Forum Replies Created
I have had no financial dealing with Destiny, but found the FinSoft software (a free download to buyers of the book) excellent and worth the price of the book. It was a nice ‘added value’ surprise and a good example of ‘exceeding customers expectations’.
I have looked at the cashflow positive property register a couple of times. I was expecting to see $80k houses returning $150pw rent in places like Launceston, Broken Hill or ‘back of Bourke’, but saw mainly newly built serviced apartments in the CBD.
Thus there is a large reliance on the taxman to make it positive cashflow (as mentioned in the book where it’s contrasted with positive gearing). If we took out the post 1985 building allowance, most would possibly be negative geared.
The properties featured are fairly expensive and above 1. what the banks will lend me and 2. what I think is prudent to borrow. Even if I could afford a $300k property, I’d prefer two $150k properties or (if I could get them) three $100k properties.
Also I wonder about the overheads for all that servicing, saunas, gyms, lifts, etc. Tax deductible, but still a cost. I might sound like a nervous neophyte, but I’m leaning towards a much more modest 2br brick unit in a large country town, a substantial deposit and a loan that wouldn’t keep me awake at night. And something that would still be OK if the tax laws changed.
The properties featured might be OK for some people, so I’m not going to knock them, but they’re not for me. However none of that detracts from the book and software that I found excellent.
Peter
G’day – with $50k/year, you should be able to save $15k in a year ($20k if you’re really frugal), and have a 20% deposit on a cheap country property in 12 mths.
Or you could investigate loans with only 5% down (but see thread re mortgage insurance), so you can get started in under 6 mths.
Peter
G’day Paul – I am also fairly shy and find it hard to approach people, but I am reminded of something that was taught to me during sales training.
That is ‘Knowledge Gives Belief’ (KGB). And if you believe in something, you will be much more confident and will be able to speak from a position of knowledge.
A year ago I would not have been able to talk to an estate agent about things, but now I can.
What’s changed in the last year for me? I’m a little wealthier, but it’s only up 10%, so it’s not qualitatively significant. I’ve started reading about IP, searching the web and downloading government ‘Rental Reports’.
I’ve also been doing some sums and playing with spreadsheets on loan reypayments and rental income, etc. Also setting some limits on how much I could borrow and asking lots of ‘what if’ questions so I can be satisfied if things went wrong, I’d manage OK.
My method has been to look at promising areas online (isn’t the web a wonderful thing!) and then visit some of these places. I then look at suitable properties and get a feel for the neighbourhood and what it offers tenants.
Before talking to estate agents, I would have a specific list of things I want to find out from them. You’ll find some are approachable and enthusiastic, while others are less so.
The enthusiastic ones could be such because they have a passion for property (have investments themselves) or they could see you as a novice ripe for ripping off! How can one tell the difference?! I don’t know.
But if you do the research yourself, use many information sources, and don’t rely solely on what they say, I think you’re probably safer.
I’d only use what they say to reinforce or debunk tentative conclusions drawn from your own prior research and follow up any leads they give you.Having done your own research, you will come across as more confident, the estate agent will see that you are serious, and be more helpful.
I have also found out that though offices may be open on weekends, agents may not be present, and if they are they might not be as willing to have a chat (especially near closing time!).
I am a strong believer in having control over one’s finances, but you won’t need to budget at all if you have a tough mindset of ‘just saying NO’ unless there are overwhelming benefits.
Make it a rule that every major product you buy must save you either time or money. If it doesn’t, then don’t buy it. For example a VCR or DVD requires the expenditure of both, and unless used for educational or creative purposes, should not be purchased.
On the other hand, if you have a wood fired hot water system that you need to gather wood and light, then a solar or gas one could be worth buying if it saves you time and you can afford the running costs. Ditto for microwave ovens, cars (for some people), etc.
Then there are the little things, like takeaway food, biscuits, lollies etc, which are harder.
Instead of a budget, you need to have some understanding of major living expenses along with an idea of smaller ones. Then you can work out how much you can save a month. 25-50% of take home pay is good and achieveable for many. Have this amount taken out of your bank account (for investment in managed funds, extra payments for loans, savings for deposits, etc). This is what the books mean when they say ‘pay yourself first’.
Aim to keep your regular savings account constant by questioning the necessity of everything someone wants you to buy. If you can do this, you’ll save heaps and won’t need to worry about budgeting.
I’m finding that it’s useful to produce a graph so one can quickly see whether a property is cashflow positive or not.
Mark the Y axis ‘Weekly Rent’. Mark the X axis Loan Amount.
You will need a home loan calculator to work out the repayments. I use Finsoft 4.2 from Destiny.
Secondly you need to make up a spreadsheet for all your property’s income, costs, and tax deductions. This includes allowance for things like repairs, 4 weeks vacancy each year, body corporate fees, tax deductions, etc.
For my requirements (which included a P&I loan rather than interest only and borrowing 80%), I needed a rate of return of about 6.3% to be cashflow positive.
My graph shows that if I borrow $80k (ie buy a $100k property), I would need to get $120/wk in rent to make it cashflow positive. Do these calculations for other loan amounts and you get a straight line on the graph. If it’s above the line, the property puts money in your pocket, if it’s below the line it takes money from you.
None of this has been tested on a real investment (this will happen later once more due diligence is done) but I reckon this graph should be a useful tool as you can see at a glance whether a property’s cashflow is sufficient.
I was in Melbourne yesterday, and have never seen so many cranes in my life! Some towers are complete, with many more under construction.
I would suggest a research trip to satisfy yourself that Melbourne CBD is not heading for a massive oversupply before buying anything.
Hi Steve – I’d be interested as to where you can get a unit for around $45k. Was it in a growing area, or not, or were the circumstances of the vendor such that they had to sell urgently and cheap?
Looking at the web listings, there are heaps of properties for sale in the Latrobe Valley (esp Morwell) very cheaply.
With low population growth, they are unlikely to show much capital growth, and it might be a hard to get a tenant, but the cashflow should be excellent (assuming around $100pw rent).
What do people think about buying cheap property in a declining town, hoping that they’d get tenants, but making a good cashflow profit if they do?
Peter
