[Ryan McLeanParticipant@ryan-mcleanJoin Date: 2010Post Count: 547]

April 15, 2010 - 11:18 pm

@siraitken – If the growth has been 10% average over the long term couldn’t this possibly mean that the prices in the area have peaked and thus it is no longer a high growth area?

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April 15, 2010 - 11:16 pm

HI Luey,

You can start investing with $23k, but maybe not in the CBD. A lot of people will disagree with me, but I think getting into the market in a large rural town (over 8,000 ppl) can be a good place for a lot of people to start. You can buy properties for around the $100k-$150k mark, which seems to suit your budget.

Getting started is the hardest thing, that is why starting really small can be helpful. Rural towns can often give you a better rental return. You know how your friends have mortgages they can’t afford, well why not look for a property that pays you, instead of you paying it.

Once you are in the game then things become easier. So this could be a good first step for you.

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April 15, 2010 - 10:55 pm

It depends on how quickly you want to get your money back. If it takes a while for properties to sell then can you afford to have the property on the market for 12 months before you get your money back? It might be an idea to try and rent the property out while you are trying to sell it so that at least you are getting some money coming in.

If you can buy 2 blocks and a house for $65,000 and then sell one block and the house quickly for $110,000. After spending $15k on a renovation you would come out with a block of land for free and $30,000 in profit. That sounds like a pretty good deal to me.

If you can afford it, and if you can afford to wait in case it takes a while to sell, then why wouldn’t you snap it up?

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April 15, 2010 - 10:47 pm

@ homersyd – Yeh you have to pay lender’s mortgage insurance if you go over 80%. This is you paying the bank for the banks increased risk in the deal.

Also, having few properties with the LVR over 95% can sometimes limit your borrowing capacity.

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April 15, 2010 - 10:45 pm

Hey KG,

If you could, when people call or visit the open house ask how the found the property. Then we can all learn what works the best. Is it the sign? The newspapers? The internet?

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April 14, 2010 - 12:18 am

I can only recommend the accountants I have used and found helpful. They are not specialists when it comes to property, but they know legal structures and if you have an idea of what you want then they can talk you through things and teach you how to do things. At least that is what they do with me and I am very grateful.

They are called PKF accountants. http://pkf.com.au

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April 14, 2010 - 12:15 am

GH – I can’t offer advice on Perth spefically but like everyone has said we are all in the same boat. I am in Sydney and the prices seem ridiculous here. There is a profit to be made…but you need a fair amount of cash to do it in Sydney. Perth is different from the rest of the Australian property marketing, but then every city is different from the market as a whole. Sydney is different, Melbourne is different, etc etc. If deals were everywhere then they would be snapped up quickly (investors are smart these days). So good deals are hard to find, but keep on the lookout….they do exist.

Just something to be aware of, subdividing takes time. I was looking at a property that I wanted to subdivide and sell off the land and keep the house (or sell both), but I found out that subdividing can take up to 9-12months to go through council and can cost around $20,000 to have it done. This put a hole in my plan (as I was after a quicker turn-around). So if you only have 18 months then be aware that subdivisions can take a while.

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April 14, 2010 - 12:08 am

Sorry I don’t believe that question can be answered.

Different investors look for different things in a rental property. If you had a positive cash flow investor looking to buy it then they would want somewhere between 7%-12% rental return, if it is in a high growth area then someone might be willing to accept a 4% rental return.

Generally the rental return of a property is determined by the area it is situated in. The area will greatly determine the price of the property and it will also determine the rental income one can achieve…thus determining the rental return. Rural areas tend to have higher rental returns, inner city and high desired areas (such as waterfronts and beach areas) tend to have a lower rental return because properties are high in demand and thus command a high purchase price compared to rental return.

You can buy an Australian Property Investor Magazine from your local newsagency. At the back of the mag they have rental returns for almost every suburb in Australia. Check that out and you should be able to find out the average return of your area.

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April 14, 2010 - 12:03 am

If you are worried about this happening to you then just make sure you get a good rental manager. When someone signs a rental agreement they have to state who will be living in the house. If people who are not on the rental agreement are living in the house then you may have a legal standpoint by which to evict everyone.

If you are worried about 7 people living in your unit because of damage remember that that is what bond is for. If they damage the place you can take their bond, and if they REALLY damage the place then your insurance should cover it.

But a good rental manager should do regular inspections and I believe it would be hard for 7-8 to make the place look like only 2 people live there when the rental manager comes to inspect. So there are ways you can avoid this.

Hope that eases your mind.

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April 13, 2010 - 11:59 pm

Hey Julie,

Just out of interest, why are you looking to invest in the UK instead of Australia? I am just asking because I have a UK passport also, but live and work in Australia and I would be really interested to know what the advantages of investing in the UK are.

Thanks

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April 13, 2010 - 11:57 pm

There are definate advantages to owning 2 properties instead of one. Firstly you get capital growth on two properties…not just one property. Secondly, as you will be renting the second property you get the advantage of rental growth, which means each year you can make more and more money from rent.

Do you want to be a property investor? That is the question you need to ask before you hold your property or sell it. If you want to invest in property and want to continue investing then you might want to keep it, or you might want to sell it so that you can use the money to invest in more lucrative property deals.

It is a hard question to answer whether you should sell it or not. Think about your investment goals and what you want to achieve. Your old home is now becoming an INVESTMENT so look at it like you would look at any other investment. If it gets you closer to your investment goals then consider keeping it, if it doesn’t get you closer then it might be time to sell.

Sorry I can’t answer the technical questions, but I hope my insight has helped.

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April 13, 2010 - 11:52 pm

If you are asking whether you have to refinance in order to draw out your equity then the answer is YES.
There are only two ways I know of to access your equity. Either through selling the property, or taking out a loan against the equity.
So you might have bought a house for $300k but it is now worth $330k…this doesn’t mean you have $30k sitting in your bank account.

Also something to be aware of is that if you want to maintain a 80% Loan To Value Ratio (LVR) then you will only be able to borrow a further $24k (80% of $30k). You won’t be able to borrow the full $30k and maintain an 80% LVR.

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April 13, 2010 - 11:46 pm

Hey Matt,

Getting into the game sooner rather than later is a good idea. People who wait until “they can afford it” find that they never can afford it. Getting into the game when you are only 20 means you can take full advantage of capital growth over the long term AND rental growth over the long term. Hopefully making you a rich man if you keep investing.

If it was me and it was my first property I wouldn’t buy overseas. You are still new and haven’t done a deal yet, there is enough legal stuff to understand in Australia before you start investing in NZ.

Asking whether to invest in CF+ properties or growth properties is kind of like asking “how long is a piece of string?”. It all depends.

It mainly depends on what you want to achieve and what you can afford. Do you want to achieve passive income that you can live off? Or do you want to get large sums of equity for major investments/feeling of security? Work out exactly what you want to achieve first (goal income/goal net worth) and work backwards from there.

Personally, I want to achieve passive income from investing to support my lifestyle. So when I look at investments I want cash flow. But I also want to build up equity to fast track my investing. So I look for properties I can ADD value to. What you look for will be determined on what you can afford and what you want to achieve.

You have $25,000 which is awesome!!! That is a 20% deposit on a $125,000 house or a 5% deposit on a $500,000 house. But being a uni student and only working part time you might have to go for the smaller place just because you might find it difficult to get lending. Are you casual or part time? Banks look more favourably on part time workers than casual workers (from my experience) .

If I was you, I wouldn’t want to just keep saving. Saving is slow. At least if you can invest your $25,000 into a property (if it was CF+) you could get interest on your cash (cash on cash return from rent) AND get some capital growth, which will build up your equity and make it easier to invest the 2nd time around.

Good luck with everything

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April 7, 2010 - 7:10 am

So Paul,

When you mentioned “carry on the business of providing credit”:
Does this mean that if I approach a vendor who has NEVER done a vendor finance deal before and they agree to carry back 20% of the finance to me as a person (not a trust/company) then they don’t have to apply for a license? Just people that do it regularly?

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April 6, 2010 - 3:18 am

Hey Paul,

Thanks for telling us about this. I am looking at doing some vendor finance deals this year and next year so this is important to me. I have a question.

The National Credit Act applys when giving credit to a consumer, but the PDF mentions that if you engage in the debt as a company or a company acting as a trustee for the trust then they do not have to comply with the NCA. I purchase my properties through trusts, does this mean I don’t have to worry about the act?

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April 5, 2010 - 10:29 pm

Hey Elle,

I have never done this before, so take this idea for what it is…an idea…I haven’t tested this.

Maybe you could buy an old house, get it trucked to your block of land and re-stumped. If you can find a cheap house and get quotes on the movement and re-stumping then you might have a chance of it coming in at under $100k.

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April 5, 2010 - 10:27 pm

For me most of my research is done online. I look to invest in areas outside of where I live, so having the internet at my fingertips really helps me get a lot of information about an area.

I have spent countless hours of RE.com.au looking through property after property after property. The more you look at properties the more you get the know the market for the area you are looking to buy in. Over time you get a good feel for the expensive areas, the must avoid areas and what is a good price and what is expensive.

When I find a town or a suburb I want to invest in I will then do some research on the suburb. I will search firstly for population numbers. As Nathan said I avoid towns that are under 7,000 people. I then look for population growth/decline. If people are moving out of an area then I try to find out why. Is there a drought? Is the area based on one mine and it is closing down? Less people, means less buyers and therefore properties can sometimes decrease in value.

I will then look at the dynamics of the area. What are the people like that live there? How many people are renting vs owning. How much do people earn? What is the unemployment levels? Where is the government housing located? That sort of stuff.

I hope that gives you a few ideas of how I research.

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April 5, 2010 - 10:15 pm

Richard,

I remember reading a previous forum thread saying that it is difficult to get lending for wraps. That banks won’t lend to people onselling the property through a wrap. Is this true? Do you have to run a company like First Home Owners Group Pty Ltd to get involved in wraps?

Also, just to understand the legal obligations better. Does the bank have a first mortgage on the house and Mr A. has a second mortgage on the house? What happens if Sharon pays Mr A. but Mr A. doesn’t pay the bank? Can the bank take the house from Sharon?

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April 5, 2010 - 10:12 pm

As an investor I would be concerned that the shop has been empty for a few years. If I was buying commercial real estate I want to know that I can rent it out. Is the shop on a busy street? Is it close to other shops? What would make a business want to make this shop their location. If the shop was currently tenanted then the property would be a lot more attractive to me.

I think your idea of putting your property on RE.com and domain through a middleman is a good idea. This is the only way I search for property and I think the trend of people searching for property online is growing.

How big is the regional area that the property is in? I just ask because a lot of investors prefer to invest in towns of over 10,000 people. I think they see this as less risk and more chance of population growth.

My parents thought about selling their house themselves. Not because they had any idea about selling, but because they wanted to save the agent commission fee. I know that the most we could have got for that house ourselves would have been $800k, but the agent got $825k for the house. Even after paying the commission my parents walked away with more money than if they had sold it themselves. This is not always the case, but it was for them.

Another friend of mine tried to sell his block of land himself. He is a busy guy. He works 5 days a week, has a few businesses on the side and has a family. His attempt to sell the block didn’t have much interest. One of the reasons was that he was too busy to market it properly. They then got a real estate agent and sold it within the month. From their experience I can see that if you are a busy person it can sometimes be worth getting a real estate agent just to save you the stress of trying to sell it yourself.

But my 2 cents about marketing and selling the property:
– If you are selling to investors then I would try to maximise the investment appeal. Give them ideas of rent for the property and the shop. Tell them reasons why it is a good investment. What makes it stand out from the rest.
– If you are selling it as a home, then try to make it look as homely as possible. You want people to walk in and get emotionally attached to the property and thus pay more than it is worth
– Take great photos – As people can easily search through thousands of properties online, try to make your property stand out with great photos. Personally when I am searching I like listings with lots of photos, because I can take a good look at the property and decide if it is for me or not before I even have to leave the house.

Good luck with the sale.

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April 5, 2010 - 10:04 pm

Oh ok. So let me understand this (I am new to wrapping so would love to learn more). Someone else (Mr A.) buys the property for Sharon, and then sells it back to her. Sharon then pays Mr A. principle and interest on the loan, and Mr A. pays the bank for his loan out of Sharon’s payments? How does Mr A. make money? Is it by charging a higher interest rate than the bank? Or selling for an inflated price and thus collecting more interest?

I understand now why you said it would cost more than $550/week. I was thinking an I/O loan with a traditional lender…not a vendor finance contract like the one you mentioned. Thanks for helping me understand.

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