Forum Replies Created
Hi Peter
I am assuming you have someone advising you in some regard, since you already have a SMSF setup with a loan pre-approval.
Some prudent things to ponder would be:
Does the SMSF have corporate trustee or personal trustees? There are many pros for corporate trustee and many cons for personal trustees.
Are there other members in the SMSF or are you the sole member?
In terms of choosing a location to buy, it is important to stick to statistics and facts. Talk about a bubble that is not supported by fact can merely be noise. Also be very careful about investing in an area merely because you grew up there and know it well. That does not necessarily make a good investment decision.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I would be concerned if the agency was encouraging of 6mth leases rather than longer leases, because it costs you big time as you are learning.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
No worries. You said in your original post you weren’t using your new knowledge, but you are. All these topics all put together to achieve the outcome of reducing your overheads:
– Refinancing
– Equity Release
– Converting to interest only
– Usage of an offset account
– Debt consolidation to remove loans on higher interest rates
– Eliminating ideas from the strategy that do not take you forwardIt’s pretty tough to be a successful investor without a good grasp on how best to arrange finances and loans. You’re covering a lot of these topics now so that knowledge will solidify in your mind and be useful in the future when you’re ready for your next stage towards investing.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I’m going to address the most concerning question here: whether or not your lender will finance this purchase. If not it becomes a matter of losing the deposit and possibly being sued.
For the moment, all energy should probably be put into determining how to finance this purchase if the bank says no. Then worry about everything else after that. Ability to finance the purchase and settle the purchase is the most pressing issue.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Sal
Agents will often specialize either in particular areas, and/or particular types of acquisitions (eg cashflow position properties, renovation properties etc.) If you are able to comment on whether you are leaning towards particular options it’d be worth mentioning so that folks can recommend appropriate operators for you:)
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
That’s it. One logic step at a time. And yes we’d love to hear how you go. Check back in and let us know. Chances are your situation will be similar to other people and this thread will become a useful resource for other people :)
Glad you feel you got the help you need and are on the right track :)
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Jo
Yes assuming your mortgage broker his good at his/her job, and assuming there is some equity in your property (ie assuming the bank valuer puts figure on its value that is similar to what you believe the property is now worth), then the broker should be able to refinance the house to assist you in payout out the car loan.
Ask your broker to talk to you about :
1. the difference between Interest Only and Principal and Interest loans.
2. the difference between fixed rates and variable rates.
3. the availability and merits of offset accounts.The interest only will mean your repayments are less, but that you are not working on paying off the principal. This helps with your overall cashflow. Generally interest only loans will automatically become principal and interest after 5 years unless you “do something” to change that (such as refinance). An offset account is an account that is generally only available to sit against a variable rate loan, and however much money is in your offset account is the amount of money that is exempt from attracting mortgage interest (eg if your loan is $200k and in the offset you have $40k, then you would only be charged mortgage interest on the difference which is $160k. Offsets are a great facility being somewhere to park spare money and save your mortgage interest at the same time, while offering you the flexibility to pluck the money out of there at a moment’s notice if you wish to do something with it (such as spend it on a deposit on a subsequent property, or go on a cruise). However it is a dangerous facility for people that cannot control their spending and are prone to “treating themselves” all the time (eg cruise, or more new pairs of shoes than they really need etc etc).
Chat over all these things with your broker to understand their relevance to your circumstances, and indeed which mortgage products are available to you under your circumstances.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I would be concerned about the following things:
Does the local economy sustain itself?
It is prudent to be clear on the impact to an economy that is heavily reliant on the financial support of other nations. The flick of a pen in the parliament of another nation can change everything in an instant.
It is also important to understand what drives the value of a location. If it is the tourism trade, be clear on the major threats to how well tourism thrives in the area. Currency fluctuations is a biggie. Civil unrest, sanctions inflicted, and decisions by other nations to withdraw consular presence are others. If you are talking about a destination that requires a visitor to have multiple vaccinations to protect against illnesses during a standard visit, one must question how quickly that destination would fall out of favor with tourists if those illnesses escalated into a new strain, or if a new super bug arrived.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Suri
Firstly remember that you (i hope) have conditions of sale that offer you possible exits if needs be (eg finance, building & pest, due diligence).
Have you cut some numbers on what the house would be worth if resold on a smaller block of land? (ie if you put the yard on a separate title or titles?), and numbers on constructing additional dwellings in the backyard?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Vern
Yes, however a valuer will value your house based on “comparible properties”. So he/she will compare your house to other properties that are in a similar condition, have a similar aesthetic, and a similar location. So if you want the valuer to put a high figure on your property, you want to make your property “similar to” the ones that are selling for higher prices. The real estate agents will be able to comment on how to make your home look like the ones selling for higher prices.
You probably don’t want to tell the real estate agent you have no intention of selling because he/she will rightfully see they are wasting their time helping you with a valuation. Unless you find a friendly one that understands you aim to release equity and you then use that to buy an investment property in the area, and hope to buy from that particular real estate agent. Then he/she would see merit in spending time on you.
Hope all that makes sense.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Jo
Two things stand out to me in terms of potential reduction in your overheads.
1. Is your car on a separate loan and if so, what interest rate are you paying? Perhaps refinancing the house to pull out funds to pay out the car loan might be appropriate (if the house loan interest rate is less than the interest rate you are paying for the car loan).
2. You have a horse. Those things cost a fortune to hang onto. How old is the horse? For instance, if it is getting on in its years and has a life expectancy of say 3 years, do you really want to buy land for it to live on if indeed you don’t intend to replace the horse?
If you have grand aspirations of moving forward financially, horse ownership is likely going to hold you back a lot, so that’s something worth pondering first I think.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Vern
The simple response is “whatever adds the most value to the buyers IN YOUR AREA”. Chat to a few real estate agents and ask them to ponder the question of the likely sale value of your house as it is, compared to if you changed the windows. Pose a few scenarios and ask them which will offer the biggest resale difference in terms of $$. Also chat to them about which of the options would facilitate the fastest sale, because that is an aspect that will interest them greatly. Quick turnover.
Perhaps you could spend $1000 to make the place look more modern, and add $2000 of value
or
Perhaps you could spend $5000 to make the place look more modern, and add $50,000 of value.If you are selling your property, your aim is NOT to make the place look more modern. It is to get the most profit. That’s all. To get the most profit. Ideally which appeals to a big market and thus a swift sale.
If the market in your area likes pretty orange windows, but the profit margin is best just leaving them as they are, then you would do that.
If the market in your area is only interested in houses that have windows that look like they are Swiss, then you’d do that.
If the market in your area only wants sash windows, then you’d do that.
If the market in your area likes a few different styles, but one smashes it out of the ballpark in terms of profit, then you’d do that.You are not there to make someone’s day with pretty windows. You are there to make profit. That’s the cold hard facts of it. So you simply ask the selling agents what the likely resale value would be with different kinds of windows and work your profit out from that. Remember the highest resale does not necessarily mean highest profit, because the highest resale price might have had an enormous renovation bill that eroded profits.
You cannot ask the agent what will make the most profit, just what will be the highest resale. It is up to you to work out profit. The complexity comes in when you ponder that just changing the windows might not cut it. You might for eg need to render the frontage to change the look of the whole facade.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Peter
Nobody can guarantee you with absolute certainty what will happen in a given market. However reasonable assumptions can be made when considering a set of circumstances.
Your SMSF is going to need a reasonable yield in order to stand on its own two feet.
Your reliance on strong capital growth is somewhat dependent on your age and thus proximity to retirement age, and thus how strongly the property has to perform in the absence of any other assets.
It would be handy if you are able to comment on your age, and the cash position of your SMSF, in order to secure more useful comments in response to your post.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Gidday Eric
That was indeed a weird week.
You may not have realised it, but Richard was literally on the phone to your lender for 4 days straight. Everything else was shelved to deal with this.
Things that made this possible?
* The processes your legal rep has had a lot to do with things as well. Steps they do not undertake until it is absolutely necessary made this course of action possible (changing name on contract of sale).
* The long-standing connections your legal rep has in the area. Being able to pick up the phone and explain a circumstance and course of action and secure agreement is experience money quite literally cannot buy.
* Your broker’s standing as a highly ranked broker with the lender that can throw his weight around, make demands and dictate how things will pan out.Richard’s experience combined with that of the legal reps came up with the appropriate solution and quite literally forced the bank and vendor’s legal rep into complying with the plan (ps normally the bank won’t even take the call or care). I would hate to think how such a situation would have panned out without suitable legal and broker representation. It appears to be essential to have the right folks batting for you these days. The conduct of the lenders in this weird new world make it almost impossible for the common man to safely enter into a real estate transaction with the confidence that “it’ll be alright on the night”.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I’m not convinced this would be a fair trade for the other person.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Any other fees charged by the property managers are also claimable, such as letting fees and advertising fees.
You’ll be stuck with the service charge portion of the water bill. As to the water usage, it depends both on the state, and whether the dwelling has its own water meter. eg in Victoria, if the dwelling has its own water meter, the tenant pays ALL the water usage, unless the tenancy agreement specifies otherwise. However if it was a unit in a complex that had only one meter shared between everyone, then you cannot pass the water usage on to the tenant and you would be stuck with it. In QLD there are a few ways of passing on some or all the water usage, but if passing all usage on, you have to have all the wiz bang water saving devices. It is easiest to chat to a property manager in the area you are thinking of buying and just ask them how it works. However water usage itself isn’t a huge fee so doesn’t affect the bottom line all that much.
Don’t forget depreciation. You can tax deduct the cost of getting the schedule created, and then there is the year on year deduction as per figures on the depreciation schedule.
Factor in an amount for annual maintenance costs (a popular figure seems to be 3% of the rental income) and be aware you could end up with a vacancy if your tenant vacates and the new tenant doesn’t move in precisely on the next day. If you budget for perhaps a 2week vacancy and find you could not sustain such a vacancy, then perhaps buying a property wouldn’t be such a good idea. There should always be a slushy fund to cover periods of vacancy or unexpected maintenance costs. A common slushy fund figure is $5k.
Hmm what else. Other bank fees such as annual package fees regarding the mortgage is a common fee too.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
How much do you have saved so far, and how much more do you suppose you can save during the next 6mths?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
As Terry indicates, if they are pushing hard then what’s in it for them is probably substantial, and not necessarily in a strategy that is best for you.
If you are able to comment more on your overall position, we might be able to say something more useful.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Trina
Great job being able to fund deposit etc on a property in this day an age. It is a tough gig. Even tougher with a family to support.
I’d tread with extreme caution in the studio city apartment category. I don’t know which city you are referring to, however a lot of these types of apartments are leased to students or serviced apartment providers such as Quest. Steer a million percent clear of serviced apartment mobs. Searching these forums for “serviced apartment” will soon educate you as to why.
If you are able to indicate which cities and regionals you were referring to, the folks on these forums might be able to offer more specific thoughts on your situation :)
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
As Terry and Richard have said, there isn’t sound logic to this advice. An income-producing asset that produces only 3% per annum is very low return. Perhaps the property will grow in value, perhaps it won’t. If it does then in theory if you need to sell it one day you could crystalize your gain by selling it and live off the cash pile till it runs out. Leverage (borrowing) is powerful in that it doesn’t lock up all your cash but instead uses someone else’s, while you in theory enjoy the capital gains for a while.
It’s hard/impossible to know whether one strategy over another would cripple you financially or just put a tiny dent in your extravagant retirement lifestyle without knowing more about your overall position.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
