Forum Replies Created
Found it myself…
http://www.onlineservices.qbcc.qld…./VisualElements/SearchBSALicenseeContent.aspxQBCC.qld.gov.au..
At some point the banks want you to repay the principal, and this comes into their serviceability calculation. So if you can find, extremely unlikely, or create (more probable) an asset (that the banks will lend against) that returns 10% net+ you should be able to drive your portfolio forward. What will slow you down will be drumming up the 20-30% deposit each time.
For Example
If you created an asset for 500k, that returned 10% net, and could borrow at 80%LVR at 5%. Your net (ignoring interest) income from the investment would be 50k pa, your interest repayments would be 20k. Leaving a taxable income from the investment of 30k pa. Lets say this was taxed down to 20k pa in hand. The banks would be happy as you could in theory use this excess 20k pa to pay down the principal in 20 years.Even with this truly excellent asset it would take over 3 years to save the deposit to allow you to repeat the process. So as the original poster said. It is very hard to cash flow your way to financial freedom. Best bet is to develop a few properties first, sell, take the profits and repeat – until you have a decent whack in the bank (say $2M). THEN switch to positive cash flow assets.
Capital Growth should be viewed as a bonus. It sure is nice but it is far from guaranteed. I wouldn’t factor CG expectations into any buying decision.
Income = 6500.
Expenses =
1856 – rates
1000 – insurance
1200 – repairs
So net income = 2444.Giving an income of 2444, for 30000 outlay, or 8.14% net.
Not bad. The questions then all relate to
1) vacancy rates (rental demand)
2) tenant hassles (low socio-economic)
3) likelihood of employment in the area increasing….or alternatively retiree appeal.
4) who are you going to sell it too when you exitOn the surface the investment seems very reasonable. Good enough return, potential for capital growth. One warning sign might be though if it is valued at $67k and selling at $30k….WHY? Has a big employer in the area closed up shop? What is the rental demand in the area now? What is the rental demand in the area likely to be like in the future? When you come to sell who are you selling it too in the future? $125 rental per week is very low.
If you believe that the housing (rental and owner) demand in the future to improve (compared to now) then it should be a good investment for you. If you are not sure, then you need to find out more – talk to locals.
Good luck
WobblyWhy are you buying? Do you want / need capital growth? Or are you in a position where it is in fact only the income component you are after and any capital appreciation would be a bonus or irrelevant (as you wont sell regardless).
It doesn’t sound as though you are sure of all of the costs, make sure you have ALL of the info before making a decision. How is it in fact structured, do you own a car park? Can there be other costs (is it part of a multi-story building which needs work). Are more parking spaces being built nearby, or could they be easily built in the future.In short
1) WHY are you buying (what do you need from the investment, income vs capital growth)
2) How secure is the income? (competition, future competition, alternate uses)
3) What is the likelihood of the income increasing over time
4) are all the likely costs accounted for
5) what can you do to increase its income (advertising on the site?)I am with Terryw on this one. I’d sooner have shares in Telstra.
you may not get the high speed rail, but i seem to recall mention of an airport for Toowoomba. If so then that would certainly help it !
wouldnt hurt to ask for a quote, from termite company. Then ALL can be assured it is 5k and not 8k or what ever. Also be a more transparent bargaining chit (subject to competition notes made previously)
1-bedders have a limited market….that said, this market may well increase as all the baby boomers retire…but 1-bedders will always be at the bottom of the market. A two-bedder is so much more versatile and appeals to a much wider target market.
Other questions
1) Comparative sales (is it over-priced compared to other sales of the same type)
2) Vacancy rates? What are they for the area, how easy will it be to re-tenant if you should lose your existing tenant
3) is the rent being quoted to you true market rent? Could you re-rent it ok if you had to at what is being quoted to you.
160sqm may be the section size, what is the building area. As Terry alludes to Banks do not like lending to small units. THIS could explain why it has not sold – because no-one can get a loan to buy it !! Or if they can get a loan it is it a max of 70% LVR.
Positioning sounds excellent, which should help with tenant demand.
All above being said make sure your offer includes a clause for finance to YOUR Satisfaction. 70% LVR is more like a commercial loan, except that a commercial property would yield more like 8% NET, not 7% GROSS. If you cant get a 80%+ LVR using one of the big 4 banks, then most likely who-ever buys it off you will struggle to do so also.
This is more of a cash-flow as opposed to a CG purchase.
Play conservatively for a while…
If not already, convert all loans to interest only with an offset account. As much as possible use offset account to save into. Save like mad and sit tight while learning more about property investing. You do not want to be a forced seller !! While you maybe ok at the moment, with interest rates at an all time low, think about how you will cope if
1) bread winner loses job
2) interest rates rise by 2%
3) you have a major vacancy…4+ months
Depending on how much equity you have, your current cash flow situation will not be positive by that much, if at all.
If you over commit now, and one of the above three events occurs how will you fare? No one is predicting that interest rates will rise at the moment, but in only two to three years time i am sure that the pundits will be telling us a different story.
What do you think will happen to the housing market when interest rates go up by 2%?
Put yourself in a position of strength, so that you can choose what to buy at a good price, rather than be a forced seller.
In the interim think about how you can increase the income from your current IP…granny flat / rent by the room / holiday accommodation etc.
Might be a good idea if adding a granny flat….lets you remove it later, say to subdivide etc.
Selling land at the moment is tough (in most places). You should run the numbers on building on your block. The final product will appeal to more, and you can rent it out if need be….assuming there is at least some demand for property where your land is.
Have to talk to a good Commercial real estate lawyer…but
1) you wont make money until you put a tenant in
2) you will pay GST unless a going concern.
So optimally would like to try and sign up subject to being able to find and place a tenant in the property prior to settlement. So that it settles as a going concern.
I'd love to know how to do this (suitable contracts for both "your" tenant and the sales terms). On the surface it could be an excellent strategy if you can pull it off.
Cheers
Wobbly
Terry,
my understanding is that CBA (and others) will lend to a trust – BUT they no longer accept a servicability gaurantor. Meaning that my income is irrelevant, and only the trusts income is considered.
Hence the question
is that everyone but CBA. Or do you include CBA in this as well ?
I do everything in my power to never pay LMI. So i would use savings – to reduce or avoid. 13k outlay is 13k lost – despite the better leverage. Especially if you have access to the funds now.
If it is an investment then dont get emotionally attached. If you have worked out what you think is fair market value then offer that. If they refuse walk away. There are 1000's of investment oppurtunities at the moment. If it is a home for you to live in then other factors come into play ie emotion.
Fantastic thread idea !! I am on Gold Coast -but would not invest there!! Maybe Perth one day…
If you dont ask the answer is automatically no !! A lot of developers pay 20-30k to there marketing agents when they get a sale….so by all means ask. Nothing ventured nothing gained.
Or even some spots in Logan, or Toowoomba
Or west sydney – with Granny falt
My understanding is that it is 6 years…although maybe I am confusing this with PPOR CGT exemption. However i also think it is not necessarily limited to this. ATO have, on occasion, still asked for GST on developments sold after this period.
