I’m young and need some help please…

To quote directly from ‘Todays Tip”

“Be known as much for the deals you leave behind as the ones that you purchase.

“Not all property deals are equal, and the deals that you leave behind are signs of success too.

“Buying property for the sake of doing so is pointless.

“It’s better to own 1 property that makes money than to buy 150 that don’t.

“Being able to differentiate between a good deal and a bad deal is essential for your long-term success.

“Ignorance in property investing often leads to expensive blunders. Protect yourself by discovering what due diligence really means and how you can use it to ensure you don’t end up with a property dud.”

A good start is with reading the book from 0 to 135 properties etc.,

Malcolm:

‘I never thought about buying some property in a country area.’

It’s worth some thought. But not just any country area. Do your research to make sure there’s tenant demand, low vacancies and the place is growing. Research is even more important for a country property than a metro one IMHO.

‘I just thought, because of the growing population of Australia and high Immigration rate these days; a city apartment would be the way to go.’

Population growth is good, but it’s only one aspect – consider vacancy rates and the number of similar towers being built. So vacancy is a risk. Also think of the big body corporates, so you have much less control over the property compared to if you got a stand-alone house or even a duplex.

A low-rise suburban property in a handy location might be OK, but I’d still be worried about yields, which are low at the moment.

‘I would like to find out more about positive gearing’

Explained well in Steve’s book. Note that some people look at before tax (eg Steve) and others are happy to accept a loss before tax but a profit after tax (eg Margaret Lomas).

Note that highly positively geared properties are often found in country areas and may not necessarily have high capital growth prospects.

‘when you say “high debt ratio”, what do you exactly mean?’

Debt ratio = total debts/total assets
Equity = total assets – total debts

If you have $200k property and owe the bank $180k (meaning your net wealth is only $20k) your debt:asset ratio would be 90%. This is very highly geared. This will magnify both risks and returns. Especially if interest rates go up and the properties are negatively geared, you are taking a HUGE risk by borrowing so much compared to what you’ve got. But if things go well, you’ll make a mint, with little of your own money put in.

Conversely, if you have $200k of property, but you owe the bank only $20k, your debt:asset ratio would be 10% which is very low. This might be fine if you’re retired, but if you’re not, and you want to grow your portfolio, you could easily and responsibly borrow to do so.

Where you place yourself between these two extremes varies according to your aims and ability to accept risk, but for me I am comfortable with about 50% – ie if I had $200k of properties and other investments, I’d be able to sleep with a debt of around $100k.

Peter

PS: Just saw the accountant and found that I will need to pay more tax. That must mean the portfolio is making money!

Ideally i am against what most people would say on this board, first up i would say you are better to purchase a negative geared property as your first property investment and maximise your tax return and capital gain.

The reason why i believe this is that lets say for example, you buy a property at $100,000.00 at 6% for 30 years that would equal. A payment of $149.88 a week, now lets say the property rents for $130 a week you are at a lost of $20 a week, as far as i can see, you obviously can afford this. Now making sure and being positive that this property gains a capital gain of $50,000 more after 3 months for example a property boom, you have already got access to $50,000.00 in equity. You can then either use your equity to fund your next property which can be positive geared, also this would allow to sell the property the followin year with captial gain and quicker money made. This in theory you would be able to purchase more positive cashflow properties with in a year cause of the extra funding and equity you have,

Peter

I guess everyone who has answered your original question comes from different parts of Australia.

As a firm advocate of the Queensland market I feel we still have plenty of capital growth left in many of our regional towns. We are finding all day long client’s who purchased properties less than 3-6 months ago are having them revalued and amazed as to the percentage of capital growth.

Maybe not much when it comes to Sydney / Melbourne prices but we are proud of what we have here in Qld and it is not before time.

Why not consider buying a house as an IP using a P & I loan putting down say 10% deposit (MI is Tax deductible) and place the rest of your funds in offset account. You can add to that each fortnight as you are saving and still have immediate access to it should you need it.

Cheers Richard
[email protected]
http://www.fhog.com.au

There is no such thing as a problem.
Just a solution waiting to be found

quote:

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QLD 007, when you refer to QLD regional towns, I take it that you are referring to Nth QLD (Cairns, Townsville, etc.)? As a local, what trends have you observed (particularly, affordability, capital gains, vacancy rates?)

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Hi jester, maybe i can be some help,

i will set out an example for you below of a +ve cash flow property.

eg. Property $50000 at 6% at 30 years = $74.94 a week now lets say $10 to be added to that to cover for insurance and mortgage protection.

New Figure $84.94 a week minimum to cover expenses.

Property has a current rental for $120 a week, profit in hand a week would be $34.06 a week a yeild return weekly would be 28%

To work out your vanancy, i will show you a quick caculation.

Annually the bank would like $84.94 a week x 52 would equal. $4416.88, using how much rent you expect a week divide $4416.88 by $120 (remember $120 as rent represents 1 week)

Answer equals = 36 weeks a year the property would have to be rented out to cover the loan for 1 year,

In theory this would allow the property to stay vacant for 16 weeks or 4 months a year and it will just cover cost still, and yet still if it only did cover cost you can still claim the interest and maximise your tax.

Another win win situation

Rates, ask the real esate agent, properties furhter out north that i have purchased have a high coucncil rate approximately $1200 – $1400 a year, but everywhere is different.