Mike
Reply: 2.1.1.1
From: Mike .
Re: strategies for a newbie
From: Mike
Date: 24 Feb 2001
Time: 01:48:47
Comments
Hi Jacques,
You raised a number of issues in your post so, with my limited experience, I'll attempt to address them. If you're not satisfied, don't hesitate to make further enquiries on this forum.
You listed the performance factors required of your IP. They being: high rental yield giving positive cashflow, solid capital gains over the long term, and new or near new for max depreciation.
To be honest, I think you'll find it difficult to obtain all those characteristics in residential property. Why? Because residential property has the lowest total return of all the property classes. Why? Because it is perceived to be the safest property investment. Some banks are willing to lend up to 90% for this reason.
For example, properties with the characteristics you are after would easily be found in commercial or industrial property. However, they are perceived to be riskier bets by the banks who will only lend up to 70% and probably a higher interest rate.
So, here is where you have to assess your risk tolerance. If you want a good positive income stream from commercial or industrial property then be prepared to put more of your own equity into the investment. If you do go this way, you will most certainly need an expert to find the right property for you.
This brings us to the vexed question of locating a suitable property. It's hard enough finding someone to locate suitable residential IP's, who is able to locate suitable commercial property? How do large syndicates and property trusts do it? And do they get it right all the time?
I'm glad that you're putting the buyer's agents to the test. I suspect that, currently, they are stronger in the home market than the investor market if only because the home market is so much bigger. It will take time for good investor oriented buyer's agents to appear. Even in America only a small percentage of agents specialize in the investment field.
They are called investment Realtors or Counsellors. Here is a description of them I found at:
http://nar.realtor.com/about/home.htm
Careers in Real Estate Counseling
Real estate counselors are in the business of giving advice about property. They are the experts others seek when they want answers to real estate questions.
Counselors must know every phase of the real estate business because they use that knowledge in nearly every consultation. Often they will be asked about income opportunities and productive uses of different kinds of properties. There are relatively few brokers specializing in counseling, but the field will grow as investors and owners realize the value of expert advice in developing property and improving income.
While accumulating experience in other real estate specialties, people planning to become real estate counselors also continue to study in continuing education programs in financial management. Contact the Counselors of Real Estate at at 312-329-8427 or
http://www.cre.org/.
As you can see the Counsellors have a web site which provided the following information at:
http://www.cre.org/whatis.htm
About The Counselors of Real Estate (CRE)
WHAT IS REAL ESTATE COUNSELING?
Unlike management, appraisal, or brokerage, real estate counseling is not a discipline but a process. Counselors of Real Estate (CREs) provide this advice on a non-contingent, fee basis.
DEFINITIONS:
Real Estate Counseling
The act of providing advice or guidance to clients which significantly impacts their real estate decisions. Such advice must be rendered solely for the use of the party(ies) receiving the advice and without personal bias and/or conflict of interest. Unlike management, appraisal, or brokerage, counseling is not a discipline but a process.
Real Estate Counselor
A real estate counselor is an advisor who brings a broad range of real estate experience and technical competency to assignments for clients. While objective in analysis, the counselor directs his/her efforts toward the clients' best interest through evaluation of options, advocacy of the client's interest and/or development of appropriate strategies.
Counselor of Real Estate (CRE)
Those designated a "Counselor of Real Estate" (CRE) are recognized by their peers as having consistently demonstrated the highest levels of knowledge, experience, competency, integrity, and judgement in the practice of real estate counseling.
Counselors of Real Estate make it a business of:
Gathering the facts behind the real estate situation. Analyzing the problem or opportunity. Recommending courses of action. Executing the selected course of action chosen by the client. When providing professional advice to clients, CREs focus on the relevant issues and propose the most favorable course of action. By identifying and quantifying the changes occurring in the industry, sound judgments and expert advice can be rendered to the client.
Regular users of counseling services include accountants, attorneys, pension funds, developers, financial institutions, public and private investors, insurance companies and governmental agencies.
Typical questions CREs are called-upon to answer include:
What is the best use of this property? Should I keep the property, rehab it, sell it or rent it out? How should I go about disposing of the property? How should the property be marketed? What kinds of financing are available? How do I deal with toxic substance problems on the property? What can I do to make the property more attractive? Should I rezone now or let the buyer do it? What impact will it have on the community?
Me again: I think it's fair to say that this is the kind of service that would benefit all investors, but particularly newbies. Does this kind of unbiased advisory service exist in Australia? Maybe there is an informal group of experienced property investors out there who will provide this service. Are they Flippers or someone else. The Sydney Cashflow is on this weekend, so I'll try and get a few leads if I can and post anything useful in this regard.
You also had a number of questions regarding Property Management companies/groups/clubs. I purchased my first two IP's from this source because they are investor oriented, they can source suitable new or off-the-plan IP's. Yes, they do have a vested interest in off-loading property on their list but the reputable ones don't offer rental guarantees and will provide a number of independent rent appraisals from local RE agents. So, as far as I'm concerned, as long as the gross rental return is normal for the area, then I'm satisfied. Incidentally, I didn't know about Flippers and Buyer's Agents before I bought those IP's but I'd be willing to give them a go if they can source suitable IP's.
You asked, were their prices negotiable? It is said that everything is negotiable. But you must appreciate that at certain times of the supply/demand equation it will be difficult for a buyer to negotiate on price with a seller. Because I normally buy just before or as the property boom is gathering momentum I don't bother negotiating because it is more important to get the property I want. I don't want the dregs and am not prepared to wait to negotiate on the last property even though I know the developer might be willing to offload it at a discount so that he can move on to the next project. I've seen these groups offer $5,000 or $10,000 rebate on third stage property when the demand is weak.
I hope some of this info is useful.
Regards, Mike