Increasing Portfolio

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From: Mike .


HELP - ATTENTION ANDREW G & LES
From: Debbie
Date: 4/5/00
Time: 5:09:46 PM

I am trying to raise money for an IP with as little (or none) down as possible and would like to make it as rent reliant as possible. The lenders I have spoken to so far will only function on P&I numbers, not IO, so will only lend me about half of what I need. Can you advise lenders I should be speaking to? Your (or anybody's) help would be greatly appreciated.

I'm getting desperate, the auction is next Wednesday evening. Please feel free to call me on 0411 029 209 - any time between 7am and 11pm

thanks in anticipation, Debbie

 

[WebBoard]

Marshall

Reply: 1
From: Mike .


Re: HELP - ATTENTION ANDREW G & LES
From: Marshall
Date: 4/6/00
Time: 10:46:54 PM

Hi Debbie

Having just purchased my first investment property (yet to settle), my experience in this area has been quite limited. However in answer to your question I spoke with a number of lenders (banks, credit unions and the RAMs of this world) and no one came close to ANZ - many promised the world but they just didn't deliver in terms of customer service and costs.

The specifics - 94% borrowed on a fixed rate @ 7.99% for 3 years - FYI the entry fee of $600 is halved if business transacted over the internet and other discounts available if you are a shareholder or have an ANZ account. There will always be better rates out there, but the willingness to help was what brought me over the line - particularly with time in short supply as I am sure you can relate to.

FYI - my loan consultant was Angela Baker from the Melbourne office - you can email her at [email protected]

Thanks & good luck.

 

[WebBoard]

Andrew G

Reply: 1.1
From: Mike .


Re: HELP - ATTENTION ANDREW G & LES
From: Andrew G
Date: 4/6/00
Time: 11:13:22 PM

What is so great about this property?

I find that if it is a good deal the money will always be there. If you are off by 50% then it does not sound too good to me.

Tell me, what is the asking price (yes I know it is an auction)? What will it sell for? How much will it value at? What is the rental yield? What is your motivation for the purchase? What is their motivation for the sale? How does the auction of this property act in your favour?

If you want to stick with the retail lenders you are very short of time. Private money lenders will give you the money much quicker but at a higher rate (1-1.5% more). Are you happy with this avenue?

PLEASE DON'T DO ANYTHING STUPID. As Jan says the deal of a life time comes up about every month. Don't bust yourself over this one. If you are buying for emotional reasons I can't help you, you will be in the game for the wrong reasons. Answer the above questions as just a starter.

Personally I go to auctions to see it pass in. Then strike a deal. I'm not into competing for a property, why pay $10K or even 1K more just because some other guy half wants it? I want to buy equity so I'm looking for motivated vendors. You don't tend to find them at auctions.

Andrew.

 

[WebBoard]

Debbie

Reply: 1.1.1
From: Mike .


Re: HELP - ATTENTION ANDREW G & LES
From: Debbie
Date: 4/10/00
Time: 12:28:37 PM

Hi Andrew, thanks so much for responding. I wasn't able to get back again on Friday or over the weekend - better late than never.

The property is a block of 6 x 1bed + sunroom/study units on Torrens title. It is owned by 7 individuals over 4 certificates. They are all related and I think are the original owners (some by inheritance). They are very spread out geographically and I am led to believe that it's just "too hard" for them to strata themselves. But I don't know why they have decided to sell especially with the income it is producing. They have just done some repairs (new gutters, lintels to windows etc) but otherwise, by all reports, it's a very sound building.

So, the appeal for me is of course to strata them. The agents are saying it will go for between 1mil & 1.5mil. I know the area pretty well, I work one block away and have been watching the market here for the past 12 months, and at 1.2mil it's FANTASTIC value. At 1.5mil, you would have to cut costs and be sure of getting at least 2mil at the end. The building is approx 50 years old and needs some standard fire rating work done and some cosmetic work but all could be done for about 350k AT THE ABSOLUTE MAXIMUM, possibly $250k. If I add about 50k for stamp duty and legals etc, that still leaves a minimum $200k profit ie, minimum 50% return - in six months.

The rental income is currently $83,700 per annum which would more than cover the interest repayments on 1mil @ 8%. I could upgrade the internals of one unit at a time, covering the rent myself (included in the costings above) then empty the building and renovate the common areas and the exterior - a quicker job and no chance of being sued for injuries. Or, I could empty the building from the beginning and do all the work at once, probably a slightly cheaper way to go and they could be sold a lot sooner.

I expect to see at least 5 other serious bidders at the auction but have decided on a limit 1.2500mil for myself. The best thing that could happen is that the other bidders don't turn up, don't bid or maybe it will be passed in - but I don't really think any of those things will happen. I have been at every opening over the past weeks and there is a lot of serious interest. The department of housing is playing too.

I have a partner doing this with me now (as of Thursday), between us we have enough cash for the deposit and expenses, and enough income to satisfy almost any bank, but of course I want the best deal.

Well, what do you think? Does it sound like something you would look at?

keen to hear your thoughts, Debbie

 

[WebBoard]

Andrew G

Reply: 1.1.1.1
From: Mike .


Re: HELP - ATTENTION ANDREW G & LES
From: Andrew G
Date: 4/10/00
Time: 11:04:08 PM

It sounds like you plan to sell them quite quickly. This is a good thing, at 8% rental yield it is a little slim on cash flow. It sounds as if all the profit is in a quick sale.

The current title sounds a complete disaster. Except for the high interest levels, the auction is rather handy in this situation. Can you imagine trying to negotiate with 7 people all over the country.

Could you strata title them and sell with out the fix-up work and still make some good money? I personally hate renovations as they all so often suck up cash and that really upsets me. I would want to see a minimum of $2 back for every $1 spent on the place, including the interest paid.

The exit strategy will determine what you do. (I must admit I have very little experience with 1 bedders, I prefer properties with a broader appeal for resale.) What are other 1 bedders selling for in the area? Is $330K per unit realistic for a quick sale (you don't want them on the market for very long the interest will kill you)?

I like in and out very quickly with little stress (and for me renovations and trades people = stress). Do you know who is going to do the work for you? Next time get them to give you a quote for the work before the auction (I love to know everything before hand, surprises are for birthdays not investors). Can you work some form of bonus schedule with them for early completion? Remember every day will cost you $230, so motivate them to finish early (eg. $500 cash for a week early $1500 cash for two weeks early. Nothing like cash to get them moving quickly). Also work in a penalty clause as well for late completion.

What do I think? Sounds like you will make some money (always a good thing). Next time you should know everything in advance. All costs MUST be known in advance. A $100K range for costs is huge and with this attitude you will leave heaps of money on the table (never a good thing). Don't get sloppy (I really hate details, it just isn't my style but sadly you have to get into them or have a partner you really trust to be into them for you. If you can suck an extra $50K out of this thing you will dramatically increase your return.) Never say "well it is only $10K" How long do you need to work for that money? Would you take that time out of you next vacation to work for free? No, so don't think this money is any different.

I don't like the $1-1.5 mil idea one little bit. The agent can sit there with a straight face and claim a possible 50% price range what a giggle. For me there is too much interest in the place if they are all serious. Keep cool, even if you don't buy you will make money. You will be so ready for the next one you will really kick a goal. One very important rule in the whole game is "if you don't know who the fool in the market is, it's usually you." This one will save you thousands.

Keep us posted. Andrew.

 

[WebBoard]

Andrew G

Reply: 1.1.1.1.1
From: Mike .


How did it go?
From: Andrew G
Date: 4/12/00
Time: 11:48:29 PM

How was the auction? Tell all.

Andrew.

[email protected]

 

[WebBoard]

Debbie

Reply: 1.1.1.1.1.1
From: Mike .


Re: How did it go?
From: Debbie
Date: 4/14/00
Time: 2:03:28 PM

We didn't get it. We didn't even say a word. There were two other keen bidders bouncing back and forth but it was passed in at 1,350,000. The reserve, as it turns out, was 1,500,000. We weren't prepared to go any higher that 1,250,000. We didn't feel there was enough margin in it to go any higher than that. The agent tells me this morning that they have a couple of people prepared to go up to 1.4 but hadn't heard back from all the vendors yet.

But, wow, what a great learning curve. As you said, I now ready for the next one and will start looking next week. Thanks for all your advice.

With regard to the finance. We ended up getting approval for 975,000 IO @ 6.70%. The repayments would have been 5,450 per month, with the rental income at 7,300. That was pretty good.

Any way will let you know about our next venture when it happens.

Debbie

 

[WebBoard]

Andrew G

Reply: 1.1.1.1.1.1.1
From: Mike .


Re: How did it go?
From: Well Done
Date: 4/15/00
Time: 1:12:48 AM

Good on you

The cash flow as looking good but not at 1.4 let alone 1.5. You just have to accept that is wasn't a good investment and move on to the next one.

May I suggest you get down on paper what you are looking for in the next deal and use it as a guide. I would then fax it to every agent you can find and see what comes of it. Say you are looking to buy (buy is a great word it suggests action not tyre kicking) 2-3 properties in X price range with X% yield in the next 12 months. Even if they don't have something, an agent worth his salt will call you and show you anything close to what you are after. A smart multi list agent should help here especially one of the old classy looking blokes who knows everyone and has been selling for ages. Send the fax on a Wednesday or Thursday (many of the young agents have Thursday off and you don't want them to pluck it out of the fax). I bet you get calls.

This little trick will save you heaps of leg work. They are now working for you for free.

Thanks for letting us all know how you went. Also thanks for sharing the numbers so others can see that it isn't such a huge deal to buy blocks of units. You have just given us all a little more experience...and all for free.

Andrew.

PS To get agents really excited tell them you have just inherited some money and you need to invest it soon so you don't spend it and all you friends tell you that property is the way to go. The agent will think you are a complete goose (which you aren't you are a super investor) and be begging to show you stuff. You won't have to open the newspaper ever again.