So after numerous books and seminars i am ready to get my investing portfolio underway.
I have
Home (residence)
Bought $215,000
Valuation $405,000
Owing $78,000That leaves me in a good position with plenty of equity ($327k) to get started (although i would have liked to begin investing sooner instead of focussing on paying off my home first!).
1000’s of propertys looked at and many offers later…
I have made my first purchase, a 3br residential property valued at $82500 which i have purchased for $75000. Current tenant wants to stay and is paying $150pw rent. I’m pretty happy with the purchase and the return, but was wondering a few things.
1) should i get a valuation done on the property i purchased (as it was interstate).
2) should i get a quick exchange of contracts or draw it out longer?
3) Did i pay too much (my first offer was accepted on this occasion)? lol
Its in a low growth area and i am focussing on returns for this one.
Any advice, tips, ect would be appreciated and i hope i have given enough info. I just want to get involved in these forums and give you guys some idea of where im at. Thanks!
Ripstar,
Did you organise finance through a bank or mortgage broker? MB’s tend to see the valuations and could have confirmed what it was. Banks generally won’t tell you, however some, if there is a greater than 10% differential between purchase price and valuation will let you know out of professional courtesy…
When you purchased, did you confirm any recent comparable sales, this would have given you a clue as to what would be the current market value for the IP your purchased.
Ripstar,
1. I thought you said it was valued at $82,500? Where did that figure come from? Yes, it would be a good idea to get an independent valuation.
2. Unless you exchnage contracts, it’s still on the market and may be bought by someone else. Suggest you exchange quickly but put conditions on it so you can pull out if valuation & building/pest inspection reveals it’s a lemon.
3. Valuation should tell you this. Just remember that valuations aren’t gospel. 4 yrs ago I went to an auction, and got a valuation done first. Valuation 300k, but auction ended up at 350k. Just last month a 4br house nearby my place was bought for 700k. The valuation? 750k.
Don’t know how great the returns are for the property you’re looking at. I figure that even at 10% gross rent, after interest, rates, mgt fee, insurance, maintenance, it’s only going to be cashflow breakeven or thereabouts. If you get no capital growth, you’ll be tying up large amounts of capital for nothing (and even losing due to inflation). Of course you might get some depreciation, but that stings you when you sell. So if you make breakeven cashflow, with no capital gain, and claim depreciation, when you sell it you might be liable for capital gains tax even though you haven’t had an increase in the price. Remember you have to allow for about 5% of costs on purchase too. If your cashflow is neutral and you have no capital growth you will automatically lose 5% because of the purchase costs.
Hope this helps
Thanks guys for the feedback.
yeah good pick up esshole, i said ‘valued’ at $82500 but i should have said ‘priced’ at that figure. so i have no real idea of the ‘value’ of the property, and i am just basing it on the numbers. by my calculations it works out to be approx $100 CF+ per month (after management fees ect are deducted). my only worry is the tenant has a periodic lease and id prefer a longer term than the current month by month arrangement.
thanks woodsman regards MB tip. i have a friend who is a MB and he has been helping me with finance/structure. i will see if he can organise valuation soon.
i will let you know how i go with valuation and all. ill know soon if i got a good deal on price.
Well done Ripstar,
You haven’t mentioned anything about the Town where you bought it. Is it declining in population – do you know anything about it? This would be one thing that could turn it into a lemon.
RE: your tennants lease, find out from them what the reason is. It might be that they don’t know where they are at in regards to work or you (are you going to screw up the rent? Chuck them out, etc). See if you can make their stay more comfortable without incurring extra costs.
Examples that spring to mind are things like, if they wanted to have a pet – OK it but have a pet bond and perhaps increase the rent by $5 or $10 a week to cover extra costs; they would like a carport/ washing machine/etc – work out the cost and factor it into the rent and offer it to them (ie: washing machine @$1200/78 weeks isa an extra $15 per week rent). “I could supply you with XYZ but I can’t carry all of the extra costs. I could do it if you’d be willing to pay $ABC extra per week in your rent OR if you’d be interested to sign a new lease agreement for the 78 weeks. Do you want me to go ahead with it? If so, sighn here for a six/ twelve months lease.”
I plucked those numbers out of thin air (78 weeks = 1.5 years) to illustrate my point.
You might be surprised, this could turn into a beaut long term relationship! There was a thread not too long ago (something about buying your tenant presents?) that covered this kind of thing and a lot (from memory) reported success with this strategy. Do a search and have a read, it might solve that problem.Cheers
C@34
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