Getting Started

[WebBoard]

From: Mike .


First Investment -Please Help
From: Sharon
Date: 25 Feb 2001
Time: 16:21:07

Hi Everyone,

I am looking for advice on whether or not this would be a good purchase. I am in the process of reading books and attending seminars so my knowledge is limited. I have found a property in Brunswick-2 bedroom refurbished apartment in a block of 8. The current rental is $200 per week. The asking price is $160k plus stamp duty and legals.

I would put no money down but use the equity in my house. Could any one advise me if this would be a good stepping stone for a single income person. Would this be negative or positive cash flow. Please also take into account body corp $600, landlord insurance $200, rates $500, commission $400.

Any advice would be appreciated.

 

[WebBoard]

Debbie

Reply: 1
From: Mike .


Re: First Investment -Please Help
From: Debbie
Date: 26 Feb 2001
Time: 07:00:01

My general rule of thumb is that if the asking price is $160K, I would expect to rent it out at $320 PW as well as try to get the asking price reduced considerably.

I don't believe in negative gearing, however I don't know what your situation is and what you are looking for.

If it was me, I wouldn't do it.

Cheers, Debbie

 

[WebBoard]

Rolf

Reply: 1.1
From: Mike .


Re: First Investment -Please Help
From: Rolf
Date: 25 Feb 2001
Time: 20:26:20

Hi Sharon

I have no real expertise on good, bad or indifferent property investments.

My speciality is in the financing side.

If you do not have a great banker or independent mortgage broker, get yourself one. He/She will allow you to concentrate on the purchase aspect rather than fiddling with the right finance deals and structures.

What's more these people will usually work for free for you.

I also agree with some of the posts below. Doing something, anything that is half way sensible is better than no action.

Do not just rely on numbers, trust your gut feel too !


Regards, Rolf

[email protected]

 

[WebBoard]

Jeremy

Reply: 1.1.1
From: Mike .


Re: First Investment -Please Help
From: Jeremy
Date: 25 Feb 2001
Time: 17:34:02

It's not a question of which property its just buy property. Do it! PS A piece of advice I was given some years ago. I have yet to be proved wrong!

 

[WebBoard]

Debra

Reply: 1.1.1.1
From: Mike .


Re: First Investment -Please Help
From: Debra
Date: 25 Feb 2001
Time: 17:25:25

Dear Sharon,

This investment would definitely be negatively geared. Just doing some quick sums:

Assuming the stamp duty, mortgage insurance and other establishment fees total around $8000.00 then you would be borrowing $168000.00. If you are taking out an interest only loan at 7.5% then your yearly repayments will be $14904.00. Your yearly rental will be $10400.00. So to calculate the yearly results we would do the following sums.

Rental $10400.00 deduct: Interest $14904.00 Body Corp $ 600.00 Land.Ins $ 200.00 Build.Ins $ 200.00 Rates $ 500.00 Letting Fee $ 400.00 Agents Comm.$ 825.00

This gives a loss of $7229.00 not allowing for any maintenance.

To this loss you would add depreciation on Fixtures and Fittings. If they are all new this may come to around $2000.00 giving an overall paper loss of $9229.00 which will be deducted from your wage. If you are in the 30% tax bracket you would get a refund of around $2770.00 making your actual out of pocket expenses for the year $4459.00 or $85.00 per week. Provided you are comfortable with this amount of outlay and you feel that the unit will give very good capital growth, then it could be a good investment.

I personally prefer to buy investments which are a bit closer to neutrally geared, if not positive from day one.

A friend of mine recently purchased a three bedroom house in Boronia that cost $142000.00 and rents out for $270.00 per week giving a gross rate of return of 9.8%. The investment you are looking at only gives 6.5%. (yearly rent divided by the purchase price gives rate of return). 6.5% return is okay if you are building a brand new property and can get the full benefit of depreciation on Building and Fixtures & Fittings, but for buying an established property I feel that a return of at least 8% is far better.

I'm not saying that this investment is a bad one, but perhaps you may be able to negotiate a slightly better price if you site to the selling agent that you are looking for a higher rate of return.

Hope this helps.

Regards Debra

 

[WebBoard]

JohnE

Reply: 1.1.1.1.1
From: Mike .


Re: First Investment -Please Help
From: JohnE
Date: 26 Feb 2001
Time: 12:22:07

Agree with your assessment of what is a reasonable expectation in terms of earning capacity. Properties have to earn their way otherwise the investor is merely making a contribution to welfare housing. Earnings must be realistic because the risks in residential investment are increasing, not decreasing.