250K property with 190/week rent

[Ronulas]

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Dear Ronulas,

For my own self education please, I am curious to know how and why you should "feel offended" by my post when we were discussing about the different viewpoints and different investing strategies to learn from one another. Please forgive me for my un-intended offence if any.

Perhaps I ought to be more sensitive as to how I should word my posts in this forum future. Perhaps you are kind enough to let me know why exactly I have gone wrong to cause you to feel offended so as avoid similar recurrences.

Thank you.

regards,
Kenneth KOH

There is no problem Kenneth. I was a little offended because I thought you were mocking my investment choices. I should have realised you were not from Australia and been less sensitive. In fact I should not have been sensitive at all but taken it as it was, a discussion of different stratagies.


Good luck

 

[eMark]

I am 33 with 4 kids. I own 3 houses. I think for my age and financial state I am not doing too bad.

Well done I say, I'm 33, married, with no kids; which will probably change within a year. We are currently refinancing our PPOR, and looking towards our first IP. We better get a move on

My 2 cents worth

eMark

 

[agent 86]

(iv) almost no interstate migration

The SA taxpayer must be trying to change that.
My ears pricked up while cooking a couple of nights ago when an advert came on TV expounding the virtues of living in Adelaide/SA. This is in QLD of all places.
Don't have anything against down South and would like to visit (in Spring/ Autumn only ) but I wonder how cost effective this advertising campaign will be.

A86

 

[Ronulas]

Actually I have found that SA has the most QLD'erish weather I've come across. Being an ex QLD'r myself.

 

[quiggles]

Tropic,

Welcome to the forum.

Could I first suggest that 'feeling like you are gettting left behind' is the wrong reason for investing, even if the facts turn out that it is true? This is because feeling is an emotion and you are planning to invest, which is a money thing. You need figures. There are a number of good programs (including PIA personal, available from this website) which would enable you to play with the numbers.

Depreciation - you will be able to depreciate quite a bit actually. The Jan Somers books (get any of them) set it out more clearly than anyone else I've run across. The information is dated but the principles are correct.

Lastly, I'd like to suggest that the two of you sit down and set out concrete goals. How much, by when etc, set in today's dollars, THEN set out a plan for getting there. You can do a heck of a lot in 10 years on 2 high incomes, so be really positive. Read a lot and search here for answers (you can learn a lot using the search function on this site) and ask questions.

Read the forum with an eye to answering the question "How do I become a good investor?" rather than "Where are the good deals?". There's a fair bit of dispute on that precise topic in here, which is good, and you'll want to go down a route you feel you understand and can live with.

From what you've written, I think you need to be clear about a strategy before leaping in - a bit of caution won't hurt at this point although ultimately you do need to take action. But for me,the steps are set the goals, do the research, recognise the opportunity and then take action - in that order.

 

[Kennethkohsg]

I am a beginner here and has been reading this thread with a lot of interest.
The question I have, what is considered as reasonable CF- investment? If you think GeorgeA property is too CF- then what is not?
I am thinking of getting an IP around 250K and the rent is 190/week.
So the repayment/year @7% is 17,550 and income is 9,880 (gross) + other expenses. The house in brick and tiles around 30 years old so depreciation is almost nil?
Now, is this also too CF-???

By the way the property is in Perth, if that makes any different to the Eastern State decision making.

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Dear Tropic,

Before you invest, I think you will need to consider some of the following basic issues first:

1. What are your own investing objectives?

2. Are you investing for capital growth or for rental yields or both purposes?

3. Which Perth suburb are you looking now and why?

4. What exactly about this property that attract you and why? what are the main key drivers for this property price appreciation?

5. what are the inherent risks involved in this investment?

6. what are the safeguards which you will want to build in to ensure that this property investment will allow you to achieve your intended investing objectives with the minimal risks.


As for the investment education, I will recommend you to read the following books:
a. Jan somers: Creating Wealth through Residential Properties.
b. John FritzGerald : 7 Steps to Wealth
c. Rory O Rourke : Taxed to Death
d. Steve Mcknight : From 0 to 130 Properties in 3.5 Years
e. Margaret Lomas: Positive Cashflow Properties

Once you have finished reading the a/m books, you will find that the term, "positive cashflow" means different things to different people such as Steve Mcknight vis-a-vis Margaret Lomas's definitions and you will be a better position to know how to play the property investing game profitably for yourself. Both Jan Somers and John FritzGerald both advocate investing for capital growth and so do many of the more experienced property investors like Steve Narva etc as compared to investing for yields/Positive Cashflow as advocated by Steve Mcknight. You will also then know how to answer your a/m questions which you as the investor, will actually have to decide for yourself in relation to your intended investing objectives.


I will try to answer some of your queries simply:

a. - CF. Here you will need to understand why some investors actually want or/and does not mind -CF and the concept of negative gearing to maximise one's tax benefits (or rather to legally minimise one's tax liabilities) through property investing. If you read the other thread initated by GeorgeSA, you will know what I mean, when Geroge SA shared about his tax position and implications as a result of his property acquisition.

b. how much -Cf is " reasonable"? - This is dependent on your present tax position and investing objectives. You will need to work out your own figures to dervie the optimal figures and to see if you can afford to comfortably servicing it, and able to continue to hold onto the negatively geared property until you achieved your intended investing objectives.

c. " too much -CF " - when the investor is unable to service the loan interest comfortably and risks being forced-sell his properties/ foreclosed by the banks at a big loss before his investing objectives are achieved.

We will need to know your/your family present income and loan serviciing capacity first before can constructively answer your other questions.

Please note that even a 30 years old house do have some deprecations benefits. You will need to engage a quantity surveyor, to help determine the balance deprecation benefits left remaining and try to maximise it for your own tax benefits purposes before you proceed to have the old house demolished.

I trust I have answered most of your queries in the manner I hope you will find it helpful for your own investment education and impending property investing activities.

Cheers,
Kenneth KOH

 

[Tikor]

I left SA 15 years ago because of a perceived lack of opportunity, and never regretted it (although I enjoy visiting Adelaide now and again). I had some property there (still have a bit), and my experience since getting the first one in 1980 is that the SA market is less volatile than elsewhere. But the investor pays for that degree of predictability with pretty modest returns. My IPs showed very modest CG for many years (and negative CG for several years in the late 80s), and the rents have been fairly unspectacular. Then from the late 90s/early 00s to now there has been quite strong growth in SA property values. But averaging CG on my SA properties over the last 25 years, it only works out about 5% a year. My properties in Cairns have shown an annual CG of roughly double that even allowing for the horrendous doldrums in the early to mid 90s. The trouble with Adelaide is that there's no real reason for it to exist these days, and I can't foresee any significant population growth. Nice place to retire to.

 

[tropic]

Thanks for your advise.
I have read Jan Somers and Steve Mcknight books. I found that the Perth property yield is lower than most of the example in the books.
I think we would be able to make the repayment on the investment comfortably. Another thing is that I am the one that will make the investment decision since my wife is not really interested in it but happy to leave it to me.

 

[see_change]

You'll find that the yields they quote are generally based on purchases bought earlier on in this cycle.

Geraldton a year - 18 months ago would have given you good yields.

See Change

 

[Kennethkohsg]

Thank you for the replies.
Perth market is still going strong according to people on the street and news etc though no one knows how it will end.

Getting an IP is also will force us to save. Not that we need to be forced, since so far we are pretty good with saving. From my calculation I will have to finance the iP about $10K, which at least 4K I get back from tax. Assuming IR and rent stay the same for the next 10 years it will cost us 60K and the IP will worth 500K. Still a lot better than not buying now.

Am I being to naive here?

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Dear Tropic,

1. In my opinion, the nature of investing game for property and share investing are actually fundamentally quite different with very different key drivers for the price appreciation/movements.

2. As you are physically in Perth and to help you "short-cut" your own investment education self-education process, I will suggest you and your wife to attend weekly Rory O Rourke's free Wealth Creation Seminar in his Scarborough Beach Road's office, namely, the O' Rourke Realty (TEL: 08-9341-6611) to get an quick overivew of the property investing game fundamentals and where he can point to you how and where to invest profitably in the Perth property market. He is also the author of the book, "Taxed to Death".

3. Age is certainly no barrier to effective and profitable property investing. Rory's oldest client only start to invest at the age of 64 .

4. There are also other pertinent issues such as the optimal investment structure to use for your property investing, issues such as asset protection etc, which are actually part of our own investors' self education, which may not be covered by Rory O' Rourke in his seminar but I am personally confident he will be able to point to you, the right person to go and consult see in Perth.

5. I have attended his wealth creation seminars a number of times when I was new in this game in the Perth property market.

6. Pleae note that I have no un-declared interests nor receive any un-disclosed commissions in recommending you to attend his seminar other than the fact that in my mind, that will be the quickest way to help you learn the property investing fundamentals and the Perth property market, short of you doing your own readings on the various books for your self-education first before you decide to invest.

7. Hope you will attend the seminar with an open mind to learn and be properly self-educated first before you invest in your IPs.

8. With no insult intended please, I am actualy quite concerned about you investing into Perth property market without first understanding the fundamentals of the property investing game and its operating market environment (or at least this is the impression which you have given me through your initial posts in this tread and eslewhere in the forum), even though it is your monies that will be affected subsequently, rather than mine.

9. I am only trying to help and be helpful here, with no hidden ulterior motives.

10. For your kind considerations, please.

11. Thank you.

God Bless,
Kenneth KOH
P.S.: Where opportunties arise, you may also want to Jan Somer's Wealth Creation Seminar to further quicken self-education learning purposes, which are sometime held in Perth too.

 

[Kennethkohsg]

Kenneth,

I guess a truthfull answer to your question would be that I have no idea how to go about doing what you describe. I guess that is what they call a "wrap"?

Perhaps if I knew how to do it I would. Perhaps not. The only benifet I can see would be the larger income ie the interest above market value. All the contracts and whatnot sound very daunting for the return.

(QUOTE]
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Dear Romula,

1. "Lease-Option Purchase" is different from WRAPPING . Wrapping is illegal in some States and for ethical reasons, I do not really encourage WRAPPING as a strategy to use. WRAPPING is much criticised by Neil Jenman.

2. You may want to read up about this "Lease-Option" Purchase strategy at Steve McKnight's PropertyInvesting.com website at
http://www.propertyinvesting.com/strategies/lease-options.html.

3. Take your time to read and learn more about it. Be properly self-educated first before you try out the strategy.

4.. For your kind considerations,please.

5. Thank you.

regards,
Kenneth KOH

 

[Kennethkohsg]

Dear Romula,

1. I do not think you need to feel or be "apologetic" about investing in the more affordable areas and properties or about investing in SA at all, despite what some of other forum members have said.

2. What's really important is knowing exactly what actually works for yourself to enable you to truly succeed in creating the kind of wealth tha tyou desired through property investing and meeting your own life goals. To me, this is critical.

3. Where and the kind of properties/areas we choose is are not as important to me, as para 2. If I can learn from others'feedback and apply into my own life situation profitably, well and good. If not, they are not important nor relevant to my own goal achievement and I need not allow myself to be bothered by what the poeple say and thinks (of me);- after all it is I, myself who will know best my own life goals and investing situation.

4. Incidentally, to me, you and your family are already doing very well for your age with 3 IPs ownership and 4 kids. You should congratulate yourself and be proud of your own present achievements. It's highly commendable indeed. Please continue to keep up the good work which you presently doing.

God Bless,
Kenneth KOH

 

[Peter Parker]

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As for the investment education, I will recommend you to read the following books:
a. Jan somers: Creating Wealth through Residential Properties.
b. John FritzGerald : 7 Steps to Wealth
c. Rory O Rourke : Taxed to Death
d. Steve Mcknight : From 0 to 130 Properties in 3.5 Years
e. Margaret Lomas: Positive Cashflow Properties

A good list, but I'd replace Rory O'Rourke with Peter Spann's $10m book as it provides a good explanation of a capital growth + renovate approach.

Neverthless you'd have to admire O'Rourke's habit of publishing the addresses of his projects which made them more real. Also me roughly knowing the suburb helped, but others who live nearby might also benefit by visiting his examples.

S McKnight's first book is useful but his second book ($1m/1 year) is more relevant for today's market, although it advocates anything but a passive approach.

Reno Kings may be worth reading if you don't have the API articles that duplicate the book's content.

Rgds, Peter