Hi,

If you are adopting a buy and hold strategy then cheaper properties will help you to maximise yield, as rent and prices do not raise at comparative rates.

For example, a 3Br home in a regional area might rent for $180 per week and be worth $90,000. A 3Br home in a metro area might rent for $250 per week, but be worth $250,000!

As such, if you are looking to invest for +ve cashflow then you might have no option but to invest from out of town. If this is the case then you want to be sure that you complete a thorough due diligence of the area (including the rental demand) before buying. It would also be essential to have a qualified builder complete an inspection for you.

Sadly, the days of buying a +ve cashflow buy and hold property within 1 hrs drive of most metro areas are over. No point lamenting about lost opportunity though… look forward to tomorrow and backwards to yesterday!

As for being difficult to manage an IP so far away… that’s what God invested rental managers for []

Thanks for your post and happy investing!

Steve McKnight

**********
Remember that success comes from doing things differently.
**********

Hi,

I thought that I’d jump in here as:

1. I know the Mackay area reasonably well (i’ve lived there for a short while and that’s where my wife is from and her parents remain!)

2. I actually looked at a similar property some years ago (near the gooseponds / Mt. Pleasant area).

So having said that, my observations were:

A. The block that I looked at came furnished, which was OK (perhaps even a bonus for potential depreciation after commissioning a building surveyor!), but it also added some complexity to the problem in that if it needed repair then I might have to be the one paying to fix it.

B. The concentration of units or similar dwellings in the area meant that a property that was vacant may be that way for a while. Indeed, as I remember the block that I looked through was half vacant!

C. The rental managers in Mackay must have spent too much time in the summer heat… they wanted what I regarded as an obscene amount of commission to manage the property. Had I gone ahead I would have immediately reported being robbed to the local police []

D. There were some serious issues associated with gaining the finance for a block of more than 4 units. The CBA wasn’t interested at all, the best I could do was a commercial loan with Suncorp Metway on a 30% deposit. This made the cash on cash return very unattractive.

E. While the town has picked up a little now, a few years ago I was worried about the continued poor yield from sugar on top of mines closing. Perhaps this was a good time to buy… but this added further weight to leaving this deal alone.

Now, as for the data that you have supplied:

Property One

$430k
Say: 30% down = $129k
Closing Costs = $20k

Approx Cash Needed = $149k

Return:

Rent: $35,620 (fully let!)
Interest: $19,565 (Interest Only Basis)
Management Fees: $2,500 (around 7%)
Repairs: $2,500 (stab in the dark)
Rates: $3,000 (say 600 p/unit)

Positive cashflow: $8,055
Cocr: 5.4%

This would seem to be marginally positive cashflow, but the key to this is leaving such a big deposit and also being able to ensure that your interest rate stays low.

Remember that you should factor in a vacancy as well… say one month p/unit p/annum to be very conservative.

Personally, this would not be enough reward for risk in my eyes, so I would try to get creative b4 ditching the deal.

Still, this property would be a better buy in my opinion than a -vely geared monstrosity.

Before writing off the deal, some questions to ponder are:

1. Can you get the rent higher? and/or
2. Can you get the price lower or leave less cash in the deal?

Well, that’s enough for now. Have a go at crunching the numbers in the second property as I have done above. I’ll look forward to reading your post.

Bye,

Steve McKnight

**********
Remember that success comes from doing things differently.
**********

Hi,

Yep – we know about this.

There used to be a forum called Meeting Point but it was taken down due to issues of people advertising in a way that might have broken ASIC requirements.

I’m looking into it and will re-establish this forum, hopefully in the very near future.

Bye,

Steve McKnight

**********
Remember that success comes from doing things differently.
**********

Hi,

The critical figure you mentioned was:

quote:

---

total cash expenses 23759 (-6033)

---

How many of these properties could you afford to own? Re: depreciation… read: http://www.propertyinvesting.com/depreciation

What doesn’t make you rich will end up making you poor.

I’d be looking elsewhere if you wanted a positive cashflow return.

Bye,

Steve McKnight

**********
Remember that success comes from doing things differently.
**********

Hi,

Doogs makes a very good point re: interest deductibility.

However, here’s one possible strategy you might like to discuss with your financial adviser…

Instead of redrawing 100% of your home’s purchase price against equity from investment properties, just:

1. Set up a new loan for ?%LVR you need for your home. Note that this interest will not be deductible.

2. Fund the deposit and closing costs from a redraw of equity from your investment properties. Again, the interest on the redraw will not be deductible.

At least this way you keep available equity (through your investment property) to use on any other investment assets that you might want to buy in the future instead of tying it up with the puchase of your home.

Of course, with borrowing money comes financial risk that should interest rates rise you’ll need to cover the higher repayments.

Regards,

Steve McKnight

**********
Remember that success comes from doing things differently.
**********

Hi Donna,

Nice to hear from you. Welcome to the forum.

You can easily print out the post you want by clicking on the printer icon towards the top right of your screen (next to the envelope icon and under the subscribe to the newsletter box).

Cheers,

Steve McKnight

**********
Remember that success comes from doing things differently.
**********

Hi,

This can certainly be a complicated area – especially trusts.

quote:

---

Capital gains derived by a trust from a CGT event happening after 11:45amEST on 21 September 1999 may be reduced by 50%
-2002 Master Tax Guide

---

What this means is that so long as the beneficiary of the Trust is an individual or a complying superannuation fund then the discount may apply.

As always, it is best to get the advice of your accountant for your specific circumstance.

Regards,

Steve McKnight

**********
Remember that success comes from doing things differently.
**********

Hi,

This thread caught my eye and I wanted to quickly respond b4 calling it a night.

I attended JB’s AW program in Nov. 1999 and found it to be useful, although rather basic. To JB’s credit he has since updated both the content and also imported some local speakers to add Aussie flesh to his tactics.

Personally, although there have been some issues between John and I, I would advocate that his information about how to regain control of your finances is excellent.

As for my testimonial in the front of his book… it’s a long story, but I have asked him to remove it, to which he agreed but it didn’t happen… I don’t know why…???…

I wish JB much success and hope that his tour here in Oz goes well.

Sincerely,

Steve McKnight

**********
Remember that success comes from doing things differently.
**********

Hi Michael,

You should have received one!

Still, I am aware that some people may not be receiving it due to the software that I am using being scanned as spam (ie. in the message header). This is particularly so with hotmail accounts.

I am trying to currently resolve this – Michael, can you tell me what e-mail software you use?

In the meantime, you can get backissues at: http://www.PropertyInvesting.com/backissues

Cheers,

Steve McKnight

**********
Remember that success comes from doing things differently.
**********