Forum Replies Created
Hi Ramki,
Welcome aboard !! The phrase you mentioned was unknown to me (though the wording indicated what it might mean). So I went Googling!!
Go here for explanation :-
Since it is BCC's own site, I think the content can be trusted,
Benny
Hi mwb,
And congrats on your first post….
I agree about the site too – there are some absolute gems sprinkled throughout (posts and people!!).Re your situation, why not tell us a bit more about the other side of things (e.g. incomes, costs, locations, etc) so that the good folk on here can give you the benefit of their knowledge. The more you can share, the more thoughts can come back to you re "how to better the scenario".
Right now, I'm stuck, but congrats too for being one of a few percent of people who are actually property investors.
Benny
Hi Squiresy,
It is always good to see in-depth questions – well done. Shows you are looking for a way forward.
There are several on here who will add more of value than I can, but from my more limited knowledge, what you are proposing sounds like it would need some trade-offs to have it work. e.g. by going guarantor for her, I believe that may well add no advantage for you, as your "guarantor-ship" would count against you when applying for finance.
I will await with interest the replies from those more able to provide a useful answer to what is a good question !! On the surface, it seems like there may well be "other ways" to play what you are considering…. Let's see eh?
Perhaps consider providing a few more figures (value of PPOR, mortgage, etc. – even if only "rough") as this would likely help to make any answers clearer.
Oh, and welcome too.
Benny
Hi Kurtuk,
Good work !! I think a valuation will add a bit more certainty to your current situation.
A quick Google told me a little about Eatons Hill –
http://www.realestate.com.au/neighbourhoods/eatons%20hill-4037-qld
I was particularly interested by the number of "buyers looking" in that suburb. Sounds to be a bit sought-after – which can only be good news for your valuation. Note the rental return is less than 5%.
Also, re Deception Bay, your earlier words, plus a Google :-
http://www.realestate.com.au/neighbourhoods/deception%20bay-4508-qld
…tell me it appears to be of similar demography to my area on the South side (Logan City – esp Kingston, Woodridge, Marsden, etc). Houses/units were over-developed in the early 1990's which led to prices stalling for many years until early 2000's. Then whoompah – they all shot through the roof, primarily because of the better rent returns (I know several investors who cleaned up by buying in these parts back then).
Note the gross rent return in Deception Bay compared to Eatons Hill… more chance of being cash-flow positive – but then, a higher return often comes with higher risk, so one to consider….. Gross return is yearly rent divided by cost as a percentage, so:-
Deception Bay = 310 x 52 / 285k = 5.6% vs Eatons Hill = 4.3%
That gross return is a "place to start" when evaluating how well a property might do when first looking. Of course it is a simplistic go/nogo method of sifting through chaff to find the wheat, and not much more than that. Similar to Steve's old 7 second rule, it is easier to call a year 50 weeks – so simply halve the rent per week and multiply by 1000. e.g. 310/2 =155 x 1000 = 155,000. This comes to just over half the cost of the house, so just over a 5% return. Steve would look for a 10% return back when he was starting, thus looking for the 7 second rule to bring a number equal to the cost of the place.
This worked well in some areas (e.g. Kingston, Woodridge) in the late 1990s and early 2000s. Investors could buy in for $75k (or less) but get better than $150 a week rent. My first purchases back then (in Redlands, Logan) were around 8 – 10% without having to look very far. Will those times come again? I'm sure they can/do in some areas, at some point if the property cycle. Watch for it…..
Good luck with the val,
Benny
Hi TM,
Quote:If I take out a Interest Only loan in my name and have an offset account attached to it- is this okay???I love what Offset/IO loans can do for us. As such, it sounds ideal to me – but, I am not a mortgage broker, nor any other qualified adviser – so do be guided by what others on here with the right credentials might suggest.
As some have already mentioned, it might not be quite "cut and dried", so do seek advice re setting it up.
As you say, this will buy you time to think and plan for your next move. Good luck with it,
Benny
Hi again,
Quote:Are there any other options out there?Yes there are….
You may not like some/all/any, but here are a few thoughts that might guide you in one way or another. I’ll summarise each, but if one particular option seems to sing your song, then jump back in to ask for more info re that one, OK?
First though, in what area is your PPR (in case others can add a comment re the location)? Can you find what similar properties are selling for there (e.g. via RE agents, websites, media articles, homepriceguide.com.au, your bank, etc). This should have you finding a “value range” in which your place sits right now. Many variables will affect this, including location, land size, condition, # of rooms, garaging, etc.
Next, did your master bathroom really NEED an upgrade, or was it to suit your wishes? If the former, then it is likely an older home in a settled area, and the upgrade would hopefully have added $20k+ to the value. Kitchens and bathrooms are the major “put-offs” to many buyers – so your purchase price maybe allowed for “spending on the bathroom”, thus was under market value at the time.
Could it be that your place today is really worth between $560k and $590k? If so, that changes the whole dynamics of your situation.
But let’s take a look at some other options:-
1. Cross-coll – always an option, but can be a b*tch to unwind later… And if your home value is really nearer $540k, there is little advantage in considering it anyway. Others first eh?
2. Find data that supports a higher value for your place now – e.g. the upgraded bathroom, any recent comparables (similar houses sold in your area and their prices), completed works (or plans) from Council that may indicate a lift in local values overall. Talk to your bank re getting a valuation for finance (and tell them what you wish to do). They will likely talk cross-coll (of course) and will maybe suggest a “bank valuation” for purpose of releasing equity in existing. Don’t sign up with them yet, but bring the results back so that some of the great people here can add even more up-to-date answers.
BTW, I do agree with those who have said “You don’t have enough Equity right now”. If too skinny, you would be creating a rod for your own back. BUT, if a bank val comes in at $570k or higher, that could shed a whole new light on the situation.
4. Research the idea of moving out of existing, but keeping it as a rental. Then rent somewhere else for yourselves. This then opens doors to assistance from a rental income, depreciation, tax concessions, etc. This can improve your Servicability out of sight (you say it is already good now). But then LVR (equity) is your current sticking point, not DSR (serviceability) – so can you add value to your PPR right now ? Pretty up the place – ahead of a bank valuation…. Does it need a paint? A small (few thousand) investment in appearance can add tens of thousands in perceived value !!
5. Whatever else happens, KEEP ON reading and learning. Buy some good books too (I prefer books, as they are easily portable, and you can scribble on each page, highlighting important bits).
There will be an answer – and it will show itself to you, so long as you keep looking for it !! Do get back to us with any further thoughts/questions, etc.
Benny
Hi Jade,
Quote:Whats the normal charges for depreciation schedule?I haven't ordered one in a few years now, but I recall $500 being about "the norm" back then (about 7 years ago). A quick Google held a (possibly) pleasant surprise though – Google corpred. Or maybe someone else on here already knows of them…..
I must admit my initial reaction was to think "Why are their reports so cheap?" But their website provided the answer……
Benny
Hi Kurtuk,
And welcome !! Depending on how long you have lived there, and whether you might have bought for a discounted price, the property value might not now be $540k. We appear to be coming out of a 7 year slump in Brisbane (when prices hardly moved overall), and there are indications that values may be heading North, or have already started to do so….
I agree with Jamie re x-coll (i.e. it is rarely a good idea….) but it can make the difference in specialised cases, so let's not write it off altogether – yet !!
If you can add a little more to your story, those extra pieces of information might turn the whole ship around.
Do you have a particular area in mind for purchasing an IP?
Benny
Hi Paterson,
Quote:So who would be notoriously good for planning to release equity in the future and grow your portfolio. I know you can't endorse anyone but since this is all new to me are their known players in this field?Find a good Mortgage Broker (many of whom post frequently here – particularly in the Finance forum). Read the replies these MB's make to yourself and others on forum to glean which of them "suit you" !! It could be that they show particular knowledge that aligns with your needs, or it could simply be that they are in your city, and you can set up a face-to-face to see what they make of your WHOLE situation.
A good Mortgage Broker is worth their weight in gold !!!
Benny
Hi again, Paterson,
You're really getting into this – good to see. Another seriously good question – I'll see if I can do it justice….
Paterson wrote:if I have put $30k down on a $250k property, and have the rest on interest only mortgage, my liability is for the full amount of course but my investment is only the $30k and if I have generated that from releasing equity on another investment property then the risk is even less.. Am I understanding this correctly? On that basis my return on investment is based on the net rent return against the deposit, is that right?– See more at: https://www.propertyinvesting.com/forums/help-needed/4349301#comment-294953
I believe that is called a "cash-on-cash return". And it is a valid consideration too, up to a point. But it does leave out the other hidden costs – opportunity cost, loss of interest cost, etc. Imagine when you reach the stage where you pull ONLY equity to purchase and put just $1000 on a contract to purchase – your "cash-on-cash returns" will be in the stratosphere……
It is always useful to realise that the other borrowed money could have been an opportunity to invest in shares, oil paintings, etc. Thus by utilising that equity, the monies (that WEREN'T cash-down on the property) still impact. That is called an Opportunity Cost. And, if it was equity released from a sale (so, no mortgage interest paid) then it IS cash-down, isn't it? However, if you won Lotto, then it doesn't have the same "cash down" impact, but it DOES have that "opportunity cost" (as you could have invested it in shares…..).
In short then, I believe the extra $220k should be considered as an "investment cost", at least to the extent of the mortgage monies paid Monthly, along with Borrowing Costs (stamp duties, application fees, etc). However, your thoughts lead me to offer a little more – first, let's assume that the gross yield on this place is 7% (thus, the rental income is ~$336 a week).
If you now compare the "cash-on-cash return", rather than Nett Yield, then you are pulling $17,500 in rent, and let's assume $1500 a year on Insurance, maintenance, rates, PM fees, etc. Let's also say that your Mortgage Interest (IO) is 5% (so $11000 pa). You would then be left with a Nett cash return of $5000pa on a "cash down" amount of $30k. A "cash-on-cash" return of 16.6% then, and it sounds much better than the initial 7% eh?
Personally, I have always worked things out as if I have "borrowed 100% of the property cost". If the numbers still work with 100% in, then it's all good. I'm sure others have their ways that may well differ too. I'll be interested to read how others do this,
Benny
Hi Paterson,
Quote:Is yield on a property the rent as a %age of the value of the property per year irrelevant of what out goings you have on the property ?Yes, that is Gross Yield as JacM mentioned. Gross Yield is typically a good "starting point" when considering purchase. It can guide you to say "I can't pay more than $xyz else the Yield is too low to work for me". Maybe such a thought can help you pick up a property for a better price, or have you walk if that can't happen…..
But then, think about what happens after a reno….. If the reno was only to make it rentable (thus the rent might not increase, yet the value will) your yield drops – or does it really???? Have a play with the numbers, and you will begin to see that Nett Yield is far more useful once you are into a property.
Quote:I was led to believe that your property price roughly is your weekly rent price.. ie $400k purchase will generate $400 per week. – See more at: https://www.propertyinvesting.com/forums/help-needed/4349301#new At one time that rough price you mentioned (a 5% return roughly) was likely "near enough" to allow disparate people able to discuss a complex subject at a BBQ using "common ground assumptions/facts?" But times change and cycles move on.
Also, some areas might typically generate WAY less than 5% even in the good times, while other areas might generate way better than 5%, even in hard times…..
Good on you for asking questions too, Paterson. Better to be sure of your facts by asking than to assume you have got them sussed, eh?
Benny
Hi enc,
Welcome !! Sounds like you are in a good place with a chunk of change to use…..
I'm sure the possibilities are vast, but if you share a little more about yourself, responses might be able to be tailored more toward your preferences.e.g. What age group are you in? Do you want to limit your purchases to the city/region you are from, or not? An idea of your income, or perhaps just your "disposable income" – maybe you could buy 3 (???) Your risk preferences – you sound like you might be younger, so may be prepared to take on more risk than an older person with dependents. Are you considering shares too (as part of a holistic plan, if it helps to make the Property investing work), etc.
Of course, there may be things you won't wish to share publicly, and that's OK too. Share how much you are comfortable with sharing, and let's see what turns up.
Benny
Hi Melissa,
I'm from Brissy too, and my places haven't seen much growth for several years. Signs appear to be changing for the better recently though…. But then, I have houses – I gather units have a different way of working. E.g. I gather the dynamics differ in that, a forced sale in a block of apartments can impact on perceived value of all of the units.
So could it all come back to WHY is that other owner dropping his price? How are the other owners handling things? Any whispers re others also wanting (needing?) to sell soon? And is the current "value" being arbitrarily dropped because of this one seller? What do other owners (and RE agents, etc) see as today's value of these units?
Who are the usual renters of studios in your location? Are their numbers dropping, or increasing? Have rents been ticking upward over the last few years (even while values have stood still?). Any extended vacancies?
Seems to me you might already be able to provide your own answer, as I'm sure you'd be "keeping an eye on things" as an existing owner. And you would be better placed to answer them all than any of us, unless we also owned one of the other units. Do keep us up-to-date with your thoughts…. I'd be interested to hear what you decide,
Benny
