lock in 3 yrs or 5? [Archive] - Somersoft Property Investment Forums

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04-03-2001, 06:23 PM

From: Michelle Riley

I'm purchasing an investment house to negative gear.
Bank wants to know tomorrow how long to lock in I/O loan.3yrs is 6.6% .
5 yrs must be a little higher.
Any insomniacs online tonight?Need a quick answer.
Cheers Michelle

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04-03-2001, 06:34 PM

Reply: 1 
From: B Ready

I reckon go for 5 years as the rate is not much different to 3 years. It saves you having to worry about it again in 3 years time. Plus, you would think rates could not go much lower but could go up heaps in three years.
Hope that helps but it is only my humble opinion.

BGR.

Marina

04-03-2001, 08:08 PM

Reply: 1.1 
From: Marina. L

I read an article by a well know financial columnist in the Herald Sun that Interest rates will continue to fall and He stated that now is not a good time to fix. Wait till the next drop in interest rate (this is pretty certain) and then fix the rate.

Simon

04-03-2001, 08:11 PM

Reply: 2 
From: Simon .

Don't forget there may be a penalty if you sell it earlier. So if you want flexibility then 3 years. if you want security then 5 years.

Marina

04-03-2001, 08:14 PM

Reply: 2.1 
From: Marina. L

Remember the golden rule

NEVER NEVER NEVER SELL

Sim

04-03-2001, 08:20 PM

Reply: 1.1.1 
From: Sim' Hampel

I read recently that banks do a bit of economic forecasting when setting fixed interest rates. They will build in a buffer to the rate for a particular term based on what they think the rates will be at over that term.

Basically the article suggested that if fixed rates are lower than todays variable rates then the banks feel that interest rates will drop (to lower than the advertised fixed rates). Conversely, if the fixed rate is higher than the current variable rate then they believe that rates are going to rise.

It's all a matter of balancing between having fixed rates that are competitive in the market and pricing in a margin to make sure they lock you in to as higher rate as they can get.

The article seemed to suggest that assuming that the banks get it right, you wont be able to beat them on interest rates, and should stick to variable.

I'm not suggesting that this is the strategy you should take and I'm not sure if I agree, I'm just giving another point of view !

I certainly like the idea of managing interest expenses by having fixed rates. It makes it much easier to predict the outgoings on your investment, regardless of whether you might save a few dollars by going variable.

<IMG SRC="http://www.ozemail.com.au/~sphampel/images/sim.gif" ALT="Sim'">

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04-03-2001, 08:49 PM

Reply: 2.1.1 
From: Gee Cee Cee

LOOK Long Term.
What do you want to do with the property?

If you intend to hold at least 5 yrs then I would lock in for 5 yrs. {Around 6.95 - 7.20%}

Rates may drop. (Who has the accurate crystal ball? [Please lease it to me overnight])

But at least you have a budget, $$$ flow forecast & can sleep.

OK if they drop you can only cry over spilt milk.

If they went up you may really be crying.
As to sleepless nights???!!!

Gee Cee

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05-03-2001, 06:47 AM

Reply: 2.1.2 
From: Robert Forward

Hi Marina

Why shouldn't you sell. If the property you own has just finished it's bull run (cap growth spurt) then why not jump out into another property that is about to go into a bull run. And because you pay CGT isn't a real reason. CGT can be minimized (legally) if you have a good accountant.

You make money faster doing it this way.

But, that is just my thoughts about it.

Cheers
Robert

Marina

05-03-2001, 07:36 AM

Reply: 2.1.2.1 
From: Marina. L

Hey Robert,

I know there is no hard and fast rule, but being a newbie myself and through educating myself with books, etc, I picked up this Line nearly everywhere.
NEVER NEVER SELL.

It makes sense to me.Let me give you an example. I bought 2 properties last year and
the revaluations came in at $84K above purchase price. Yes I can sell them both and walk away with 84K but I would rather never sell. I will make more by holding long term.

I then used the equity in the above and purchased land at the end of last year to build an IP.Now the interesting thing with this is that the land 12 months ago was originally bought by someone else for 95k, I bought it at $130k in Oct 2000, and it is now valued at close to 160k. Now I can also walk away with $30k (not bad for 3 months work).But long term I think this will be a gold mine.
Robert I just figure if I keep holding I will make more and then I can buy more.

For now though I have a plan not to sell but who knows eventually I might not be strong enough and I will probably buy that Porsche or Saab or convertible BMW , ah heck I'll just buy them all.

But this is just my opinion and everyone has their own plan and strategy.

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05-03-2001, 05:40 PM

Reply: 2.1.2.1.1 
From: Frode Egeland

Hi,

It's great to hear good advice from someone who is out there and doing it! :)
I'm curious: Are your properties positively or negatively geared?

Cheers,
Frode

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06-03-2001, 06:12 PM

Reply: 2.1.2.1.2 
From: Vesta V

i totally with what your saying here, but let me ask you this, would you be better off selling your IPs to reduce your current mortgage? Would this mean you could borrow more?

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07-03-2001, 02:52 AM

Reply: 2.1.2.1.3 
From: Robert Forward

Hi Marina

I believe in buying and selling (trading) properties. I will purchase extremely well, like the one I signed off for today was purchased at $84k and will sell for $120k tomorrow. I will ride the capital growth spurt and jump out at the top with the gains and then buy back into another property or5 that are at the bottom of the market.

I'm not afraid of the dreaded capital gains tax issue. Mainly cause CGT can be deferrable in the right situation (Talk to your accountant about this) and I can use the whole amount of gain to get into another 3 or so properties.

Actually I purchased this property with 100% finance and had the loan approved in 15 minutes. Not to shabby a service I think....

So, I know when I am going to sell this property and take the gains. The area is currently taking a large cap gain spurt and when it is near the top I will off-load. It's a matter of studying your area and knowing where it sits in the property cycle.

Cheers
Robert

Marina

07-03-2001, 07:19 AM

Reply: 2.1.2.1.1.1 
From: Marina. L

Hi Frode,

To answer your question the first 2 properties are not quite cash flow positive yet.The rent covers all the interest but I pay all the outgoings. However once you take into account the tax refund (I have huge depreciation allowances on these 2) you could say it is then cash flow positive. In my situation I compromised the immediate positive cashflow for larger capital growth.

The combined capital growth of the 2 above have enabled me to purchase my 3rd IP property which will be our DREAM HOME in 2 years time.(Too long a strategy to explain) Again Huge capital growth but not quite positive at the moment.

Having said all this each situation is different. You need to do what is right for you and what you feel comfortable with.

Marina

07-03-2001, 07:47 AM

Reply: 2.1.2.1.2.1 
From: Marina. L

Hi there Vesta,

You write "Would you be better off to sell your IPs to pay your current mortgage"

Which current mortgage are you talking about?. I have no personal morgage but if someone did have one that is something that would need consideration. Every situation is different and I base all my decisions on strategies and goals and figure analysis.

If you are talking about the IP mortgage then I would not sell as IP debt is debt that effectively need not be paid off.

Each individual has a different set of circumstances and what might suit one individuals plan might not necessarily suit another individuals plan. There is no right or wrong answer. YOu need to do what is right for you.

Seeya

Marina.

Marina

07-03-2001, 08:03 AM

Reply: 2.1.2.1.3.1 
From: Marina. L

Hi Robert,

I applaud you in your strategy of trading properties. As I am still fairly new to all this, trading properties was not even on my list? Firstly because I have never really read about it and secondly every one mentions LONG TERM.

But having thought about this very carefully I have come to the conclusion that as long as you have some good quality property for the long term there is absolutely nothing wrong with trading a couple of properties every year for some FUN AND PLAY MONEY.

Gee if i can trade 3 properties a year and make 20K on each that equates to 60K. Hey I can quit work and still have 30K to play with.

Brilliant idea. Gotta go, I have some serious hunting to do.

Seeya

Marina.

Owen

07-03-2001, 08:30 AM

Reply: 2.1.2.1.3.2 
From: Owen .

Robert, you are saying that you buy well and then wait for the capital gain growth and sell at the top of the cycle. What kind of time frame are you talking about here? Are you actually settling on these properties and paying stamp duties and putting a short term tenant in them? I understood flipping properties was a deal done in the very short term, like during the settlement period. If you are flipping during settlement are you just assigning contracts for a fee?

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07-03-2001, 01:22 PM

Reply: 2.1.2.1.3.2.1 
From: Robert Forward

Hi Owen

The length of time really depends on the cycle and where it is for the area that you purchase. The one I am talking about would sell tomorrow for $120k. But should be worth another 10-15% on top of that in 12 months (my opinion that is). WRT the tenant, well this one has a permanent tenant but I'm not worried about moving a tenant out if I'm selling.

I am still flipping properties, but I never put my name onto the contract if I am doing this. If I was flipping to you then you would sign the contract for purchase as well as a contract between you and me for the flip.

Cheers
Robert

The above is just my ramblings....

Owen

07-03-2001, 03:06 PM

Reply: 2.1.2.1.3.2.1.1 
From: Owen .

So it really is a matter of finding your buyer before finding the property. You saying that you "would sell it for $120K tomorrow" indicates to me that you don't have one. If not, how do you have control of the property? Surely someone else can just come and buy it if no names are on the contract.

What if you did it the other way, found the property first and then on-sold it before settlement? If you did this and your name (or your companies name) was on the contract, then wouldn't it just be a matter of a name change before settlement. Would this make you eligible for stamp duties if you did this? I assume you would still have you 2nd contract for the increase in purchase price and the benefit to the new buyer is lower stamp duty for them.

Just digging a bit more...

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07-03-2001, 04:50 PM

Reply: 2.1.2.1.3.2.1.1.1 
From: Robert Forward

Hi Owen

G'day Owen, the $84k place is a real property and a real deal. My previous post was in 2 parts to answer your earlier questions.

What I am doing with the property for $84k is buying it myself for the cap gains then will sell within 3-15 months down the track because it will hit the top of the property cycle by then. But as it stands right now, I can sell it the day after settlement for $120k. And at it's current purchase price it is a positively geared property returning 12%, without any depreciation or expenses included.

What I do with flipping is that you'd sign the contract of purchase, thus no-one can come in and gazump you on the price. And if I put my name on the contract then I Onsold before settlement I can/will STILL be liable for stamp duty PLUS if you the person that I am onselling to decides to pull out then I am left holding the bag and having to go ahead with the purchase myself... And that is far to high of a risk, thus I don't work that way.

Flipping properties is completely different to Onselling properties. To FLIP is to provide you with a good purchase price and a positively geared property. To ONSELL is to sell the property on at market value. Yes Onselling can give you higher returns, but they match the higher risk and it is far more time consuming to Onsell rather then flip. Another way to put it, Flips are for investors, Onsells are for owner occupiers.

The thing with flipping Owen is that the price I negotiate a property to is the price that YOU (the FLIPPEE) purchase the property at. This property I am purchasing was going to be flipped, until the flippee pulled out. I am then due, upon settlement, my fee for negotiating the property to that price. At no stage do I up the price of the property that I negotiated for you to purchase, basically I can't up the price because I don't own the property.

All I do is find properties and negotiate to an extremely good price. You do your due diligence on the property and purchase it.

I don't always look for the buyer first, though I have a number of people that I can pass good deals to quickly. I am always looking both properties and people to deal with for flips.

I hope the above clears the mud a wee bit.

Cheers
Robert

Owen

08-03-2001, 09:35 AM

Reply: 2.1.2.1.3.2.1.1.1.1 
From: Owen .

On 3/7/01 4:50:00 PM, Robert Forward wrote:
>Hi Owen
>
>What I do with flipping is
>that you'd sign the contract
>of purchase, thus no-one can
>come in and gazump you on the
>price. And if I put my name on
>the contract then I Onsold
>before settlement I can/will
>STILL be liable for stamp duty
>PLUS if you the person that I
>am onselling to decides to
>pull out then I am left
>holding the bag and having to
>go ahead with the purchase
>myself... And that is far to
>high of a risk, thus I don't
>work that way.

OK got it. This was the risk I had always thought about with flipping - getting stuck with the property with no exit.

>Flipping properties is
>completely different to
>Onselling properties. To FLIP
>is to provide you with a good
>purchase price and a
>positively geared property. To
>ONSELL is to sell the property
>on at market value.

OK no problem with the terminology or the principles here.

>The thing with flipping Owen
>is that the price I negotiate
>a property to is the price
>that YOU (the FLIPPEE)
>purchase the property at.

How do you know 1) that I want that property 2) that it's a price I will pay. I'm assuming you already have a relationship with me and are working on my behalf? Me being an investor I guess you know what I want ie I'm a developer or a renovator or a landlord etc.

>This property I am purchasing was
>going to be flipped, until the
>flippee pulled out.

This is your $84K property we are talking about? Definitely the risk, but not really a problem if your not on the contract. If not then why are you purchasing? Just a good deal?

>I am then due, upon settlement, my fee
>for negotiating the property
>to that price.

...prearranged with the Flippee?

>At no stage do
>I up the price of the property
>that I negotiated for you to
>purchase, basically I can't up
>the price because I don't own
>the property.

OK.

>All I do is find properties
>and negotiate to an extremely
>good price. You do your due
>diligence on the property and
>purchase it.

So you find the property based on what I want, negotiate the price and then I do title searches, comps, etc and decide if it a good enough deal for me to buy at that price.

>I don't always look for the
>buyer first, though I have a
>number of people that I can
>pass good deals to quickly. I
>am always looking both
>properties and people to deal
>with for flips.

This is the stumbling block for me. If you have a property, negotiated a price and have no-one to flip it to, what's keeping that price in place while you find someone? What's stopping you getting gazzumped? You are relying on your list of flippees being ready to buy from you.

>I hope the above clears the
>mud a wee bit.

Yes thank Robert. I had a "chat" with TW last night and was to write to you both for a better explanation. Got a bit sidetracked and you beat me to it. I think I may have answered a few of my own questions here but keep it coming if you have the time.

Owen

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08-03-2001, 12:55 PM

Reply: 2.1.2.1.3.2.1.1.1.1.1 
From: Robert Forward

G'day Mate

There are bit of your last posting and my last posting in here.

>>The thing with flipping Owen
>>is that the price I negotiate
>>a property to is the price
>>that YOU (the FLIPPEE)
>>purchase the property at.
>
>How do you know 1) that I want that property

Because you want a positively geared property and you don't have any investor snobbery. That I will find out by talking to you about what you want etc...

2) that it's a price I will
>pay. I'm assuming you already have a
>relationship with me and are working on
>my behalf?

It will be that price because you sign the contract of purchase (not me) and you pay the price on that contract. Also we will talk about how much finance you have and will work within that.

>Me being an investor I guess
>you know what I want ie I'm a developer
>or a renovator or a landlord etc.

Yes by talking to you and finding out what you want.

>>This property I am purchasing was
>>going to be flipped, until the
>>flippee pulled out.
>
>This is your $84K property we are
>talking about? Definitely the risk, but
>not really a problem if your not on the
>contract. If not then why are you
>purchasing? Just a good deal?

I am purchasing because my flippee pulled out at the very last minute and it was too good a buy to let it go to waste. So I picked it up myself. Simple really.

>>I am then due, upon settlement, my fee
>>for negotiating the property
>>to that price.
>
>...prearranged with the Flippee?

Yep

>>All I do is find properties
>>and negotiate to an extremely
>>good price. You do your due
>>diligence on the property and
>>purchase it.
>
>So you find the property based on what I
>want, negotiate the price and then I do
>title searches, comps, etc and decide if
>it a good enough deal for me to buy at
>that price.

That is correct.

>>I don't always look for the
>>buyer first, though I have a
>>number of people that I can
>>pass good deals to quickly. I
>>am always looking both
>>properties and people to deal
>>with for flips.
>
>This is the stumbling block for me. If
>you have a property, negotiated a price
>and have no-one to flip it to, what's
>keeping that price in place while you
>find someone?

Nothing, that is why I ended up buying the $84k deal. It had a time limit on it set by the vendor. And why I always need you to be financed up ready to go. So 1) it is a csh settlement 2) it is a quick settlement. Both of which will lead to better negotiations.

>What's stopping you getting gazzumped? You >are relying on your list of flippees being >ready to buy from you.

Yes.

I hope the above clears the, now, dirty water a wee bit.

Cheers
Robert

See this is fun hey...

Owen

08-03-2001, 03:28 PM

Reply: 2.1.2.1.3.2.1.1.1.1.1.1 
From: Owen .

This is good stuff Robert. I'm learning a lot of the real life stuff here and not just principles. Thanks.

I hope you don't mind me asking a few more questions (always with the questions) like how you started things off. Did you place an "I have properties for sale" ad in the paper? Did you negotiate your first few properties first and then try to flip them quickly? Then build on those contacts. It must take a while to make those contacts. Do you have many flippees who will buy multiple properties from you?

I'm guessing that once you get your flippee contact database that you would contact them periodically either with properties you may have found or asking then if they are interested in you finding them one. Otherwise you could negotiating with vendors and having no buyer in place. If so then flipping is quite dependent on increasing your database and finding buyers who will continue to buy from you. "Working on your business and not in it" and all that.

Am I getting the idea now?

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09-03-2001, 11:16 PM

Reply: 2.1.2.1.3.2.1.1.1.1.1.1.1 
From: Robert Forward

>I hope you don't mind me
>asking a few more questions
>(always with the questions)
>like how you started things
>off.

It's alright Owen. Ask as many questions as you want cause it also helps others too.

>Did you place an "I have
>properties for sale" ad in the
>paper?

No, and never will.

>Did you negotiate your
>first few properties first and
>then try to flip them quickly?

Yes.

>Then build on those contacts.
>It must take a while to make
>those contacts. Do you have
>many flippees who will buy
>multiple properties from you?

Yes.

>I'm guessing that once you get
>your flippee contact database
>that you would contact them
>periodically either with
>properties you may have found
>or asking then if they are
>interested in you finding them
>one. Otherwise you could
>negotiating with vendors and
>having no buyer in place. If
>so then flipping is quite
>dependent on increasing your
>database and finding buyers
>who will continue to buy from
>you. "Working on your business
>and not in it" and all that.

Your getting the idea now

>Am I getting the idea now?

Yeha...

Cheers
Robert

Owen

12-03-2001, 09:03 AM

Reply: 2.1.2.1.3.2.1.1.1.1.1.1.1.1 
From: Owen .

Did you end up buying many of those first few properties because you couldn't find a flippee? Or did you just let them go? It must be hard for find flippees without a property or a track record first.

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19-03-2001, 09:27 AM

Reply: 2.1.2.1.3.2.1.1.1.1.1.1.1.1.1 
From: Michael Croft

Hey Robert,

Great posts and good on ya! In the old forum I asked you what was the dif between you and a Buyers Agent. I must be thick and can't pick much dif. I'd be quite happy to use your services BTW as I know 2/5 of stuff all about the Brissy market. So its a loaded Q. I will be in Brisbane this W/E doing some research and Geoff 1's seminar.

Anyway I plan to go to Gee Cee's lunch in Sydney so perhaps we could catch up then?? Or we can email and go through criteria $$ etc. But if you get caught with a good buy again I'm usually in a position to move quickly.

regards, Michael

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27-03-2001, 01:25 AM

Reply: 2.1.2.1.3.2.1.1.1.1.1.1.1.1.1.1 
From: Robert Forward

G'day Michael

Sorry for the delay in replying. I have just returned from a couple of weeks in North QLD getting brown, drunk, and relaxing by the Whitsunday Islands.

I definitely will be at the drinks session with Gee Cee, (though I do remember that Gee Cee said that the next one he organized was gonna be at his place... mmmm..... [hehe])

The difference between what I do and a "Buyers Agent" is that I negotiate properties on bulk but can only take on board a number of properties at a time myself. So I flip the remainder of the properties to others so they get good deals and I get something for my trouble with negotiating.

So, flipping has 2 helping factors for me, I get to negotiate very good prices on all the properties because I'm dealing on bulk. I get to purchase what I want and the ones I can't afford I will organize someone to buy them and receive an amount that will help me buy more properties quicker.

A buyers agent wont negotiate a property like I do because they will then receive less of a commission (so less PAYE cash to live on), so why would they cut off their own nose to spite their face??

Please feel free to email me Michael at robert_forward@optusnet.com.au

Cheers
Robert

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25-07-2001, 11:03 PM

Reply: 2.1.2.1.3.2.1.1.1.2 
From: Sam Coster

Hi
Have just read your explanation with interest.
I take a Put and Call Option off the plan
ready in 7mnths for
6 units.Ave price $350K each, negotiate 5%
discount$332K, expected Sale price. in 7mnths $378K.
Total offer price $1.992K
Sell 5 units $$1,890K
Last Unit costs us $102K
Which we pay Stamp Duty on and hold, and
raise loan on equity of say $250K.
Please comment if you see a problem, have
disscused with Sol/Acct and seems to be OK.

Samc
Enjoy the journey, its half the fun.