Forum Replies Created
- Originally posted by dmichie:
Did anyone see Alan Kohler on ABC TV news tonight quoting the Demograpia Housing Affordability Rankings?
http://www.demographia.com/dhi-rank200502.htmI would be cautious about the independence of the Demographia site.
Its sponsors are Wendell Cox. Wendell Cox is not an independent research organisation.
Rather they exist to push a particular political agenda and their articles are biased to highlight information favourable to this.
For instance Wendell Cox oppose any form of urban planning or public transport. Instead they want uncontrolled sprawl where people commute 100km+ to work each day and settlement patterns preclude any form of non-car transport.
And to push this agenda they complain about home affordability in an effort to make their policies appeal more broadly.
Rgds, Peter
Originally posted by landt64:my thought was that a property worth $150K would not get a rental income of $250 per week, and I wondered if maybe the RE had inflated the rent to make it more attractive to buyers.
This can happen (read up on GEHA leases), but the figures Mant gives are reasonable for the regional city that I’m pretty sure it’s in.
My two 3br IPs there are as follows:
Cost $92k (2003) Rent $180pw
Cost $112.5k (2004) Rent $205pwBoth are unfurnished. They’re older than yours (late 80s/early 90s) so get less depreciation but have higher gross yield.
Furnished IPs rent for more; I’ve seen 1br f/f units claim to rent for $180pw.
Steve, a 10.1% management fee for a furnished IP there would not be uncommon. The standard there for unfurnished is 9.35%, but I’ve been able to get it for 7.5% due to the two IPs there.
Mant, as for whether it’s a good buy, only you can answer that when comparing with other sales data and what you want to do. But depending on your tax rate it should at least break even after tax.
For me though, it wouldn’t be my cup of tea; I’d prefer longer term tenants & 3br unfurnished, not in a large complex and with no body corporate if possible.
The main thing is that you’ve taken the first step. Most people don’t get that far.
It might not make you a bucketload of capital gain but you will have learned a great deal and it shouldn’t cost you much (if anything) to own.
Thus you should be able to get No 2 pretty soon!
Rgds, Peter
Let’s try the following:
positive cashflow
positive gearing
negative gearing
+ve gearing
-ve gearing
wraps
wrapping
vendor finance
11 second solution
bird-dog
success comes from doing things differently
due diligence
buyer beware
wrap pack
asset protection
wealth guardian
lease option
spotting
property investing
financial independenceRgds, Peter
Originally posted by richmond:I still don’t know why people equate “cheaper” or “country” properties with “backwater”… there are many bustling cities in Australia with populations of 30, 40, 50 thousand that have a solid diversity of industry and are good places to invest.
If you were on a modest salary had reasonable deposits and could get approx $300k finance, you could either:
1. Buy one modest place (a small unit in an inner suburb or a house in a cheap area of a cap city)
2. Buy three $100k IPs (in regional cities with good prospects)
3. Buy eight or ten $30-40k fixer-upper houses in declining farming towns.
I’d go with 2. If you lose a tenant you don’t lose all your income and yields are likely to be higher (portfolio could be neutral or close to it). Note that 2. involves purchases of attractive and highly rentable properties large towns with strong rental markets. 3. is high risk and 1. is a bet that cap growth will exceed losses through massive -ve gearing.
If you were on a higher income had a higher borrowing capacity (say $900k) and wanted to invest in the big cities only, you could:
1. Buy one $900k house
2. Buy three houses for approx $300k each
I would still go for 2. There’s lower risk, most people can afford to rent them and most can afford to buy if you need to resell.
Peter
Around Carnegie most people’s limit for houses is approx $500k. Yet 12 mths ago renovated Edwardian weatherboards went for $570-580k.
A just built 3br semi-detached on half a block (but very little backyard) attracted no bidders at opening of $470k, with only vendor bids up to $500k before being passed in.
Surely if you’re going to pay $500k, you’d want a whole house, and the market agrees.
The main success has been a tackily renovated but extremely tiny 1br flat sell for $180k. Prices for these have been around the $150-180k range for about the last 12-18 mths.
Auction attendances seem to have picked up in the last month or two but often no one bids and the property is passed in.
Peter
Originally posted by redwing:Hi All,
From the Real Estate section of the paper in WA
Secret Harbour 558% CG
Iluka 551% CG
Landsdale, Success and Leda 400%+I have two points:
1. Many property authors (eg Monique Wakelin) consistently say ‘always buy within 10km of the CBD for max capital growth’.
However NOT ONE of those suburbs fits this criteria; they’re either (1) beachside or (2) cheap areas.
2. Some of those suburbs contain new housing or redeveloped housing. Are the growth figures comparing like with like? Are they measuring median house prices when the median house in that particular area has changed dramatically? Is there a new waterfront development pushing up averages? If so then the figures could be misleading and not everyone who owns in these areas will have necessarily done as well.
Rgds, Peter
Those two examples are extremes, and I’d agree with Derek that they are unlikely to be champion investments.
As for Norseman, I’ve seen houses there for $15k, so $45k is a bit much – you’d probably get something in a slightly better town (eg Merredin) for that. Not that I advocate Merredin, but it would have to be better than Norseman, and less remote, too.
I would pick something that’s closer to an ‘average’ property for a first IP.
It could be in a large regional centre or Perth suburb. Maybe a modest house, duplex half or 2-3br unit in a small complex. Well-located, basic but well-presented for tenants and not too expensive to own.
As for price look around 70% of the median price for the area so it’s not a hovel but is still sufficiently cheap that it will not be too long before you can buy IPs 2, 3 & 4 as well!
Regards, Peter
Originally posted by Bonnie:Just as a quick response, and so you can help me do some number crunching……
Property Value – $109,000 Neg
Rent – Currently $210 per week until 12/10/05
Council Rates – $922.14 per year
Water Rates – $149.50 per year
Stata Levy – $97.14 per quarter
Unit is 8 years old and in a secure complex of 21 units. It has 1 bedroom and 1 bathroom.Does this sound like a good investment or not?
That sounds very much like a small unit in a well-known large WA mining town with which I’m familiar!
If I’m right, then that rent figure quoted will be for a fully furnished unit.
Your figures do not include property management (10% minimum – more like 12% for a fully furnished place) and contents and landlords insurance (which you’ll need especially for fully furnished).
Buying in a large complex means that you are only one voice on the body corporate and have limited ability to add value. Also at any one time one unit will be To Let and another will be For Sale. This limits the abilty to set your rent (or sale price).
Consider your rental market and that you want a long-term tenant to get steady cashflow. An unfurnished unit might be better in this regard. Also will your unit appeal to just mine workers, or others such as nurses, teachers, retail workers, etc? If those 1br units are where I think they are, then they might not be as conveniently located to town as other properties.
Why pay $109k for 1br when for little or no more you can buy an unfurnished 2-3br unit in a smaller complex (or none at all) and get a rental return that’s almost as good?
So whether it’s a good investment depends on much more than the figures. Personally I would pass and buy a larger unit in a smaller complex, well-located and unfurnished to attract longer term tenants.
Regards, Peter
pe
Originally posted by SteveMcKnightCan you pls give me a page ref re: Robbo?
Page 265. As it’s gross, I’d interpret it as being before interest, holding costs, etc.
Though if I’m wrong (and it’s after costs) then it turns a good achievement into a great achievement.
Peter
Quote:Originally posted by redwing:>I remember buying a block in WAIKIKI in 94..
My mum’s only foray into property investment was buying a block a few streets back from Warnbro beach in 1979 for $9000. Was forced to sell in 1984 for $7000
Imagine its value now!But the proceeds were used to buy a PPOR down south so with two booms in the interim, it turned out good in the end
Regards, Peter
All those street names bring back childhood memories – my grandparents lived in this area so I knew it well! Safety Bay is the official name of the suburb, but part is known as Waikiki (and possibly Malibu also for the area near Malibu shops).
Most houses were built in the 70s and 80s, and I remember walking through many half-built houses in the area around the mid-80s. For post-85 houses you’d need to look at areas further inland or outwards (eg Pt Kennedy).
Malibu Rd is good in that it has shops at both ends. A small centre near the beach and a larger one (that we called ‘Malibu’) that included a supermarket near Read St.
Thus for a rental property it’s conveniently located. The buses aren’t as good as Rockingham (where Route 920 provides an excellent service) but there are two proposed railway stations within 4km.
Malibu Rd is fairly busy, so the value of a house would be less than on a side street. Also it might be slower to resell should you need to. I recall quite a large dip in the road (near the special school) and a pedestrian underpass that was frequently vandalised.
Regards, Peter
Originally posted by kay henry:A friend of mine bought a property on 5% deposit and paid $8000 LMI. A complete waste of money, I think. Her property has not gained substantially, and now she has to pay back that 8k. OPM is fine… if people gain equity, but if not, it’s like having a maxed out 8k credit card.
I used LMI when I bought my previous IP and borrowed 90%. The LMI cost about $1500.
Yes, I could have afforded the full 20% deposit but to do so would have required me to drain my non-property cap-growth oriented investments and eat into a cash buffer.
I didn’t want to do this (having already done this for previous IPs and wanting to keep a balanced portfolio) so I thought paying LMI was the best way to buy another IP sooner rather than later!
The property concerned was bought mainly for cashflow not growth. However the gross yield (9% based on a lowish rent) and the high building depreciation claimable (built 1991) meant that it is not a drain after-tax even with the higher lend.
Regards, Peter
Originally posted by Derek:For mine I would also suggest that reading a variety of property investment books, irrespective of whether or not they are CF+ orientated, will make you are better, more rounded investor.
Agreed 110% Derek!
A lot of stuff in books that advocate -ve gearing (eg due diligence, choosing a property manager, selecting an IP that will rent, etc) are relevant to everyone.
Thus it’s relevant to mention my own site, which reviews most well-known Australian property books: http://www.alphalink.com.au/~parkerp/invest.htm
(click on book reviews)Regards, Peter
Originally posted by Domo:Peter
By following your approach you can work out an estimate of what the rent should be , there is quite a bit of work involved to keep the data up to date.
Wouldn’t it be easier to take the advice of the PM , which is an estimate & if there is no takers drop the rent ???Yes it can be a bit of work, but it’s all part of due diligence and I regard it as important. I do seek advice from my PM but ensure that it’s not my sole source of info.
Because yield was an important reason for buying this particular IP, it was important for me to establish which types of properties have good yields and low vacancies BEFORE I purchased.
Also the PM I proposed to use was from the same REA agency as I purchased from. Therefore I considered it desirable to do as much independent research as I could. Also note that selling agents will often give a slightly higher rental estimate than PMs.
I hate vacancy. For as long as I have a vacant IP, I will be comparing the rent I set with others to ensure that mine is attractively priced compared to others.
But when my properties are all full, I’m not contemplating further purchases in that area, and there are no lease renewals for a while (like now!) I slacken off and don’t look at rental lists too often : )
Regards
Peter
Originally posted by KarenB:Hello Kay & Westans,
Given that this whole website is devoted to cash flow positive property acquisition, how many people (such as yourselves) actually have cash flow positive property??My IPs were all bought since March 03.
Of these:
No 1 is cf+ before tax with a gross yield of 10.2%.
My spreadsheet shows it loses $200pa before tax, but that assumes $1000pa set aside for repairs. Provided I spend less than $800 pa on repairs, it’s (just) positive. But it’s post 88 so gets building depreciation, making it strongly positive after tax.
But if I was to paint it the yield could most likely increase to >11%, making it a McKnight-style IP with a positive cash on cash return before tax.
No 2 is slightly negatively geared in a coastal suburb of a growing regional city. It returns 8.3% gross but was built pre-85. So it’s a classic -ve geared IP, though the loss is smaller than a similar IP in a capital city.
No 3 is negative before tax but due to a 9% yield and building depreciation is positive after tax. This is the sort of property advocated by Margaret Lomas.
On 6% yields, I’d agree that you’d need heaps of deductions to make it positive, and even then only if you were on the highest income tax rate and/or put in a large deposit.
Depending on other costs it should be possible to be positive with a gross yield that is:
* the interest rate plus about 4% (before tax)
* interest rate + 3% (after tax)
* interest rate + 2% (after tax, if you can claim building depreciation)
BTW, I much prefer the above guideline to the 11-sec rule as it takes interest rates into account, whereas the latter doesn’t.
Regards, Peter
Originally posted by Domo:Can anyone advise me on how to approach this issue as loosing $10 per week makes a big difference over a year .
Possibly losing $10pw (and having a stable tenant) is heaps better than losing $100-200pw by having a vacant IP.
I have followed Domo’s approach in looking at rents.
I looked at online to let ads and rental lists. Then sorted them by type of property (eg 2 br unit, 3 br unit, 3 br fibro house, 3br brick house).
You soon get a rough idea of what is reasonable, though expect some variations (eg a new 2br f/f unit might rent for much more than an older 3 br house).
Note that some will stand out as being cheap or too expensive, so look at the majority around the middle.
Look at rental lists 2-3 weeks old and ring PMs to find out which have been filled – those that remain vacant could either be badly presented, badly located or have the asking rent set too high.
One of my places was to let for a while at $220pw with no takers. I dropped it to $210pw – again no takers. The vacancy rate had increased somewhat (it was the middle of winter).
My earlier research had similar places advertised between $200 and $240pw. However four weeks later $200 was the most commonly asked rent. So I dropped it down to $195 (ie slightly below the $200 median) and got a tenant. (maybe people doing internet searches clicked on $100 to 199 not $200-$299 option and/or $200pw was a psychological price point for many people).
Regards, Peter
I’d be very reluctant to ask any REA about ‘positive cashflow IPs’.
This is investor-speak, not REA speak. If the agent was smart, he/she’d know investor-speak.
But if you can find a dumb agent (who even tells you why the vendor is selling and that they think they’d take $x less than the asking price) then you wouldn’t want to alienate him/her with our lingo.
You will have researched rents in the area, you will know approximately what rate of return you want, so why not make it simple, just giving an approximate price range (after checking previous sale data to demonstrate it’s realistic)?
Regards, Peter
The best book?
Depends on what you want.
The big flaw in Lomas’ book is that she relies too heavily on tax deductions. Many people on average wages would run out of tax deductions after they buy 3 or 4 properties.
This is not quite enough even for a modest income (you really need to own at least 4-6 outright, and maybe 2 or 3 extra to provide some leverage and growth prospects.)
McKnight relies on smallish margins from a large portfolio of cf+ IPs to provide income, even before the debt has been paid off (or significantly reduced). Assuming you hadn’t fixed interest rates, you’ve had no capital growth AND interest rates rise, you could be forced back to working if properties become negative.
Even if using PMs, such a large number of IPs, this must present a management nightmare, especially if you don’t have established infrastructure such as your own business, a business partner and spouses.
Others rely more heavily on capital growth, with some authors saying that -ve properties eventually become +ve (ie repayments remain constant while rents rise with CPI). There are huge -ve gearing losses in the interim which would mean massive cuts to living standards and other savings programs for me.
None of these approaches by themselves are quite right for me, but I am happy to choose and take from these (and others) for my requirements.
Regards, Peter
So all these 12%+ yields that I could have got in Leonora (which I skipped past because I thought it was too high risk) will now have shot up to maybe 15-20% or down to 0% depending on if you have a tenant???
For this reason, I drew the line at Kalgoorlie, and this for only part of my porfolio. I’d be wary about Kambalda, even though it offers higher yields and appears to be doing well at the moment.
Peter
I have a “stir the pot” option for you, forget there and look tassie.
I would be wondering why?
Are you going for growth or yield?
Hobart prices are no lower than Perth’s. Yields in Hobart might be slightly higher, but Perth has far better growth prospects.
As for Launceston and other country parts of Tassie, these have experienced enormous booms driven by interstate investors. Yields are low and I can’t see much room for growth given there’s been so much of it recently.
I’d think that those regional cities in WA and Qld with growing populations would still be better value, though to get more than 8% gross yield would be quite hard.
Regards, Peter
Imagine its value now!
