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The replies to this thread are based on being in Australia, however you’ve noted that the broking business would not be here.
You need to find out from the relevent country you’re looking to operate in the requirements and likely outcomes – Australian’s won’t have a clue what it’s like to run a business in a completely different regulatory environment.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hi Corey,
Thanks a lot for the reply.
I guess when I said “flip” property I wasn’t really aware of what I was saying.
I guess the vision I have is buying residential property and renovating to create profit.
The other vision that I have is to buy cheap land, sub-divide, build cheap units and sell at a profit to re-invest.
Which of these strategies do you feel is better?
TomWhat’s the best? kind of like walking into a doctor asking what’s the best medicine when you haven’t given them any of your health information, symptoms etc. ;)
What’s best will depend on your personal knowledge and financial capability. And more importantly, what opportunities the market presents. No point saying you will develop if you do not have the financials behind you to do this, or there’s no properties available which will provide sufficient return. Likewise sticking purely to buying renovation projects but there is nothing available for you to work with.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hey Tom, welcome to the forum.
In terms of if you wanted to start with commercial from Day 1:
First port of call is to work out the feasibility of your financial situation – what can you work with in terms of deposit, capacity, structure. This will dictate the types of properties you can buy, minimum lease lengths, minimum yields etc. One you have this basic foundation setup, you then have a profile of the minimum acceptable parameters for a purchase.
From there is a few options – you can either self educate OR leverage some of your capital to a buyers agent who is experienced in commercial property to ensure you make the most effective buy possible.
Alternatively if you were looking to start with residential property and build towards commercial – you would want to work out the cost/benefit of flipping in Australia. In general after purchase, sale and taxes flipping is barely profitable to consider the time spent, in comparison to doing something such as a renovation-revaluation strategy which will enable you to build a portfolio faster, lose less to tax and transaction costs – Ive written about this here: http://www.precisionfunding.com.au/11366/. From there long term you can then consolidate your portfolio – whether thats through partial sell down of your portfolio etc.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
What exact costs do the commercial tenants pay for? i.e. strata, council and water etc?
It’s all open for negotiation – a tight rental market will see tenants paying for a lot more costs, in times where its difficult to get tenants you may not get much at all covered by the tenants.
General items which tenants will often cover:
*Land Tax
*Council Rates
*Maintenance
*Strata costs
*Utilities
*Fitout and make good provisions – right now especially in the office market its becoming very common to provide tenants with fitout for their business and or rent free periods.Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
You can definitely order a retrospective property valuation for these purposes – I’ve seen it done for this exact reason a number of times. :)
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hey Anthony,
Asset protection can be a valueable thing – particularly for those in litigious industries, ie doctors, lawyers, developers.
You will need to look at whats the real chance of you being sued and whether its worth it. In terms of our clients, I would say <10% have their properties within a trust, and of that most only have *some* within a trust structure, generally in relationship to mitigating land tax as their portfolio grows, than asset protection.
Overall I do see a lot of text book educated first time investors bring it up as it’s something they’ve read, but not a whole lot who are advised from their lawyers/accountants etc come out the other end setting up the structures as the cost/benefit isn’t necessarily there.
Keep in mind that having your properties within a trust will reduce your borrowing capacity with a number of lenders so it may be something which will create further drag on your ability to build a portfolio.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Out of curiorsity – what’s your interest in the older magazines? Just like reading copious amounts of property related content? :)
We do slowly build up our pile of magazines in the office, I don’t think we’ve ever gone through the old articles before.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Ethan is right – LMI certainly has a place. Looking to just save on LMI without factoring in the opportunity loss and the power of leverage in these scenarios is short sighted. LMI is a tool which can be used to your advantedge – in general sticking to 88%/90% LVR is more preferable as this balances cost vs outcome, but overall it allows investors to build a property portfolio faster and larger than otherwise.
This all goes out the window if you’re starting investing and have 500k of equity available from day 1 you can release, but for the average investor starting out it certainly has its place.
In terms of working out that cost/benefit – I’ve written about LMI and what to look out for when choosing a LVR here: http://www.precisionfunding.com.au/lmi-friend-or-foe/
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
yes, can anybody recommend a qld solicitor for commercial purchase/sales?
A number of my clients use http://www.certuslegal.com.au/ for their QLD solicitor needs for resi and commercial
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks Corey. Sounds like a deal breaker for long term hold I reckon.hey Pitty, are you the guy that surfs?
It doesn’t necessarily have to be. By diversified mix of assets by the time you can retire, you could potentially just draw from the liquid assets within your fund (shares, cash etc), whilst holding the property indefinitely. A number of the SMSF lenders now require you to hold a % amount of your assets in liquid funds – ie shares or cash when applying for the loan which would help in this scenario, likewise over time as you grow your total funds.
But definitely you want to factor in how your SMSF will look over the long term – having just the single asset could lead to being forced to sell/other outcomes.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Who said you don’t have any further borrowing capacity? A bank or a broker?
Get a second opinion, I’d say a third of our business comes in with people who were told they couldn’t borrow any further, only to then be able to buy 2-3 more properties with ease. Different lenders have different policies on calculating how much you can borrow, which can vary by more than 100% in different scenarios.
I would AVOID JV’s with non household (husband/wife/spouse) deals as this entanglement causes further negatives for borrowing capacity in the future due to joint and several liability issues (banks will treat any joint income as 100% your responsibility, but only entitled to 50% of the income). Then there’s a whole raft of issues with two different parties where life changes can mean you can be forced to sell a property before you feel the best time etc.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Scott & Corey – can you please expand on “compulsory drawings”. What would happen if you don’t spend as much as somebody else wants you too?
https://www.superguide.com.au/smsfs/smsf-pensions-if-dont-withdraw-annual-minimum-pension-payment
This article explains it fairly well – there can be major tax implications.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
As others have mentioned – just because one bank (or even a broker) may have said no more, doesn’t mean that’s necessarily the case. Each lender has different ways of calculating your capacity to borrow and they vary WIDELY. By getting another opinion in these cases it can mean the difference between ending your journey prematurely, or moving to the next stage in your investment path.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Regardless of all the other figures, 10-20% cg consistently is completely unreasonable in the current environment. Sure you can get this in short spurts, but you’re not going to be able to trend long term with those sorts of growth rates, its not sustainable indefinitely.
6%+ yields certainly possible, generally you will see this in regionals, outer suburbs of Adelaide and Hobart.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
For valuation purposes valuers will look at how the rental figure compares against the greater market, so they can very well discount the estimate accordingly.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Revenue SA actually has a land tax calculator which talks about joint land tax considerations. Also speak with your account about how trusts relate to land tax (SA gives additional thresholds to trusts).
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Fair point Benny – there’s still a lot of people who in particular like to sit down face to face and work with a local, we help a lot of people on this forum from Adelaide.
Still have a huge number of clients across every part of Australia, but definitely worth noting it for those who haven’t worked out where each broker is.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Indeed. Advantedge is following the same – however is at least correcting their absurd living expense issue by removing gross rental income from the multiplier which increases minimum living cost calculations.
Get in quick anyone needing to use them, applications must be in by Friday and conditional approval by December 16.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
It is one and the same. The 20% is used towards your purchase, those funds are generally disbursed in the first progress payment (the slab pour). This contribution can include if there’s any FHOG etc.
After the funds are paid out to the builder, the remaining funds owed is paid by the lender on your behalf at each progress payment.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
No – no one cares about who is living 300m away from them. ;)
There’s housing trust properties sprinkled all throughout Adelaide, so this is a common occurance. Where it might be more of an issue is looking at the amount within one suburb/area – but the State government is selling its stock off at an extremely fast rate so even in that case there could still be value in buying in those areas.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
