Share my capital growth with me…125% ROI

From: Khurram Saeed


Hi All

This post is especially for people who are in the market to RENT close to the city.

I have an investment property in Ascot Vale, Melbourne which is 6 km from the CBD. It is close to 2 train stations, Ascot Vale and New Market, tram stops and buses. There are three parks at walking distance. There are also private schools and public schools. Flemington Racing Course is at walking distance. You can also walk to Maribyrnong and Union Road lifestyle shops, cafes and restaurants. And of course the Highpoint Shopping Centre is right next door to you by tram or bus. Then you have the Maribyrnong river and the walking and bike trail that goes all around it.

It is a 3 bedroom, 1 study, 2 bathroom, double storey townhouse with street frontage and its own courtyard.

That is not the exciting bit, the exciting bit is that I want someone to share my equity (capital growth) with me, over the next 5 years.

I will be settling the property this coming week of 26 of May, 2002. I bought the property off the plan in June last year for $350,000. I have a loan of $360,000 on it. Currently I have it on the market for rental for $390 / week. Having done my due diligence I believe it is a reasonable ask. Who ever is interested, I would be more then happy to share my due diligence with them, both rental and capital growth. I got the property valued for $445, 000. I asked the valuer to do a Market Valauation for me. When I bought the property, the developer was asking $385,000 for it. I got a discount, it took me almost 4 weeks of negotiation. Another townhouse in the development was sold for $385,000. There are total of three townhouses in the dev. The other two are Owner-Occupied.

Rather then renting out the property at normal $390 a week which will make the prop –ve cashflowed(i.e I have to pay for the difference between interest rate costs and the rental I get). What I am proposing is who ever rents the property off me for $505 a week for 5 years, at the end of 5 years can have 30% of the capital growth! This is a win/win situation for both parties. I get an excellent tenant for 5 years, and you get LOTS of equity just for renting from me! $505 will just cover the interest rate costs.

Let me do some figures for you:
Ascot Vale median prices have gone up by 80% over the last 5 years (www.reiv.com.au: REIV Median Price).
For this calculation I will use a moderate 7% capital growth.
Property Value = $445,000
Starting Point = $400,000 (above this point any capital growth will be shared 70/30 with the tenant. I get 70 % tenant gets 30%. That means an instant $11,250 of equity in your name just when you sign the contract!!)
After 5 Years at 7% Growth Per Year
Prop Val = $624, 136
Equity to be Shared = $624,136 - $400,000
= $224,136

Tenant Share = 30% of $224,136
= $67,240

In short you will get almost $70,000 at the end of 5years. I have all the legal documents that can make this happen. Any one who is interested, or didn’t quite understand any part of it, drop me an email, and I will be more then happy to explain this to you. Bottom line is you make heaps of money, and I have peace of mind for 5 years…a pure win/win situation. If anyone, had a property like this, and wants to do deal like this. I would be more then happy to be there Tenant…

Remember, the percentage can change depending on the deal. So it doesn’t always have to be 70/30. It could be whatever both parties agree to. It could be 50/50 if you are willing to pay more money per week. And remember the $505/week that you paid. That is $115(Market Price= $390) more then Market Rental Price, which equates to $29,990($115 * 52 weeks * 5 years) over the 5 years…but you are making almost $70,000!!! That is 125% ROI. And if the prop goes up even more..then you make more money.

Khurram Saeed
Khurram_99_au@yahoo.com
 
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Reply: 1
From: Always Learning


This is not a asking question, or providing information! Hard core sales and marketing should belong in the Caveat Emptor forum. Please cut it out and paste it into a new post within the Caveat Emptor, then delete this one!
<p>
Also I have a deal for you! give me $110P/W and I will invest it, if after 5 years I make a profit I will give you 30% of it; pure win-win; give me 300P/W and I will give you 50% of my profits; no profits after 5 years well...just dont worry about it! With idea's like that I should be a Superannuation salesman!
 
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Reply: 1.1
From: Gail H


And if the property's value doesn't go up at all in five years???

Please delete post and place in caveat emptor.

Gail
 
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Reply: 1.1.1
From: Bydntsel .


Sounds a lot like one of HK's strategy's.

It belongs in Caveat Emtor

Bydntsel

“Things are rarely what they seem to be”
 
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Reply: 1.1.1.1
From: Khurram Saeed


wow...such negativity. Can you please tell me what is wrong with this deal?

And I will put it in the Caveat Emptor....but seriously why does every one always think, every one else is out there to rip them off...

And my friend, i did say at the start this is ONLY for those who are in the area to RENT already....

Sure if you want to put $115 per week in super and let it grow at -1%...be my guest. But do tell me what is wrong with this deal, considering it is ONLY for those who are in the market to RENT already!!!

Khurram
khurram_99_au@yahoo.com
 
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Reply: 1.1.1.1.1
From: GoAnna !


Hi Khurram and anyone considering his offer

You ask “wow...such negativity. Can you please tell me what is wrong with this deal?”

Well from your side of the deal not much is negative unless you are seeking a positively geared property or the expected growth does not eventuate. The risk is almost entirely carried by the tenant.
The opportunity that Khurram is putting forward looks like the perfect scenario….a great lifestyle now while you are saving for your future. But lets look at those numbers from a couple of different angles…..


The “everything is perfect” version

You agree that a property purchased at 350K last year has a value of 400K
You agree to pay $505 per week in rent for five years. You pay a total of $131,300 in rent over these 5 years. To pay this rent you must earn around 255K gross over the 5 years or 51K gross each year. This is for the rent alone. I am assuming 47% tax rate as you would need to be on over 60K to pay for this level of rent.

Lets assume the property grows at 6% per year as it has according to the Valuer General of Victoria from 1991-2000 (the latest figures available) Based on the assumption that the property is worth 400K today 5 years from now it will be worth $535K and the tenant would have made only $40K capital gain…...tiny compared to the rent bill. The tenant would I presume have to pay tax on these earning?? Please correct me if I am wrong Khurram.

But what if 350K was the market rate last year? (given that was the price accepted by the vendor) This would mean the property would growth to 497K over 5 years and your 30% share of the growth (noting that Khurram gets 100% of the growth to 400K) would be 29K.

The “some things are less than perfect” version

The actual market value of the property last year was $350K. The Melbourne property market goes flat and over the next 5 years there is zero growth. And before you tell me that is impossible just check back to our Valuer General’s Book and you will see that from 1990 to 1998 there was in fact zero growth for apartments/townhouses in Ascot Vale and for 5 of those year the growth was negative. But for the sake of the argument I will assume zero is the worst case scenario. Over 5 years you pay $131,000 in rent and I presume are locked into this position. You get nothing for that additional $29900 of rent paid except loss of flexibility. Khurram, do you lose the equity option if you break the 5 year lease and are there any other penalties?

And what are Khurram’s risks? Not much. If there is no growth at least he didn’t experience most of the financial burden of carrying the property because as he rightly said $505 per week will cover the interest. And what makes it especially nice for Khurram is that it covers the interest at 7.3% which is nice for him as he is likely to be on a honey moon rate of less than 5% or a standard variable of less than 6%. So maybe you might not just be holding that 50K plus 70% capital growth for him but actually paying off some of the principal…….100% of which will go into his growth pile.

What if instead…

What if instead of paying $500 per week in rent you paid $250 per week renting? What if you saved the difference between $505 and $250 per week? Over 5 years you will have saved $66K and I have not even added in any interest you may have received on those savings. And this money would be a sure thing and it is after tax not pre.

What if with all that surplus cash you partnered up with some-one who have equity but has run out of serviceability. What if you then rented your ip out and gained 50% share of the profits….…

What if……my friend....

GoAnna !
"Lethagy, bordering on sloth, should remain the cornerstone of an investment style"
Buffett
 
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Reply: 1.1.1.1.1.1
From: Khurram Saeed


Hi Anna
Thanks for your in depth analysis of the deal.

0. I totally agree with you, when you say, if the property does not go up in value, the tenant looses out. That is the risk we have to take. As I said, I would not have bought a particular property which I didnt think could out perform the market. You really have to look at the property.

1. As I said, the property is valued at $445,000. But I will start the ball rolling from $400,000 onwards. That means, the tennant has made an instance 30% of the difference between the ($445K - $400K) = $45K. Which is just over $11,000.

2. As I said this is only for the people who are considering renting in that area. I am not asking anyone to leave their place of residence and come to me, just to make 125% ROI...I am saying, if they were to rent anyways...And your example of getting $60K by paying $250 per week....if you can find me a 3 BR, + study in Ascot Vale for $250 per week pls pls let me know.

3. Your calculation on somebody paying $505 per week would have to earn $200K+ is very pre mature, as my target market is NOT someone who cannot afford to pay $115 per week more. I am not targeting the $250/week market.

4. All your calculations are wrong because you are taking into account that the property is worth is $400K. As i said earlier it is worth $445K...and this is what the bank lent me against...so it is conservative.

5. Your point that the value of the property is what I paid for it, is once again pre-mature. Just because through my negotiation skills I got it cheaper, doesnt mean it was worth less!! I can show you the other 2 townhouses and show you how much they paid for it. $385K each.

6. I am on a 5 year fixed rate of 7.25%. If I was on a honeymoon rate, I would ONLY ask for that much rent.

7. And I am giving away equity from $400K on wards. Not $445K onwards. And why should I give equity from $350K onwards, becasue the tenant has not occupied the premises since June last year(when I bought it). If they had signed a contract with me back then. I would be more then happy to pay them the Equity from $350K onwards.

Anna, if you have a better way, where both the tennat and the landlord wins. Pls let me know. I will happily consider it. It is not that I am in love with this "deal". If there is a better way of both having the tennat happy, who would rent anyways, and keep the property positive cash flowed...pls let me know. I will pay for the advice if neccesary.

Take Care
Khurram
P.S) Any more comments are warmly welcomed. THanks
 
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Reply: 1.1.1.1.1.1.1
From: Anonymous


Dear Khurram

You have broken some unwritten rules of the forum:

1) You have a strategy which some beleive comes from Henry Kaye. You are only 'allowed' to say negative things about Henry and his methods.

2) your a new poster, so you are only 'allowed' to ask questions for the resident 'gurus' to answer.

Just joking of course!

AM
 
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Reply: 1.1.1.1.1.1.1.1
From: Khurram Saeed


ahh...thats what i have been doing wrong!

Thanks for the tip dude or dudess.
Khuram
 
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