All Topics / Help Needed! / Everyone loves a hypothetical

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  • Profile photo of CoolButtersCoolButters
    Participant
    @coolbutters
    Join Date: 2004
    Post Count: 18

    Hi everyone,

    I just want to throw a hypothetical out there, and see what the response would be.  Moderators, please excuse me if this is posted in the wrong section.

    Lets say that, you are:

    Single
    Have $47,000 savings
    Earn $800 per week net
    Don't have any debt at all
    Work 10-12 hours a day
    Own a $1000 credit card
    No kids
    Paying $420 a week rent
    Live in Perth WA
    And want to do short term investing (reno's, sub-division) to build a bank to purchase a home.

    Thought joggers:
    Who would you see first
    Is it possible to do these deals by yourself
    Do you do the deals in your name or Asset protection (company in trust for….)
    Would you use professionals if this is the first time, or research at Bunnings and the net

    Any other thoughts you have for newbies would be interesting.

    Regards,

    Corey Corby
    (No relation to Schapelle)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Thats a lot of rent you pay, oever 50% of your income!

    The first thing you need to determine is if youc an borrow any money and then how much. If it is not enough then you need to work out ways to increase borrowing capacity.

    Once you know you can borrow then you have to determine the strategy. Work out cashflow projections and see if you can cope and then work out profits estimates to make sure it is worth while. Make sure you know how to use excel.

    Then I would suggest you look at which structure to do it in. You should probably talk to an accountant about this.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of CoolButtersCoolButters
    Participant
    @coolbutters
    Join Date: 2004
    Post Count: 18

    Thanks for the valuable input Terry.

    Profile photo of ShwingShwing
    Participant
    @shwing
    Join Date: 2005
    Post Count: 219

    Corey,

    3 things stand out on your hypothetical as limitations or barriers to your goal – “building a bank to purchase a home”
    1) 10-12 hours of work a day
    2) 50+% of your disposable income on rent.
    3) short term investing in property.

    The work hours will restrict you ability to add real value through renovation if you plan to do it yourself. You would basically be a weekend warrior, and weekends fly by very quickly. A lick of paint doesn’t add enough value, converting a 2 bedroom into 3 reno can, but it takes time, and expenses still keep coming while you are not getting rent doing a reno. And all of your savings will be used buying pretty much anything in Perth after costs are taken into account, which means you need to rely on your disposable income.

    Most people who make money through reno’s generally still make most of the gain through the rising of the market in general. This isn’t really the case in Perth at the moment “short term”. Those that are able to make a success of it, have usually done it more that once, and are now working on properties that are will out of your hypothetical price range.

    The costs to short term property investing are quite high if you plan to sell to get the money to uses for your own home, stamp duty, selling costs, tax etc all need to be taken into consideration. What is short term ? < 3 months, 12 months, 3-5 years.

    Subdivision still takes a while, but the Joondalup area has a plan to rezone many areas to higher density, allowing for many properties to be subdivided, maybe it’s worth looking at potential sub-dividable blocks within the proposed areas. There are areas of Heathridge, which are close to schools, parks and shops that fall into the proposed rezone areas.

    Alternatively, why wait to build a bank to buy your own property ? Why not buy something to move into yourself, putting your rent into your own property. Buy a unit that you can reno in your own time. This would leave you with more money as you could save on stamp duty through FHOG. Add value at your own pace to suit your work hours. When you’ve built up some equity, rather that sell, access the equity to buy another property, either investment or new home. Or if you sell, you don’t have to worry about CGT.

    As Terry said, if you don’t know how to use excel, learn. Do the numbers to see if any scenario is worth it.

    The stock market may be a better short term solution, costs are much less, it’s more liquid, and you have almost the same chance of stuffing up as short term investing in property if you have never done it before and don’t do your homework.

    Also for short term, spend a few buck trying to pick the first 4 in race 7 at Flemington on Tuesday, I can almost guarantee that if you get that right, it will reap more that your first foray into short term property investing.

    By the way, I’ve been doing a reno as a weekend warrior, but paying the pro’s for things I can’t do myself or don’t have time to do. I could walk you through Bunnings blindfolded to get anything you want, or tell you what to buy elsewhere. The time has blown out by about double, and I’ve done more that I intended to from the start. It was never intended to be a short term investment though, had it been I would be out of pocket. And I thought I had the money and equity to back myself, that was until I lost my job a couple of weeks ago. No income from a Job and no rent, is a bit of a wakeup call, you can’t put all your money on the table, you have to leave some in reserve ( a few month worth). Now I’m a weekday warrior also, to get it done, better go I have to finish the skirting so the carpet can go in.

    Cheers

    Profile photo of Ben KBen K
    Participant
    @ben-k
    Join Date: 2010
    Post Count: 103
    Shwing wrote:
    Also for short term, spend a few buck trying to pick the first 4 in race 7 at Flemington on Tuesday, I can almost guarantee that if you get that right, it will reap more that your first foray into short term property investing.

    lol! well said

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 992

    Hi Corey
    10-12 hrs a day = 50 -60 hrs a week assuming only a 5 day week . . . hmmm. Long hours for $800 nett depending on the job.

    This person can work long hours, that may come in handy.

    For a single person, assuming that means no partner, no co-habitation person –  that's a lot of rent that could be probably halved by sharing and better spent ( invested in reno ), or saved as disposable income & used to increase borrowing capacity.

    Assuming no prior knowledge in renos, this person should get a mentor or mentor program (see Steve McKnight's RESULTS in right hand column of this forum), but first see the accountant, like Terryw says, well said Terry, but accountants don't teach renos so the person will need to accumulate the reno & real estate investing knowledge and assemble the team  – reno advisor, mentor, accountant, network, etc.

    Wishing this person good luck on the journey.

    Cheers
    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
    Email Me | Phone Me

    selling motels in NSW

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    I think the best idea is to buy a place and live in it.  Renovate when you can, and then if you should happen to sell, it will be CGT free.  Remember though that when you sell property, you've effectively flushed money down the toilet that was spent on stamp duty… because you simply have to pay stamp duty again to reinvest elsewhere.  Better to wait for equity growth and then borrow against the home to buy an IP.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of CoolButtersCoolButters
    Participant
    @coolbutters
    Join Date: 2004
    Post Count: 18

    Schwing, thecrest and JacM,

    Thankyou all for the valuable input.  .  I should probably clarify a few things.

    I am casual at the mo', with the opp to go full-time.  I've been in the industry for the last 6 years.
    1.  If I work the 4 hrs on every second Saturday, I can get $1100 net.
    2.  The $420 rent that I pay, could be fixed up a bit if I was to get a few other people to move in with me (after all, there are three other rooms), however, I have no intention of staying in the place once the lease is up.
    3.  I did do the RESULTS course, and as I didn't have the capital freely to invest, the long work hours – and any other stupid excuse that I would make up, fell off the horse.  So now, it's a matter of working from the books as I go.  I just didn't have a computer to download all the templates and the like.

    I would love to move into a PPR, and reno over 12 months with possible sub-division.  It just seems impossible to do it financially by yourself, and by the sounds of it Shwing, you are doing it tough – I wish you well though.

    Can anyone recommend brokers in the SOR in Perth, that I could take for a coffee (my shout) to discuss options of finance, accountants for structure of property company trusts and solicitors that deal with property contracts regularly.  If I can't do this with what I have saved already, then I would want to look at some creative finance deals or JV's.

     Regards,

    Corey
    http://www.graphicsoffer.com

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