First, an inaugural Hello to all. My wife and I glean a great deal of financial guidance and information from these forums, not to mention the humorous stories and anecdotes from forum contributors! A bloody good read even if you’re not an investor!!!
My partner and I think we have found a great deal, if not we will make it great. (We hope!) Even though we consider ourselves “well-read novices”, we would like a little input……positive or otherwise.
First, our situation……
We own our PPOR valued at $375,000 outright and under NO circumstances are we using this property for any investments (We will not be changed in this regard, so please don’t offer “but, but, buts”!)
We are well aware of the huge advantages of using this property to exponentiate our investment portfolio, however this is our choice at this stage.
We purchased an 1864 5 B/R Queenslander in August 2004 for $95,000 (all structurally sound, good roof, polished floors, A/C, huge verandas on a 1012 sqm block. (We purchased under-valued due to divorce settlement.)
We then puchased a second property (using the equity from the Queenslander) last week (again under-valued for quick sale due to illness) for $97,000 – 3 B/R, post-war, fully tiled, 1012sqm, absolutely no work required as it was fastidiously maintained by the previous owner….ready to move in!!Currently our L.V.R is at a whopping 90% but we are not concerned by this at this stage. Our first I.P. has been recently valued at $125,000 and the second valued at $115,000. (That’s an increase of $30,000 in 10 months and $17,500 in less than a week, respectively!!!)
Both properties are rented out to long-term tennants and as such these are both positively geared, so serviceabilty is not an issue for now.
My wife and I work F/T (only to get that “tick in the box” where it asks for “permanent employment” on those application forms)……….for some reason the money people seem to like that!!!
Our North Queensland town has a population of approximately 14000. Rental demand is high. $3.5 million dollars was spent upgrading the Police Station (nearly finished), the State Government has just approved $11 million to upgrade the hospital (yet to commence), local council recently approved 2 new motel developments and a large convenience store franchise is opening soon.
Now, here is our next proposal.
1) There is a $90,000, 1012sqm, cleared, level block directly opposite the hospital that is screaming for attention.
2) There is a set of 3 x 2 B/R units for removal 1 kilometre from this block. (You can see where this is heading!!) I am currently in negotiations to purchase the building for $25,000.
3) I have allowed $30,000 for relocation and head-works, $10,000 for legals & $40,000 for renovations.
4) Estimated rental on completion will be approximately $180/week for each unit. (Total: $28080/year)
Now the questions……
1) What type of loan do we require? ie:bridging loan, construction loan
2) Are there any or many pitfalls to be wary of in this proposal?
3) Have we roughly estimated enough for this proposal (quotes not withstanding)?
4) Should we consult a Valuer or Architect first?
5) Have we not considered something?
6) When are the RK’s coming to North Queensland?Thanking you greatly,
James & Anna
“The answer is already “No”……Unless you ask!!
James and Anna,
Well done for contributing to the forum. Hopefully people learn from you as you have from them.
I liken your choice (which is your full right) to attempting to travel down the road to wealth as quickly as you can on a busted tricycle with a flat tyre and wonky handlebars, when, parked in the garage you have a souped up Ferrari all raring to go. [bike2] Tinkering with the chain and rusty bell on the tricycle is literally what you are asking advice on…it doesn’t make sound financial sense.
I’m not trying to belittle you or be a smarty bum, but one has to use all the resouces at one’s disposal if you are serious about investing – whether it property or otherwise.
I was under the very strong impression that banks have the ability to sell your house from underneath you in rough times, despite the title deed securely under your mattress and not hocked. Maybe one of the finance guys could confirm. If this is the source of your resistance, I believe it gives you no more tenure than if it was put up as security – unless the title is in a totally separate entity to all of your IP’s and that entity hasn’t gone guarantor.
The following is directly answering your Question # 5.
If you want my humble suggestion, I’d put the PPOR up for security (as your 30%) and go and buy a fully tenanted office block with signed up 5 or 10 year leases for $ 1.2 MM.
The deal would look like this ;
Purchase Price $ 1.2 MM
Total Loan (100% plus all costs) $ 1.28 MM
Interest payments @ 7.2% (fix for 10 years) = 92 K p.a.
Rent @ 10% = 120 K p.a.
Outgoings Paid by tenant
Escalation clause CPI or 4% whichever is greaterIn year one the prop is putting 28 K p.a. ($ 538 p.w.) in your pocket.
In 2015 the rent has increased to 178 K p.a., and the prop is now putting 86 K p.a. ($ 1,654 p.w.) in your pocket.
The capital value of the 1.2 MM place in 2015 is up to your best guess, but I’d suggest it’ll look after you handsomely.
Leave the ‘shifting boxes on trucks’ caper to someone who can’t afford to do what you can. [toff]
Fear of the unknown will stop good productive people stone dead in their tracks if they let it.
Onwards and upwards….[thumbsup2]
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Brilliant idea Dazzling![biggrin] Think big and you will get there faster.
I’ve got to agree with the above reply. If it all goes pear shaped and you can’t meet your financial committments on the investment loans, the bank isn’t going to forgive and forget the debt just because your PPOR hasn’t been used as security for the IP purchase.
You appear to be uncompromising on something you think is too valuable to risk, when you are in fact risking (v. low risk mind you) it anyway.
Basically I have the same understanding. For example say if you default under one of the IP loans and they then sell the property and say they do not recover enough of the back payments (so you still owe them money) then they can force you to sell your home to recover the outstanding monies. But it must be noted Banks are loath to reposes property.
Hellman
2) There is a set of 3 x 2 B/R units for removal 1 kilometre from this block. (You can see where this is heading!!) I am currently in negotiations to purchase the building for $25,000.Hi Guys,
Enjoyed reading your post. I wonder what is going on at the original site. Are you aware what is planned for the land that the old units are on? Why are they being moved?
Cheers
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
Hi,
Thanks Dazzling and everybody else that responded to our post…we appreciate you taking the time.
We understand what you are saying. At present we have not had any experience with commercial property.We have started with basic residential to get our feet wet. Our next move is to seek pre-approval and we will go from there…
On the block of land where the old units have sat for many years a local developer is in process of negotiating for a new shopping centre.
We really enjoy this site and will continue to share our journey with you.
Cheers
Bangers
“The answer is already “No”……Unless you ask!!
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