lock in 3 yrs or 5?

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From: Michelle Riley


I'm purchasing an investment house to negative gear.
Bank wants to know tomorrow how long to lock in I/O loan.3yrs is 6.6% .
5 yrs must be a little higher.
Any insomniacs online tonight?Need a quick answer.
Cheers Michelle
 
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Reply: 1
From: B Ready


I reckon go for 5 years as the rate is not much different to 3 years. It saves you having to worry about it again in 3 years time. Plus, you would think rates could not go much lower but could go up heaps in three years.
Hope that helps but it is only my humble opinion.

BGR.
 
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Reply: 1.1
From: Marina. L


I read an article by a well know financial columnist in the Herald Sun that Interest rates will continue to fall and He stated that now is not a good time to fix. Wait till the next drop in interest rate (this is pretty certain) and then fix the rate.
 
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Reply: 2
From: Simon .


Don't forget there may be a penalty if you sell it earlier. So if you want flexibility then 3 years. if you want security then 5 years.
 
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Reply: 2.1
From: Marina. L


Remember the golden rule

NEVER NEVER NEVER SELL
 
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Reply: 1.1.1
From: Sim' Hampel


I read recently that banks do a bit of economic forecasting when setting fixed interest rates. They will build in a buffer to the rate for a particular term based on what they think the rates will be at over that term.

Basically the article suggested that if fixed rates are lower than todays variable rates then the banks feel that interest rates will drop (to lower than the advertised fixed rates). Conversely, if the fixed rate is higher than the current variable rate then they believe that rates are going to rise.

It's all a matter of balancing between having fixed rates that are competitive in the market and pricing in a margin to make sure they lock you in to as higher rate as they can get.

The article seemed to suggest that assuming that the banks get it right, you wont be able to beat them on interest rates, and should stick to variable.

I'm not suggesting that this is the strategy you should take and I'm not sure if I agree, I'm just giving another point of view !

I certainly like the idea of managing interest expenses by having fixed rates. It makes it much easier to predict the outgoings on your investment, regardless of whether you might save a few dollars by going variable.

 
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Reply: 2.1.1
From: Gee Cee Cee


LOOK Long Term.
What do you want to do with the property?

If you intend to hold at least 5 yrs then I would lock in for 5 yrs. {Around 6.95 - 7.20%}

Rates may drop. (Who has the accurate crystal ball? [Please lease it to me overnight])

But at least you have a budget, $$$ flow forecast & can sleep.

OK if they drop you can only cry over spilt milk.

If they went up you may really be crying.
As to sleepless nights???!!!

Gee Cee
 
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Reply: 2.1.2
From: Robert Forward


Hi Marina

Why shouldn't you sell. If the property you own has just finished it's bull run (cap growth spurt) then why not jump out into another property that is about to go into a bull run. And because you pay CGT isn't a real reason. CGT can be minimized (legally) if you have a good accountant.

You make money faster doing it this way.

But, that is just my thoughts about it.

Cheers
Robert
 
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Robert-never never sell

Reply: 2.1.2.1
From: Marina. L


Hey Robert,

I know there is no hard and fast rule, but being a newbie myself and through educating myself with books, etc, I picked up this Line nearly everywhere.
NEVER NEVER SELL.

It makes sense to me.Let me give you an example. I bought 2 properties last year and
the revaluations came in at $84K above purchase price. Yes I can sell them both and walk away with 84K but I would rather never sell. I will make more by holding long term.

I then used the equity in the above and purchased land at the end of last year to build an IP.Now the interesting thing with this is that the land 12 months ago was originally bought by someone else for 95k, I bought it at $130k in Oct 2000, and it is now valued at close to 160k. Now I can also walk away with $30k (not bad for 3 months work).But long term I think this will be a gold mine.
Robert I just figure if I keep holding I will make more and then I can buy more.

For now though I have a plan not to sell but who knows eventually I might not be strong enough and I will probably buy that Porsche or Saab or convertible BMW , ah heck I'll just buy them all.

But this is just my opinion and everyone has their own plan and strategy.
 
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Robert-never never sell

Reply: 2.1.2.1.1
From: Frode Egeland


Hi,

It's great to hear good advice from someone who is out there and doing it! :)
I'm curious: Are your properties positively or negatively geared?


Cheers,
Frode
 
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"Robert-never never sell, to Marina"

Reply: 2.1.2.1.2
From: Vesta V


i totally with what your saying here, but let me ask you this, would you be better off selling your IPs to reduce your current mortgage? Would this mean you could borrow more?
 
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Robert-never never sell

Reply: 2.1.2.1.3
From: Robert Forward


Hi Marina

I believe in buying and selling (trading) properties. I will purchase extremely well, like the one I signed off for today was purchased at $84k and will sell for $120k tomorrow. I will ride the capital growth spurt and jump out at the top with the gains and then buy back into another property or5 that are at the bottom of the market.

I'm not afraid of the dreaded capital gains tax issue. Mainly cause CGT can be deferrable in the right situation (Talk to your accountant about this) and I can use the whole amount of gain to get into another 3 or so properties.

Actually I purchased this property with 100% finance and had the loan approved in 15 minutes. Not to shabby a service I think....

So, I know when I am going to sell this property and take the gains. The area is currently taking a large cap gain spurt and when it is near the top I will off-load. It's a matter of studying your area and knowing where it sits in the property cycle.

Cheers
Robert
 
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Robert-never never sell

Reply: 2.1.2.1.1.1
From: Marina. L


Hi Frode,

To answer your question the first 2 properties are not quite cash flow positive yet.The rent covers all the interest but I pay all the outgoings. However once you take into account the tax refund (I have huge depreciation allowances on these 2) you could say it is then cash flow positive. In my situation I compromised the immediate positive cashflow for larger capital growth.

The combined capital growth of the 2 above have enabled me to purchase my 3rd IP property which will be our DREAM HOME in 2 years time.(Too long a strategy to explain) Again Huge capital growth but not quite positive at the moment.

Having said all this each situation is different. You need to do what is right for you and what you feel comfortable with.
 
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"Robert-never never sell, to Marina"

Reply: 2.1.2.1.2.1
From: Marina. L



Hi there Vesta,

You write "Would you be better off to sell your IPs to pay your current mortgage"

Which current mortgage are you talking about?. I have no personal morgage but if someone did have one that is something that would need consideration. Every situation is different and I base all my decisions on strategies and goals and figure analysis.

If you are talking about the IP mortgage then I would not sell as IP debt is debt that effectively need not be paid off.

Each individual has a different set of circumstances and what might suit one individuals plan might not necessarily suit another individuals plan. There is no right or wrong answer. YOu need to do what is right for you.


Seeya

Marina.
 
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Robert-never never sell

Reply: 2.1.2.1.3.1
From: Marina. L


Hi Robert,

I applaud you in your strategy of trading properties. As I am still fairly new to all this, trading properties was not even on my list? Firstly because I have never really read about it and secondly every one mentions LONG TERM.

But having thought about this very carefully I have come to the conclusion that as long as you have some good quality property for the long term there is absolutely nothing wrong with trading a couple of properties every year for some FUN AND PLAY MONEY.

Gee if i can trade 3 properties a year and make 20K on each that equates to 60K. Hey I can quit work and still have 30K to play with.

Brilliant idea. Gotta go, I have some serious hunting to do.


Seeya

Marina.
 
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Robert-never never sell

Reply: 2.1.2.1.3.2
From: Owen .


Robert, you are saying that you buy well and then wait for the capital gain growth and sell at the top of the cycle. What kind of time frame are you talking about here? Are you actually settling on these properties and paying stamp duties and putting a short term tenant in them? I understood flipping properties was a deal done in the very short term, like during the settlement period. If you are flipping during settlement are you just assigning contracts for a fee?
 
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Cashing outl at the top of the property cycle.....

Reply: 2.1.2.1.3.2.1
From: Robert Forward


Hi Owen

The length of time really depends on the cycle and where it is for the area that you purchase. The one I am talking about would sell tomorrow for $120k. But should be worth another 10-15% on top of that in 12 months (my opinion that is). WRT the tenant, well this one has a permanent tenant but I'm not worried about moving a tenant out if I'm selling.

I am still flipping properties, but I never put my name onto the contract if I am doing this. If I was flipping to you then you would sign the contract for purchase as well as a contract between you and me for the flip.

Cheers
Robert

The above is just my ramblings....
 
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Cashing outl at the top of the property cycle.....

Reply: 2.1.2.1.3.2.1.1
From: Owen .


So it really is a matter of finding your buyer before finding the property. You saying that you "would sell it for $120K tomorrow" indicates to me that you don't have one. If not, how do you have control of the property? Surely someone else can just come and buy it if no names are on the contract.

What if you did it the other way, found the property first and then on-sold it before settlement? If you did this and your name (or your companies name) was on the contract, then wouldn't it just be a matter of a name change before settlement. Would this make you eligible for stamp duties if you did this? I assume you would still have you 2nd contract for the increase in purchase price and the benefit to the new buyer is lower stamp duty for them.

Just digging a bit more...
 
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Cashing out at the top of the property cycle.....

Reply: 2.1.2.1.3.2.1.1.1
From: Robert Forward


Hi Owen

G'day Owen, the $84k place is a real property and a real deal. My previous post was in 2 parts to answer your earlier questions.

What I am doing with the property for $84k is buying it myself for the cap gains then will sell within 3-15 months down the track because it will hit the top of the property cycle by then. But as it stands right now, I can sell it the day after settlement for $120k. And at it's current purchase price it is a positively geared property returning 12%, without any depreciation or expenses included.

What I do with flipping is that you'd sign the contract of purchase, thus no-one can come in and gazump you on the price. And if I put my name on the contract then I Onsold before settlement I can/will STILL be liable for stamp duty PLUS if you the person that I am onselling to decides to pull out then I am left holding the bag and having to go ahead with the purchase myself... And that is far to high of a risk, thus I don't work that way.

Flipping properties is completely different to Onselling properties. To FLIP is to provide you with a good purchase price and a positively geared property. To ONSELL is to sell the property on at market value. Yes Onselling can give you higher returns, but they match the higher risk and it is far more time consuming to Onsell rather then flip. Another way to put it, Flips are for investors, Onsells are for owner occupiers.

The thing with flipping Owen is that the price I negotiate a property to is the price that YOU (the FLIPPEE) purchase the property at. This property I am purchasing was going to be flipped, until the flippee pulled out. I am then due, upon settlement, my fee for negotiating the property to that price. At no stage do I up the price of the property that I negotiated for you to purchase, basically I can't up the price because I don't own the property.

All I do is find properties and negotiate to an extremely good price. You do your due diligence on the property and purchase it.

I don't always look for the buyer first, though I have a number of people that I can pass good deals to quickly. I am always looking both properties and people to deal with for flips.

I hope the above clears the mud a wee bit.

Cheers
Robert
 
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To flip or not to flip? This is the question.

Reply: 2.1.2.1.3.2.1.1.1.1
From: Owen .


On 3/7/01 4:50:00 PM, Robert Forward wrote:
>Hi Owen
>
>What I do with flipping is
>that you'd sign the contract
>of purchase, thus no-one can
>come in and gazump you on the
>price. And if I put my name on
>the contract then I Onsold
>before settlement I can/will
>STILL be liable for stamp duty
>PLUS if you the person that I
>am onselling to decides to
>pull out then I am left
>holding the bag and having to
>go ahead with the purchase
>myself... And that is far to
>high of a risk, thus I don't
>work that way.

OK got it. This was the risk I had always thought about with flipping - getting stuck with the property with no exit.

>Flipping properties is
>completely different to
>Onselling properties. To FLIP
>is to provide you with a good
>purchase price and a
>positively geared property. To
>ONSELL is to sell the property
>on at market value.

OK no problem with the terminology or the principles here.

>The thing with flipping Owen
>is that the price I negotiate
>a property to is the price
>that YOU (the FLIPPEE)
>purchase the property at.

How do you know 1) that I want that property 2) that it's a price I will pay. I'm assuming you already have a relationship with me and are working on my behalf? Me being an investor I guess you know what I want ie I'm a developer or a renovator or a landlord etc.

>This property I am purchasing was
>going to be flipped, until the
>flippee pulled out.

This is your $84K property we are talking about? Definitely the risk, but not really a problem if your not on the contract. If not then why are you purchasing? Just a good deal?

>I am then due, upon settlement, my fee
>for negotiating the property
>to that price.

...prearranged with the Flippee?

>At no stage do
>I up the price of the property
>that I negotiated for you to
>purchase, basically I can't up
>the price because I don't own
>the property.

OK.

>All I do is find properties
>and negotiate to an extremely
>good price. You do your due
>diligence on the property and
>purchase it.

So you find the property based on what I want, negotiate the price and then I do title searches, comps, etc and decide if it a good enough deal for me to buy at that price.

>I don't always look for the
>buyer first, though I have a
>number of people that I can
>pass good deals to quickly. I
>am always looking both
>properties and people to deal
>with for flips.

This is the stumbling block for me. If you have a property, negotiated a price and have no-one to flip it to, what's keeping that price in place while you find someone? What's stopping you getting gazzumped? You are relying on your list of flippees being ready to buy from you.

>I hope the above clears the
>mud a wee bit.

Yes thank Robert. I had a "chat" with TW last night and was to write to you both for a better explanation. Got a bit sidetracked and you beat me to it. I think I may have answered a few of my own questions here but keep it coming if you have the time.

Owen
 
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