All Topics / General Property / HOUSE FOR SALE FOR $51,000

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  • Profile photo of roborobo
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    @robo
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    I HAVE FOUND A HOUSE FOR SALE FOR $51,000, THE TENANTS THEIR HAVE BEEN THEIR FOR 2.5 YRS PAYING $95 PW RENT. MY QUESTIONS ARE?
    WILL THE 11 SECOND RULE WORK?
    SHOULD I BE LOOKING FOR SOMETHING FOR MORE MONEY LIKE $100,OOO.
    DOES IT MATTER IF IT’S AN AREA THAT PROBABLY WON’T HAVE BIG CAPITAL GAIN INCREASES.
    IT’S ALSO A 14 HOUR DRIVE FROM WHERE I LIVE.
    I WOULD APPRECIATE SOME ADVICE.

    Profile photo of luckyoneluckyone
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    @luckyone
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    Hi Robo,
    The house you have found doesn’t quite meet the 11 second rule, but it’s not far off. To work it out you just need to divide the rent by 2 and multiply the result by 1000.

    ie. 95 / 2 * 1000 = $47,500. This is the maximum price you should pay for this house according to the rule. But remember, the rule is just a guide. This house is very close, you only need to knock off a few thousand dollars to have it meet the 11 second rule.

    As far as buying a place worth $100,000 instead, it really depends on what you want. Personally I’d rather get two properties worth $50,000 than one worth $100,000. You then have 2 tenants, so if one leaves, you still have half the rent coming in.

    I wouldn’t be too worried about capital gains. Just check that the place isn’t too reliant on one industry as this could cause vacancies to rise if that particular industry left town.

    The 14 hour drive may be a problem if you are a hands-on type of person. A good property manager will keep your place in good nick for you though, so I wouldn’t be too concerned about it. Just make sure that they know your limits when it comes to repairs and when they should ring you if there is a problem.

    Hope this helps. This is just my opinion, so don’t take it as gospel but to me it makes sense.

    See ya!

    Profile photo of shaunwalkershaunwalker
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    @shaunwalker
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    14 hours is a fair old hike, but it may be worth it in the long run, as lucky phil has said i also would reccomend a propertymanager. when you sort out the property management agreement, look for the clause that says you must be contacted if damages (ie blocked drain etc) cost more than 250 dollars. this will at least give you an alarm bell to go and check the property.
    as for the 14 hour drive, personally i would do it, stay in the local pub for the weekend, ask the locals about the area, check the house at night time etc for “hoons” and noise levels. Yes 14 hours is a long drive but its not as if you will have to do it every weekend for the rest of your life if you set it up right to start with.
    as for the 95 dollars a week rent, it does come close, do you know how old the building is? how new is the carpet etc, I’m thinking you could (possibly) depreciate the property and fittings with a valuation done on it. This will also add to amount you earn per week.
    hope this is some help
    shaun

    Profile photo of annemlanneml
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    @anneml
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    Hi Robbo,

    It might be worth comparing the rent currently being paid to market value. It might be reasonable and possible to put the rent up a few dollars to $102 per week (51,000*2/1000) and you’re there.

    For me having properties all over the place is part of the adventure. If you want to go you can and explore along the way.

    Cheers,

    Anne.

    Profile photo of roborobo
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    @robo
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    Quote:
    HI THANKS FOR THE REPLY. IAM REALLY HAVING TROUBLE WORKING OUT THIS 11 SEC RULE WHEN YOU BREAK IT DOWN. THE AGENT SAYS $50,000 WILL BUY THE HOUSE AND RENT COULD GO UP TO $105PW.
    RENT $105 PW LESS 8% AGENTS FEES = $97, LESS RATES $25, LESS $50,000 MORTGAGE AT 7.3% ALLOWING FOR RISES = $67 PW LEAVES $5 PW. IS IT REALLY WORTH IT. WHAT IF RATES GO TO 8% OR HIGHER?
    Profile photo of kay henrykay henry
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    @kay-henry
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    robo,

    Who cares if you get 10% yield if it’s a good property and you have good tenants?

    Investment decisions don’t have to be made on *one* rule. Financial freedom is not gonna be had just because you get a net profit of $10 per week.

    Just do what you want to do and if it seems like a good deal for you, go for it. 51k is a pretty cheap house- sounds good to me :o)

    kay henry

    Profile photo of ChrisHallChrisHall
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    @chrishall
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    As far as I understand it, the 11 second rule is only a rough guide to sort potential good deals from bad deals. It does not mean it is a good deal, but warrants further research, which you are doing.

    You need to make the final decision based on all the info available and your goals, not just the 11 second rule – it’s only a filter to help lessen your load from researching every property on the market.

    regards CHRIS

    Profile photo of FWFW
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    @fw
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    robo
    Is $25 a week for rates correct? That would equate to $1300 a year, which sounds a heck of a lot for a house worth around $50000.
    Maybe $25 a month? That would bring your weekly return up almost $20 a week, sounds much better!

    Keep smiling
    Felicity 8-)

    Profile photo of melbearmelbear
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    @melbear
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    On a place I’m looking at that is $60K, the rates appear to be about $1300 a year, so it could be a correct figure. Mine’s a massive block though, so maybe that has something to do with it.

    Cheers
    Mel

    Profile photo of TruskaTruska
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    @truska
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    $25 pw sounds more than possible.

    I just bought an IP in Central QLD for $80k (rent $160 pw).
    The rates are $1445 PA which is $27.78 per week

    The rates in country towns (in QLD at least) seem to be proportionately higher than in the City (based on land valuation).

    I haven’t seen a rates notice yet (settlement is on 25th Nov) so I don’t know how they calculate them.

    T [:D]

    Profile photo of ErikaErika
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    @erika
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    Hi All
    Great question Robo, is this place worth buying for $5/week. Dont forget if the place is vacant, and to Kay Henry “Who cares if you get 10% yield if it’s a good property and you have good tenants?”
    What is a good property surely it is one that is either going to give you cash in hand or hopefully CG. Robo has said it is unlikely to give CG so the yield is pretty important, sure you have good tenents now but unfortunately you cant always rely on having them abit like CG.
    Erika

    Profile photo of everdineeverdine
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    @everdine
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    Just a few thoughts from our 1st 3 months of looking…..
    The templates in Buyer Beware are a really big help in sorting the finances and taking away the “have I missed anything” thoughts.

    We looked seriously at a property 6 hours from us and went back for a 2nd look, saw things we didn’t notice on our first “eager” trip and made us realise it was too far for us to go each weekend to “do up” on our days off.

    “your” property must be in good condition to have happy long-term tennants so this may not be a consideration for you.

    You are being wise seeking advise and thinking it all through thoroughly.
    Good luck, Diane

    Profile photo of LinethLineth
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    @lineth
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    You perhaps could also consider locking the interest rate in for a fixed period and thereby increasing the return. Keep in mind also that the rent will go up in time too.

    [/quote]

    Profile photo of alexanderalexander
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    @alexander
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    Hi

    While it’s great to find cheap houses (much more chance of positive gearing) are prople taking into account the condition of these houses? Are they going to need major repairs in the next year and erode any profits? Will tenants choose to live in them? We have an old fibro place in a snazzy part of town that people will probably always rent because of it’s location. Still, we spent $10 000 upgrading it to attract a better, more long term kind of tenant. Any thoughts?
    Alex

    Profile photo of kay henrykay henry
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    @kay-henry
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    Erika,

    I understand why you questioned my idea of having a pozz geared property. I guess I just have the idea that when we buy property, at some stage we’ll own it! That’s exciting for me- it seems a decent way to get wealthy. The tenant pays for some of it, and I pay for some of it. If it has capital growth, then it’s a bonus. If it doesn’t have much cap growth, but you have tenancy, even if it’s not pozz geared, the tax guy will give us back money. I’ve received back so much tax since I’ve had property that I’ve been able to do much more in putting it towards my property.

    Whilst I know pozz gearing and cap growth are great :o) I also think if you get a good value property and a decent rental return, one day you can have your own property portfolio- that’s what I aim for, and it means I am open to looking at many properties- not just some that fit into 1 criterion.

    kay henry

    Profile photo of powmowpowmow
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    @powmow
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    alright ‘Kay Henry’,

    why dont you tell us some of the other criteria you use for sorting through properties and finding ones that need further looking into??

    [?] Powmow [?]

    Profile photo of kay henrykay henry
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    @kay-henry
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    Dear “powmow”… Do I detect a hint of sarcasm in your question? By the way, I do love postmodernism, if that’s what your nickname means. I love it’s deconstruction of “truth” and grand narratives- I find it useful for developing my perspectives on real estate too :o)

    I have no “secrets” in my interest in real estate. I guess I use a combination of things to see if a property is desirable to me- price, location, rental income, etc. I do a lot of checking to find out everything I can about the location, the property, potential for tenancy and possible capital growth etc.

    powmow, as my first paragraph stated, I am not really into “rules” or “truths”. I just do what I think it is best for *me* to do at the time.

    As a fellow postmodernist, I’m sure you’d understand how difficult it is for another pomo to follow one rule when there are so many ways to do things :o))

    kay henry

    Profile photo of Jake_HeinemannJake_Heinemann
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    @jake_heinemann
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    be friends you guys… :-)

    =======================================================
    “Your Profit is made when you buy… not when you sell” (Rich Dad)

    Profile photo of peterppeterp
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    @peterp
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    Like Kay Henry, I too have wondered about the application of various strands of postmodernism in property investment (especially + cashflow).

    I’ve decided that postmodernist architecture is pretty irrelevant for us. Most post-modern pads are in the swank suburbs of capital cities. Definitely heavily negatively geared right now. And even if you were into negative gearing, they might not yet meet Monique Wakelin’s requirement of ‘timeless architectual appeal’. Also when people get a choice (eg when building their own home) they’ve gone for retro-styles like Federation and Tuscany with lashings of heritage green. Po Mo doesn’t win the people’s choice either, narrowing its appeal to tenants.

    Then there are post-modern perspectives of truth and objective reality, as aluded to before. This can be a real problem. Po Mo strips words of their objective meanings. Now wouldn’t HK love that!

    The meanings that are ascribed to them depend on how the sayer is feeling at the time. You might have a PM, but if the tenant who hasn’t paid his rent this week tries some pomo wordplay on you, by saying that he did, then you’re stuffed!

    And without objective reality or truth, the allied concept of integrity comes under attack. About the best you could do is to pursue shared meanings and hope for the best.

    But bad Po Mo (if there is such a thing as I am making a moral judgement) can be a pain in the pocket if you don’t get the rent.

    What about po mo in style? Modernism was about LeCorbusier tower blocks with straight hard edges thrusting into the sky. It was a counter-reaction to the fussy baroque and Victorian frills.

    Po Mo blurs the edges. It is more about the site of transition, the intersticies, than one thing or the other. It is neigher fish nor fowl, but a sort of chicken with gills or a fish with a beak.

    There is also a different attitude to change. Rather than trying to avoid change or wearing down, it embraces it as an unavoidable fact of life. Indeed it is life!

    For instance the bottom of a teenage girl’s trouser ends scraping along the ground. Rather than folding it and sewing it (so the trouser end retains intact for the full live of the garment) it gathers mud, dirt and the cloth frays. That’s the Po Mo way.

    From trousers to toilets, trees and termites. If we extend the reasoning to landlording, it means a property that’s left to age and a negligent landlord. Ageing is a creative processs hey, and we can’t stand in the face of change. No that’s no good either!

    Po Mo spurns judgement. But judgement requires discrimination. Discrimination is choice. Discrimination is bad, but choice is good, we all agree. But choice requires facts.

    A house sold for $200k. That’s a fact. A house is nice. It might be or might not be. You and I may differ in our opinions.

    I cannot see how the post modern approach can deny reality. Unless it goes down to things like ‘what is a ‘$’ or what is ‘200k’ or ‘what does sold mean’. It could either expose certain assumptions (eg houses in Canberra aren’t really sold at all) in which case it could be useful or it could degenerate into aimless wordplay.

    Yes there could be interesting post-modern perspectives to property, even though those I’ve covered so far have been of dubious merit.

    But can anyone come up with anything other than
    ‘I do it because it suits me at the time’?

    Regards,

    Peter

    Profile photo of peterppeterp
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    @peterp
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    Now in case anyone was wondering, that s**** actually stood for swunk (replace the U with an A to get the picture).

    In other words the exact opposite meaning to what readers might have imagined.

    A clear case of multiple meanings and postmodernism at work!

    Peter

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