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    Hi Berm,

    Thanks for that – I just tried myself and it appears to be a mis-directed link.  Having someone take a look.  I’ll reply again in here once fixed,

    Benny

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    No worries Troy.  Was that link worthwhile in some way?   I know it was not a direct help, as you are looking at buying a PPOR anew.

    How did things go from your perspective?  Did you go ahead with drawing a loan against the IP?   It should have been a SEPARATE loan and not just an increase of any existing loan (to keep deductible and non-deductible costs from being mixed in together).

    Benny

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    Hi John,

    Not such good news from Chris there….  Now it seems to me you are left with “running the numbers”.

    First off, do you have tenants in place?  If so, what is happening to them while repairs are carried out?  Are they OK to stay there while such massive repairs are undertaken?  If not, then what are their options?   Look too at the likely Interest cost of using a Credit Card – even at some exorbitant rate (e.g. 20%), it could be utilised while a Personal Loan is sourced, so any Interest costs on the Credit Card (if it takes a month to source other funds) might be as little as 20% x $25k / 12 = $420 or so.   That is likely less than a week’s rent, so yeah, go stick it on credit if it gets things done quickly.

    A Personal loan could be as low as 8% Interest Rate too, so just 40% of the Credit Card rate.   That may also allow you time to “chase up other options via a lawyer” to see if someone else can cover the cost of this failure (as per earlier replies).  Surely keeping good tenants would be paramount, wouldn’t it?   Repair costs would also be deductible, so some of the pain may be taken away in that mode.  All is not lost…..

    You’ve been served up lemons – can you work out how to make lemonade?  ;)

    Benny

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    Hi John,

    That sounds bloody awful.  Thinking further from Steve’s and your words, I was wondering just where “strata” begins and ends.  e.g. Is your strata the box that encompasses your unit?  And does that go below floor level?  See to me (a layman) I would have thought that the BC should be responsible for the Structure of the building.  And would (should?) that include the structure underfloor, including rebar, concrete, any pipes, power runs, etc?  What are the limits?  Are the BC correct, or are they sticking their heads in the sand on this one?

    I don’t know – but in your situation it may be worth googling things like “Lawyer specialising in construction” and/or “Lawyer specialising in Insurance claims”.   Often a lawyer (solicitor) will allow your opening visit to be fee-free while they get to hear whether they can help or not.  At the very least, they may have others they can refer you to, once they have heard your story.

    Good luck with it,

    Benny

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    Hi Daeheon,

    Congratulations for taking that first step on the path to property investing.  Did you have a goal re “How much to earn from our first property to enable us to grow?” or was it more like “Just get a foot onto the property ladder?”  Whichever it was, you have made that first step, so that is worth celebrating.

    Do you care to share some numbers re “where you are” or “where you are planning to be”?   It’s up to you, and it is (of course) going to be public, so only share what you feel comfortable with.  To me, the numbers are always the important part.  Steve gets deep into these with his recent project “STEPS” that takes you through a VERY complete due diligence procedure.  It starts out with helping you to quantify just what you are wanting to achieve, then guides you toward the kind of property that might suit you best, and finally takes you through the very complex part (due diligence) – to the point where you will be as certain as you can be of each purchase you make.

    An agent’s job is to present a property to you and invite you to purchase – however, depending on various State laws, they are not obliged to lay out all of the possible “downsides”.  Of course, if asked, they should reply truthfully (but then, if possible, that truth should be tested).  It is up to you to discover, and attempt to verify, these truths – that is “due diligence”.  This is where STEPS shines.

     

    Re “what next”, or “How can investors keep purchasing investing properties”, that comes down to (largely) cashflow.  If your situation has you struggling to pay the mortgages, or limiting your savings regime, then it is up to you to find ways to increase that cashflow.  This can be done in a number of ways (always with the blessing of your advisers – accountant, lawyer, etc), and here are a few thoughts:-

    1.  Saving is a slow way to grow wealth, but investing savings to create wealth makes sense – like, if you can spend savings to grow rental income or equity in a property, then run the numbers on these options.  It may be that renovating may cost in the first instance, but it might give your equity and rental income a huge kick along.

    2.  Adding any “missing” things that allow a rental increase are worth exploring – e.g. ask your tenants if there are things they would like (and would be prepared to pay an uplift to have them) and see if you can provide these for little cost.  e.g. If the house isn’t insulated, or airconditioned, what are the costs of each, and would the $ uplift in rent MORE than cover the loan costs to implement these (or use savings and gain $x a week).  What about a carport if there isn’t one?   Landscaping?  A garden shed if there isn’t one? etc.

    3.  Consider whether changing to Interest Only loans would be beneficial in your instance.  Again, an accountant’s input would be crucial here.

    4.  Itemise your skills and risk profile to determine just what path might be more beneficial for you.  Would learning to develop properties hold some interest?  Certainly, though a very active role, the dollar outcomes can be outstanding.  Is that for you?

    5.  Renovations?  Buy/reno/sell properties (quick turnover for large cash injections to assist with the next buy/hold asset).

    Daeheon, do consider Steve’s words too – they go something like this – “The first stage of investing is accumulation – at this time the focus is on growth.  Residential investing works well in this phase.  Once you have amassed the required amount of Equity, then switch your investing focus to Income rather than Growth.  Steve recommends Commercial investing at this stage, where a tenant pays most/all expenses and the income provides your needs for living.

    One final thing – part of purchasing each IP is knowing HOW and WHEN you will need to move it on.  i.e. Plan your exit BEFORE you buy it.

    I hope that gives you food for thought.  Do come back with any questions,

    Benny

     

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    Hi Charlie,

    Steve asked me to let you know he recommends Mark Unwin.  He is based in the North-East of Melbourne :-

    https://www.mjua.com.au/

    Benny

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    Wow !!   Where has THIS been hiding?

    I was fortunate enough today to stumble over a dissertation from two stalwarts of common sense – Bjorn Lomborg and Jordan Peterson.  And, following on from Bjorn’s comment in my last post:-

    “Instead of pouring Billions into subsidising infant technologies that are not cheap, we would be better advised to turn those dollars into researching better ways to produce CHEAP energy. Once that path is found, China and India (along with everyone else) would RUSH to utilise this new cheaper, more reliable power source.

    Well, lookee here – in this short video (approx 20 mins) Bjorn and Jordan combine to espouse a host of truths about today’s world, promises made (and costed) that show the “path to fixing Climate change could do with a major reset”, but finishes with a hope that sounds like it is well worth exploring.

    Listen in to the last 3 minutes of the link below at least, to where Jordan talks of “oil-producing algae”.  Is that not a HUGE hope for the future?  Look it up.

    https://www.youtube.com/watch?v=NIMLW2RundY

    Apparently, all this algae needs is water, carbon-dioxide, and sunlight.   Just as plants take in carbon dioxide and give out oxygen (we’ve all known that for centuries), here’s a plant that takes in CO2 and gives oil instead of oxygen.  Let me think now – would this be worth spending a few R&D dollars on do you think?  It reduces CO2 and produces Oil – could we FARM it?  SHOULD we farm it?

    If not, WHY NOT?

    Benny

    PS Oh, and within that link, Bjorn talks of how “long” the batteries in the world could provide a backup for when “sun isn’t shining and the wind isn’t blowing”.   It is measured in seconds !!!!   Check THAT out, then tell me how good solar and wind power really are as a viable future power source.  Maybe seaweed will turn out to be way better?  But we gotta spend R&D money first….

     

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    Well, well, well !!   Out of interest, I went searching for a history of house prices over time in Australia.   The article also compared wages vs cost of housing, taking into account inflation and prevailing interest rates.  The data went from 1970 to 2020.   The results were (to me at least) a little surprising.  One take-away from the article was this one (remember, this was 2020, not today) :-

    It’s interesting to note that, although in all cases things are significantly less affordable than they were in 1970, in most cases we’re not actually at peak un-affordability when it comes to servicing a mortgage. Although house prices in all cities are at or near historical highs, interest rates are at all time lows. For Sydney, peak mortgage pain came in 1990 when average home loan rates peaked at about 17% and you were paying $4400 / month in 2020 dollars towards your mortgage.

    I say, with a 120% rise in Mortgage interest costs over the last 8 months or so, there has to be a heap of people in mortgage pain right now. Does it equal 1990? I don’t know, but it wouldn’t surprise me if it did. We will have reliable figures in a year or so, and can perhaps look back then to confirm.

    The article also went on to say that, once Interest rates got off the ground once more, the findings could change markedly:-

    Even though house prices are at or near all time highs, in pretty much all cities, mortgage payments are NOT at record highs. The reason is that interest rates are unprecedentedly low. If house prices continue to grow, or interest rates go up again, mortgage payments are likely to become unsustainable, particularly in Sydney.

    and then this:-

    Let’s hope interest rates stay at record lows – with today’s house prices, it’ll only take a relatively modest increase in interest rates for mortgage payments to become completely crippling.

    On here, we were aware of this likelihood – thanks to Steve, a year or more back, with his updates and warnings.  For others though, following projections of “no increase in Cash Rate until 2024” from the RBA, a lot of folks have been blindsided.  Good luck to them as they endeavour to keep going…..

    For those interested, here is the link to the whole article :-

    https://www.savings.com.au/home-loans/australian-house-prices-over-the-last-50-years-a-retrospective

    Benny

     

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    Hi Charlie,

    Check out the “Training Centre” on the Home Page.  There are hundreds of articles about all aspects of property investing.  They are broken down into categories (e.g. Buying, Selling, Renovating, etc) so you might be interested in those to do with Buying.

     

    Other than that, in a nutshell there are plenty of variables to consider.  Common ones are :-

    Is mining the ONLY employer in town?  If so, what happens when it suffers a downturn?  Where do the workers go?  Do they leave town?

    What is the ratio of rentals to owner-occupied?  If heavy on rentals (>30%), then these are all your competition.  (Especially in bad times !)

    Is the mine thinking of providing their own accommodation for FIFO workers?  It has happened before!   What happens to your IP then?

    Can you get finance?  Some lenders won’t look at some regional towns.

    How difficult is it to manage a remote property?  To get tradies to fix things?  Is the town big enough to have a few RE agents?  If only one or two, you are CAPTIVE to them – what if they are both no good?

    Whenever you buy, you should always have an Exit plan worked out.  e.g. If times went bad for the mine and its workers, how would you exit this property?  Who would you sell to if times were tough?  Can you hold on until better times come around again?

    Just a few thoughts out of left field Charlie.   Keep on searching – the answers will come,

    Benny

     

     

     

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    Hi Charlie,

      So the question I am asking is, can the revenue of a business be recycled using trusts?

    I thought Chapter 9 covered that bit quite well….  Or was your question a bit more broader than the book covered?  Maybe change the question if it needs to be more definite in its focus.

    And also will the banks lend money based on the revenue of the business or only the free cashflow?

    Are you asking whether the Bank looks at Gross or Net Revenue?   That’s what it seems like to me.  In answer, I’m sure they’d want to look at both.  And probably it needs a bit of time too – i.e. they like to see a business has been in operation for some time (not just a startup).

    Benny

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    I heard on the radio this morning that Chris Bowen commented something like this – “With power prices having lifted 36% we must assist families who are doing it tough”.

    Hmm – how about the families with a 120% lift in Mortgage Interest costs, Chris?  What does Labor have for them?   I haven’t heard of that “RBA Review” happening either – isn’t it time?  C’mon Jim Chalmers, time to take them to task methinks !!

     

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    OK, here we are at year’s end, with no more RBA intervention until early Feb 2023.   In the last 3 months of 2022 they “went easy”on us, with just 0.25% each month.   The total uplift from April 2022 (when the Cash Rate was 0.1%) has been a further 3%.

    Sounds innocuous, doesn’t it?  A bit like the Interest Rate you “might” be able to get on your Savings in a bank.  But is it really just 3%?

    No bloody way.  This 3% has been an enormous blow to many.  Let’s take an example – back in July, it looked like an extra 2.5% increase could happen (after already lifting by 1.25%, giving a year end likely total of 3.75%) :-

    But let’s take a look at the mortgagor – the poor old Mum and Dad who were on a 2.5% Interest Rate for their mortgage.

    That 1.25% lift is a FIFTY percent increase in the Interest cost of their mortgage, with (it seems) more yet to come?   Who can handle a 50% increase?  If true, this prospective 2.5% lift by year end will totally cruel the Mums and Dads.  Forget a 50% rise in the Interest costs of a mortgage – try 150% !!

    With hindsight, we now know the total change was 3%, not the 3.75% that was projected in July – whew !!!   But it still has a huge effect.  That couple who were on 2.5% Interest with their mortgage at the beginning of 2022 will now be facing a 5.5% Interest Rate. And the increase since April was not 150% after all, but it still made 120%.  5.5 / 2.5 * 100 = 220% – i.e. a 120% increase on “what was before”.

    120% sounds a helluva lot more than 3%, don’t you think?   And the effect on a mortgage is seriously serious.

    The Interest component has more than doubled in just 8 months.   How does a landlord go with attempting to lift rents by 120%?   How do families facing petrol, power, food, insurance and mortgage increases cope?   How many have dropped into “mortgage stress”?   Would have to be a bunch, wouldn’t there?

    All I can do is hope (as someone else had commented) that the RBA realise in the New Year that “they went too far”and decide to drop things back somewhat.  I know, I know – the Interest Rate was on an emergency setting – it HAD to lift.  But then prices had ballooned upward, and a 100% lift in Interest on a $1m nortgage is a lot more hurtful than a 100% lift in Interest on a $250k mortgage.

    Did the Rate need to lift THAT far, THAT FAST????   I still say No – let’s hope the RBA enjoys their vacation time and relaxes a lot more into the New Year and have the IR’s relax a bit too.

    Benny

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    Hi Charlie,

    That’s good to hear.  Oh, and check out my answer to you in the other thread you started.  I think you will appreciate what you find there.  ;)

    Benny

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    Hi Charlie,

    I hear you asking more and more about Trusts.  I can’t help you directly, but I can refer you to Steve’s earlier book – “From 0 – 130 properties in 3.5 years”.   Get the updated version from 2010, then seek out Chapter 9 and DEVOUR it.  I found it fascinating reading on the subject of Trusts and how Steve uses them, and I am sure it will answer a heap of your questions.

    Of course, though the book is educational, it cannot replace the worth of a professional (your Lawyer and/or Accountant) well versed in these structures who will be advising you re YOUR OWN situation.

    Benny

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    Hi Charlie,

    Can anyone confirm this or provide an alternative view as it is becoming increasingly frustrating when the advice from accountants and lawyers do not match up?

    That should “an accountant and a lawyer” shouldn’t it?   Sounds to me like a second opinion from both professions might be a good move.

    I am unsure of what the lawyer’s view of trusts is, but I am going to take it that it is wrong…..

    Gee, Charlie, alarm bells are going off in my head as I read those last words.  To me, it would be more likely for a lawyer to know the laws than an accountant, but then there are some really knowledgeable accountants, and I guess there could also be lawyers who may be still learning….  Has to be second and third opinions surely??   Oh, and a wee reminder – when an accountant does your books at year end, they have you sign that YOU are responsible for THEIR calculations don’t they?   Couldn’t that also apply to any advice they have given you?

    Tread carefully my friend – those questions you’ve asked are very good ones, so don’t resort to guesses as to the correct answers.

    Benny

     

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    Hi Jeeakz,

    Steve no longer does training courses.  He does however run webinars from time to time, and these are always worthwhile as he comments on current situations.   Also, I think his STEPS offering is a VERY good product.  It is designed to walk you through the total Due Diligence needed when purchasing a property.  The detail is phenomenal and if you followed the steps to a T, you would minimise (or even eliminate) the risks involved when purchasing.

    Other than that, some members post of educational meetings on here (either in person or online).  Look for them every month or two.

    Good to hear you are looking to spend money to educate yourself – a favourite quote of mine is “Ïf you think education is expensive, try ignorance!”

    Benny

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    Further to that last comment, the presenter (Bjorn Lomborg) goes on to say (and I paraphrase Bjorn, but you can click the link and hear him yourself) “Instead of pouring Billions into subsidising infant technologies that are not cheap, we would be better advised to turn those dollars into researching better ways to produce CHEAP energy.  Once that path is found, China and India (along with everyone else) would RUSH to utilise this new cheaper, more reliable power source.   So long as the current ‘green’ energies require massive subsidies to make them appear cheap, that will not happen.”

    In short, he is inferring that we need to do a U-turn, and stop doing what is not working too well (and at a very high cost – i.e. those renewables), and instead turn to the other options (Nuclear, Thorium, etc) that seem to show much promise around the subject of providing cheap energy for all.

    Why not?  Seems to me to make far more sense than what is happening currently….  Do you agree?  Or is there an even better way?  Let’s hear it….

    Benny

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    Hi Curious

    Just noticed – this looks like an honest mistake rather than an attempt to deceive.  When someone typed the brochure, their right hand slipped one position too far left, thus the 09 became 98.   It happens often – but proofreading would (should) have picked it up.  Or a title search during conveyancing….

    FWIW

    Benny

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    Ah, right….  That makes more sense now.  Septics can take up a lot of space when using transferation trenches.  Aren’t there now newer ways to handle this?  Have you researched these later septic options, and do they help (i.e. do they take up less space)?   It’s been a long time since I had such a property, so my knowledge today is not great.

    Benny

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    Hi Dominique,

    It appears to me that things don’t quite compute…..   A quarter acre should be PLENTY big enough to fit a house and a Granny flat, with room to spare.   Some folks do this on half that size block.   Was there something else that was unsaid – e.g. are there easements on the block that can’t be built upon?   Is the house a very LARGE 3 bedder?

    Or is there something else I’m missing?

    Benny

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