Can someone shine a light?

[daniellee]

Right. Here is the context of our situation.

PPOR (Nov 2007 – purchased in own names in PI loan)
Cost - $331K
Value - $386K
Mortgage - $318K
Estimated rental - $360 a week
LVR against current value - 82%

IP 1 (May 2009 – purchased in a family trust in IO loan)
Cost - $375K
Value - $480K
Mortgage - $337.5k
Current rent - $335 a week
LVR against current value - 70%

Current family income = 90K (with 1 dependent under 2 yrs old)

Savings: $20K and growing slowly at $1K a month. We have access to some family money if needed.

IP 1 is negatively geared quite a fair bit. We are doing another quick update on the IP in a few weeks and will increase the rent by another $15 a week. It will still be negatively geared though.

I initially thought of a buy-reno-sell approach to make some cash and pay down debt, but understand that in the current sideways market, it would be challenging to pull off. I did some rough figures to proof my point.

Purchase price 200000
Stamp duty (6%) 12000
Reno cost (10%) 20000
Agent Selling fee (3%) 6000
Gross profit on cost (10%) 20000
Sales price 258000

So what are our options?

1 - Is a buy-reno-sell approach still realistic in the current market? We thought IP 1 at about 10% below retail (most other units were selling for $400K – $410K) after search for 7 months. What are the chances of buying a property 20% below retail? Are my calculations even realistic to begin with?

2 – Continue to save and work hard at my job? I just started on a new job two months back. My wife is increasing her hours from 2.5 days to 3 days. That will make a marginal difference to our savings.

What is the good approach at the moment for a market of slow appreciating prices? I feel like I am stagnating somewhat. My wife calls it life. I refuse to accept it. There must be other options, but I am unable to see them at the moment.

 

[Propertunity]

Buy-reno-sell can be difficult to make money out of in a flat market due to the high transaction costs.

I'd suggest you investigate, buy-reno-subdivide. there's more $s in it and if the market where you are doing it, tanks a bit, there is still money in it.

 

[daniellee]

My other question is that with a PPOR in our own names and one property in a family trust, our ability to purchase through the trust is not available due to the debt in the trust as well as existing PPOR debt in our names.

However, we are able to purchase a low-cost property via our own names. Can we take this apporach and then transferred that property to the trust later on?

1. Will we face the same problem when attempting to transfer a new property to the trust, due to the trust being negatively geared at the moment?
   
2. Are we better off holding the new IP in our own names for a while before selling off when the price is right? We plan to sell our current PPOR in early 2012 to upgrade, and understand there is quite a fair bit of cost involved in buying and selling just to lower current debt.
   
3. Or it is better to do nothing and wait it out for a while?

 

[Perth Investor]

Why so important to buy in a trust? You know it is affecting your cashflow in a negative way doing that, right?

 

[bene313]

Sometimes doing nothing can be a good approach.

Some sage advice from another thread:

The thing with newish investors is they think they have to be doing something all the time. Not true.

Most of the gains are made at certain times. Its ok to just watch, study and do nothing for periods of time.

In fact thats what experienced investors do.

 

[daniellee]

Sometimes doing nothing can be a good approach.
QUOTE]

We have not been doing much...

May 09 - Purchased IP1
Aug 09 - Settlement on IP1
Sep 09 - Comestic reno and rented out
Nov 09 - Our son was born...
Aug 10 - Another comestic reno and rented out
May 11 - Tenancy ends so another comestic reno to rent out

Really... we have not been doing much at all...

Seriously though, just how long of doing nothing have others done? I know my aunt who also does PI had a gap of 9 years between properties.

I would like to know other property related options than let the cash sit there slowly accumulating.

 

[investor2009]

That sure is a crappy rent you're receiving on the IP..

You're doing o.k. 2 properties within a couple of years is good.
If theres nothing you can do to possibly increase the rent by $50-$100p/w such as airconditioning, etc then you really only have one option with the property (if it's not subdividable) and that is to wait for capital gains and then repeat the process.

Get rich slowly is a phrase I often hear from my real estate agent friend, I don't particularly 'like' hearing it but it is the truth, sometimes wealth just takes time. You will have many more options in another 5-10 years if you keep at it.

Personally, I buy whenebver I can afford to. I feel I can afford to now, but I just can't find anyone who is willing to lend me oney right now so I have decided to wait until my rents grow and I can move forward once again.

We have however just renovated our PPOR which is something I guess.
http://www.somersoft.com/forums/showthread.php?t=67677

 

[bene313]

I would like to know other property related options than let the cash sit there slowly accumulating.

You've already said you can afford to buy a low cost property. What other options, for yourself, do you perceive there to be?

Here's an idea - put the 20k in a listed property trust.

 

[The Y-man]

Savings: $20K and growing slowly at $1K a month. We have access to some family money if needed.

IP 1 is negatively geared quite a fair bit...
.

From what I see, the losses are being trapped in the trust.

Put the $20k in to the IP loan to ease off the cashflow pressure until you get things sorted.


The Y-man

 

[daniellee]

That sure is a crappy rent you're receiving on the IP..

I think this will explain why...

Sep 09 - Comestic reno and rented out at $320 a week
May 10 - Property was revalued from $375K to $480K.
Aug 10 - Another comestic reno and rented out for $335 a week
Mar 11 - Tenancy ending soon so another comestic reno to rent out. Aiming for $350 a week.

Clearly the rent is still catching up in the area where this IP is.

Y-man: When we bought IP1, it was 100% debt using a 90% loan and another 10% loan. As a result, the negative gearing is a fair bit, and we channel all our available cash into our own PPOR loan.

Our idea is to buy a cheapie IP, reno and hold for a year and then sell, and use those proceed to further update IP1 in 2012. Then also sell off PPOR, pay off some of our debt, and use the reminder for a deposit for a old but bigger PPOR.

Thanks for the advice.

 

[luvvit]

Spend money to make money... thats a good ole saying aint it?

Dont know enough about the propert(ies), but is it feasible to add a granny flat (sanctioned by council I mean) to one or both houses....

It might cost you 20k-50k each, but would really assist the cashflow and also increase the value to boot.... and if done under a dual occ, rather than subdivide... and with the new 10day dev cert approvals, could be making you money by easter.....

I know that for one of my houses, If I added a granny flat, for 20-50k, Id get 190-220pw rent easy.......

Actually, I should get off my bum and look at that..................

 

[daniellee]

Hi Luvvit,

Granny flats cannot be built in Vic and rented out separately. We talked about it during the MIG meeting this week.

After some feedback from fellow investors, we have decided to go with a cheapie property. Let the hunt begin, however long it takes.

 

[Ed Barton]

Hi Luvvit,

Granny flats cannot be built in Vic and rented out separately. We talked about it during the MIG meeting this week.

same with the brisbane city council, doesn't stop lots doing it and the council doesn't seem to care unless there's complaints. it's a risk though.