Investing in Thomastown

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From: Adrian Legudi


Hi Guys

Just wanted some opinions;

Looking at getting my first IP and spoke to a company yesterday called Harvard Securities. Really nice guys, very open and upfront and not pushy at all. They showed me plans of a development that is to be built in Thomastown in the West of Melbourne. Thomastown is a suburb that I would never have considered to invest in.

Does anyone have any views on Thomastown? The last couple of API mag shown the growth to be quite good in the area. But on the other hand I went and spoke to a real estate agent in the area and he seemed to wonder why I would be looking in Thomstown for an investment property.

One thing I thought strange was that when they did a report on the figures it included
you paying $20K more for the property and the developer then putting that $20K in an annuity fund and you getting $90 from that every week. They said it helped with capital gains and your tax because the annuity payment was tax free. This extra income did take the investment from costing $45 a week to a profit of $22 a week. Has anyone heard of something like this before?

Thanks
 
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Reply: 1
From: Terry Avery


Never heard of this one before and it raises heaps of questions.

Annuity funds are normally run by insurance companies and receive favourable
tax treatment because people roll over their superannuation into them. It
sounds like the developer may have set up a fund which pays you an annuity
but where does he invest the money to get a return to pay you?
Can you withdraw the $20,000 at any time?
What consumer protection is there? Doesn't he need a prospectus for you to
invest in it?
Isn't it really a form of negative gearing because presumably you borrow the
full amount for this $20,000 to be put into the fund and are paying interest
on that money? Do the tax office allow a deduction for the interest against
the annuity income. If it is tax free then probably not.
Could you invest the $20,000 yourself in other IPs and get better returns?
$90 a week is $4,680 per year or a return of 23.4% which implies high risk.
The annuity might be a return of capital so part of the $90 (maybe a large
part) makes up the payment. Some annuities pay out the capital plus interest
earned until there is nothing left. In that case you could give me $20,000 I
give you 5% on your money as interest and make payments to you of say $89.50
per week return of capital and 50 cents interest. I then invest the money
elsewhere and make a bigger profit using your money. I am not saying this is
how it works but you need more details.
Have the risks been explained to you, if not they may fall foul of ASIC.
If you paid $20,000 less for the property would that make it positive geared
instead of negatively geared?

Don't want to pour water on your party but there seems like one needs to
find out more detail.
 
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Reply: 2
From: Synth Boy



I live near Thomastown, and work in it. Its not what I would consider a growth area.

I'm not experienced in IP at all, but I can tell you that prices here haven't really changed a great deal.

That may be good, or it maybe lame.

Hope it helps for what its worth.

SynthBoy
 
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Reply: 1.1
From: Rod Myers


it does sound odd. re Harvard they do prey on beginners to IP, I know a guy who got an IP from them. They referred him (admittedly only referred him) to financiers called Direct Capital Advance, they set up LOC and Interest Only loans for him he had no idea about these things, and was happy with the set up, they charged him $2000 for this service!!!
when he later found out how easy it was to do your self it took me about 6 hours, plus some pleasant chats with Lenders, and lots of photocopying, he was real p** off! I mean it is ok to charge for advice but $2000 plus!!!!

for a few beers I tell you to go to a bank get a LOC then phone around for an interest only loan for 80% of the purchase price.

and off course Jans books
 
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Reply: 1.1.1
From: Rolf Latham


Hi Rod

And they would have picked up a few bob in commission as well.

You have hit the key words though and that is that your friend had "no idea".

Without saying this type of thing is right or wrong there is an old analogy that I was once taught about the cost of advice and the way that some can charge what they do charge.

Squeeky floorboards in your house. You have no idea how to fix them, occasionally you have tried to put in a few nails and even tried to repack stumps. It bothers you a little and affects your quality of sleep.

One day a carpenter knocks on your door and asks if you have any work you need done. Ahhhaa, finally a pro to the rescue, unsolicited, but this will fix the problem.

The person spends 10 minutes surveying the situation. They then proceed in the next five minutes to put in three 4 inch nails, this fixes the squeek. 15 Minutes work and the person presents you with a bill for $ 215. Astounded, you would say how do you justify that ?

The reply is that cost is composed of $ 15 for doing the nailing and survey work. AND the $ 200 is for knowing where to nail.

Yet, there are 1000 caprenters that would do the job for 60 bucks, but they didnt knocok on the guys door.

PS Most brokers dont charge fees for straightforward transactions, although some deals do deserve a success fee.

Ta


Rolf
Rolf
 
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Reply: 1.1.1.1
From: Sim' Hampel


On 1/21/02 11:08:00 PM, Rolf Latham wrote:
>
>PS Most brokers dont charge
>fees for straightforward
>transactions, although some
>deals do deserve a success
>fee.

Is this a hint Rolf ?

;-)

 
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Reply: 1.1.1.1.1
From: .watto .


Hi Adrian,

From personal experience have the property valued by an independent valuer, (cost me $475.00 and a couple of presents under the K-Mart Xmas tree money well spent) ask for a market valuation. Watch out for high management fees up around 16-17%.

I walked away from one similar to your situation. Property to cost $210k approx. including all costs, i.e stamp duty, $10k annuity, $1945.00!!!! brokers fees (most brokers do it for free as i have found out lately, well not exactly free they get trailing commissions from lenders.) etc etc, contract price was $198k approx. High fees made it a Negative geared property.

Remember figures can be made to do amazing things on paper....

Market valuation came in at a generous $157,500.00. Thankfully the bank said i couldn't service the debt.... and i managed to cancel the contract before getting in to deep.

Cheers
Watto
 
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