Hi,

FNQ… Far North Queensland?

Anyway, some good resources for you:

ANZ bank discussion of Lines of Credit (LOC)

US site that explains the concept nicely.

Bye,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi Patricia,

Thanks for your post. Interesting problem you have there and it underlines the importance of due diligence in a potential acquisition.

Based on the numbers you have provided, I’d walk away. You have used some words in your post that I would think very carefully about.

That is:

quote:

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This is a gamble, but homes on the canals are rising almost weekly.

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It sounds to me like your ‘reasonable’ head is telling you that it’s a risk, maybe a big risk – while your greed gland is secreting wildly and tellling you to go for it so you don’t miss out.

Only hindsight will tell us if you would have been better of in or our of this deal.

However, here’s some financial blurb about your chances of making money.

Let’s say you buy for $330,000 on a 80% loan. Closing costs are $11603.50 plus legals and loan fees, so let’s call it an even $13,000.

Cash in you need is therefore:

Deposit: $66,000
Closing costs: $13,000
Total: $79,000

I accept that you may choose to use equity in other properties to fund your deposit, or alternatively you may borrow >80% and pay mortgage insurance. But I need to start somewhere…

Anyway, you mention that you’ll also have to tip in $700 per month. OK… and let’s say that you CAN find a tenant the second it’s finished (say the beginning of April).

Your loss until the end of the year will be 9 months * $700 = $6,300

OK – now let’s imagine that you sell after nine months. The first question I ask is why would someone buy a used apartment off you when they could probably buy a new apartment assuming they are continuing to be built.

Pushing that issue to one side, let’s assume you CAN sell for $380,000. Deducted from this needs to be agents costs, let’s assume 3% – which comes to $11,400, plus let’s say another $2,000 in solicitors fees, mortgage discharge etc.

Your numbers now look like this:

Total acquisition costs: $343,000
Add Negative cashflow: $6,300
Less sales price: ($380,000)
Add sales costs: $13,400
Profit: $17,300

Now, don’t forget the tax implications of the profit. Because you have held the property for <12 months there is no CGT discount, so up to 50% of it will be lost. Best case scenario is you’ll probably lose say 1/3rd, so your bottom line BEST CASE SCENARIO is you are betting $79,000 to make a possible $5,709.

I can see why you said this was a gamble!

To me there is far too much risk given that your key assumptions are:

1. Property continues to rise in value at current rates
2. You can find a tenant
3. The property is completed on time
4. You have access to capital and can afford the loss each month
5. Your likely gain is small compared with the risk.

Perhaps the investing Universe is telling you something by providing you with a way out of this deal.

Maybe it’s your chance to build a relationship with an agent by doing them a favour and moving on from this deal to pick up a more profitable deal later.

Finally, whatever you do, if you are making a $330,000 investing decision without a proper analysis of the numbers, such as that outlined in Financial Analysis Template in Buyer Beware, then you’re asking for trouble.

Best of luck,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi Greg,

Great to see you on the forum.

Unfortunately there is generally no CGT roll-over relief in Australia for property like there is in the USA.

As for what should you do re: your property, I’d do what brought me to my investing goal the quickest.

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

By “NII” I assume that you mean National Investment Institute?

As I remember this is Henry Kaye’s organisation.

I have never been to one of his seminars or information nights, although I did have a private consultation some years ago with someone called Victoria.

I was ushered into a room that had Robert Kiyosaki books on the shelf and was told that Henry sold property that Robert mentioned in his books.

At the time I walked away as the numbers did not confirm the assetions made about wealth building.

However, in hindsight, because of the boom in property, provided people could absord the -ve cashflow and wanted to keep working, then they would have made substantial amounts of money.

Nevertheless, for me, making money is not enough. I wanted to make best use of my money and didn’t want the obligation of having to work.

I recommend going along and trying to glean good ideas. When the sales pitch starts, weigh up the cost vs. the benefit and see if you want to go further.

Finally, remember that people who sell property lack independence about whether or not it is a good investment. Be certain that before you ever sign a contract to buy an investment property of any sales agent that you receive independent financial advice.

Regards,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi Mark,

I have not spent a lot of time investigating landlord’s insurance, however I have an understanding that may help you.

A landlord’s insurance policy covers tenancy risk – usually both from a income and potential physical damage perspective.

The cost of a policy varies with perceived risk.

Personally, unless I know that I’m dealing with a risky tenant, I will not take out landlord’s insurance. I see it as insurance for a risk I already mitigate by carefully pre-screening my tenants and also constantly managing my investment.

Whether or not insurance is right for you depends on your perceived level of risk and how active you are with your investment.

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

An application form will be handed out at the end of day one and will be expected to be completed and handed back by the end of day two to be in the running.

Bye

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

A little known fact about Steve McKnight is that after I became a chartered accountant I went back to try and get into pyhsiotherapy.

Not normally a problem except physio was one of the hardest courses to get into (all the people who missed out on medicine did physio) and also I didn’t do any maths, chemistry or physics in Year 12.

Nevertheless, I didn’t let a minor detail like not having any of the major prerequisites stop me from applying.

After much research the only place that would even entertain the idea of me applying was Sydney.

They had a mature-age program that received about 10,000 applications for 100 places.

The only way to apply was to demonstrate why they should pick you, above all the other eligible people, to get into the course.

I filled in the form to the best of my ability, trying with all my heart to come across as someone who wouldn’t let them down.

This is the sort of dedication I’ll be looking for… someone who wants this for what I perceive to be a worthy purpose and has the passion to succeed.

If this is you then you stand a good chance.

Bye

Steve McKnight

P.S. A few people have asked why it is that I will only pick from the seminar participants. The answer is that the first hurdle of knowledge will be overcome at the seminar. Also, if you can’t invest $2,000 to become a millionaire then there’s little hope you’ll be successful in the long term. I’ll get you there provided you work with me all the way.

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hi,

I’d certainly be considering this, but only provided:

1. I could get insurance (you’ll need to ring around and spell out that the property is on a flood plain)

2, I could get finance. No doubt some places will knock you back on the basis that it floods.

Again, this is a matter of phone calls to various lenders.

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

Thanks for your post… and your purchase []

quote:

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I came to a decision this morning that being proactive in terms of property aquisition is better than sitting on my rear-end thinking its all too hard.

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Excellent! I was at the same point in May 1999. The key now is to turn your resolve into momentum, which is done by continuing to take action.

quote:

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There is only one thing left that is niggling at me. Its our geographical location. We are in Singapore.

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Everyone has a reason for doing nothing… I’m pleased for you that you are working through this.

quote:

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So my question is how do we go about acquiring property without actually living in the local.

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Well… you could do it via the internet and using a system… get a builder to inspect it, qualify it using the Buyer Beware templates from OS. It’s possible…

quote:

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If I was to buy 30 properties in say 1 year, thats an awful lot of airfares.

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Indeed. If this was the option then you’d be better off paying someone to go and hunt / source / buy deals for you. Maybe someone that is time rich and money poor and you could pay them like a spotter’s fee.

quote:

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So lets say at the end of the year I leave hubby in Singapore to work and go back to OZ with the kids and start investing.

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You could do this… investing has a cost. Sometimes it’s personal, sometimes it’s monetary… sometimes it’s both.

quote:

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Will it be too late to invest with the current cycles the way they are? (yes, stupid question if I acquiring for cashflow). I will probably understand more once I read the books.

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There will be opportunities in all markets. Yep… investing for cashflow means that it doesn’t matter what happens with cap. growth, only tenant related issues.

quote:

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For all of you out there that have several or more investment properties, are they all in the same capital city and do you reside there please?

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At the beginning – yes. More recently – no. It’s all about a system.

Hope this has helped.

Have an awesome day,

Steve McKnight

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Hi,

In respect to your question I would imagine that you should seek legal advice.

From my research I found:

quote:

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Further, a guarantee that contains an “all accounts” (or “all moneys”) clause cannot be enforced in respect of further credit unless certain notice and consent provisions are complied with. So too, if a guarantee is secured by an “all accounts” mortgage, that mortgage will be unenforceable with respect to further credit unless certain notice and consent provisions are met.

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See Source

Good Luck!

Steve McKnight

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Remember that success comes from doing things differently.
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