Hi Everyone,
Just wanted a sanity check…
I went to Morayfield & Crestmead last w/end with my g/f & we looked at 26 houses, took over 450 pics & documented 47 pages of notes. We are looking at purchasing 1 prop in Morayfield at $285000 rented for $290pw & 1 in Crestmead (new) for $315,000 which can be rented at $300 or $310 per week. Both are around 650 sqm lots near shops, tains, buses. Our PPOR is woth 700k with $390k owing. Our combined income is $9600 net per month. We have no other loans or dependants (unless you count the pooches!) So I’d like to tap the collective intelligence of this forum to gauge whether or not we are doing the right thing.On a separate note, what is the “done” thing regarding offers on props? Some agents seem to accept verbal offers whilst others aren’t interested until you sign a contract. Any comments on the pros & cons of each approach?
Hi Jambv
Good for you to take the initive and do your through due diligence.
Both are expaning areas of Brisbane and as you are probably aware the non cash deduction items such as Building write off and Depreciation can make a big difference.
In saying this make sure that you structure your new IP loans correctly and that the entity you end up buying the properties in is appropriate for your circumstances now and in the future.
An HDT would be a prefered entity give that the both appear to be negatively geared and my preference is to ensure that your lender does not X colaterilise your loans as is their wish and desire.
In saying this make sure the HDT is dated prior to the execution date on your purchase contract as otherwise you may run into a few ATO issues.
Your Mortgage Broker should ensure that this does not happen however i have seen many cases where the MB or the Bank direct did not even understand loan structuring and a few minutes spent getting it right now will benefit you in the long run.
With regards to your offer most agents would want to you to put this in writing using a standard REIQ purchase contract however a simple fax outling the important points is a good starting point until the agent has the contract drawn up. (Just bear in mind my comment on your Trust date if you go that way as this can take 48 hours to be set up).
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
Anyone who is willing to take the plunge and start investing and taking control of their future is doing the right thing.
However, you want to make sure you are maximising your investment returns wherever you can and minimise risk at all times.
I don’t know the area you are considering, and as I read there are several questions/concerns popping into my head:
1. Are these properties at or below the market price.
2. Is the rent estimate actual or just an estimate from the agent. (sales agents quite often don’t know or lie).
3. Is there a good rent history and demand in the area for your selected property type.
4. Is this the average rent return for the area or can you do better (to me these are not a very good rent returns – they may be ‘good for the area’.
5. Are both built after 1987 to maximise depreciation claims for tax (I noticed one was new, so it will have good depreciation).
6. Do you plan on using cash for a deposit or equity in your house. Using equity will make the I.P very cashflow negative and may affect your lifestyle considerably.
7. Have you talked to a good accountant about your purchase structure to maximise future investing and asset protection and which type of loan is the best for you to use.
8. Have you talked to a good mortgage broker about the same as point 7 – they often know the best lenders to maximise borrowing power.
9. Do you know a good insurance broker to help you with the all important coverage and landlord’s insurance.
10. Is there good prospects for cap growth in that area – to me, you would want very good cap growth to offset the poor rent return. (tip; if an agent says the rent return is good, ask them how many properties they own).
11. Can you add value to the property to accelerate it’s value and rent return.A lot of your decision making will be determined by whether you are a cashflow investor or cap growth investor.
With offers, generally the agent (and Vendor) will only take you seriously when you sign a contract of sale and put down a deposit (which can be as little as $1,000). Put yourself in the Vendor’s shoes and look at it from their perspective.
Never sign an offer without a ‘subject to finance’ clause, and it’s also a good idea to add pest and building inspection clauses as well.Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Quote:Originally posted by Qlds007:Hi Jambv
An HDT -not sure what type of entity this is, will have to investigate further. would be a prefered entity give that the both appear to be negatively geared and my preference is to ensure that your lender does not X colaterilise – could you expand on this pls? your loans as is their wish and desire.
With regards to your offer most agents would want to you to put this in writing using a standard REIQ purchase contract however a simple fax outling the important points is a good starting point until the agent has the contract drawn up. (Just bear in mind my comment on your Trust date if you go that way as this can take 48 hours to be set up). -I have to say, there are about 6 props I am seriously interested in entering into negotiations with but am unwilling to pay a $1000 for the “priviledge” I suspect that on some level, a signed contract presented to the seller shows the buyer the agent is “getting results” but if I offer 280k on a 300k list & the agent knows the seller won’t touch it then it wastes everyone’s time…
Quote:Originally posted by L.A Aussie:I don’t know the area you are considering, and as I read there are several questions/concerns popping into my head:
1. Are these properties at or below the market price.- Although my opinion is subjective, I believe they are slightly below market price.
2. Is the rent estimate actual or just an estimate from the agent. (sales agents quite often don’t know or lie). – One prop is currently tenanted & the new prop is an estimate independently confirmed by me. One agent tried to tell me rents were at $340 – yeah right!
3. Is there a good rent history and demand in the area for your selected property type. – I was told there are waiting lists for renters & didn’t believe it until I asked my brother to call 2 seperate agencies & pose as a rental applicant.
4. Is this the average rent return for the area or can you do better (to me these are not a very good rent returns – they may be ‘good for the area’. – good for the area with some big increases due in 07.
5. Are both built after 1987 to maximise depreciation claims for tax (I noticed one was new, so it will have good depreciation). -yes
6. Do you plan on using cash for a deposit or equity in your house. Using equity will make the I.P very cashflow negative and may affect your lifestyle considerably. -equity in my PPOR subject to an accountant’s advice (Any suggestions?)
7. Have you talked to a good accountant about your purchase structure to maximise future investing and asset protection and which type of loan is the best for you to use. – I have an appointment this week.
8. Have you talked to a good mortgage broker about the same as point 7 – they often know the best lenders to maximise borrowing power. – same as above, have an appointment this week.
9. Do you know a good insurance broker to help you with the all important coverage and landlord’s insurance. – Haven’t considered this. Thanks for the heads up.
10. Is there good prospects for cap growth in that area – to me, you would want very good cap growth to offset the poor rent return. (tip; if an agent says the rent return is good, ask them how many properties they own). – again, my subjective opinion is these 2 suburbs will have significant cap growth in the next 5 yrs.
11. Can you add value to the property to accelerate it’s value and rent return. – I plan to add air con to the rental so I can increase the rent on renewal.A lot of your decision making will be determined by whether you are a cashflow investor or cap growth investor. – My strategy is to use cap growth as a wealth creation vehicle at this time.
BTW, I really appreciate both your & QLDs007’s detailed responses to my initial post. Thanks!
Jambv
HDT = Hybrid Discretionary Trust
Assume that you purchase a property for $100,000 and need to borrow say $110,000 inclusive of costs you would probably offer your existing security to the bank and they would lend you the entire funds taking both properties as security.
In effect they cross the securities meaning that one property is supporting the other with regards to total loan amount.
No real problems until you either get to your maximum borrowing with that particular lender and want to access your equity and go with another lender or alternatively you wish to sell one of the securities (including your PPOR) and the Bank will dictate where the disbrusement of funds goes.
Many of my clients before we have re-structured their borrowing have had their loans X Collaterilised (Remember most Banks will want to do this). I have seen cases where the PPOR was uneccumbered but providing a X collaralised guarantee for other properties.
The clients went to sell the PPOR and wanted to upgrade their house withe profits and the Bank have taken all of the net funds to cover the other loans.
As mentioned a little bit of time spent now will avoid all of this down the track.
On a separate note if you offer an amount of $280K on Contract to the Agent he has to by Qld law present that Contract to the Vendor even if he doesnt agree with the offer and feels he can obtain more for the Vendor.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
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