G'day all!
First of all just wanted to say that this is an awesome website and I enjoy jumping on and having a read daily, I guess you could say I'm a long time reader and first time poster. Also apologize in advance for my writing skills.
I will continue to further my knowledge through reading more and more threads, but just thought I'd introduce myself and hopefully get abit more specific info.
My situation is that I am a 23 year old guy living with my old lady in Melbourne east and currently working as a casual (in the process of joining the MFB, fingers crossed) I have previously worked in Real Estate and always had an interest in property, I just feel like now is the time to pull my finger out and do something about it. I was hoping maybe i could gain some contacts to assist me with purchasing my first property ie brokers, accountants ect. and maybe even a buyers advocate to help me start off? I know alot of you say that its better to do the research yourself and you dont need a buyers advocate but I think it could possibly be a good idea for the first one. I ideally want to pick up something that is cash flow positive, and dont mind something that requires work, I also dont mind having to travel.
My best mate is also quite keen to get involved in investing in property as I took him along to a seminar. I was wondering what the best way to go about investing as a team would be? What is the best strategy to set up? I really dont understand these trusts and things very well. Our plan is to approach some brokers to get an idea of how much we can borrow, then look at building a team of professionals around us.
Sorry for blabbing abit there. Hopefully I got across most of what I was trying to say. Thanks for reading and hopefully replying.
Cheers,
Simon
Simon,
Good luck with getting going!
Do you have much in the way of savings yet? If you go into a JV with a mate you will need to get some good legal advice to structure the JV agreement properly so that you stay best mates and this advice will cost money. Same goes for trust structures. (“Trust Magic” – search for it online – will give you some insight on how trusts work). Depending on your financial interest in the deal (ie if you are contributing money as well as time) you are going to have to borrow too and without a deposit and working casual that is going to get difficult. Sounds like you are talking to a mortgage broker first – a good plan I think. If you need to build up savings this may have a long lead time but you will only find out how much once you have spoken to them. Living with your mother will help!
I have used buyers advocates but I am employed full time in a job that has a lot of international travel so I am happy to pay for someone to do the research. If I wasn’t travelling so much I would do the work myself as the fees do eat into returns, but not acting eats into the returns even more! Also, if you look at hours required to source a property and multiply by your earning rate it may pay to use one (ie if you are a doctor or lawyer or electrician
). Whether you use a buyers advocate or not, you still need to do the numbers on a deal yourself so you should have a go at running numbers on a few properties that interest you. There are good books out there which show you how – Steve McKnight has an accounting background so his books are probably stronger than most on the financial analysis of deals. If you use the forums search function you can find contacts for most of the key roles – either as contributors to the forums or other recommendations.I would also recommend learning about the negotiation process. It’s easy to blow a _lot_ of dough in a short space of time through lack of negotiating skills. Rob Balanda has done a good CD on this – his techniques made me an extra $15K last week over where I would normally have stopped a negotiation. You can probably get the same info from the library if you have time on your hands and you want to save $150.
Hope this helps!
JJ
Gday JJ7,
Thanks for taking the time to write so much, I greatly appreciate it.
Will be sure to look into trust magic this arvo and have a read. As for the legal advice, are you able to recommend anyone to speak to about this? We are both eager to start speaking to solicitor or whoever we need to in order to get the ball rolling.
In regards to savings, I have roughly 10k saved and am looking to sell my car to fund more of the deposit (which will give me about another 7k after paying the loan out) My expenses are minimal, just board, food and fuel, and i spend no money on myself so saving is not an issue. As for my mate, he has about 10k saved also. He is about to move to the US as a professional athlete so all living expenses (rent, food etc.) will be covered and he will be on quite good money.
I have read Steves book 0-135 properties in 3.5 years, I’m just a hopeless reader though and really struggle to learn that way, although I will endeavour to read it cover to cover again in the coming months. In saying ‘doing the numbers’ are there any specific formulas or anything you mean? I remember the 11 second rule I think it was called, are there any others I should keep in mind?
Also lastly are there any suburbs that you invest in personally for cash flow or that you would recommend?
Once again thanks for your time.
Cheers,
Simon
Simon,
It seems you get yourself prepared a bit. But, how about to find a target to do a real test? It is easy to say in general terms, in the end, the numbers have to be more specific.
Say, if you find a house next door for sale, you can meet your bank or a borker to discuss how much you can borrow, taking into the account of all the factors, such as: your saving, the price and value of the house as security, the potential income it can generate, the costs to buy and maintain it. All the things will jump out, you can learn the tricks in the process.
As to how to pick a target, there are so many theories you may already know. Again, you have to do it to taste it.
JV? If it is possible, please don't do it. Many good mates turn to emeny by doing something together, often over little issues. You both may put the initial savings together, but later, you may not come up with the share of $50 to repair the tap. On and on, things can get messy.
Happy Investing!
Simon,
I don’t know of good lawyers in Melbourne – I know there are Melbourne based mortgage brokers on the forums who may be able to point you in the right direction.
With crunching the numbers it is all about triage – you have to look at quite a few (eg 50) properties to find one where the numbers stack up so you need a “fast numbers” approach to get rid of 90% of them quickly – that is what the 11 second rule is all about, or the 1% rule in the new edition (p218). With the remaining 10% you need to dig a little deeper. For example, body corporate on a unit can drive your costs right up and completely change the returns. That will then leave the one that you may put an offer on – you then need to refine again to look at rates, insurance costs (essential – don’t skimp here), property manager fees etc. If you are doing a reno you need to cost that too. You can put a due diligence clause in your offer (talk to a lawyer to get a good one) to do this detailed analysis _after_ you have made an offer so you can take your time on this without having competition for the property. Look in the index for “cash-on-cash return” for some examples of crunching numbers in detail. You need to be totally comfortable with numbers to be successful so while you are growing your deposit practice on a few properties a week. You will also learn to see a “great deal” quickly by doing this.
Sort out your buying structure (eg JV, trust, whatever) well ahead of making any offers as it can cost a lot (ie another lot of stamp duty) to change the name on a contract.
Cash flow in the ‘burbs of Melbourne can be tough and you often have to create the deal rather than find it. For example, in NSW you can put a granny flat in the backyard without too much hassle (subject to council approval etc) and for, say an extra $70K, pull in another $300 pw in rent which may make an otherwise uninteresting deal generate a lot more cash flow. In Brisbane you can split surprisingly small blocks in half and build a townhouse or similar – again, potentially improving the cash flow. These are good examples of the need for due diligence – it would be really bad to settle on a property only to find you can’t put a granny flat there after all. You will need to research, typically via council web-sites or town planners, what is possible in Melbourne. As another example, in Qld you can rent out rooms in a large house individually up to a certain limit before needing a rooming house license – renting room by room is more cash flow but probably more headaches. Don’t end up as the evil landlord forcing recent migrants to live in squalor though – you don’t need to do this to make a $.
To find cash flow potential areas have a look at the rental yield tables at the back of a copy of Australian Property Investor magazine (there is a new publication with better rental yield tables but I can’t remember what it is called – both will be in your local newsagent). That will give you some pointers to candidate suburbs. You should also think about what drives demand – for example, what would attract someone to live in Lilydale over Noble Park or vice versa? Ease of transport? Availability of employment? Have a think about what may change demand. For example, Port Melbourne got some nice new landscaping & cafes etc (actually a full urban renewal) a few years ago which drove increased demand back then. Car factories shutting down may kill off demand in the neighbouring suburbs (just ask homeowners in Detroit about how messy that can get). You want your property to be viable for years and long term demand is what drives that so you should give it some thought. Hospitals are good because the government doesn’t spend money on them without doing far more analysis on demand than you or I could ever do. They also bring with them lots of doctors & nurses who are reasonably well paid and want places to rent.
Then it is a matter of narrowing down to individual properties and doing the work. Don’t forget, too, that your negotiating skills can, within reason, improve the cash flow performance by bringing the buy price down and your reno skills can improve the cash flow by improving the property thereby improving the rental yield. You’ll find that quite a lot of investors don’t talk specifically about their favourite hot suburbs as they may have spent many months or years researching down to target streets within target suburbs and they don’t want too much buying competition. You can buy generic research which points to specific suburbs from guys like residex & hotspotting – they have more depth than the Australian Property Investor tables but that depth obviously comes at a price.
Crikey – this has turned into War and Peace!
JJ
). Whether you use a buyers advocate or not, you still need to do the numbers on a deal yourself so you should have a go at running numbers on a few properties that interest you. There are good books out there which show you how – Steve McKnight has an accounting background so his books are probably stronger than most on the financial analysis of deals. If you use the forums search function you can find contacts for most of the key roles – either as contributors to the forums or other recommendations.
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