Property Advice for a Retiree

[sanchez]

Hi Forum

A family friend is retiring and has been asking me for advice about putting his money into property.

He is not keen on shares or managed funds which the "Financial Advisors" have been preaching to him, but up until now his money has been in the bank at 3% pa - and he realises that he is going backwards. He has about 700K.

Obviously he is keen on property for capital gain and rental return that is hopefully indexed to a degree, however property around Sydney seems to be returning 3-4% these days, which won't really give him a lot to live off in the meantime, even if he gets good capital growth. I know that that isnt really a big problem, as he could draw ou the equity etc, but he is a conservative type, and probably wouldnt be interested in borrowing, or anything too complicated.

I have suggested that he goes for one property in a growth area, and one which will give him a good cash flow, however am not sure whereabouts to get a good cashflow these days other than in very cheap areas of Sydney - I am not sure that he will be able to look past the problems of this type of property in terms of types of tennents, maintenance etc.

Personally, I wouldnt mind having his problem, and I would be going beserk with all the possibilites, but he is not one for doing anything too far from the norm, and it is his money after all.

Can anyone give me some advice on areas with good rental returns??

Alternatively, does anyone have any advice as to how to best invest the money whilst giving my friend the security he is looking for and letting him sleep at night.


Regards

Sanchez

 

[elwyn.d]

Hello sanchez.
The latest issue of Property Investor has a list of rental returns for a lot of diferent areas of Aus. If you (he ) were to look outside of Sydney, country NSW or even futher afield you could find some exellent properties that would give you the returns that you require. If you did that also check the Department of Defence. From what I understand they are exellent property managers but they do charge a lot more for it. But they will give you a long term secure lease. Good Luck. Elwyn.D

 

[sanchez]

Thanks Elwyn

I am not too keen on recommending DHA properties as I find them to be overpriced and the management fees to be very high. I think that maybe a regional area with a good return may suit best.

Sanchez

 

[Tony]

Hi Sanchez,
I have a client who is divorced & re-maried & wants to control a property (an expensive one too). He has excellent cashflow but doesn't want to buy property. He runs a business & wants to purchase a property using a lease option through his business.
Property is in melbourne & is worth $455k.
My customer will put in 10% cash at settlement time & has agreed to pay above market rent & plus extra as in a deposit which comes off the amount he will be required to pay at the end. He has also agreed to pay some capital growth as well.

Property is new, so maximum depreciation schedule available

If he leaves you get to keep the deposit & the property remains yours with the added capital growth.
Maybe something like this would suit your friend.

Regards Tony.
PS. Sorry if this should be placed in Caveat Emptor & if anyone wants further details please email me.

 

[investor]

Originally posted by Tony
Hi Sanchez,
I have a client who is divorced & re-maried & wants to control a property (an expensive one too). He has excellent cashflow but doesn't want to buy property. He runs a business & wants to purchase a property using a lease option through his business.
Property is in melbourne & is worth $455k.
My customer will put in 10% cash at settlement time & has agreed to pay above market rent & plus extra as in a deposit which comes off the amount he will be required to pay at the end. He has also agreed to pay some capital growth as well.

Property is new, so maximum depreciation schedule available

If he leaves you get to keep the deposit & the property remains yours with the added capital growth.
Maybe something like this would suit your friend.

Regards Tony.
PS. Sorry if this should be placed in Caveat Emptor & if anyone wants further details please email me.

Hi Tony

You say he will pay above market rent and some capital growth. Can you please elaborate on that, ie. what % return are you looking at and what % cap growth will he pay per year ?

Also how did you work out the valuation ?

Regards
Investor

 

[Jacque]

Sanchez,

Another option would be for your friend to lend his funds to private investors (eg wrappers who don't have the 20% deposits required upfront) and get 8-10% this way. With a good wrapper who can refinance their client out into the banking system within three yrs, your friend could get a good interest rate plus his lump sum back in a few yrs. Something to consider anyway.......

I would be interested to hear other's ideas here, as this is a situation similar to a friend of ours as well. Bank interest just isn't enough but retirees like to know that they can access their money if they need it, within a few yrs at least.

 

[Tony]

Hi Investor,
Although i don't really wanna get into the exact details here, i will elborate a little more.
Property purchased at $455k
less tenant deposit $45.5k
90% loan $409.5k

Tenant pays rent of 5% based on $410K (rounded up from $409.5k).

Tenant also pays at least $200 weekly, which counts as his deposit. Exact figures still to be calculated, but will be much more than $200 per week.

Investor gets 4% capital growth compunded per annum based on $409.5k. Lease is for a maximum of 7 yrs. Tenant can cash out the investor, but must pay the capital gains for the full 7 yrs. If tenant decides to leave the property, the tenant loses his 10% deposit, plus any accumulated deposit paid weekly. If not cashed out before 7 yrs, the tenant purchases property at $409.5k plus 4% capital growth p.a. for the full 7 yrs, less any deposits paid during the course of the lease. If tenant decides NOT to purchase property, he simply walks away from the property with NO cash & NO property (although this is highly unlikely to occur).

As property is brand new, depreciate schedule will allow for maximum tax deductions.

This should be enough info to satisfy most readers on this forum. I will not divulge any more details for public consumption & if anyone is serious, then please email me for exact details.

Regards Tony.
PS. Once again apologies for this not being in Caveat Emptor

 

[Jude H]

Hi Sanchez,

I would definitely give Steve Navra a call. This is right up his alley.

www.navra.com.au


cheers

Jude