Forum Replies Created
Has he tried negotiating with the vendor to reduce the rent or have it accredited to the sale?
Without knowing the details of the current property contract it’s a bit hard to comment – but it sounds to me that the vendor is in breach if the settlement is delayed because of his building works – which should leave your friend with the upper hand.
Maybe he should get another solicitor if his current one is of no use.
When you think you have a good idea of how much to rent your property out for, drop into some rental property open times and compare the property/price to your own.
Two identical houses side by side could rent out for very different figures if one is a bit run down while the other is freshly painted etc. So it’s not enough to just say “what does a 3 bedroom go for in this area?”
Over the next 7-10 years you will automatically have another $800k of ‘equity’ added to your house value to draw down on.This is most likly true if you do your research and invest in the right areas/type of property. I wouldn’t say automatically though, as there are always exceptions.
Peace-Sunshine, you could consider “What is the alternative?”. If, like most people, you and your husband have normal jobs, are you putting enough money away each year in savings and investments to sustain you for both your current and future needs?
It’s expected that modern generations are likely to live into our 90s and 100s, barring accidents. Meanwhile most people retire by 65. That’s 30 to 40 years of living without a paypacket!
Most Superannuation funds are a joke, so when you retire you will at most have a half a dozen years before you’ll need to go on the pension… if there is one by the time we retire (aging population means less tax money for such things).
So, what are we going to do? We need to invest somewhere, so that “your money works for you” and multiplies to a level you need. Some people find shares are for them, but property provides more solid growth and is far easier to understand.
Obviously we think it’s a good idea, or we wouldn’t be here. Like any investment, research is crucial – and if you want to acquire a lot in a relatively short period of time (10 years) then you will need to apply yourself hard the sooner the better.
Good luck.
In addition to all the good advice above – ask them what their vacancy rate is like on the properties they manage, and how long it usually takes them to let a property like yours out.
If they can’t/won’t be specific with this, then I don’t know that I would trust them. Also make sure they see you write this down, and guage personal body language to see if they appear to be lying.
Make sure when you sign with the PM, it will be that PM (who you have checked out) dealing with your property and not a junior beneath them.
I want to buy house to save DEAD MONEY going in form of rent.Rental prices are actually much more affordable than the cost of owning your own home.
At the moment you pay a total of $9,600 per annum to rent your residence.
If you get a $350,000 home loan it will cost you aprox $24,500 per annum in interest alone (before you even begin paying off principle). On top of this are the initial non refundable purchasing costs of $20-$30k (regardless of whether these are folded into the loan or not – they are an expense), council rates, water rates, home maintenance rates etc.
There are many good reasons for owning property, but in most areas of Australia “dead rent money” is a bit of a myth as home ownership is so much more expensive.
I wouldn’t suggest you invest in property until you know the answers to some of these questions back to front.
You don’t need to buy a Due Diligence Pack – due diligence is the process of researching an area/investment and while someone can flog you a list of variables to consider, they will not be specific to your situation.
I’m not familiar with the CASEY system, so please forgive me if my answer is out of line with it.
Before you start asking “what area?” you need to know why you are investing. We all have different strategies that tie in with our personal needs/goals/comfort zones.
For some people, positive cash flow is of primary importance. A person may not have enough of a normal income to take advantage of tax benefits that a cash flow negative property would offer someone in a higher income bracket. Or they may simply not think it wise to rely only on speculative capital growth expectations.
Another person (perhaps with a hihger taxable income) may be more interested in capital gains, and willing to pay money out of pocket on a regular basis to make up shortfalls in the rental income. They will be able to get good tax deductions for these expenses.
A third person may be interested in renovating or developing property.
A fourth person might be interested in wraps, lease to buy options, or flips.
Where you choose to invest will have something to do with your strategy.
(What questions do I need to ask myself to take an educated risk and invest in the right area?The emphasis here is on educated risk. The fact that you’re asking this question would suggest that you haven’t taken the time to adequtely educate yourself on property. Read some property books, read the posts on this forum, read Australian Property Investor magazine… educate yourself.
In regard to borrowing 105% etc on a mortgage, a lender is more likely to do this if you are renovating etc and have a justifiable reason to need more than the property cost. They will only do it if you can service the loan with room to spare. It can also be used for a “no money down” technique, so you incorporate your buying costs into the loan itself.
Originally posted by tiffanyd:We are considering buying a residential property with the aim of selling it on quickly and eventually building a selection of properties, some of which we would rent.
Why onsell quickly? There are many expenses buying and selling property – it is generally considered a mid to long term investment – so quick selling will probably leave you with a loss. The only exceptions are if you are buying in a hot market (most areas of Australia are pretty slow at the moment. It’s a good buyers’ market, but don’t expect fast capital growth), property renovation/development, or a flip.
$100,000 cash is a great starting place. Because of your low income, you will need to find a cash flow positive property – and a hefty down payment like this will certainly make it easier.
Once you’ve bought the first place, you can use the equity in it to purchase a second Investment Property without selling the first. The lender will consider the first property as security over the second. Because of your low income you will need to continue with a cash flow positive strategy, unless you are up to the task of renovating for sale.
You could also consider tapping in to the First Home Owners Scheme for your first property. This will give you an additional $7k to play with, but you are required to live in the property as your Principle Place Of Residence at some point within the first year.
You can then either leverage off the property to purchase an IP, or you can move out and turn your PPOR into an IP.
Hi Terry,
Research is the key. A quick search on the internet, reading half a book… expecting success after so little effort is like expecting to win the lottery just because you bought a ticket.
Have a look through previous posts on this website (you can do a search) and you’ll find countless replies to this question.
Agreed. Some mining towns are more stable than others – it depends on the ongoing life span of the mines near the town. Some still have 20 years of resources, others may die out in a couple.
Take a look at the mining companies involved, and how their investments are going around the world. Check for their stability and commitment to the area.
Also look at how close the town is to non-mining industries. If the mine does die, will people in the town be able to pick up other work nearby?
Risk is a matter of personal judgement. Some people would consider speculative investing for CG to be riskier, as it amounts to researched crystal ball gazing. You can never gaurentee that property prices will continue going up in an area, no matter what history has to say for itself.
Work out how many years it will take for the investment to pay for itself if there is minimal capital growth (look at the past 20 years growth). Then compare this to how long you expect the mining town to continue operating. If the mine is likely to remain healthy for this period of time, then it is probably worth investing in.
Other ways to achieve cash flow positive properties:
*larger deposit.
* value-add for the tennant with white goods, furniture, cable tv etc to gain a premium rental return.
* renovate/rejuvenate property for better rental return (and capital gains).
* properly research potential tenants before letting to them (to ensure they won’t be ‘bad’ tenants), give preference to those who are willing to sign a longer lease (thereby cutting back your vacancy rate).
*wrap or lease to buy deals.Cash flow positive places are out there, you just have to look harder (any fool can get capital growth alone).
Life certainly can be expensive, but attitide is always the key to saving. Even as a student living away from home on under $7k per year I maintained a strict savings regime. This is obviously harder when it’s not just you, but also a partner and kids, but it can still be done (my parents raised 6 kids on one income! Also living in Sydney).
It means putting away a portion (usually 10%) into an untouchable savings account every pay day, and making do with what’s left over. Op- shop, buy fruit/veg/meat from a wholesaler or markets (such as Flemington markets at Homebush)be creative for school holidays – going to visit friends/relatives (no acomodation costs) or camping low budget, don’t buy brand name food or clothing… every time you reach for your wallet think: do we really need this? Is there a cheaper alternative?
You’d be surprised how often you buy a drink or a snack that you don’t really need (here’s a tip: keep a refillable bottle of water in your bag/car so you’re never tempted to buy a drink at high retail price.)
And only use your credit card as a money mangement tool – wiping it clear every month so that you’re never charged interest. Don’t spend more than you have in your spendings account.
Good idea to use a high interest savings account, such as provided by several online banks – ING, AMP, etc. You get about 5%interest pa (as opposed to regular banks that only offer this kind of rate on a long term deposit).
Check with the local council about the zoning for acceptable land use – as it is not a state wide regulation.
Sydney is a big place – best use will depend on the needs of the area. 405sqm is a hell of a lot bigger than where I live in the innerwest (try 65 sqm!!!), but would be considered small in more suburban areas. If the area is zoned for medium density you might be able to build a duplex or a couple of townhouses.
Being on a corner definitely makes access better for multiple dwellings – your council will have all details available of development requirements, probably online.
Personally I doubt it will go so high in such a short space of time – and don’t forget you can negotiate your rate with your lender. My interest rate is less than 7%.
If you hold off because you’re afraid it might go as high as 9% then you’ll probably never invest. Interest rates are always capable of going up or down, and even if it went down there’s no way it would stay down for the next 25 years in which your mortgage is valid.
Write up a list of pros and cons. Things you should consider:
Cost of selling (advertising costs, agent costs, auctioneer costs, any taxes, charges, capital gains etc).
How much the property is likely to sell for in the current market. Is this a gain or a loss from when you bought?
Can you increase your rental yield on the current property? Include white goods, cable tv, etc for a price?
Can you articifically increase the capital value of the property? Maybe gain an extra car spot from a carless neighbour, get active on the commitee to improve landscaping, design, privacy etc in the building. Think creative.
CG and rental trends in the area. Chances of these going in your favour vs against you if you continue to hold?
How much does the property actually cost you per year after tax rebates/minimisation?You may find that you’re throwing money into a lost cause, or on the otherhand you may find opportunities to make it a better investment.
I thought supporting the retail business with an online business would make it profitable.So you started by wanting to set up a cafe, and decided to incorporate internet?
In my experience, most people using “internet cafes” are there primarily for the computer access – they don’t order much food or drink (if any), as are using their time on the computer.
Cafes on the other hand, are usually patronised by groups of people for food and conversation.
I.e. an “internet cafe” actually has a very different primary purpose than that of a normal cafe. If you are wanting to set up a cafe with a secondary income stream, I wouldn’t suggest an “internet cafe” as you will probably have a hard time selling enough food to keep you in business.
If, on the other hand, you are primarily interested in giving people computer access – consider the area you are putting it and your target market. There are two main groups of people who use internet cafes: travellers, and gamers.
Travellers – such as backpackers – generally cluster in central or name areas, such as the CBD, inner city, Bondi, Coogee, or Manly. They usually frequent an internet cafe alone or with only one or two other people. They will visit primarily to check their emails, opt for the cheapest/closest service available, and keep their visit as short as possible (say 1/2 an hour to an hour)- but may visit regularly.
They may order a drink or a small snack – usually a food and drink machine will suffice for their needs in this regard.
Gamers are more likely to visit with multiple friends, even in large groups. They will be using both hands for their games, and unlikely to eat or drink unless they take a break. They will spend hours playing against one another. Price per hour and quality of computer hardware are of primary concern. Computers will require a lot more memory and speed (can you tell I’m not very techie?) for the high tech games they like to play.
Private parties are a good idea for this group. My little brother sometimes goes to LAN parties where everyone has to lug their own computer along to someone’s residence – if you actively market your internet cafe to these people for booked parties then it will be of great use to them (and hopefully profit to you).
Lessons/tuition sounds like a good idea too. You would have to seriously consider the best location for this, though, as I don’t imagine CBD would be it. It would be most likely be seniors that you would be teaching – which I think is a small market.
I don’t think there’s any need for coloured printing etc. A basic b+w printer and fax machine are expected – but anything more and you’re competing for a whole other market. Companies such as Kinkos already have good presence as office providers, so anyone needing colour copying/printing, binding, computers for desktop publishing etc will go there.
Along the lines of a straight cafe rather than an “internet cafe” – there are some cafes that do unique things. In Leichardt there’s a cafe/bookshop that has philosophy nights. A person of some profile (usually published) is invited along to discuss a modern issue, and the audience is interactive.
There is a great cafe in Manly that gets a lot of backpackers. I think it’s called Cindy’s. Basically it’s a tiny little cafe that just feels really comfy, like at home. There are books and board games to encourage patrons to unwind, and people may spend a long time there – starting with breakfast, then lingering while they work out their travel plans, etc. It’s the perfect place for the travel worn traveller to relax and this sets it apart from any other cafe I know.
You can steal a lot of ideas from pubs. Trivia nights, bingo, stand up comedy, jazz, play readings, short films, author talks/readings, or align your cafe with a particular group of people so it becomes the place that lawyers/writers/students/etc hang out and network.
Maybe you should get legal advice… oh
Another problem with signing it over to the Vendor is if at the last minute the sale for one reason or another doesn’t go through. The money is now in the Vendor’s name, as requested by you.
You are right in thinking that it would be difficult to find a place for anything less than 400k in this area. The medium house price in inner west sydney is about $680k. You can always get a unit or ‘renovators delight’ for cheaper, but it is a high entry point and unlikely to be cash flow positive.
(I have noticed a few places lately on the market at the relatively cheap price of mid 400s. They need renovation).
I would suggest that capital growth is not currently strong enough to recommend selling after only one year. Buying and selling costs are so high that you would most likely lose money in such a short period of time (especially with our beloved Vendor’s tax). Property is generally considered a mid to long term investment – the exceptions being when you get ‘creative’.
Creative practices can include renovation, rezoning of property use, subdivision, development, etc – but all generally require a higher entry point/cash component and are probably not suited to the innerwest area (except renovation).
Even when you employ the above tactics, you are often better off holding, and using the equity to secure more IPs, rather than selling up and paying large associated costs.
As the market is slower, you can afford to take your time and research. Put in some low ball bids on the offchance that the vendor accepts and you get a bargain. Still make sure you’ve done your figures and can afford it. It is very difficult to be cf+ in a major metro area, unless you have a big deposit or can better use the property in a creative manner.
Make sure you know who you intend to rent to and how much they will be willing to pay before you buy. The upper end of the rental market will not be content with a ‘quick reno’ – they rent properties that offer an aspirational lifestyle. Therefor you can only expect a mid to low range rent if you refrain from an uber-stylish (expensive) renovation.
First step is to educate your self as much as possible – read up on various investing strategies and decide which is the most relevant to you.
Depending on where you live, you may find that financially it is best to move out of your PPOR and turn it into an IP. Any costs associated with the property will minimise your tax, while tenants also pay off expenses. Of course, this strategy will only work properly if you can gain equal or higher rental returns from your IP than you spend by renting a place for youself to live in. If you convert it to an IP, you are best with an Interest only loan (rather than the P&I loan you probably have as a home owner) for tax minimisation purposes.
If you continue to live in your PPOR, are you able to rent out the second room for additional income? This will help you pay off your home loan (bad debt) faster.
Once you have some decent equity in your PPOR (either through paying off the mortgage, capital growth, or property improvement) you can leverage off this to buy an IP. This means that rather than putting down a cash deposit on a second property, you use your PPOR as security to let you borrow enough for the IP with no cash down. (You will probably still have to cough up some for various legal expenses, taxes etc, but this can be rolled into the loan if you are able to service it).
But the above suggestion is not necessarily the best way for you to invest – you need to determine for yourself the strategy that suits your needs and is relevant to your talents/abilities/lifestyle.
On the one hand you’re in a weak position – needing to move asap. The question is, is he in a similar position – needing to rent the property out till settlement?
If he has mortgage repayments then he’s in just as weak a position as you are over the rental.
Was he doing you a good deal initially with the rental rate? Or is he now overcharging? If he’s overcharging, you might be able to find somewhere else cheaper and regain relationship gound. You could put your stuff in storage and rent a friends spare room or something…?
If he was offering a good deal, and has recindered it because of the rebuff – this may be your own fault for not considering the savings you were making (you could have hired a cleaner if you didn’t want to clean it yourself).
It’s difficult to know without the details.
Dealing with banks, whether as a broker (as yourself) or as an individual (such as myself), is often stress-filled. The problem? We need banks, but the systems they have in place are often inconvenient and disrespectful to customers. I wouldn’t want to be a mortgage broker for all the world.
My own tale of horror? Developed a good working relationship with a mobile lender who gave loan pre-approval. I found a property for significantly less $ than the pre-approval amount, signed contract thinking all was well. Recontacted mobile lender to find that he was away on sick leave, not expected back for many months. My case was transfered to an office a couple suburbs over from me (not my nearest) and ignored for a couple weeks, despite several phone calls.
Then my case was transfered to a different office, in a suburb far away from me – in fact a suburb I had never been to, had no interest in going to, and have never been since. (When initially we signed with a mobile lender because it was difficult to get to an office during open hours!)
We asked the case officer if he needed any more paperwork from us to officially approve the loan (that we already had pre-approval for). He assured us he had all the paperwork. When we didn’t hear back, we recontacted him – wanting to make sure everything was okay. He said he couldn’t approve the loan. Why not? He decided he would need a bigger deposit – even though the property was $35,000 cheaper than what we had pre-approval for, and the house had been valued at more than we were paying! This was only a month after gaining pre-approval and our financial situation had not changed.
We were sure there was something missing in his paperwork. How could two people from the same bank come up with such vastly different figures? After many many phone calls and headaches we finally worked out which peice of paperwork he didn’t have (and had previously said he didn’t need) and we gained approval, but had to put in a bit more $ upfront as extra security.
Not very happy with the outcome, but stressed out of our minds with the settlement date close approaching, we agreed. He sent us through the final paperwork for us to sign – and he had made several mistakes on details that we had reiterated multiple times, including the loan package (with offset account and reduced interest).
Finally we sorted it all out – but after huge stress and a waste of time. Unfortunately, loan approval is not where the bank relationship ends.
The bank then gave us huge headaches with afterloan service – mailing out one set of bank cards to my partner at our home address, but holding my bank cards at the bank office far far away from where we live. Many many phone calls to find out what’s going on (because they hadn’t turned up in the mail and we didn’t know where they were)- first couple of people didn’t know anything and said they’d get back to me or someone would get back to me, move higher up the chain to someone who is investigating the matter, finally talk to head honcho of customer services who advises me that that particular branch (who we never chose to do business with) doesn’t mail out bank cards as a policy (even though they had mailed out my partners?) and I would have to collect it in person. I questioned the policy, it was particular to that branch who wanted to save admin costs. I asked if I could send a SSAE, or a courier. No, they wouldn’t agree to that. Finally they agreed to transfer it to my nearest branch, but I still had to pick it up in person (requiring me to take time off work to get there in work hours).
There’s a reason why people hate banks. Everyone has had a bad experience or two, and when you’re dealing with large sums of money then it is incredibly stressful.
