[Jacqui MiddletonParticipant@jacmJoin Date: 2009Post Count: 2,539]

December 16, 2009 - 12:30 pm

Hi again

I think we've said all we can say.  Personally I think it is a bad idea to buy this place. There is a reason it is hard to get finance for these places. 

Nobody was suggesting you buy it as a PPOR or even as an investment.  We were suggesting that if you want to live there badly, just rent there.  Buy something else that actually has capital growth, and whack a tenant in it.  And as for the FHOG: buy something (ideally not this place), live in it for 6 months to validate your right to the FHOG, and then move out.  Put tenants in it, and you can go live in an area you fancy – RENTING.  Remember, you don't have to be able to afford to BUY in an area in order to live there.  You can rent there.  I've heard quite a number of successful investors say that they consider it unwise to live in a property they own anyway.  This is because when you LIVE in your property, its expenses are not tax deductable

Good books – yes – you can download this one for free:
http://yourempire.com.au/#/book

Jacqui Middleton | Middleton Buyers Advocates
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December 16, 2009 - 4:16 am

There is another thread going on at the moment dealing with the question of serviced apartments.  Take a look :

https://www.propertyinvesting.com/forums/property-investing/help-needed/4330114

Jacqui Middleton | Middleton Buyers Advocates
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December 16, 2009 - 3:15 am

Ah yes sorry matie.  I read demo as "demonstration" rather than "demolition"

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December 16, 2009 - 12:54 am

DWolfe wrote:

Hi,

So for demo costs allow about $6k just in case. For all the subdivision costs = plans, council, working drawings, etc allow up to 30-40k if you get the architect to do all of it

Hi DWolfe

If he just wanted to subdivide (and put in the obligatory water connections to each property) but NOT submit an application to construct dwelling(s), is that all included in the $6k you suggested?  Or is water connections, power connections etc extra?

jac

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December 15, 2009 - 11:11 pm

Yep you can sell the land without the building permit.  You'd get a bit more for it if you had the permit, of course   You can get an idea of how much more by scanning land prices on http://www.domain.com.au

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December 15, 2009 - 11:07 pm

Spot on new_start.  Excellent to hear we've gotten through to you   It is, I assume, more likely that people on this forum are better read and educated on investment matters than your family might be  

We are absolutely not saying "do not buy a property".  We are simply saying "we don't think you ought to buy THIS property".  The rule of property is to buy as soon as you can possibly do so

Good luck – let us know how you get on!

Jacqui Middleton | Middleton Buyers Advocates
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December 15, 2009 - 6:31 am

new_start … if you take a look at the contributions Terry makes to other threads you will see he knows his stuff and that his suggestions are made in the best interests of the person asking the question, not himself.   He's given you a pretty clear warning with his comment

"I think you are silly to buy a property that doesn't appreciate. There is no point. You might be better off by renting one and then investing the difference elsewhere."

That says pretty clearly that you'd be a fool to buy this place.  At the end of the day it is your money, but the advice you're getting in this thread suggests that your money would do far better being sunk into something else.

If you decide to buy it, be ready to be forced to live there forever as values of other properties get away from you at a pace your annual payrise cannot keep up with.

Jacqui Middleton | Middleton Buyers Advocates
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December 15, 2009 - 5:58 am

perfect!  As Terry suggests, have the best of both worlds!  Live in this area you like so much for a while – but rent there.  And at the same time, sink your cash into something else.  Bonus is you'll be able to negative gear any losses.

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December 15, 2009 - 5:57 am

It really depends on the situation.  For instance, let's say the one with the 12% growth is in a town that exists only because of one company.  What if that company goes bust or shifts its premises elsewhere?  Jobs in the town would be wiped out, and noone would have reason to live there.  Then your house would be worth squat….

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December 15, 2009 - 3:00 am

Right so let's assume this place pays you $20k a year in rent, and appreciates at 1.9% per year (which appears to be the case based on the figures in a previous post).  Let's say a regular apartment doubles in value every 10 years, but returns say only 4.5% in rent.  Let's see how that looks after one and two years respectively.

Scenario 1 : Buy this place at $350k.  At its current rate of apprecation (1.9% per year) it would probably be worth $356,875 in a year's time, during which you'd have earned $20k gross in rent.  Let's forget about tax for now.  So in one year, its worth is $376,875, so to speak.

Scenario 2: Buy a different place for $350k that doubles in value every 10 years.  After a year it'd be worth about $38500, though may have earned a lower rent of say 4.5%, which would earn you $15750.  So its worth after a year would be $400,750. 

So in one year alone, the second scenario has already outperformed the first scenario by $23,875.  This compounds each year.  After two years, the gap would be more in the order of $48,797. 

Ultimately, it depends what the purpose is for buying this place.  It will always be a roof over your head – that cannot be taken away.  If you wish to live in it personally forever, then it works perfectly.  The issues arise if it is in an investment, or if you need to use this place to trade up to something bigger later on.  On the face of things, the rental return with this place appears to be higher and would hopefully remain higher than regular places.  However if you ever needed to refinance it to trade up to something bigger, you would probably find yourself very restricted due to the fact the place might not appreciate a great deal by comparison to other properties.

All that said, the future is speculation.  We're just going on past history of such properties.

Like George 99 pointed out, you have to work out what the purpose of the place is first, and make decisions from there.

Jacqui Middleton | Middleton Buyers Advocates
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December 15, 2009 - 1:40 am

The big concern I see is; let's say you buy this place, and it appreciates far slower than other properties.  Then you have a situation change in your life – perhaps you'll get married and want to have a family and as such will require larger accommodation.  You could in theory refinance the flat, to pull some money out of it to sink into a house.  However if by that point, the value of the flat is tiny compared to that of a house, it may not be an option for you.  You may struggle to keep up with the property market in that regard.

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December 14, 2009 - 10:32 pm

I agree.  Remember the rule – you want the value to double every 10 years.  The value you quoted is relevant to 2002 and it will be 2010 next year.  So that's say 8 years passed already.  So you should expect the property to be worth around $531k by now by the following calculation 295 + ($295 * 8 / 10) = 531.  You mentioned it has only appreciated to 350.  So it has already failed by a whopping $200k.  Stay away, I think!

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December 14, 2009 - 6:07 am

Hi Emma

What are the legal requirements for such a residence?  For instance, in the UK, there is a requirement to install fire doors.

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December 14, 2009 - 5:58 am

Here is another granny flat company http://www.bondhomes.net.au/brochure

Jacqui Middleton | Middleton Buyers Advocates
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December 14, 2009 - 5:49 am

Maybe it might be an option for your mum to take out a loan against the equity of a small portion of her home – enough to build a granny flat in her backyard?  She could live in the granny flat and could rent the main residence out, and use the rental return as income. 

This site gives a bit of an idea of the price of putting a small residence in the backyard (assuming the backyard is big enough, and assuming council grants permission to do so) : http://www.backyardcabins.com.au/prices.html (note that things like bathroom and kitchen fitouts, lighting etc is EXTRA)

I would think that if she loaned $100k against her house to do this, then the rental return on main residence would see this loan paid off within 8 years.

This is just one idea, and you ought to seek your own advice from a professional who does not have a vested interest in whichever path you choose.

Jacqui Middleton | Middleton Buyers Advocates
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December 14, 2009 - 4:32 am

Further to my previous post, perhaps we can all suggest our best ideas for your mother's scenario if we understand the need. 

Why is she thinking about selling the house?  Is she worried that without doing so, she won't be able to afford bills and groceries?  (in other words, in her retiremetn, will she have another income stream such as a bit of superannuation?)  Or does she does want to free up a bit of cash for a few pricey holidays?  Or …. ?

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December 14, 2009 - 4:25 am

If it was my mum I wouldn't want her to do this either.  Just look at what is going on with the global markets right now.  It would be bad enough if that was your grocery money getting slaughtered… another thing altogether if you'd disposed of your house to buy into such a predicament, and then couldn't afford your rent money either. 

Something to look into is a reverse mortgage.  I do not know anyone that has such a mortgage, but it is worth a look.

Where is your mother planning to live if she sells the house?  Rented accommodation?  Or buy something smaller?  More importantly, WHERE is your mother's house?

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December 13, 2009 - 10:39 pm

Hi Scott

That's awesome news

It would be fantastic to hear how things progress – I would really appreciate that!

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December 11, 2009 - 12:14 am

Quite.  Well said DWolfe.  You are not obliged to do these people a favour and take their house off their hands.  I urge you to remember that one of the big strains on relationships these days is financial woes.  Don't introduce financial strain to your marriage by buying badly.  Forget about the needs of the vendor and think about your needs.

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December 11, 2009 - 12:09 am

I've been to seminars in the UK where this strategy was discussed.  It is apparently often an attractive option to elderly vendors – whereby you pay a substantial amount of the sale value to them, and "loan the remainder" from them.  You pay them a flat interest rate that is better than what the bank could offer them – and they sort of live of the income.

Jacqui Middleton | Middleton Buyers Advocates
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