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  • Profile photo of JoejifJoejif
    Member
    @joejif
    Join Date: 2012
    Post Count: 8

    Hi All

    Im quite new to the property game, I bought my first property about 2 years ago, has positive cash flow of about  50 dollars a week, the value of the property hasn't gone up much in price if any at all. I have a friend that suggests I sell the place and with the money that I recieve after the sale which will be around 90000 , to invest in under valued property sourced by his company at around 6 to 7000 dollars for each property, and tells me with 90000 to play with he can get me around 1 mil worth of property, I don't doubt that, considering they are very good at seeking under valued property, my question is is it a good idea to sell a property that isn't doing to badly , to seek better opportunity.  Also is there anything I need to know about companies that do that type of practice,  anything to look out for. Just wouldn't mind a view opinions before I do something silly.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,173

    Which method would make the more money?

    And also your friend is biased so don't believe what he says without thorough investigation.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of JoejifJoejif
    Member
    @joejif
    Join Date: 2012
    Post Count: 8

    Well I'm guessing that if he can buy me 2 or 3 undervalue it's going to have instant equity and also be positive geared, so I'm assuming it will make more money.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,173

    That could be a dangerous assumption!

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

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

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

    Everyone will of course have their opinions.  As for me, I wouldn't bother for the following reasons:

    1. Your current property is a proven performer, and is already cashflow positive.  You can hang onto it and use its income and/or its equity to leverage into additional properties if you wish.  Richard Taylor (userid Qlds007) or Jamie M on these forums are great mortgage brokers that can assist you to make this happen in the correct manner.

    2. If someone was trying to talk me into selling proven property, to sink it into a property that is going to apparently get me $6k under market value, I would be trying not to laugh.  When you sell your current property, there will be selling costs (you must pay your solicitor and you must pay the selling agent).  When you buy into additional property you must pay costs (stamp duty, bank mortgage fees, solicitor).  So why would you sell for such a tiny undercut on the market value.  Depending on the pricebracket of the property, people under and over pay by $10k all the time.  This is because the price of a property is dictated by what people are prepared to pay for it.  Not by an itemized bill of every brick, doorhandle and lightfitting in the place. 

    I have no doubt your friend can assist you to buy 1mill worth of property, but unlikely he can assist you to buy 1mill worth of property for $800k, and without you incurring substantial costs jumping out of your current property and into those he'll acquire for you.  I have a sneaking suspicion you have reservations yourself which is why you're looking for others to confirm your thoughts. 

    Why not hang on to the property you have and use it as leverage.  Do your own homework on what suburbs and property types you know will do well and are in demand, and if it so happens your friend can get them for you cheaper than you can get them by yourself, then great…

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of jmsracheljmsrachel
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    @jmsrachel
    Join Date: 2012
    Post Count: 711

    The question you need to ask your friend is have you done this with your money before? Or do you want to practice with my Money first?

    Profile photo of JoejifJoejif
    Member
    @joejif
    Join Date: 2012
    Post Count: 8
    jmsrachel wrote:
    The question you need to ask your friend is have you done this with your money before? Or do you want to practice with my Money first?

    Him and his boss have been doing it for quite some years and have quite a few clients.  They are good at what they do, but my dilemma is should I sell my property and start again with them, I think what I might do is hold on to my property and buy my next one through them and see how that goes.  Thanks very much for all your replies.

    Profile photo of ZanshibuiZanshibui
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    @zanshibui
    Join Date: 2012
    Post Count: 14

    If in doubt, do the math! Ask him to present you with a real opportunity that you can independently evaluate. Buying through his company because he says you should sounds more like gambling than investing to me. And when you do your sums don't forget to add his companies fees in to your equations…I don't imagine he's offering to do this for nothing…

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

    You are thinking more clearly now Joe, that's a relief smiley.  Just because someone is your friend is not a reason in its own right to liquidate your assets and hope they don't mess up your investing plan. 

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of DerekDerek
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    @derek
    Join Date: 2004
    Post Count: 3,544

    Only three times to sell.

    1. You get an offer too good to refuse.

    2. You need to shoot the dogs (underperformers)

    3. You can put your money to better use elsewhere.

    As Jac has suggested make sure you do your maths very carefully especially with respect changeover costs. They can be expensive.

    Given your property is not costing you a cent to hold I would not be overly fussed by it's lack of growth over the last 2 years. Australian property prices in many parts of Australia have been relatively flat over that period of time so be patient grasshopper and your time will come.

    Profile photo of JoejifJoejif
    Member
    @joejif
    Join Date: 2012
    Post Count: 8

    There all good points, but something I forgot to mention is that my property is only cash flow positive because I have an interest only loan, if i was paying the principal as well I would be losing about 60 bucks a week, but I do recieve around 7000 in depreciation, does this change any of your views, wouldn't It b better off purchasing something or even 2 properties that are positive cash flow and also pay the principal off aswell???

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    Hi Joe,

    No one will be able to give you a definitive answer without sitting down and crunching not only the numbers but a few scenarios. Only then will you get to your answer. 

    Sit down with your banker or broker and nut out several scenarios to see which will fit your investment strategy. 

    TheFinanceShop | Elite Property Finance
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    Residential and Commercial Brokerage

    Profile photo of mattstamattsta
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    @mattsta
    Join Date: 2011
    Post Count: 604

    I would do the throughout investigation first. I am not a risky person, so I would probably stick with the current property, which already has a positive cash flow. However, if you believe that your friend can help you to make more money- then go for it, but, of course, after a careful investigation.

    Profile photo of Ephraem1Ephraem1
    Member
    @ephraem1
    Join Date: 2012
    Post Count: 17

    It may also help to ask for references of your friend and to do some due diligence as suggested above

    Profile photo of Mick CMick C
    Participant
    @shape
    Join Date: 2010
    Post Count: 1,099

    Your frd most likely get some sort of kick back or commission for introducting new clients – so i would take his advice with a gain of salt…..

    The property is making you $50 a week, doesn't sound like a lot but it's still $50…instead of selling why not draw out some equity and use that too invest; you dont need the full $90,000 at this point correct? ie if you really believe your frds advice, buy one first and see how it goes.

    Remember if the new properties you buy DOESN'T go up then you would still be at a lost;

    – interest ( rental yield)

    – Selling cost /agent

    – stamp duty…

    lastly are you a capital growth investor or more a rental yield investor? which strategy are you more comfortable with…

     

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
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    Same Banks. Better Rates. Served With a Passion.

    Profile photo of JoejifJoejif
    Member
    @joejif
    Join Date: 2012
    Post Count: 8

    I'm concentrating more on positive cash flow, so your right my current property is providing that, i think i just got a little excited and ahead of myself, to think just maybe i could do more with my money, but as ive been advised your portfolio needs to have a mix of high and low risk properties, i think my current one is low risk, and if i were to deal with my mate, it could be potentially dealing with higher risk properties. So i think i will keep my current property and just refinance and save a bit more and go from there, thanks again for all your suggestions, great site.

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539
    Joejif wrote:
    There all good points, but something I forgot to mention is that my property is only cash flow positive because I have an interest only loan, if i was paying the principal as well I would be losing about 60 bucks a week, but I do recieve around 7000 in depreciation, does this change any of your views, wouldn't It b better off purchasing something or even 2 properties that are positive cash flow and also pay the principal off aswell???

    No !  Why would you pay off the principal?  Just put any surplus money into an offset account which achieves the saving of interest, but leaves you with the option of withdrawing it at a moments notice for something else (such as a subsequent IP deposit).

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

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

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