Starting all over again after a marriage separation

Hi Sue,

Very sorry to hear about your current situation, but you’re being proactive about things which is a great start. If I may I’d like to offer an idea/suggestion that may (or may not) appeal to you. Although I’ve been investing in property for 15 years I am fairly new to this forum so I don’t know if this option is familiar with other members on here, and that is investing with a developer. I currently have what’s essentially all my investment capital that’s not tied up in property invested with a local developer here in Adelaide. I’ll run through how this particular developer operates and leave it open for other members’ (and your own) opinions/criticisms.

Their developments are typically small in size, but many in number. In fact, how they develop is the same as I’ve read many members on this forum do. Buy older house on large block, subdivide, renovate old house, build new house at rear, then sell both. This appealed to me over larger developments as I’ve read so many stories of cost blowouts, developers running out of money and going bust etc with large scale development. The director of the company started out doing one project at a time outside of his day job, but became so successful at it, it’s become his full-time business.

The returns he offers are guaranteed, with all relevant legal documentation in place to protect your investment. The returns are tiered depending on how much you invest, but for investments of $100k+ you’re looking at a guaranteed return of $20% p.a. In terms of legal documentation, there’s a loan agreement with a caveat attached saying that he gets paid last so investors get paid before he does. So in the unlikely event that a development doesn’t turn out to be as profitable as expected, they absorb the loss themselves, and the investors retain their full return. In saying that, I was told that each project has to meet extensive feasibility criteria before they purchase a development site so the chances of this happening are extremely low.

If your end goal is to get enough cash together to buy another home for yourself then this might be a good option, in that there’s no entry or exit costs (preparation of legal documents is paid for by the developer) compared to property where you have stamp duty/fees etc (compounded if you’re buying multiple properties). It’s also a cash return in your pocket without having to wait a matter of years for capital growth to occur with property. Even though the return is per annum, it’s also per project, so you don’t get your return until the project is finished, which is generally longer than 12 months (14 months is the average I believe), but it just means you keep earning interest until the project is finished/sold.

So potentially, if you have $410k to work with, investing $400k @ 20% = $80k p.a return. In saying that, one of the cardinal rules of investing is “don’t put all your eggs in one basket” whether you’re a newbie or seasoned investor. If this is an option you may be interested in, I’d recommend “testing the waters”, by investing just a portion of your money with a developer. Whether the developer I use or someone else, if you invest even the minimum amount until you’re comfortable and confident with the process, you’re in a good position. With the developer who I’m invested with, $50k is the minimum investment, which gives I believe a 12% or $6k return p.a. $100k+ invested would give $20k p.a return, and you’d still have $310k in the bank safe and untouched.

What appeals to me about this investment option is it’s creating cashflow. Don’t get me wrong, I’m a huge fan of property and will continue to invest in bricks and mortar, but I’ve been caught a few times over the years having cashflow issues because all my money’s been tied up in property. How many people can say they could find a property for $100k that delivers a rental yield of 20% with no ongoing costs! My personal strategy now involves using my cash return from the developer to fund both future property purchases as well as a better quality of lifestyle.

I hope this gives you some food for thought Sue. Investment choices are intensely personal decisions to make as we all have different situations so I won’t say you should definitely look at this as an option, it’s simply an option that’s either an alternative or better yet an option to use in conjunction with property investment IMHO.

cheers
Pete

Cattleya, very good advice regarding doing your own research regarding any investment. In regards to my post, I can only refer to my experience with how the developer I invest with works, which is very different to what you’ve guessed. To simplify how he works, an investor loans him “X” amount at “Y% p.a” interest rate, with capital and interest repaid at the end of the project when the properties are sold (typically about 14 months from settlement of the land/property). There’s no purchasing of units or reinvesting the interest, all money is paid out at the end of the project then investors can reinvest at their own discretion. I have, however, changed my view on what Sue should do after reading your post this morning because it looks like I misread her post regarding what she has to spend.

Sue, I based my advice on reading that you had $410k to spend, thinking you had $410k cash sitting in the bank, but after re-reading your post this morning am I correct in saying that $410k minus cash in the bank is your borrowing capacity? If this is the case, I would not recommend investing borrowed funds with a developer regardless of how big or small they are without having a solid foundation of bricks and mortar behind you first. I am comfortable investing with a developer as part of my own strategy because I have a family home and investment properties as a foundation for my portfolio, and am able to use cash and not borrowed funds to invest with my developer.

No investment is without risk, even property if you don’t do you due diligence (I know this from personal experience), and generally the higher the return, the higher the risk. If you do your research, you can’t really go wrong with property, and wait until you have a solid portfolio before you start chasing higher returns.

cheers
Pete

Hi Sue

Would echo the sentiments of the other 2 posters in saying sorry to hear about your current family situation.

Personally i would not be investing any money at all with a developer in any shape or form.
I have personally developed 101 properties in Brisbane and when i see the structures some developers establish the only loser when things go wrong is the investor.

Have a search thru the forum and you will read a series of posts made by other members regarding a similar investment in Port Headland Western Australia. I actually financed a couple of such purchasers and these investors were concerned that the valuations came in less than they were buying the unit from the Bare Trust from.

Sydney is definitely out of the question with such a budget but certainly you could find something in Brisbane. I would again be avoiding Units in Brisbane due to the potential glut of properties coming to the market over the next 12 months and the high costs of Body Corporate.

You can still purchase a detached free standing property in Brisbane for your budget if you know where to look.

We are finding a number of good yielding properties for forum clients in some excellent areas.

In regards to your Super i am assuming you that you don’t have enough funds to consider rolling over into your own SMSF and looking at buying in Trust.

Whatever you decide to do ensure you engage professional assistance as you still have plenty of time to retire and no reason why you can’t make the best of it.

Let us know what you decide to do.

Cheers

Yours in Finance
0-40 Properties in a decade.

Please don’t buy a Brisbane inner city unit, but perhaps consider other areas in Brisbane (you can still buy a house for that). Properties are being snapped up quickly though with a view that Brisbane is the next growth area. Units are becoming over-supplied. The yields are generally better in Brisbane than Sydney/Melbourne, but it is still hard (?impossible) to find a positive cash flow property, particularly within 30kms of the city – unless you can somehow value add.

Spend more time reading and exploring first – you are of course in a rush, but nothing would be worse than losing more. And please take all advice with a grain of salt, most have an objective. (I have Brisbane properties).

If it were me, I would perhaps consider using a Buyer’s Agent (but find a good one – this again comes with time trawling the forums). They will be able to meet your brief better, and perhaps faster than you can with your responsibilities. But, it will take a decent wad of your cash.

• This reply was modified 8 years, 7 months ago by  Bangers.
• This reply was modified 8 years, 7 months ago by  Bangers.

Sue,

Don’t worry, you are on the right track just keep looking. Can I please offer you the following points:

1. there is always +ly geared property for you, you just have to really understand your situation and keep looking to find something suitable.
Positively geared properties differ for different people. For example, a $430k flat rented at $420 pw:

a) At 80% LVR and 4.55% interest, it is +ly geared with net income just below $2,000. But that’s because the Bank provides 1.1% discount. If the interest rate is at the normal advertised rate of 5.65%, the IP becomes -ly geared. losing money roughly -$2,000.
b) At 70% LVR and 5.65% interest, it is barely + at just under $500 income.

I mean, the same property can be + or -ly geared depending on the buyer’s financial situation. It is very rare to find a property that is +ly geared for everybody. Which is actually good news, because it means there is one for everybody, you just need to be very cognisant with your own situation and find a suitable property.

2. there are other ways, not just the usual buy in your name. I’ve never done it but have heard about it. Forgot what the term is, but essentially you buy+rent (similar to leasing a car where at the end of the lease term the car is yours). For example, you use your $120k cash and Mr. X borrows $500k from the Bank to buy a house with you.

a) You and X buy a house in Sydney together where you live in the house and pay rent (higher than market rate) to Mr X.
b) X pays interest to the bank using your rent money.
c) You promise to rent there and not move out for, say, 20 years
d) At the end of 20 years, the house is yours.
e) There is a water tight agreement taken at the time of purchase where all the above are arranged in the contract, and also ways to get out. Just in case in the next 20 years either you or X needs to get out of this contract or you win a lotto and want to pay it off sooner, etc.

The benefit is, you get the house and minimise your expenses, your investment in the house is secure because you live in it and you pick the area and the house you like. And for X, he has a good tenant for 20 years and above market rental income. The problem is the contract – it usually is difficult to foresee all future possibilities and hence the contract is usually not water tight leading to potential disputes. The buyer-renter (you) is usually in a weaker position.

This is what I mean by, really understand your financial situation and work with it to find a suitable investment.

3. Before you do any of these and any of the above suggestions from other well meaning fellow investors and professionals, please bear in mind… everybody naturally looks after number 1. Hence naturally you are the best person to look after your own interests. Make sure you ask a lot of questions, especially from the ‘enemies’ of these people. Just be very very critical.

4. May be other fellow investors have other suggestions? Pete? You seem to be one of the wiser ones.

Best of luck
Cattleya
Here to learn the ropes of property investing and hopefully help others along the way. Not trying to sell anything.