Hi All,
I’m after some advice for my sister who called me the other day in relation to an investment property her and her boyfriend are interested in purchasing in Queensland.
The property was purchased in January this year for $430k and the dwelling demolished for a redevelopment. A new dual occupancy single title building is being erected (I’m not sure of how many bedrooms, bathrooms etc, etc) and will be sold for $599k. The building is being built by Meridian Pacific Homes.
My sister and her boyfriend intend to take out a fixed interest loan of 610k @ 5.85% for 3years using my sisters boyfriends mums house as security for the loan and will charge a rent of $720p.w
Land rates are approx $3k p.a
Property Management $4k p.a
Insurance $3120k p.aThis is my sister and her boyfriends first investment property and not to be negative as I think investment in property is a terrific idea, I think they are putting all their eggs in one basket for their first investment property.
Secondly $170k to build a property and make a profit on it seems iffy to me. This property in Wynnum in QLD approximately 800m from the beach so perhaps the $720p.w rent is justified.
I’m just after some thoughts on what those in the know think about what I have said here. If there is some information that I have missed please let me know.
Kind Regards and I look forward to your responses.
Can't comment on the cost/value as too little info. But-
Why are the charges so high?
Nearly 12% management fees? Have they asked different real estate agents their charges?
Are rates really that high in Queensland? I think they include water don't they (ours is separate)?
And why is the insurance so high?
That's $269 a week just for those 3 things.So $720- $269 = $451 rent (X 52= 23,452 ).
the interest will be $39,000. So negative $15,548 + other costs. Or course there's depreciation.Have they worked out the figures?
Personally I wouldn't be putting more money than I own into one property. For a start they have no equity in the property and they arerisking the mum's house to do it. If the value drops by 5% the bank will be wanting their money back.Firstly why are they going for a 3 year fixed @ 5.85 when they can go with say St George for 5.59%? Secondly what is their long term strategy? They may be better off fixing a portion if they need the interest rate security and having the remainder as IO with a linked Offset. If their plan is to purchase further properties then they can utilise the accumulated funds in the offset. Thirdly, can you take out a mortgage against the mum’s property without tying the mum’s property to this property?
Shahin Afarin – Property Finance Consultant
http://elitepropertyfinance.wordpress.comTheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
It sounds like a typical negative gearing investors attitude to making wealth, spend a large amount of money on some property, use up all their own disposable income to cover the interest repayments, and just hope that capital gains will make them a lot of money.
Seeing as they had to use the mum’s house as collateral, I assume they do not have much financial experience or property investment experience. So it looks like they are just putting everything they have and just hoping it works out well, which of course is the worst way of investing. I mean sure between 2000 and 2007, it was fine when prices just skyrocketed so even an amateur investor could make a lot of money without any risk. But these days you have to be more selective and careful about your investments, if the property market moves downards, then they will start struggling, if the property does not have a tenant for a few months, then again things could go downhill for them very quickly.
Even in a best case scenario, they will not get the loan under control for many years, so it will prevent them from investing further.
TheFinanceShop wrote:Firstly why are they going for a 3 year fixed @ 5.85 when they can go with say St George for 5.59%? Secondly what is their long term strategy? They may be better off fixing a portion if they need the interest rate security and having the remainder as IO with a linked Offset. If their plan is to purchase further properties then they can utilise the accumulated funds in the offset. Thirdly, can you take out a mortgage against the mum’s property without tying the mum’s property to this property?Shahin Afarin – Property Finance Consultant
http://elitepropertyfinance.wordpress.comAccording to my sister the fixed 5.85% was just an example that their financial adviser put to them though encouraged them to explore better opportunities. I will mention to ask their financial adviser about fixing a portion of the loan.
I think their plan is to invest in other properties however I they have been advised to bite off more than they can chew and then chew like hell which I think is really bad advice.
They are borrowing 110% of the loan and is why they are using the mums house as security. The thing is, they don’t have an investment plan, this is just all advice from their accountant/family financial adviser. They want to make money and think because they are investing in a property that makes them wealthy.
ZOOTV wrote:TheFinanceShop wrote:Firstly why are they going for a 3 year fixed @ 5.85 when they can go with say St George for 5.59%? Secondly what is their long term strategy? They may be better off fixing a portion if they need the interest rate security and having the remainder as IO with a linked Offset. If their plan is to purchase further properties then they can utilise the accumulated funds in the offset. Thirdly, can you take out a mortgage against the mum’s property without tying the mum’s property to this property?Shahin Afarin – Property Finance Consultant
http://elitepropertyfinance.wordpress.comAccording to my sister the fixed 5.85% was just an example that their financial adviser put to them though encouraged them to explore better opportunities. I will mention to ask their financial adviser about fixing a portion of the loan.
I think their plan is to invest in other properties however I they have been advised to bite off more than they can chew and then chew like hell which I think is really bad advice.
They are borrowing 110% of the loan and is why they are using the mums house as security. The thing is, they don’t have an investment plan, this is just all advice from their accountant/family financial adviser. They want to make money and think because they are investing in a property that makes them wealthy.
It is slightly concerning that you will be giving financial advise to their financial adviser? (sorry couldn’t help myself!) They definitely need to speak to a mortgage broker about their strategy. Also just because they are borrowing 110% doesn’t mean you need to use the mum’s security. There are other options which a broker can explain to you.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
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