What I learnt out of buying 7 properties

That is true.

But my idea of a team would mean a level of loyalty etc, and frankly, these days, there is not much of that, you also get people changing jobs and retiring etc....

So, if you do this for a while, you find yourself just using whomever is available and usually the least painful, and my experience over many years is that avoiding communication etc is the norm, TBH if I did not get heavily involved, there are many times things would have been delayed and cost way more than reqd....

 

Hi David rest thread, if buying in trust once you gift to your children or whoever for that matter are you liable to pay stamp duty again and CGT ?

 

Hey @dabbler, it's been a long time! Hope it's all going well for you

I understand where you are coming from - from consumer/investor perspective I do agree that each of the professional you engage are being paid to perform a certain function, and they may not have any interest in what else you're trying to achieve. An example I can think of is you engage and pay a plumber to fix/improve your toilet, and he may have no interest whatsoever in rest of the renovation work you want to carry out.

At the same time when I put on my broker hat, I do want to ensure my clients get looked after and get the best outcome possible. For that reason I would touch base with my teams to ensure they understand the goals/objectives the client is trying to achieve. As an example I would touch base with Property Managers to let them know what the client intention is with the IP after settlement i.e. based on discussion so far do they want to do a reno, if so what type of budget, cosmetic/structural and expectations etc. To me that helps the PM to fast track what my client had in mind and work towards achieving an effective and desired outcome, while avoiding them having to repeat the same thing over and over again. That's the type of team I'm thinking of here.

Now it may be just my ideology but it is something that I personally strive towards achieving - making sure my clients get the service and being looked after to my best ability.

Cheers,
David

 

Hmm, not really my area to be able to give advice but I think this article should be able to help you:
https://propertyupdate.com.au/considered-gifting-property-children/

Cheers,
David

 

I think brokers are the exception in many cases, but the lack of communication at times is staggering.......even if in the one business or organisation.

Nevermind me, I just dont like the term and the warm and fuzzy feeling some may get from it.....,.you ca imagine how awkward things were at the first place I went that tried all this team stuff and group hugs.......pretty akward.....lol

 

hi @Beano and @David Shih thank you for sharing your experience with pool. I am actually considering a potential IP that tick all the boxes except "the pool"... @Beano I wonder if putting the deck actually cheaper than removing the pool once for all? I am thinking if let say I want to do development in later years, I should remove the pool instead of putting deck. Does anyone know what it cost to remove a pool? thx

 

Yes it would have been cheaper but then you have no deck area ...
The property needed some deck area

 

@Property Twins Just about to do that - too bad can't claim travel anymore!! :-( So it's best to say "I want a house $xxx-xxx in this area with this yield"? They won't manipulate figures to suit my range? Or is it honesty works both ways...? (RE agent...honest...cough ;-P)

 

This is what you need to find when building a team.
People who actually give a crap, not because they have to, but because they want to.
Unfortunately in the world we live in, its becoming more and more about me me me.

 

You could never claim travel for a property you are yet to purchase.

I don't want to take over David's thread...but we have done a blog on this topic, which you may find useful.

 

Can I just confirm the PMT and PPMT model is based on 25 year loans (i.e. 300 periods) and could sub that figure to 360 periods for 30 year loans (12x30) as they seem like more popular loan terms?

 

We all know a big deck is important

 

Yes they are based on 25 years as I'm working off a conservative nature in my calculation (i.e. 5 years IO and then 25 years P&I). You can definitely update to 360 periods instead to model as 30 year P&I loan.

Cheers,
David

 

Thanks mate, Im slowly improving my excel understanding. I have enjoyed your thread very much- cheers for sharing.

 

15. Fifteenth lesson – New vs Existing, which one should I choose?

Some of you may have set a goal earlier this year to purchase an investment property (and I hope you're well on track!), so I thought I’ll have a go at the question today that has been ongoing for a while – shall I buy new or existing?

Here are my 2 cents worth:
1. Disregard buying new or existing, buy a place with as much land component as possible
If budget allows, buy a house with good land component. Over time land appreciates and building depreciates, so you would want to buy a place with as much land component as possible. For example, if I’ve stretched myself couple years earlier and bought two houses in Sydney instead of units I probably would have gained another $400K lazy equity (thanks to the latest Sydney boom!)

2. New house & land package vs existing house.
A couple of pros and cons I can think of (and definitely not extensive!):
Pros of new H&L:

• Minimize on outgoing maintenance cost as everything are shiny and new
• Able to claim lots of depreciation for the first couple of years to offset your taxable income and extra money to go against mortgage
• Can usually achieve a higher rent which again helps cover the mortgage

Cons of new H&L:

• You’ll be paying a premium price as it’s a brand new finished product – so essentially you’ll be paying for developer’s profit
• Need to make sure there is rental demand as you could be up against hundreds (if not more!) of other new builds especially if it’s a new estate that’s been released. So knowing demographic and renter types will be critical here
• Usually sits on a smaller/already divided block of land

Pros of existing house:

• Usually have more room to negotiate on price depending on the market and condition of the house. May be easier to negotiate below market value
• Usually sits on a bigger block of land and if the land has future subdivision potential – bingo!
• There is an opportunity to apply the technique of manufacturing equity via different methods – such as cosmetic reno like a lick of new paint, new carpets/floor boards to more major changes such as adding an additional bedroom or build out downstairs (if it’s two level). This can potentially improve the property value (and therefore potentially increase your equity if you get it re-valued), become more attractive to tenants and commands higher rent.

Cons of existing house:

• May require more maintenance fund such as fixing broken taps, or even bigger items such as replacing broken hot water tank or air conditioner
• Cannot claim as much depreciation in comparison with new build. For existing houses that are over 20 years there will be literally no depreciation
• Less attractive to tenants in comparison with new build (but can do cosmetic reno to improve this)

3. What about New vs Existing Apartments?
Apartments are generally OK but depending on where. For example you wouldn’t want to buy high rise apartment in Brisbane CBD as there are way too much supply right now. Whereas apartments in Sydney have been accepted as part of the city’s landscape, so you do need to understand what type of dwelling is in demand for each city and go from there.

Finance permitting, I would choose a house with land component over any apartments any day.

Pros of new apartment:

• Minimize on outgoing maintenance cost as everything are shiny and new
• Able to claim lots of depreciation for the first couple of years to offset your taxable income and extra money to go against mortgage
• Can usually achieve a higher rent which again helps cover the mortgage

Cons of new apartment:

• You’ll be paying a premium price as it’s a brand new finished product – so essentially you’ll be paying for developer’s profit
• Need to make sure there is rental demand as you could be up against hundreds (if not more!) of other new builds especially if it’s a new estate that’s been released. This is even worse for apartments as depending on the staged release they could come in as hundreds or even thousands around the neighbourhood area.
• Some high rises are built on main/busy roads, which means noise will definitely have an impact on how attractive your place will be for rent.
• Potentially high strata fee if complex has pool, gym and carers

Pros of existing apartment:

• Usually have more room to negotiate on price depending on the market and condition of the house – much easier to negotiate below market value
• There is an opportunity to apply the technique of manufacturing equity via different methods though limited in comparison with what you can do with a house. However apartment limits to mostly cosmetic reno such as new paint, new carpets/floor boards etc. Low cost but high impact. This can potentially improve the property value (and therefore potentially increase your equity if you get it re-valued), become more attractive to tenants and usually commands higher rent.

Cons of existing apartment:

• May require more maintenance fund such as fixing broken taps, or even bigger items such as replacing hot water tank or air conditioner
• Cannot claim as much depreciation in comparison with new build. While apartments will still have building depreciation, as they age there will be literally very little depreciation after 20 to 30 years
• Less attractive to tenants in comparison with new build (but can do cosmetic reno to improve this)

So all in all the concept is quite similar to houses, however if I get the choice today I will always pick something with land component. Even townhouse/duplex has more land component than apartments, so I would go:
1. House with biggest land component, then
2. Duplex with as much land component as possible, then
3. Townhouse with as much land component as possible, then
4. As a last resort, apartments.

Cheers,
David

 

16. Sixteenth lesson – type of tenant requests and how to deal with them?

So, you have purchased an investment property and it’s settled! The tenant moved in and just when you thought everything is settled, popped the champagne and getting ready for the first sip…

The PM called, and tells you there was an urgent request from tenant and it’ll now cost you X amount of money to get it fixed…

Sounds familiar??

Yep, as soon as a tenant moves in the battle between tenant and landlord begins! At the end of the day, you want to keep the tenant happy because they’re the one helping you to pay the mortgage, but at same time you are also not going to say yes to all the requests they put forward. So there is a fine balance in managing tenant requests, and I thought I’ll share my personal experiences in dealing with the managing agents and tenant requests.

As a landlord, the following are the types of request you’ll get from the tenant:
1. Requests that are related to safety compliance / issue
2. Requests that will benefit tenant and may potentially increase rent during the next rent review
3. Requests that will improve property value in the long run

Let’s look at each one by one.


1. Requests that are related to safety compliance / issue

These are the type of requests that as a landlord you should prioritize as it relates to safety concerns of the tenant. For example, smoke alarm for fire safety, or replacing rotten handrail/balustrade, or wooden stairs (for a Highset house).

They are pretty self explanatory – if you don’t do it, it could have much more serious consequences. Especially if the tenant is injured because of such safety defect, then the tenant could take landlord onto court (for non-compliance to minimum safety standards).

Therefore my advice on any request related to safety issue – get it fixed asap. It’s cost of doing business. If the quote is expensive you may like to get a second quote for comparison purposes, but just be mindful the longer the delay the higher the risk to tenant, especially if it’s something that the tenant will have to use everyday (such as handrail, for example).


2. Requests that will benefit tenant and may potentially increase rent during the next rent review

These are the type of requests that are not a threat to safety or compliance, but more of an improvement in nature. A couple examples of these type of request includes:
– Installing flyer screen to windows
– Installing ceiling fans in bedrooms
– Installing mirror wardrobe in bedrooms

Feasibility of these request can be assessed by the potential increase in rent. For example, by spending $600 to install ceiling fans for 3 bedrooms is there an opportunity to increase the rent by $5 a week? This would be a question for Property Manager. And if rent can be increased by $5/week, then how long would it take to claw back the initial investment? In this case that would be $600 / $5 = 120 weeks or about 2 years and 3 months in order to claw back the initial investment.


3. Requests that will improve property value in the long run

These are the type of requests that are again not a threat to safety or compliance. They are usually higher in value, and are geared more towards capital improvement in nature. A couple examples of these type of request includes:
– Replacing existing floor covering with new floor covering
– Replacing air conditioning, cooktop, oven or the likes

As these are higher in value landlord are usually less inclined to proceed unless it’s absolutely necessary. For example, the carpet may have been damaged to the point above restoration so new floor covering should be considered.

One way of looking at these type of request is to see whether there is a potential to increase rent, and to assess the likelihood to improve on the property value (if revalued) and therefore an opportunity to increase equity on the property. Again, you can check with your trusted Property Manager to get their advice on the likelihood of rent increase and potential value increase before making a call.


And I guess more importantly don’t forget tenants are also everyday people like us. I'm a big believer that if you look after them and their requests they’ll also return the favour by staying long term and looking after the place well.

Cheers,
David

(Above is written based on my personal experience and is general in nature. Please seek specific advice from your Property Manager)

 

Hi David,
Thanks for this calculator. Am I right in assuming that this calculator assumes loan amount to be 80% of purchase price. What about those of us who would borrow 110%? I’ve adapted the excel sheet for my purposes but perhaps this can be incorporated?

Secondly, how would you determine ‘good’ cash flow before a property purchase? Would you be happy for it to be neutral and rely on CG?

 

Yep by default it's at 80% LVR.

Right now if I'm going with a higher LVR I just manually update the formula in cell B9. Let's say for example if it's 110% LVR then I'll just update B9 to be 1.1 times cell B8. Thanks for the feedback - I'll make a note to incorporate that in the next release.

I think "good" cashflow is subjective and differs for each and every individuals. For me, yes I would want the property to be neutral (if not positive) from day 1 as that means I don't have to fork out much to hold this property. Just need to keep some money aside for the unexpected such as rental arrears or repairs & maintenance.

Cheers,
David

 

Hello David so buying in an area like Corio or Norlane would be risky? What if it was a PPOR and you were renting the rooms out for cash??

 

There are always risks in buying at lower socio-economic areas so just depending on individual risk appetites. Personally if I was to do it again I would tend to avoid the really bad stigma areas (unless I know exactly what I'm getting myself into!).

Corio/Norlane are slightly different to Logan. Job opportunities are improving in Geelong so I don't think they'll have as much issues paying rent in comparison to Logan Central/Woodridge type of tenants who may be living on Centrelink payments. And then it comes down to knowing the suburb to avoid the high stigma areas such as the notorious Fairbarn Dr

If you're looking at investing in Corio/Norlane now I would say think again. PPOR is a slightly different story I guess - it's more a lifestyle choice and also confined by your budget. If you do want to buy a PPOR in Corio/Norlane I would have a chat with @Dave3214 to pick his brain as local resident expert on which streets are preferred for PPOR.

I don't have experience with renting out by room so I can't comment too much on that. I think that strategy may work better for suburbs around the Deakin Uni though.

Cheers,
David