Forum Replies Created
Hi Typing Dog,
I don’t think you are missing much at all. I ran my own airbnb for a number of years, and its return was very good despite the high vacancy rate. Alongside that, it allowed for tradies to come by through the week if needed (saved expensive weekend callout rates) and it also allowed us to take our own holiday times when it was not in use (you don’t typically get these benefits with a standard rental). Our return was also around 8 – 9% – it varied year to year. Some months would be thru the roof, while others would be low.
What it does entail is a heap more management. It sounds like you are paying for cleaning costs so perhaps you don’t involve yourself?. The other big item is management. Are you paying another group (RE agent?) to do all of the work of arranging the rental days/weeks? Or are you doing it yourself. See, if you do it yourself, you can save heaps, but it bites into your own time. If you are paying someone else to manage it AND still getting 8%, then really well done. Of course, the location and the offering makes a difference (e.g. if your airbnb is on the Gold Coast by the beach, then you may well have a relatively low vacancy rate, so better income but also higher costs). But if it is available for inner-city rental, for short-stays for visitors, there may be less take-up, but also less cleaning and less management costs.
In a nutshell though, an airbnb-style operation would usually return a far better rental than a standard residential rental.
I wanted to start by saying “Good for you for using a spreadsheet to start tracking this”. For me, I found it helped me to learn Excel from scratch, while also allowing me to finetune my thinking re my early Real Estate days as I went along. Each time I met another investor, or went to a seminar, read a book, etc – it all helped me to revise my thinking and thus make adjustments to my spreadsheet(s). In all, it was the learnings from that time that gave me confidence to take the first step and buy my first IP. So, go for it.
To your spreadsheet, it appears basically good to me. One point I’d suggest is that whatever equity you draw from another property should be considered to be the “cash” you put into the new one. That is because you are taking something of value to give you your Deposit. So (example) if you took $150k to be Deposit and Costs for a new IP, I would put that amount as my “cash down”.
Of course, the very act of borrowing to get that deposit also adds some extra Loan Interest into the equation, and in that case, I would include that loan cost as part of your total borrowings too. So you’d be paying interest on an IO loan for the bulk of the purchase, and also Interest on the Deposit/Costs Loan too. i.e. in effect your mortgage will be for like a 100% loan (maybe even 105%). That will make a huge difference to your monthly bottom line – but it needs to be considered in my opinion.
Other thoughts – I saw no line item for Insurances. Can be substantial depending on what you buy. I also noted some of your examples had no Body Corp, so you are obviously looking at houses as well as apartments or plexes. Were these actual examples, or simply a bunch of made-up figures? The reason I ask the latter, is that there appears to be a HUGE range of diverse options – so I’m leaning to “made-up numbers”. Am I right? If not, no worries, as (like I said before) it was my PLAYING with my initial spreadsheet number that gave me a base to grow from. So, keep it up.
I’m not a full bottle on NOI, ROI, etc so I’ll leave that to others – but I can say that Steve’s STEPS program goes VERY deeply into these, as it takes you through the Due Diligence path from beginning to end of a purchase, including all of the expenses and the various acronyms that go with it all, and (most importantly) how they interact to show you the TRUTH about a property based on its numbers.
Come back if you have more questions,
- This reply was modified 3 months, 4 weeks ago by Benny.
I do feel I’ve done my research and I’m ready to take any action possible.
All good then Ben – I wasn’t sure, so wanted to sound a warning just in case. Good luck with your search for more MB info (I can’t help you with that).
Terryw has provided you with a Mortgage Broker’s view of your situation, with a warning or two. Sounds like things will go better after June when you become full-time (but even that might need some minimum period of employment to qualify – I don’t know, as I am not a MB, but check it out ahead of time).
What I’d suggest though is that you use the time between now and then to grow your knowledge of property – educating yourself about the market you want to buy in (go to open homes, talk with RE agents, go to seminars, etc), learn how you might buy at a discount (so your $420 property might only cost you $380?), learn how to evaluate a house’s value – like its position, land value (desirability of location), its likely tenants, any improvements YOU might make after purchase to add value, etc, etc. And that is the tip of the iceberg – there really is so much more…..
In a word – don’t be in a rush to buy something – plan for it, and reduce any risk by educating yourself ahead of a purchase. Read around on here – check out the Training Centre and its numerous articles and other topics. Oh, and welcome aboard, :)
Now I understand !! Yes, for sure, I can see where some regional areas might be “no-go zones” for any kind of investment into the near future. And yes, various media entities do tend to drive particular sentiments. Personally, I don’t foresee too much downside in cities, though some regional towns may well face a downturn, so it would be wise to re-consider things if your existing involvement in property has been mainly regional.
Re the cities though – as long as we all need a place to lay our heads for the night, and immigration remains strong, I think there will continue to be strong demand in Australia. Some downsides I DO see would be with units – these have faced multiple shocks over the last few years. There were increases to the cost of ownership for any overseas investors a few years back, leading to a drop in their numbers. That then left local buyers to pick up the slack (overseas buyers had been purchasing around 50% of all new units) so that dropped demand even as more towers were completed, leading to softer prices. Then we had the double shock with claddings catching fire (overseas, but applicable to some towers here, I hear) and then we had some towers failing (cracks appearing in newly-built places, with occupants told to “get out” and they haven’t been able to move back yet – eek!!).
With all of those downside events, I could only think unit values HAD to drop – and one off-shoot of that means house prices might become more favourable as more people steer clear of units. But hey, that is just a quick “back-of-the-envelope” set of opinions – what do YOU think re those?
Thanks for your response, and welcome. :) Re your comment below:-
I was going to head off and buy something next week but some have suggested that I be a little more patient and wait until we know more.
If you are skilled in property purchases, I’m sure there are always opportunities “out there”. On the other hand, if you are new to it, I’d also be saying “Hang back until you have planned just what to buy that suits your situation. Steve often says “Don’t just buy anything – the better way is to identify just what to buy (so you are actually looking for SOMETHING rather than anything)”. Or words similar to that.
But then, you said “wait till we know more” – is that about the climate? Or the bushfires? Or the current economic climate? Or something else altogether? Where do you have concerns in that regard?
What a good problem to have. You sound like you are going fine. I’m sure someone in this community will have answers for you, but it isn’t me – sorry!
Let’s see who does pop up with some sound ideas. I do like the idea of finding new expert members for your team – sounds like the previous ones weren’t up to the task, as you have “moved on” past their skill levels. Good luck, and I hope someone stops by soon,
The links to the topics are not clickable. ? let me know If I am missing something.
You are quite right – the Index references are not clickable (maybe one day when I have some spare time….. ;) so use the Index much as you would in a book. i.e. You look for a chapter title that sounds like what you want, then look for a page #, then look for the page within the book. In this case, use the date of an interesting post as your reference – then scroll on through until you reach that date (and of course, it might be on another page, so select the correct page before you scroll).
Look for the Index on page 1 – (or click link below) :-
Read down in that first post to get to the Index. Once there, note the item you wish to check out, log the date, then scroll down to find that date. It might be on page 2 or 3, so click the page button accordingly.
NOTE – the boxes that allow you to change the page you are on appear at the very top of any page, so, after recording the date of a post you want to access, and noting what page # it is on, scroll right to the top of the page. Once at the top, at right you will see 3 small boxes with numbers 1, 2, and 3 in then. These are the pages mentioned in the Index. You will be on page 1 when you read the Index. Select which page # you need to get to the report you want. An alternative is to scroll down just past the last post on each page – again at right you will see the 3 boxes that show the page #. These are seen just above the “Reply” box near the bottom of each page.
Or, simply scroll through and read them all – there is a host of useful info hidden within these replies….. And thanks for your question,
Hi to both of you, EjKim and Freedom,
When new to anything, it is normal to want to “get into it” as soon as possible. I’d caution against that…. While you are still unsure what and where to buy to meet your goals, do sit back and keep reading and learning. It is too easy to “Have a go” where you might risk everything on the hope that the one you buy works out for you.
The good thing I read from both of you is that you are wanting to learn, and that is smart. When you eventually buy something, you should know WHY it is that property that you want, and HOW it fits into your plans to meet your goals. You should also have checked out any risks around such a purchase. But you don’t get there without some time and effort.
Give yourself the time to read up on all of the ways you can make a property cashflow positive, and how to add equity. Seems you have heard of some of these ways. Go to seminars, meet other investors, check out opportunities to learn about real estate investing. But beware of those who would “fly you for free to another city and secure your future by having the taxman and the tenant make you rich buying a new (and highly over-priced) property from them”. Such offerings are still out there, and they are NOT in your favour.
Did you get to read some of the offerings in the “Big Picture” link I sent in my welcome PM to you? If you didn’t see it, go here to check it out:-
From that, you can see there are very many ways to learn and grow, and that link will point you to more ideas on how to proceed.
DO check out the various articles in the Training Centre on the Home Page too. There’s lots to learn – go for it,
In an attempt to use “what’s out there” (i.e. you can check it out yourself) I dug around in a pile of “climate change facts” as ranked by Google and found something that I think is – a. balanced, b. fair, c. easy to take in, and d. providing an alternate view to the current alarmism around the climate.
It is a sequence of 12 separate “mini-seminars” that tackle several claims made and seeks to shed a different light on each. If you don’t have an hour spare, please take just 10 minutes to view the 9th and 10th offerings on their list of 12 videos.
The ninth one is titled “What they haven’t told you about climate change” and the tenth is “The truth about CO2”. There are ten other videos to view (each about 5 minutes) if you find you appreciated the content – these two I thought were a good place to start.
Over to you. What did you think?
Suddenly we are seeing a “hotter than before” series of temperatures – the climate has dried out certainly, with a major drought having a marked impact on our farmers, and will thus bring higher prices for foods in the next few months.
The current bushfires are playing their part now too – like, when you have an uncontrolled (and uncontrollable) series of bushfires, their very presence is going to have some effect on temperature, yes – and it won’t likely be getting any cooler, will it? The 3 million hectares already burnt, and still with 100 fires active in NSW, this must be adding to the ambient heat of the continent – or at least within these Eastern states. So let’s not be too surprised if/when 150 year temperature records might be broken soon.
It has been quite alarming to read of temperatures in the high 40’s recently. Do keep in mind though that the current highest temperature on record in Australia (according to Google) is around 51 degrees. We may break that over this Summer, or we may not. If we do, the bushfires will likely have added some impetus to the thermometer readings. And as long as they remain out of control, their effect will only grow surely.
We do need rain on many fronts. And it will come – but is not able to be “dialled up on request” – when was it ever? Meanwhile, our powers-that-be need to take counsel from RFS veterans who said this week something like this – “Previously we’ve found we need to do a hazard reduction burn-off every 7 years to keep control of our forests. In the previous decade or two we’ve only managed to do 1% per year of our total forested areas.”
Working those numbers, that tells me we must get many more Firies doing burn-offs so we can get those hazard reduction cool burns up from 1% to nearer 14% (to keep that 7 year cycle going – 7 x 14 = 98% of forests with reduced fuel). It’s time to pay a lot more people to do a lot more work in that regard. Also bprovide them with bulldozers to rebuild the firebreaks that have became overgrown over the last 20 years (these had become mandated “no-go areas” by local/State govts with the lobbying by Green members). With firebreaks, at least Firies have some chance of containing a forest fire. Without them, just read the news to see what happens !! We’re living it right now, and it isn’t pretty.
My concern grows as folk (no doubt sincere in their intentions) are encouraged to rally in large numbers to disrupt our economy – blocking streets and bridges in our capitals to “make a point” about climate change. And now we have those who point to our recent bush fires as being CAUSED by Climate Change….
Now wait a minute !! Who was it who locked up vast tracts of forests as National Parks, then didn’t allow the cutting of fire breaks even, nor any kind of maintenance? And who voted down the regular burning off of these areas to reduce the fuel on the ground caused by branches and leaves falling yearly? Some reports I heard after a decade or more of neglect were that fuels loads were “shoulder high” in some areas. How can anyone stop a fire that has THAT much fuel at its disposal?
And just what led to that happening? It wasn’t some arbitrary “Mr. Climate Change” – not at all. It was politicians and bureaucrats who should all be lined up to take responsibility for these conflagrations. The climate is certainly a bit drier than usual, but with lower fuel loads and fire breaks maintained in these areas, the fires would have remained far more controllable.
I have also heard it is ILLEGAL to clear around your own home in some of these areas? Now which idiots voted in THAT particular law? And just who should be on trial for the massive grief that their actions have caused?
It’s an open question people. It galls me to hear some politicians turning the blame onto others for “inaction on Climate Change” when they themselves have played a huge part in fanning the flames of the recent unstoppable fires.
Further reading tells me that our Earth has been hotter than today for 97% (yes, that’s right – 97%) of its long history. Our current warming event is line with earlier warming phases – but this one is quite benign. The Roman and Minoan warmings were some 4 to 6 degrees hotter than today.
The Earth continues to do as it does – so does the Sun, and so too do those who would have us wreck our economies to fight some elusive bogeyman instead of concentrating our efforts on cleaning up our act re plastic waste, the unnecessary felling of trees, and the custodianship of our wildlife. Let’s not waste too much more time chasing shadows.
Polar regions melt then freeze again – it happens. The Sun goes on a heating cycle, then cools a bit – it happens. If man doesn’t burn coal, then he burns trees and (in some cases) dung to keep warm or to cook. All of these release carbon, but some release far more….
Man does a lot of damage. One man with a D9 Caterpillar can devastate a small forest daily – 1000 men with 1000 D9’s can do a helluva lot more. WHY are we doing this? We need trees – so let’s spend some money on ways to re-afforest the place, and let’s not build our homes where we need to chop down vast tracts of trees (disrupting wildlife). And let’s look at phasing out coal in a considered, sensible, planned manner – without the bogeyman of “We’ve only got 10 years to turn this around” alarmism. I don’t know where that came from, but it DOESN’T help.
Let’s talk about sensible solutions rather than accepting the first wild scheme that comes along to “set things right”. Even planned things can have unintended consequences – and this current climate change rebellion sets in train a whole HOST of those.
I want to rebel against the extinction of commonsense and to suggest we sit down and have a huge round-table that covers what things are important, what are real, and what are realistic to fix. King Canute tried to “fix” tides coming in and going out – didn’t work for him. And I do tend to see “Climate Change” in a similar light.
I DO agree that the climate changes – always has – always will. But I don’t agree with the capitalised version as trotted out by fanatics. We can do way better than that.
Another week has gone by now, and virtually all servos have followed their brethren to their current highs (around $1.70). But, using that website, one servo is easily identified in my area that has not lifted. Thus, I can top up at $1.41 saving nearly 30c a litre. Without using the website, I wouldn’t have known, as they are on a road I don’t use much.
Check it out – you could save yourself a lazy $25 when filling up. It’s like trivago for servos !! :)
By the way, Perth seems to have stuck with “Cheap Tuesday” so no need for this procedure. But other major cities seem to have around a 3 week cycle, so it is good to be able to flatten out the sine wave a bit. Darwin, Hobart and Canberra are a whole different case altogether, so this may not apply to you either. The graph on petrolspy tells all.
Wow – you certainly found a way to make it work for you and yours. More power to both of you for that great example.
What does Steve say often – “Success comes from doing things differently” and you seem to have that nailed. :)
Using a similar process it may be helpful for investors to determine a net worth $ goal and a date of achievement and then work out how much per day need to be invested/saved to achieve the goal, and then set about building a portfolio of assets to get there.
That is a great thought – I think it needs a little tweaking though as it is easier to get a small snowball rolling and picking up size than to be doing it starting with a large chunk.
In other words, finding $147 a day may well be too hard – to do, or to even comprehend, in the early days. The $147 is the final outcome worked back, for sure – but probably NOT how you achieved it. It would have been more like $30 a day in earlier days, then, with assets returning extra assets, it might be that you were stumping up $300 a day in the last weeks of your journey. KWIM?
Steve talks about a goal setting thing – I may not have it right, but it goes something like “Look to achieve 1/3 of your goal within HALF the allotted time for its completion”. This gives the nod to the fact that the early bit is harder to achieve while you are “building up a head of steam” in your asset building.
And, using your example from Michael Kemp, I did up an Excel spreadsheet that showed me that “$5 a day, and earning 8% Interest on your savings” would have indeed produced over $200,000 – but the first half of the journey would have produced just 1/4 of the final outcome ($55,000 of a $220k outcome).
I add all this just so others following aren’t put off by their “low figures in the earlier days” – that is just the way it all works. See, in essence, it is the interest that is compounding things – the total cash amount from 30 years of $5/day is actually less than $55,000. The interest paid provides the rest ($165,000).
In your case Tom, it will have been your good buys combined with rental incomes that is increasing your wealth over time (i.e. some savings, but perhaps a bunch more equity growth and rental income above expenses). Could you have realistically SAVED $147 a day (over $1000 a week)? Maybe in later days, but not in those earlier ones I’m picking. But anyway, well done you – and a great talking point you have put up there for us. I hope others share their thoughts too…..
PS another interesting post re “compounding” is this one (it looks at the expense side of things and the MASSIVE effect they have):-
More food for thought – re keeping expenses as low as possible.
Cool. So two self-contained units – one up, one down. Depending just where in Sunnybank you are, there may well be a need for doctors and nursing staff to rent nearby to the QE2 Hospital. Have you approached them to see how they are situated re “temporary accommodation”? Maybe QE2 might like to buy it – or, at least, they might show an interest in becoming permanent corporate renters of such a place. If so, that info would surely lift this place higher for any interested investors.
Or, maybe look at Airbnb accom for families who might want to be near the QE2 while loved ones are in hospital. If not close by, look at providing bicycles, or seek out nearby scooter parks they can utilise. Or, if they have vehicles, do you have vehicle accommodation for both units?
Sounds like you personally don’t want to hold it – but would you, if the return was better? Temporary accomodation is always a much higher return, but then it is more difficult (and costly) to manage.
Just a few thoughts. If still wanting to sell, drop me a line with more info…. I know someone who may have some interest in such a property,
Sounds good, but a bit of clarification please…
I feel the property would appeal more to a buyer of rooming houses (rooms upstairs and downstairs with own kitchen and bathroom).
Does each ROOM have these, or does each area (upstairs and downstairs) have separate kitchen and bathroom? If the former is true, this sounds like it is set up for MHO and should be a great cashflow possibility.
Tell me more….
After a bit of thought, I think this needs a heap more info before one could answer sensibly – here’s why…. First let’s put some numbers around this scenario – these are a guess, and maybe nowhere near your own numbers:-
Example: You have a house worth $500k, with a mortgage of $400k, and Rental Income of $500/week ($26k pa). The mortgage is IO at 4%, so $16kpa – then add rates, Insurance, RE fees, (Body Corp?), Maintenance, etc and you would have to allow another $6k surely. Thus, income = $26k, and expenses of $22k, and you’ll see that expenses are thus 85% of income. Your figure of 40% looks pretty good at the moment!!
But then, are you doing an MHO-style investment (multiple tenancies in one house), where your rental is HUGELY increased? That could get you nearer – let’s say double the rental (it’s quite possible with MHO). The new figures then are :-
Example with MHO: You have a house worth $500k, with a mortgage of $400k, and Rental Income of $1000/week ($52k pa). The mortgage is IO at 4%, so $16kpa – then add rates, Insurance, RE fees, (Body Corp?), Maintenance, etc and you would have to allow another $6k surely. Thus, income = $52k, and expenses of $22k, and you’ll see that expenses are just 42% of income.
Other changes (cheaper house, or lower mortgage, or better rents) can affect these figures. But then, if you had a lower mortgage, it could also mean you have a lot of “lazy equity” in the property that might have been doing you better elsewhere. So in the end, it comes down to ALL the numbers and not just the expense to income ratio.
Wanna share some more numbers? We may be able to add some more relevant ideas (no advice, mind – but a good “talking point” for sharing ideas that might possibly work….). Great question by the way….
$160k sounds low to me for a townhouse. What’s its condition, ‘cos a quick look at Woodridge’s median values over 5 years tell me it should be fetching more today. Add to that, Bne’s prices have languished these last few years while Mel and Syd screamed up. Bne missed out – is it yet to run up a bit as everyone gets priced out of Mel and Syd? Could be.
Meanwhile, it sounds like this should be cf positive, so not too hard to hold – is that true? Is it worth taking a hit on its capital value to allow a better purchase somewhere else? Could it be a candidate for a different letting style with better returns? Or is it in need of a reno? What if Bne were to grow 20% in the next three years – would that have you wanting to hold on, or do you just want it gone anyway? Tell me more…..
One issue that caught me some years ago (going 50:50 with another person) had my Bank “deeming” that each of us was to receive HALF of any rent, and yet each one of us was “jointly and separately liable for the WHOLE loan amount”. Killed it when going for further finance….
I suspect your situation may have at least that one problem area. Do check any intended moves with solicitor and/or accountant and/or financier BEFORE going ahead with anything. Too late once you are signed up.