Forum Replies Created
Congratulations in holding on so long !
Property goes through a property clock cycle. Sometimes its good to purchase and you'll make quick profits depending on what you paid.
Other times you sit through an extended period first of all waiting for your initial price to return .. and finally look for a profit.
It depends on when you bought in .. how much you paid .. what interest rate you paid and what economic circumstances affect your investment climate itself.
What were you doing wrong? If you wanted an investment that wasnt going to go anywhere much .. you probably did everything right !
So to answer the failiure question, I'll prime it with a couple of honest questions designed to invoke the right response.
(1) Did you do your investigation into the property in the first place or did you just rush in getting SOMETHING in the market?
(2) Did you purchase on what you could afford or what you thought was going to be actual value?
(3) Did you assess where your property is likely to sit in the market within 5 years time?
(4) Did you purchase on the demand of the property, the scarcity of the property or the inherant ongoing value of the property?
(5) Are you assessing RIGHT NOW where your investment property sits in the current market .. and where on the property clock we are in relation to market mood?
(6) Are you assessing where your property sits in YOUR existing market portfolio?
Any or all of these questions should be asked every time you even approach the investment property.
The answers will give you a better insight for yourself how you want to work on creating value in your property portfolio.
The only person who will make the right or wrong judgement calls on your property .. is you.
Both are related to a Property Game called Monopoly?
Quite sure you might have heard about it. Its been around for a little while now.
Thanks for your insight dzha1408 !
What you'll find is that if its being offered and its a genuinely good rate, there will be several brokers who will be on top of it for getting the best rate. The guys on here should be able to get you close enough to a great rate.
Point is .. if you got the best deal .. the rate plus or minus a percentage point shouldnt make that much of a difference. You should have worked out how to handle the deal with 2 full interest points difference. Otherwise you werent calculating for a change in rates .. which .. regardless of the time period WILL happen.
Like any other investment .. you should be looking for a sought after commercial property .. and not a singular one either. Commercial properties may pay significantly better but you MUST have an offset for the risk component on commercial otherwise you are banking on trouble. If it stays vacant .. the vacancy can be a lot longer on commercial depending on economic circumstances. You want your commercial property golden egg, back it up with a couple of income producing assets that are relatively secure to match it. For your own safety.
dzha1408 the other thing i will relate is that you seem to have run on your first investment on a good rental return rather than the overall quality of the property. You should always ask yourself even when purchasing a property how you would sell the property and to whom.
There are no mistakes that cannot be righted with time and effort. Hold your property and see if you can improve it over time. Change your tenancy mix if possible. There is no challenge that cannot be met through using your head.
To answer all the points in your post directly and link it back to my previous post .. i will answer them one at a time.
Firstly my long term goal is to own income producing assets which will one day replace my regular job and I hope to do this through residential property.
Admirable. Thats where we all start. Wanting to achieve a little more.
I have set up a discretionary trust, my PPOR is worth $260,000 with $180,000 owing and I am 27yo.
Nothing wrong with either setting up a discretionary trust, or having a PPOR that you are paying off gradually. In my view you have set up the discretionary trust a little early, as half of the benefits you can get as a tax deduction happen at a personal or owner level. Invoking the discretionary trust should be when you have over a specific level of assets .. or you have no need for the personal taxation discounts offered at a personal level.
Your PPOR despite being of a minimal invest and having now reasonable equity in the property .. is a longer term hindrance to getting the maximum possible for investing. The amounts of any contribution are immediately deducted against what you can possibly borrow .. limiting the size of your maximum potential borrowing. When its fully paid off .. its a wonderful asset to lend against .. and use as a contributor for further wealth strategy. Until then its a debt that holds you back.
I have recently become very interested in inner city units, particularly those with car spaces as they seem to have much more reasonable yields than standard house and land anywhere near the city.
This is where your reason for investing should come into play. Yes, in the inner city .. units with car spaces will be more desirable than units without carspaces. But there is really a market in each category.
Studio Apartments, Studio Apartments with carspace, Studio units with carspace, storage unit and shared facilities.
Do you see how at each level you will attract a different client .. and have different expectations? I am deliberately using Studio as they are the most difficult market in the inner city area .. and yet the most profitable.
You should always investigate whether the market you approach is catered for .. or nearing saturation. At saturation point or above .. there are more units than possible tenants and you start lowering rentals to attract ANY tenancies.
I realise that the generally accepted view is that land outperforms units in capital gains in the long term.
This all depends on picking your market .. and market timing. Land will generally be more sought after than units .. but again we are depending on an understanding of your market conditions. Understand your market conditions to better appreciate what expectations you can have for your properties. Both land and units eventually reach a peak point .. at which point the buyer is not prepared to pay any more for the type of property provided. This is where your market knowledge will come into play. Buying at market or above market is a great way to wait a long time for a result. Buying below market .. or assessed market value is a great way to make money in the shorter term.
Gus your first entry is mired in confusion.
And realisticly …. it doesnt need to be.
Can I sacrifice equity in my PPOR to start my property investment? Sure you can .. but it comes at a cost.
Can I look at growth patterns and good returns as my way for moving forward? Of course you should !
There is no point in investing in a dud area if you know that 10 years down the track the property will either be less valuable or the returns will have remained consistant. That in anyones form of investing .. is a losing strategy.
And why let the idea of a low starting base affect your overall strategy for investment? If you are building your castle in the sky (a lovely metaphorical term) why not start with a solid base? Sand doesnt qualify !
Start with what you can deal with. And a working strategy .. that mixes in with both your home life .. your social life and your financial wellbeing. I dont want to spend time pulling out hair in the middle of the night because I am trying to work out where the next $200 for my investment comes from. I have better things to do with both my time and my money.
Do you think you can make money in housing commission conversions? I have, but i had to know what was good and what wasnt. Can you make money on irregular shaped blocks of land that no builder can possibly subdivide nicely? I have. Can you use an architect to make six units comfortably fit on a 670sqm block? I did .. and it took more than one architect to make it happen nicely.
This isnt a boasting session. This is a session to make you realise that if you become an expert at what you know, what your market will accept and how to achieve solutions that are profitable, then your efforts at making money are so much easier to achieve.
And your future wealth and wellbeing is guaranteed.
I love answering questions which seem to state the obvioius with an ambivolent … IT DEPENDS.
You should always have some idea about the structural integrity and quality of your purchase. If its a good shell and a mediocre interior, then it really doesnt matter whether the building is 5, 10 or 50 years old. A good build survives time a lot better than a cheap construction. You may be facing work with anything over 7 years, but unless your tenancy wears a golden halo, you'll be doing small repairs and amendments to your property over time anyway.
Check the quality of any floating floors. Dont be afraid to stamp your food on it. If you feel any vibration or give under your foot then back away. There are a lot of builders and renovators who think a spiffy kitchenette and a coat of paint and new tiles or feature wooden flooring will pile on extra dollars in a sale. Dont choose granite or marble as a rental. You have no idea what people can do to quality kitchen finishes until they've done it. Chipped granite? You wouldnt believe it .. but yes.
As a rental .. keep things cheap and attractive. Dont use expensive curtains or frames. Dont use nylon carpets (they are the cheapest) unless you are prepared to adopt people who dont smoke and will never use a hot iron in the living room. Use a nylon/wool blend. If you put stuff in .. make sure its stuff that is durable and frankly .. idiot proof.
If the quality is there in the initial purchase you have no issues with either the property retaining its valure or being an easy to sell property when the time comes. If there was a problem with quality to start with .. even in 20 years .. that wont change.
Investing in an aged 55 plus unit is very much like investing in a mobile phone.
Its gotta look good .. be functional .. and have the facilities you require.
Its only AFTER you have purchased .. that you find the real expense comes from the billing system.
As an investment for longer term growth, no. As a means for finding out what its like to purchase a very average property .. sure .. call it a learning experience and find out what everyone else already knows.
However … having said that (quite a mouthful) .. realise what everyone else already knows .. that changing a property from one type of criteria to another is a chance to make a lot of money. Some of these aged care facilities are made incredibly well and have good facilities. As MANAGED (non aged care restricted) properties they will actually be quite profitable. If its possible to change its overall criteria from leper to prime position managed properties .. you'll make a lot of money turning it around.
I'm always open to criticism.
But depending on how relevant it is .. depends on how long and how much time i will spend on listening to it.
You see .. sometimes .. people know something you dont. Most times .. they dont. But the little bits they may or may not add to the conversation .. may fill in bits i dont know.
Take criticism as an assessment. And then validate that against what you know.
I dont mind working with a wider knowledge base due to things i actually might have missed in my observations. But if its just negative and repetitive .. I will just ignore it.
Validate your criticism with the idea that if its someone willing to explain and enhance your knowledge .. it may be valid. Dont even stick around with negs (negative people). They will drag you down .. lead you to question what you have achieved and put you in the wrong frame of mind for achieving success.
Answer is really quite simple.
That little scrolling WHAT IS HAPPENING NOW takes names and actions and links to what you did and piles them all together.
That would be ok if it was static (in other words not moving).
However .. its moving along at a steady pace .. updating the table .. AND NOT CLEARING THE VARIABLES.
What that means in terms of memory usage .. is every second you keep your machine on with the screen active .. its piling just a little more junk into your browser .. until .. things start running REALLY REALLY slow. This usually takes place after about 5 mins left on the same screen. If you are flipping screens you wont notice it because each time the screen is refreshed the memory is wiped. On the same screen .. trying to move on it .. and eventually flip off it .. becomes PAINFULLY slow.
So its nice .. but destined to cause problems long term in user interactivity. Unless you dont want anyone to actually sit on a thread and read it.
The idea is to have your tenancy in the property as long as possible.
Therefore .. the best sort of investment property can be greater than a singular use for the tenancy concerned.
1BRs in the city are facing two major problems. Specification – allocation of only singular subgroups …. and Saturation – there are more one bedders in the city than demand caters for currently.
It would be the same reason why hotel leaseback and aged care facility ownership are off my investment menu. If I want a property to be my investment .. I want to be able to lease to just about anyone. Male, female, student, orangutan. If he's paying his way .. what he is doesnt matter to me.
2 br offer just a little more flexibility in the tenancy as to change of conditions. Having a baby? Then the second bedroom becomes a nursery. Going to university? second bedroom is now a study area. Needing to stay on but cant really afford rent? Sublet out the second bedroom ! Cousin coming to town? 2nd bedroom !
People are too enamoured with the idea that a central Melbourne purchase means continual frequency of demand. Its not necessarily the case .. as it is balanced by an increased and substantial supply for that market.
Your property must meet market conditions and demand. Thats central to it remaining both a desirable property and a longer term investment.
The same criteria would need to be checked for your outer suburb property. How does it meet the market now? Is there currently demand for that market level and type of property? Will your property be in a good position still .. in 5 years?
Ask these questions pre-purchase and save yourself the agony of a poorly thought out invesment.
You'd be rolling a pair of dice to work out which of the two mentioned investments have the better long term growth.
The first one is mentioned in Surfers … one block back from the beach. What tends to kill a lot of the Surfers Paradise investments is the continual sets of new apartments that are released onto the market.
But here's the funny thing …….. If its 60s and a little shoebox with basic accessories .. its reasonably easy to get an 'adequate' tenancy. If its 80s and fully featured with decent carpets and tiles and a kitchenette .. FORGET IT. People head towards the newer more flush apartments and will only settle on a 80s style apartment if it has a great position, a reasonable deal of space or is underpriced. Dont forget that some of these places come under management schemas that cost a certain amount PER DAY. Thats often never factored into the mix when considering a Surfers investment.
Surfers Paradise is also dealing with a saturated apartment market at the moment. Be cautious on what you think is a bargain. All markets right themselves eventually. But sometimes that can take years.
The Adelaide property (outer suburb left undefined) seems to have an upside in that there is the possibility of bringing it up to spec (cleaning and fixing it up). However from your description of it .. why are people not running to buy it? Is it a gem in the rough .. or just a polished rock? 2 income sources would lower your risk level on the property repayment financing, but it also increases your expense slightly (2 x rates notices, 2 x any bills).
The question you will have to ask for the Adelaide property is .. if i lost all my investment money tomorrow .. could I live in here? If the answer comes back from yourself … that you couldnt .. despite all its numbers working .. MOVE ON. If you cant see yourself there, why should anyone else? HOWEVER, if you can see its potential, and thats not currently visible .. then dont be afraid to step up to the plate. Sometimes a bargain is hidden as the wrong type of investment.
Have you thought about advertising for the extra 50k? (I'd ask for a little more so you have a little flexibility). The current scenario is .. there are lots of people out there with pensions and superannuation schemes looking for a bit of extra income over and above the avg 5%+ they get now. Work out what you can offer to attract them in this current market. I would suggest that like vendor finance .. an extra 2-3% would get people interested. Advertise in the money column of the paper for 50k (or more) at 7% or greater. You should get a bite. Ask for that to be fixed if possible or annual renegotiations. If you are smart like this .. you can get two investments. NOTE HOWEVER : The bank will always step in and get priority on the property should you default. Secondary creditors may find themselves screwed out of the deal in a foreclosure. Talk to a lawyer for all paperwork.
Rob I just prepped a 43 year old into her own format of self sufficiency.
The only difference that I would suggest for a later start is that you diversify your risk component. If that means houses over units .. then that means a couple of houses rather than a single one .. even if it means at a lesser value.
As you get past a certain age the chances of having a period of greater unemployemnt or gap in work .. become greater. This is why you must balance your risk with having a greater number of sources of income rather than a singular source. Its a reasonable advice at any age, but it becomes more necessary the greater your risk component is. And age provides that additional risk component.
Doesnt stop you from doing your research and qualifying your investments. It just means making sure they are less risky to start with.
Start now. In fact grab a couple of investment magazines and read other people's stories. There are a lot of people who reached near to or close to retirement age and HAD to do something.
There is no age where you cant reach out to take control of your future.
It really depends on your level of confidence in the tenancy and the level of risk you are prepared to take based on that tenancy.
I used to be hopelessly conservative on my tenancies.
I would stick to a level of lower middle class (in other words, new immigrants who knew how to look after a place and poor people who were on the climb up). Low rent payments, but on the other side .. lower property expectations too.This strategy works on the premise that a person who has worked for a days pay knows how much the value of items is .. and therefore has a genuine degree of respect for the property.
Overall .. thats what i'm really looking for in a tenancy. Someone to respect my property and pay me money for it.
After coming to the conclusion of that last sentence, I then realised that the demographic group really didnt matter .. it was the responsible tenancy that I was looking for. So, I narrowed my criteria to people of ANY grouping .. who were able to pay on time .. and be responsible for my property.
It DOES mean that i will query the property manager till i extract the core elements of the tenancy from him/her, but for me thats worth it more than the money.
I dont pick on race or sex or age. I will however take into account their ability to care and respect my properties.
Well .. the rates are phenomenally low at the moment, but the Banks are tougher on what they'll let through.
So it might be around the 6% mark at the moment .. but its usually been as low as it will get. Historically it tends to bounce back up.
You'll do damage to yourself if you take on the prospect of lower inflationary numbers and cheaper variable rates with an investment proposition .. heck .. even a home loan. These rates at the moment are ABNORMALLY low. Take advantage of them .. yes .. but fix them for a greater level of years .. because .. like any lifetime opportunity .. it only passes your way the once.
I'm expecting inflation .. i'm seeing it in food prices and services already. That has gotta be reflected in the overall picture. You cant keep lowering rates, and have petrol prices climb to $1.60 and not see that passed on in the supermarket .. and any business that relies on transportation for goods.
If you can do things at the moment .. grab onto something solid .. go for a medium to longer term fixed rate arrangement .. and hold on tight. We will be in for a VERY bumpy economic ride in the coming years.
Oh yes .. the other thing. Make sure you arent pushing yourself with edge gearing (90% or higher). Market drops 10% or more (not unheard of) .. you'll be owing the banks. Sure edge gearing works .. but .. again its all a matter of timing. And now is not that time.
I have seen this one about four months ago.
Its actually quite an acceptable buy. Its central Gundagai … and its in a good position to be an ongoing commercial facility. Your risk is split among five tenancies, so there is no single core dependancy. From inspecting .. it was containing a gift shop and a clothes shop last time I saw it. I dont think there would be much variation in those tenancies.
However .. it is a commercial property and not a residential. You dont get anywhere near the same rate or flexibiity on commercial properties that you do on residential ones.
Differences? Expect to be paying GST (usually factored into rents) on your usage .. and on your transfers of sale. Commercial property attracts GST on commercial usage. You can expect your rate to be about 2 points higher .. and your chances of fixing that rate is possible .. but nowhere near as easy.
I look on an investment for its further potential. This one stuck with me as an old building with steady tenancies that has ceased to be of any utility value once the current tenants leave. In other words .. no real upside. Land position is great, but the building is old and wearing out. If you go into this deal .. expect costly repairs or upgrades within the next ten years.
I know whats holding you back.
The chance that you just might fail.
I mean .. you've heard of all the stories about how some people have bad experiences with property and lose heaps of money. You've also heard the ones about the person who is now driving a hot sportscar and owns several properties and did really well.
And the friends you have may say its a risk. But lets be realistic .. turning 55-60 with no assets and a piddling puddle of superannuation to live till your 90s .. thats also a hell of a risk.
If you dont feel your direct family will support you or assist you in your efforts .. grab some like minded folk. Go to a property meeting (there are a couple held around the country). Meet other people who may either be starting out .. like yourself, or have already made that step. The additional confidence in what you know and your root level experience .. may just help you with making that final step.
The other thing is to streamline your goals. As talked about in other threads .. the sheer idea of being successful to a certain amount may be attractive .. but it also might be more than you can psychologically fathom. Which makes you hold back on doing what it would take. Procrastination based on the sheer SIZE of the goal. Create 10 steps to getting your goal. Dont create more than that otherwise you'll hold back and not follow through. Mark what you need to do at each level. Then write at each step what you have PLANNED to get to that next level.
Focus, discipline, and research.
They are your first friends.
Stamina, persistance and positivity.
They will carry you through to a final outcome.
If you werent paying it .. you would end up being uninsured on any activity in the common area.
Someone smacked their head on your shared driveway .. you wouldnt be covered.
House and contents insurance wouldnt cover it either. Thats only internals, household items and internal fixtures.
And if your neighbours house burnt because of faulty wiring on your side of the property .. you'd also be liable. Flooding or neglect on your property that affects other property wouldnt be covered either.
Its insurance .. its a necessary evil .. get used to it.
For a pair of properties on the block there is usually an informal agreement. In other words .. an official body corp shouldnt be necessary. Whether you feel that works for you .. is your overall decision.
Again .. as stated above .. it shouldnt really be an issue.
Mick .. the amount involved is pitifully small in relation to the overall cost of the deal.
Secondly, it may not seem necessary to have insurance at the time, but the moment you dont .. you'll be paying for it.
Lets assume your property is worth 350k (i'm guessing here) and that your borrowings are most of it. (say 80%).
Lets assume a staggered slow cumulative growth of only 4% a year (reasonable considering variations in markets)
So .. over the period of 5 years .. you'll have paid out a total of 10000 dollars .. have a little bit of a sinking fund.
In the meantime .. assuming ONLY a 4% cumulative PA … your property will be 70k more in value. (accrued total at 21% and actual increase being 73.5K)
The numbers are working in your favor.
Dont forget .. your claimable tax deductions on the property. And yes .. body corp is one of them.
And I havent even included the rental increase.
You can grumble about it .. or you can accept it .. sit back and make money off it.
Nobody likes paying out, it has to come from somewhere. But .. what you are doing is making sure you dont get hit badly by unexpected things, covering your ass from claims and .. basically protecting your asset.
Properly accounted for in your records .. you'll be achieving better than a 7-1 return on your costs. Thats almost a good bet at the racetrack .. and you dont even need to race a horse to achieve it !
I dont see why body corp should scare you. Body corp is just a means of collaborative and functional property management. As a part-owner of the property .. you have just as much contribution as anyone else. And if its your property .. you SHOULD contribute in the decision making.
You are REQUIRED to come up with the amount they are chasing up. If you become a non-contributor and behind in payments .. the other parties in the body corp or group management are allowed to chase you up for the initial amount, costs plus interest.
People tend to forget that property is cyclical.
That means one area has a bad time .. while the other area has a good time. And this can swap at a moments notice.
People often dont move until they see other people starting to move as well. And following them .. they make their decisions too.
Brisbane and the Gold Coast got hit badly for a whole series of reasons .. one being the idea that there was an unlimited number of people who were prepared to pay nearer to a million dollars plus for an apartment.
Well .. there arent that many people. And people who are usually in that bracket .. are reasonably fussy about what they will purchase too.
So in both Brissie and the GC .. you had million dollar plus apartments sitting on the market as the market went sour. And in some cases .. developers literally turned heel and ceased some developments due to an oversaturated market (against existing demand). The ripple from that went right through the market .. as developers sold to recover costs .. reducing the value of existing apartments .. devaluing pre-owned apartments (you could buy new at a significant discount) and as a result .. the whole market declined significantly. There were also changes in government regulation .. but thats another saga.
There comes a time when a devalued asset matches return .. and affordability .. again .. to become a VALUED asset. People tend to oversell .. until the whole situation goes too far in the depreciated direction. People then percieve value to be had .. and jump back into the markets. Low interest rates .. are also going to influence these sorts of decisions. And in my lifetime … rates have NEVER been lower.
Strata Titling must follow a series of individual unit compliance.
Every council will have different recommendations for strata compliance.
When taking on a block of flats you'll find some of the current recommendations is that every unit has proper annotation and allocation of a carspace to the relevant unit, that the units have separate individual metering, that the fire department requires a minimum level of time of access to and from the unit.
There may be more than these .. or less than this .. depending on your councils requirements.
Costs involved? You have to supply all costs to meet recommendations and only then will the council certify strata approval on the units. It can get expensive. My latest job cost just under 40k to meet strata requirements. Multiple units adds up to multiple costs. But over 12 units that averages out quite affordable.
Benefits? You can actually treat each individual property as a separate asset. In other words .. before they were strata'd if you wanted to borrow 100k .. you'd do so on the whole block. After strata .. you can just borrow on the individual title. So if things went screwy, you'd only be minus one unit.
If close to retirement and you wanted to utilise the property as a mini superannuation fund, you can sell a single property a year .. and not have too much of a CGT burden in the near term. CGT is only calculated on the GAINS over and above the initial price paid. The longer you hold it .. the more CGT you'll be paying on sale. Read up on your CGT as part of your ongoing investigation. I'm 20 years away from retirement so i only know it vaguely.
Pitfalls? Some properties will not meet the criteria for strata subdivision. Or if they do .. it will be horrendously expensive. Those are your two main pitfalls. Check with your council before even submitting an offer on the property. Better wary than expensively sorry.
An additional … as owner of the whole block once strata'd (even without individual strata) you are the sole representative of the community collective (body corporation) on the property. That doesnt mean be extra stingy on doing things. It just means that instead of individual contributions .. you are the sole contributor. Its a great way of saving money on owning and maintaining a property. Also without a separate grouping for management .. there is only one vote that counts.
Yours.
