saying “Give renters a holiday”, then there should be something similar for landlords. Small businesses are getting some help – and isn’t landlording a “small business”? On the flip side, this whole drama is monstrous from a whole heap of angles, so if Govts are needing a bit of time to get their heads together on it, I understand that – so long as they keep on correcting any “unintended consequences” that may come about as they take frantic moves to keep Australia’s head above water.
Benny
Hi Cathy,
I believe the person Steve was referring to back then was Derek Gehl. Derek was often a speaker at Steve’s Mega Conferences back then. If you do a Search for that name you will find lots of posts, some of which include links to Derek’s website.
Benny
Hi CMS,
Thanks for your VERY informative post. I do take your point re “be cautious about retaining a loss”, and I admit my thoughts at the time of posting didn’t cover “How do you get to finalise a loan where a sale doesn’t cover the full mortgage” – I was simply assuming Anton WAS able to settle things with the lender, and that losses recorded on the ATO side of things could later be beneficial for him in offsetting future gains. Of course, if we don’t fully pay out a mortgage, we CAN’T claim a Capital Loss with the ATO if we didn’t complete the mortgage payout in full.
Your points are well made, CMS, and could prove to be super-beneficial for others out there, so I thank you for taking the time to educate us all re that situation you were in. It seems the insolvency company has been a big help for you through this. Though it is not yet “over”, I wish you the best outcome possible and hope things get back to a less trouble-some “normal” some time soon.
Re “can you name the insolvency company on forum”, I will come back to you on that in the next day or two.
Regards,
Benny
Hi Cathy,
Welcome to you too. And Ouch!! Sorry to hear of your loss, but good to hear you are moving on – I’m sure that couldn’t have been an easy decision.
Hopefully some of the thoughts I shared with Anton will be useful to you too. But then, maybe you are already a full bottle on all of those anyway. Perhaps you can share with Anton how things panned out for you – and how you came to decide to sell when the outcome sounds so awful !! Making a loss is never good, but sometimes it is the only way out eh? How much do you want to share? I’m sure we can all learn from these things – even if it is a warning for our own futures.
Benny
Hi Anton,
I’m sure you are not alone in having taken advantage of “good times” during the mining boom, then having it all turn bad some time later. It is good that you are here though, and I hope to perhaps turn on a light or two for you. I see you have a few options. That can be a curse or a friend – a curse when trying to make a decision with too litle knowledge, or a friend when “only one option makes sense” so you automatically take it.
First off, please note – I don’t know Perth at all, or its markets. I am also not an approved adviser of any kind (e.g. not a lawyer, accountant, broker, etc – I am just an old bloke with an opinion or two :) So be sure to get other views from those more qualified as well.
Let’s go:
You haven’t mentioned rents, only values, so I can’t suggest too much re “which one to sell” based on week-to-week losses. But from other factors, this is what I see and would ask you to consider:-
a. If/when you sell, you LOCK IN the loss. That can be good or bad. At the moment, you are continuing on hoping for things to turn around so you can sell one or both. That doesn’t sound good to me, as you are continuing to throw money away weekly rather than investing in something that ADDS value for you and your family. But then, since I don’t know the numbers, maybe you CAN’T sell the apartment as you won’t receive enough to pay back the mortgage? Is that so? Are you “stuck” in that way? Many who bought in the mining boom have found themselves in such a situation. Advice from a relevant adviser would help in THAT situation. Or maybe if you sell the townhouse first this WILL release enough cash to allow the selling of the apartment too, and clear all debt with the bank.
b. The good part in selling at a loss comes when you find that you are now able to SAVE each week, and can even afford to purchase something that WILL make you money weekly. Also, since you have sold at a loss, this means there is no CGT (Capital Gains Tax) to pay to the ATO. Any loss can be retained and used to OFFSET any capital gains you make in the future (e.g. your next investment property might nett you $200k in profit – subtract the losses from this earlier loss-making sale to lower the CGT you owe on this new sale).
c. To quote Benjamin Franklin, “empty the coins in your purse into your mind, and your mind will fill your purse with coins” – i.e. spend some money on education that steers you toward the HOWs of investing so that your future investments will more likely all be positive ones. Enthusiasm is great, but it can lead us astray where it isn’t tempered with knowledge. Or (one quote I often use on here) “If you think education is expensive, try ignorance!”
d. Anton, you are certainly not alone in “having a go” a wee bit too early, or unadvisedly. That’s OK – learn from it, and turn the current situation into a better one for you and yours. In my early years of investing, a quote I loved was “You can’t change direction in a parked car” – and I used that quote to gee myself into action in making that first purchase (the first one is hard, have you noticed?). You are already past that first hard one, but now it is time for you to move on. Spend bit more time finding out the BEST path for yourself by reading on, checking with advisers, educating yourself (if that’s in property, that’s great – but it might be shares or something else – up to you, but we need to be investing, yeah?)
Come back with more info, or questions – it’s all good, and welcome !! :)
Benny
Hi aa236,
Thank you for respecting our place by asking first – we are all about education and we welcome discussions re property – its foibles, its successes, its legalities, its hurdles, etc. But we don’t allow adverts for properties for sale at this time. Welcome aboard anyway, and do join in on the various discussions that occur.
Benny
Hi Mark,
Thanks so much for that – and thanks to Steve for asking you to step in. This sounds as horrible as I had first thought it was – but it is good to have clarification since it IS now Law. Wow!!
One to watch out for if you are an expat, or contemplating becoming one, eh?
Benny
