Forum Replies Created
Why an apartment?
Is it for an IP or a PPoR?
Do LOTS of research on the current (and future) climate of apartments in inner-city. It all sounds sexy and exciting; that's how they are always marketed to the masses.
In Melb in 2003, there was a massive over-supply of them, and many people paid too much, there were too many of them – mostly bought by investors. Then, they couldn't get tenants as there were more investors than tenants for them, so the rents dropped, the cashflows became very negaitve, many had to sell quickly and lost in some cases hundreds of thousands of dollars. Unfortunately, the people who held on found that because of the fire sale that was happening, the value of their apartment dropped below their purchase price for a number of years. They are just starting to catch up now.
With apartments there are higher holding costs due to body corp fees, lifts, pools, gyms etc; you pay for all that.
You can't add a lot of value as yours is the same as hundreds of others, you can't subdivide, quite often the new ones are "price loaded" to make the developer rich – not you, and you won't know this unless you do lots of research on prices in the area, or worse; if you have to sell in a hurry and find out you paid too much in the first place.
And so on.
If it's a PPoR and you are staying long term it doesn't really matter as much.
Going over 80% LVR will allow you to use less deposit, but it leaves you more exposed. Very dangerous in my view; especially with interest rate rises looming. Prices may stall later this year as well.
Life happens, and if the market drops, you lose your job, have to sell in a hurry, you could end up still owing more than you get for the sale. I've seen this happen several times, but of course; the people concerned never think it will happen to them.
A bit like people with no seat belts on in car accidents.
I'm not trying to put you off, but SOOO many people are sucked into apartments as an investment and get burned. Be careful.
My advice; buy a nice, well located, moderate house with some land content. But if you must buy an apartment; buy an existing one that has been around for a few years; at least 3. Not off the plan or brand new.
Renting will certainly be cheaper than buying at the moment.
Vermont is a nice area; about 15 mins from Bayswater I guess.
Also look at Ringwood (some parts are nice).
If you go closer to the City, look at Blackburn and even Burwood and Vermont South (I used to live in all these places), or if you want to go closer to the hills, look at places like Boronia, The Basin, Croydon and Bayswater itself.
The agent has committed fraud here.
Don't report him to the REI as they are there to look after the agent's interests, so they will not do much.
Consult your solicitor and look at taking legal action.
If you don't have a solicitor, contact Terry Ryder: http://www.hotspotting.com.au/
This will scare the agent as the fines for this sort of conduct can be a hefty fine up to loss of licence to practice real estate and/or both.
Aslo, get onto Neil Jenman; he loves to get behind people in this stuff: http://www.jenman.com.au/
chappell wrote:i have to agree with ecl.
im 21 and looking at properties they must think im a tyer kicker/ dreamer lol some of the looks i get and sometimes they say oh you wouldnt be interested in this and offer that i dont viewit!!!!!!!!!!!!!!!!!!but on that note i have met some decent re agents and it almost seems unfair (to them) because i must come across that i dont know much about it as they usually put the moves on me LOL. it's great ijust play dumb sometimes and they reviel a whole lot of info and sometimes what the vendor really wants for the property.
Aimee
If they treat you like that they are very bad salespeople. You can't tell from a person's appearance or age how much they can spend.
It is in your best interest to learn as much about the buying and selling process as you can so you can go into a deal with some knowledge and power.
Read all the Neil Jenman and Terry Ryder books to learn some valuable insights.
Here are their websites:
http://www.jenman.com.au/
http://www.hotspotting.com.au/I like to turn up to meetings with agents looking like a bit of a slob so that the agents don't gush all over me and suck up my ar$e. I want to look like a loser, so they don't expect that I can pay a lot.
Some people like to turn up in the power suit, and the tosser car, to try and impress the agent and give the impression they are loaded. Why? They'll just think you can afford to pay more and keep working on you.
This is human nature, but the good agents don't fall for all this; they just work the deal and do their best.
ume wrote:so does that mean if i take a 80% LVR loan then i have no access to the 20% i inititually put in? unless i get the property re evaluated later down the track?That's correct.
The Bank will give you access to 80% of the property's value, regardless of what you've already put in..
So, if it's worth $300k and you put in $60k deposit, you can borrow up to $240k.
Of course, you also need to factor in any exisiting mortgage. If, for example, you still owe $200k, then you can only borrow a further $40k to top up the borrowings to $240k.
If, say, you borrowed $240k and put in $60k deposit, and still owed $240k, you have no access to the $60k at that point.
You would need to either wait until the proerty goes up in value before you could use some equity, or pay more off the loan, or both.
fiori wrote:It looks like I 've got some rusty old minds thinking, good.
Aprentices have a right to be paid – but no more or less than anyone else who is studying or in training. As I said previously, at least they DO get paid something, TAFE or Uni students get squat – they usually have to spung off their parents or get a part time job. Some very fortunate students get a measley allowance from Austudy – but only if their parents are on the breadline, otherwise they nothing. Apprentices wages, regardless of how small they , are not means tested in this manner.
HECS is a deferred payment system that is garnished from a graduate's wages until it is paid off in full, which can be as high as $30k. It increases in lione with the CPI. Nothing is free.
On the subject of degrees, I have an construction engineering degree and a postgrad diploma in project management. But so what? A degree is only a foot in the door, it doesn't mean you're qualified to make lots of money or important decisions. Only experience and reputation will get you that.
Oneplumber, you can have all the degrees you want, even one for wiping your backside, but it mean anything without related work experience, high level skills and an excellent reputation. I wouldn't employ someone just because they have a degree, the first thing I look at is their experience and references. The degree would maybe come in handy if some govt agency requires a particular person to have a degree.
We are off topic now, but I think that there needs to less emphasis on purely academic training, and more (paid) training on the job in our society.
This gets people into the workforce sooner, helps with the economy as their are more consumers rather than broke Uni students sitting around who can't do much.
For example; nurses (my wife is one). She is one of the Uni trained girls. When she finished her training and hit the floor of the ward for the first time; she was hopeles, and nearly dropped out after 6 months because she couldn't cope. 14 years later she is glad she stuck it out, but it was tough. Now, the girls have to pay more for their training; 4 years, before they see a paycheck. There is less incentive to do it, and the numbers are in shortage; just like the building trade.
In the old days, these girls were trained at the hospital, got paid and started life as well qualified staff.
There was also a good incentive to go into the profession due to the pay and paid training, there were plenty of nurses.
Buying_Freedom wrote:I used to own a 2003 BMW that I bought from new and lost $13000 in value in the year and a half that I owned it. I wish I had read The Millionaire Next Door sooner. Upon reading it, I replaced my BMW with a 1995 Daihatsu Charade. I only recently bought a second car, a 1998 Ford Falcon. I prefer having the cheaper cars as I'm not fretting about where to park, keeping the car immaculately clean, paying exorbinant insurance, etc.I'll bet you wished you'd bought the 2 year old Beemer and saved yourself $13k?
Tell me about it; we send money back home from the US.
When we first arrived here in sept '05, we were getting $1.33 for every US dollar.
Now it's $1.13
"fiori wrote:
I think apprentices are actually fortunate to get paid anything at all"Sorry F,
but that is not very sensible at all.
Would you go and work for 40 hours a week;
getting up at 5.30am, working in the cold, the heat, crawling around in roof spaces, under floors, in the dust and the mud and stink, being ordered around by the (often) uncaring boss, who is too lazy/fat to do the dirty work himself and now has you (slave) to do it – for free?Yep; I thought so.
Apprentices don't get paid enough in my book. They are paid only enough that the bosses can get away with mostly. I know there are few goos ones who really look after their boys/girls, pay them more than the award and really go out of their way to teach them the trade, but generally, the apprentices are just treated like cheap slave labour.
And I'm not slinging off just at the building trades either; this also still happens in the golf industry as well. These poor kids start their apprenticeships as a golf pro, get all the crap hours; daylight until dark on saturday and sunday behind the counter, and get left to run the shop all alone as soon as they can balance the cash register, and get paid a pittance. It was the same in my day 1,000 years ago.
If you opt to take the tax return at the end of year, then your weekly cashflow will be whatever is left over after the rent has been paid to you, and the loan interest and the holding costs have been deducted.
Some people like to get their tax return paid to them every week. This helps with the cashflow, but many people simply spend it on "stuff". Not good if you want to be financially free at an early age.
If you take it at the end of the year, it's money you didn't have, so you are (hopefully) more likely to use it towards some debt reduction on the loans.
You can arrange to have a variation to your tax witholding amount so you get your tax return each week. Talk to your employer about that, and you will be able to arrange it through your accountant.
With estimating cap growth; no-one can.
Except to say that historically, and on average, average residential property doubles in value every 7-10 years. That's an average of approx 11.5% per year if you go by 8.5 years. 5% is a fairly safe and conservative guess.
We have all our IP's in our own names.
We are comfortable with that at this point in time.
From a taxation aspect, buying in your own names may be better if you have a decent taxable income.
But I don't have much knowledge about using a trust for this. I was under thre impression that the main benefit of a trust was for asset protection, but as Terry says; drop him a line.
Kristine wrote:Firstly its not on a main rd…its on a side street that is just what 2 prospective tenants said as i asked them for feedback (front fence)as the property has been vacant for 2 months…….bad time over Christmas for a house to be vacant to i guess…with the investment property although its positevly geared i dont have any extra money from it to put on ppor…because the investment house is old every 4 months i am paying a plumber or electrician to fix something…….i pay investment loan of $105 every week and when its rented i get $160…..rates are just over 1,000.
last year i sent over 2,000 because of vacancy problems throughout the year… and the 2 years prior i sent over 1,000……so in 3 years i have not seen any money from itwith my ppor i am trying big time to pay it off as quick as i can but finding it very hard…..so far we have paid $30,000 in extra payments…… i got a statement the other day hoping to see a real difference in interest paid but was highly dissapointed as in 3 months we have paid a extra 10,000 with one interest rise in that time the interest i paid in 1st month was 1,100 nest month 12,00 next month 1,300…….ohhh i wasnt happy…i feel like i am paddling up stream and going backwards…ohhhh i messed up with my figures if i sell investment i will pay ppor off in 6 years…hmmmm
another thing i was thinking of doing is wait til the growth of investment reaches the balance left on ppor
Sounds like your heart is saying sell.
It's all good; not many people get to put a big chunk of cash on their PPoR.
Just make sure you get back in the IP game asap.
To do all the things you listed would be well over $10k. probably closer to $15k.
Now that we have a better picture, I would say:
1. Fix front fence for safety.
2. Tenants know full well the noise factor etc when moving into houses on main roads so don't worry about that. (don't ever buy one like that again; look for quiet streets and courts).
3. Put in the split system.
4. Don't worry about the yard; tenants never look after them. If they do; bonus.
5. Painting and carpet inside will be $5k or more; wait until the next tenant if you must do it.
6. Carport and boards unless a hazard can be left as is.
7. Removing a wall won't raise the rent. You may like it, but the tenants have already seen it as is and are living there.All of the repairs are tax deductible; the fence and the heater might be seen as capital works, so are therefore a depreciable item. At the end of the day, they will all cost you less due to the deductions you receive.
Uless you can get a reasonable rent increase after at least fixing the fence and a heater, and especially the painting, then it's not worth the effort.
I would just do the front fence and the heater for now, and put up the rent with the next tenant.
In the mean time; use your extra cashflow from the IP and any other spare cash to hammer the PPoR loan.
By selling this IP, you wll be up for cap gains tax as well as the selling costs and the buying costs of the next IP. And, the loss of cap growth from this existing IP until you buy another one.
Long term, you are more likely to make more cap growth from the IP than you will pay in interest on your PPoR; especially if you are reducing the debt asap.
That's it; you've got it now.
Except you forgot to add the closing costs, and there will be a tax return as well.
Do it again and include the closing costs and a hypothetical (but probable) tax return of $2,500 (this is income).
This will give you a more accurate C.O.C.
The other thing to consider when assessing the success of the investment is the capital growth, The property most likely will go up, so let's work on 5% per year ($7k) which is probable.
So, after you do the formula including the closing costs and tax return (which gives you the cashflow) then include the cap growth.
This will give you the ROI (Return on Investment). Even though you physically don't have the cap growth in your pocket, it is still money that you have made.
It's a bit like Bill Gates who is worth billions; he doesn't actually have the money; it's in the value of the business, and the cashflow it gives him.
Agree with Terry.
The return on this investment is 6.1%.
You cannot add value, you cannot improve it, there are virtually no tax deductions other than the loan, or of you pay cash for it; you can get 7% for cash at ING, and it is on 24 hour at call.
Offer them $15k.
MasterREL wrote:Yes you must know exactly what its like to run a trade business
Tell every tradies wife and kids how good they have got it.Yes you can become so rich that no one wants to take on an apprenticeship and work for the massive C.U.B wages you can earn.I'm sick of 9-5 sheeple telling me how much I should be charging when they have no concept of what it is to run a business.When construction slows down prices come down.Get your bargins then for major projects.I have to concur here, but with a slight difference to the theme.
I used to run PropShops at Golf Clubs, and you can make a decent living at it (around $80-100k for a good business), plus the tax perks as a business owner are good. It's not a million dollar a year job like people think, but it's alright.
We constantly had to watch what type of car we drove, what type of watch we wore, where we went on holidays, the standard of our house etc, etc, as the Members would get their noses out of joint if they saw you making money and getting rich.
They didn't see us working 60-70 hour weeks, while they did their 9 to 5 and hung around the Golf Club all weekend and on their RDO's annoying the $hit out of me while I worked.
So, my point being that you need an incentive to take the risks as a business owner; you need those perks, the higher pay etc, otherwise why do it?
You can sit on your backside in an office, get w'ends and public holidays off, RDO's and make good money with no risk.
Tradies and especially those that are business owners deserve their income
Worth the money. Do it.
You may be able to look at a sample on one of the Qs's websites, but they are basically columns and numbers.
Closing or purchase costs are what you have to pay over and above the price of the property to finalise the deal.
A good rule of thumb is to allow 5-6% of the purchase price for this. For eg; $200k property; the closing costs will be around $12k maximum. This covers things like stamp duty, the solicitor's fees, adjustments for rates etc.
In normal circumstances, you would put in a 20% deposit, plus the closing costs, and the Bank will lend you 80% to finance the rest. But these days, you can borrow much more than the traditional 80% for the property.
So, on your $200k property, you are up for $40k deposit, plus $12k closing costs = $52k.
The Bank lends you the rest = $160k (80%). You would probably go for an interest only loan if it is an IP.
Once you have bought the property, you will have on-going costs such as the loan, and also the "holding costs" such as rates, insurance, repairs, property management fees.
As a guide, the holding costs will be up to 20% of the rent, and this includes 4 weeks vacancy. It is general, but if you use this figure, you won't under-estimate expenses.
So, if your rent is $250 per week, then expect that you will only get back on average $200 over 12 months. If you don't have a vacancy for a few years, then you are well ahead on the 20% figure.
Some people work on 15% of the rent. I like to over-estimate expenses, under-estimate income. Much safer.
The depreciation is a tax deduction, and you can call it income, but it isn't technically income; it's just tax saved on your earned income. It is an "on-paper" deduction; you don't physically pay any money from your own pocket to get this deduction.
Using Steve's example, here's a quick number crunch:
Cash in – $50k ($40k deposit plus $10k closing costs)
nett rent after all costs = $10,089.50 ($15,150 – $4,000 and 7% management)
depreciation = $ 3,100Total income = $13,185.50
interest on loan = $13,600 ($160,000 x 8.5%)
Nett cashflow = -$414.50
This is a C.O.C return of -.00829%
This is not a good example unfortunately, but the workings out are always the same basically.
Let's do it with a $300k property, loan interest @ 8% on 80% of property value.
You put in 20% cash deposit and closing costs. Rent is $350 p/w.Property = $315k (including 5% closing costs)
you pay: $75k cash (deposit + costs)
Bank loan is $240K @ 8% interest = $19,200 per year.Nett rent = $14,560 ($350 x 52 weeks – 20% holding costs)
Nett Cashflow = -$4,640 before tax. That's $89 per week approx out of your pocket.
Your tax return will cut this figure down a good amount.We do this now.
We have a PM, and they handle everything; all the rates payments, repairs, collect rent etc.
It costs 7% of the rent, but is worth it for us to set and forget. It is also a tax deductible expense.
All the expenses related to holding the property are tax deductible, the furniture will be depreciable, as is the house if it is built after 1987, but you will need to talk to your accountant about the impact on your position while overseas, as you won't have an income tax from Aus to deduct the expenses against.
Even though it is friend renting the propety; treat this as a business transaction.
Get a PM to handle the property, get Landlord's Insurance, get onto the accountant.
Tell every tradies wife and kids how good they have got it.Yes you can become so rich that no one wants to take on an apprenticeship and work for the massive C.U.B wages you can earn.I'm sick of 9-5 sheeple telling me how much I should be charging when they have no concept of what it is to run a business.When construction slows down prices come down.Get your bargins then for major projects.
