Advice Needed on First Time Property Investment



From: Anonymous

We were recently advised to read two of Jan Somers' books which we have done - Building Wealth - through investment property, and - in changing times. Excellent reading, but as the books were written and published in 1992 and 1994 respectively, we are wondering if, inspite of the advice they contain that NOW is always the best time to invest, is pertinent in today's climate and would value constructive advice from this forum. We have seen three properties that interest us but have been advised by our Financial Adviser, Accountant and two others who have made vasts sums of money in property investment to hold fire on real estate investing for the time being. Firstly, our intention is to operate on an interest only bank loan. The income derived through rent will need to cover the bank repayments, local taxes and water. There will be no body corporate fees. We have equity in our home.

Secondly, the properties in question are within 8-10 minutes to a university AND college which attract overseas students. The 3 properties are brand new, each with 3 bedrooms, 1 bathroom/2toilets, lounge/dining, kitchen, laundry, security and 2-car parking facilities for each property. The grounds are maintenance-free. The internals have not been painted nor are there any floor coverings or window treatments but the agent is offering $4,000 each to cover these. The asking price for 3 properties is $505,500. In purchasing all 3 properties, we have been offered a 'discount' - a vague figure of $20,500 has been placed on this discount thus making the total investment $485,000 to purchase but the agent will not confirm this until we go to paper. The going rate for rent in the area would be in the vicinity of $225 per week/per property x 3.

The university attracts 30,000 students per annum and the college a few hundred, with a large overseas intake. The university also has its own housing but supply isn't able to keep up with demand. The college has no housing. There is also a large number of other housing coming up in the area to cater for student demand.

What would our benefits be to own these 3 properties? With a downturn all round in the property industry, I believe the current annual growth rate of the area/suburb is about 4%. The only plus, I guess, would be down the track in capital gains with, hopefully, more than a 4% growth rate.

Should we go for this? What would our benefits be with regards to tax? (I am told by the agent that we would receive a 2 1/2% building depreciation for the next 40 years. True???) The agent has also advised that we can use this investment to form a superannuation. If so, how can we do this and would be still benefit by paying only 15% tax? Should the property be on joint names or my husband's (he is the higher income earner)? Anything else that we should consider and be aware of?

We appear to be facing a divided camp where points of view are concerned. We also have investments in the share market.

In advance, very many thanks for any advice and information we can get.

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Reply: 1
From: Rolf Latham

Hi Cricket

My first question would be why you believe that the area will only produce 4 %.

Why not 10 % or 2 %.

Is your financial adviser a fee for service, or commission based planner ?


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Reply: 2
From: Michael G


One thing you may need to consider is the seasonal nature of the possible tenants. Will you places be vacant over school breaks?

I wonder if you can claim holiday type depreciation for the wear and tear caused by the type of tenants you may attract? (4% instead of 2.5%).

Has anyone else here done such a thing?

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Reply: 3
From: Michael Yardney

The advice in Jan's books, with a few exceptions, is just as relevant today as when they were written.
What concerns me is the fact that after reading her books and looking at a few properties, you feel you are in the position to make an investment decision. Please don't get me wrong, I think your enthusiasm is commendable and it is much better that you are going to take action than the many would be investors who do lots of reading but don't take action.
I feel you should look at at least 50, if not 100 properties in your chosen geographic area for you to become an expert in it, for you to develop a "comfort zone" in that area. Only then will you know the real values and will you know when you come across a bargain.
You are right. There are good and bad times to invest but even in bad times, some properties are worth investing in because they are a true bargain, but you won't recognise one until you have done your homework... your grounding.
Have a great week... make it a great week!
Michael Yardney Metropole Properties
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Reply: 3.1
From: Gee Cee Cee

Very well said Mr Yardney.

I have a block of units near a university.

Problem can be that all the students move in During February and go back packing or home in November. This is in multiples all across town. Therefore you cannot count on 52 weeks a yr income.
I still have the block but instead have a more stable clientel paying the same rent p.w.

Gee Cee
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Reply: 3.2
From: Gee Cee Cee

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