Forum Replies Created
Hi all,
Just a quick post to say that I wouldn’t necessarily take the Harvey Norman rule as gospel. One of their two regional SA stores is performing pretty poorly – they sunk a bucket load of money into a new building (although is was somewhat subsidised by the local council and traders, much to the disgust of the local electrical & furniture store only a few shops down the road, but that’s another story).
Great for the first few weeks, employed lots of young locals. But then reality set in and the store is pretty much deserted and many jobs went. Plenty of rumors around the town that they are planning to close down and cut losses, or move into a smaller premisis at the shopping hub at the other side of town.
So, yeah, in general, it’s probably a good rule but don’t take it as gospel, but rather a guideline to assist your decision. I’m not saying that this is a bad town to invest in general – but it’s a typically blue collar and unemployed population so investing in low cost housing is sensible – investing in a retail business selling big screen TVs and leather lounges probably isn’t too clever. [
]That’s my 2cents.
Cheers,
Mike.With the 11 second solution, this SA property only needs $20p/w rental income to be a winner! (I you can get a tennant willing to pay anything to live there
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I think that you’ve already given it away, Fibejebe. Only two towns in SA over 20000 and only one of them has an abundance of cf+ properties. Plenty to go around there though. Again, only problem there is getting tennants.Cheers,
Mike.Hi All,
From my experiences, second hand has been the way to go when setting up an IP. Here’s a few purchases I’ve made to improve the appeal of my properties.
– The Salvos shop is always good for cheap blinds and curtains. Did a whole house for $50.
– I’ve purchased ex-rental plants. They’ve usually lived a short life in the foyer of an office building and are a bit tattered, but they’re pretty cheap and come back to life with a little care.
– Add secondhand wardrobes instead of installing builtins.
– Installed exhaust fans in the kitchen and bathroom, along with a ‘whirly bird’ in the roof. Wired the fans into the light switch to make sure that the tenant uses them. This will reduce the chance of mould and will prolong the life of the paint in these rooms. Less work and money down the track.
– Since the landlord pays the water bill, install a watersaver shower head, and give the tennant an efficient high-preasure hose nozzle with trigger to use when washing their car. In SA, this is required for water restrictions too. Also consider an underground drip system for gardens and mulch between tennants.
– I’ve used garage sales and auctions to pick up cheap paint, tiles, carpet, garden tools, a garden shed and carport, air conditioner, etc. Save heaps on the new price.
And some general frugality tips that I’ve aplied over the last few months, mostly common sense.
– Quit smoking! I’m working on it and transferring the savings into one of my loans every week. Feels good to see the balance diminishing faster and feeling healthier at the same time.
– Walk, ride a bike and use public transport. Good for your health, the environment and your wallet.
– If you regularly travel distances by yourself that are too far to go by bike and public transport is not convenient, consider a small motorbike or scooter. A second hand Honda Dio or Yamaha Jog 50cc can be purchased for around $1000 and will pay for itself in a few months through fuel savings and reduced wear and tear on your car.
– Stop buying that latte on the way to work. Just have an instant coffee when you get there instead.
– Stop buying food court lunches. Once a month I have a big cookoff and fill my freezer with meals to take to work for about 1/4 of the cost. Also means that I have better control of portion sizes to help keep the pounds off!It all adds up and will mean I have the deposit for my next IP much sooner.[
]Cheers,
MikeHi all,
Some interesting posts here. I’m not sure how refinancing your IP’s to pay down your PPOR can be a bad thing, unless it would upset the taxman. Here’s a fictional scenario…
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I have a PPOR and owe $100k. I also own an IP which I purchased for $100k (80k loan) and is now valued at $200k. I believe that the market has peaked in the area where my IP’s are so now is the right time to suck as much cash out of them as possible.Repayment details are determined using the calculator on realestate.com.au assuming 7.5% over 25 years.
Repayments for the PPOR are $739p/m.
Repayments for the IP are $592p/m with $500p/m being for interest.Total payment is $1331p/m
If I refinance the IP and redraw $80 which I then put directly on the PPOR loan. I now owe $20k on the PPOR and $160K on the IP
Repayments on the PPOR are now only $148p/m.
Repayments on the IP are now up to $1183p/m with $1000p/m in interest.Total payment is still $1331p/m but I’ve doubled my interest expense on the IP loan, putting an extra $6000 in my pocket come tax time.
~~~~~~~~~~~~~~~~~Is this a reasonable scenario or would the taxman give me a kick to the ass?[
]Cheers,
MikeIf there’s a good reason for selling like you’ve suggested ( I know I wouldn’t want to walk around that area of town at night [
]), then that’s fair enough.Just going by numbers though…
refinance to realise your $70K gain –
sticking to 80% LVR, giving you $56K to play with, or $14K for each of your four new purchase s which should more than cover 20% deposit + purchase costs if the average is $40K per house – probably have about 10-15K total left over to spend on improvements to increase the rentability too.Assuming you can get $120p/w for each of them, you’re looking at 15.6% yield ((480*52) / 160000 ) if you sell the property,
or 17.1% ((605*52) / 184000 ) if you keep and refinance.Don’t forget about CGT if you sell too. Top tax bracket? 94 – 24 = 70 * 0.485 = 33.95 / 2 (assuming you’ve owned over a year)
= 16.97 . Have you claimed depreciation? CGT will be even higher!So really 94K – 17K CGT – 2K selling costs???
= 75K .. Not really that much more than the equity from a refinance deal, but you lose $125pw income.Given this, there would have to be a really good reason for me to sell the property. Numbers dont mean crap if you’ve got tenants the like to use the floor boards as firewood though [
]Cheers,
Mike.Westan,
How is $125p/w at $24K purchase not +ve cashflow? I’d be more inclined to keep them, refinance hoping the bank will agree with the $94K esimate and use that $70K equity as deposits for a few more properties. My strategy is long term – buy, reno, rent and refinance when it appears that the market has risen enough [
]… or just buy, hold and rent if the “bubble bursts” []David,
Thanks again for that info.
Cheers,
Mike.Another example:
Some realistic numbers for regional SA. Purchase property for $40000 or rent for $100p/w.
Rent:
Low income earner might get $30p/w rent relief so real rent is $70 p/w. Bonuses of renting include free water up to 120KL/year, no maintenance costs.Buy:
90%LVR @ 7%p/a = $254/m = %58p/w
+ ~$500p/a for Water & Water rates, sewage etc. = $9.60p/w
+ ~$520p/a for council rates = $10p/w
+ ~$50p/a Emergency services levy = $2p/w
+ Allowance of $500p/a for maintenance = $10p/w
+ $120p/a building insurance = $3p/wTotal purchase cost is $93p/w over 25 years + $5500 for deposit & buying costs.
So, by this examnple, a property that more than meets the 11 sec soultion criteria is still cheaper to rent than buy.
But, take into account FHOG, with the right lender, it can be used to cover the deposit and purchase costs leaving $1500 in the buyers pocket… which covers about the first 1.5 years of the $23p/w higher payments. And in this time, the rent cound very well rise from $100 to $123, making the adjusted rent after government assistance the same as the purchase price.
I think if renters in such areas were to think forward a few years, they’d see the value in buying. And some do. Others seem to lack the knowledge, ability to save, credit history, etc. to get out of the rental rut. Other would rather rent than be tied down in that location. Often cash flow positive areas are places where the youth will leave for the bright lights of the big city. (I’m guilty of that!)
… Or they see todays numbers and cant see the point in spending that extra $23p/w. Also, I’m not certain, but I’m lead to believe that unemployment benifits, pension etc. are means tested against assets, so long term unemployed and disabled may be scared of equity.That $23 could also be thought of by your low income renter as a free carton of VB or two packs of Holidays every week too [
]This being said, in fairness, I’m a renter – but I’m sharing a low quality house so paying very cheap rent, but it’s in a good location minutes from the CBD for convenience. In this situation, I’m probably paying less rent than many people renting in the cheaper northern suburbs. This area is definately not cash flow positive – although it probably was a few years ago when we moved in. Aint hindsight great! I cound probably afford to buy here, but I’d rather pay cheap rent and use the rest of my money to fund IP aqusitions.
Cheers,
Mike
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