Warning to other newbies

From: Steve B


I'm posting this so that other (newbies) investors can learn from my mistakes.
I purchased a new property through P.R.G (seminar Company) Price $277,500 Their information booklet (during construction)indicated that the rent would be approx $260.00 p/w. so far so good.
When it was time to put a tenant in the property on settlement, they said the rent would be $240.00. what could I say.
When a tenant was found the rent went down to $235.00. they said that this was the market rent. They said don't listen to family and friends, listen to the experts. Well I listened to the experts and I still got caught.
Without going into detailed figures,the problem I face now is that I am unable to purchase anymore property for AT LEAST 2 years due to my D.S.R.
As I was told in the beginning, "buy property with NEGATIVE GEARING", I now believe that this was a BIG mistake.
It all looked so easy at the seminars as it was suggested, every man and his dog could do it, but don't you learn quickly as time goes on. obviously if I had my time over I would do it TOTALLY different.
I'm just going to cool my heels for a while now and I hope that other people realise my mistake and learn from it.
Steve
 
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Reply: 1
From: Rolf Latham


Hi Steve

a difference of 30 bucks a week in the rent is a bummer but should in no way stop you from buying more property if you have sufficient equity to move on.

Suggest you see a good independent broker

(Sim dont laugh !)

ta

Rolf
 
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Reply: 1.1
From: Steve B


Hi Rolf
I went to Wizard whom I have my loan through and I also had a broker come around and see me, and they both said the same thing, The maximum I can borrow at this stage is $70.000 to $80.000.
Steve
 
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Sim

Administrator
Reply: 1.2
From: Sim' Hampel


On 5/6/02 10:33:00 PM, Rolf Latham wrote:
>
>(Sim dont laugh !)

Oops... too late !

;-)

 
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Reply: 2
From: GoAnna !


Hi Steve

Sounds like a painful lesson however assuming the property is in a good growth area you will still be better off over time. And you have grown wealthy in knowledge and experience.

When you say that you are unable to buy further property for at least 2 years is this because you have no little further equity? If you have equity you shouldn't have enormous trouble borrowing for cash flow positive properties. And positive cash flow could ease the financial pain you are currently feeling :eek:)

In regards to the rent it can fluctuate throughout the year depending upon the peak time. If you settled in say May and the peak rental season is in say Jan/Feb then you may want to offer a lease which takes you around to the next peak period. This will strengthen your position if you negotiate the rents higher with the existing tenant and if it is vacant will give you more tenants to choose from and push the rent up to a higher level. This would be particularly valuable if you are letting at the same time as many others in the same complex and could remove yourself from competing with them at a low demand time of year.

Thanks for sharing your experience. You said that if you could do it all over again you would do it totally differently. What advice would you now give to another newbie buying an ip for the first time?

GoAnna !
"Obstacles are those frightful things you see when you take your eyes off your goal."
-Henry Ford
 
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Reply: 2.1
From: Tibor Bode


Hi Denise,

I know it is a bit late, but invest around $50
in your education and get 2 books from Margaret Lomas.
1) How to make your money to last as long as you do
2) How to create an income for life

Both books are good value. She is a believer of cash flow positive properties (so am I)
Having one which is negatively geared is not the end of the world, but from now on whatever leverage you have you have to put it into cashflow positive properties. hey will balance out after a while and if your current purchase is in the right location this property will provide you with capital gain, that you can use.
If you are desperate and completely maxed out, try to do the same cash flow positive property deal involving a friend. Go in half and suddenly your leverage is extended. At least you are still in the game even if you have half of the gain.

Tibor
 
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Reply: 2.2
From: Steve B


GoAnna.
The first thing.
I would not believe anything that I was told from someone selling the property and believe more in the absolute worst case scenario.
I also received some really bad advice from my mortgage manager. Where he said that I could borrow up to $350,000 for my second property, then after I placed a deposit of $700.00 (2.5%)down, he told me that the loan would not be approved, So the deposit was lost.
Second thing.
I would do what TIBOR suggested, try to buy positive (cash flow) property. I just wish I had of bought Margaret Lomas's book about 4 months ago, maybe then I wouldn't be in this position.
Third thing
I suppose you have to make mistakes to gain knowledge.
Thanks for your reply
Regards
Steve
 
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Reply: 2.2.1
From: John P


Steve don't be too hard on yourself mate. You ARE right from the point of view that you have learned some valuable lessons. I admire a person who has a go and runs into obstacles than a person who does not try at all and never accomplishes anything. Sometimes you just have to go in there and do it. The thing that I like about property....sorry....let me re-phrase that....One of the many things that I like about property is that often you can make some major stuff ups and still come out on top. Yes you have been let down by rental yield but if the IP is in a reasonably good area, the IP is bound to get some decent Cap.Growth. You may not be a Star Trek Fan but I am going to quote you something that is used by the Ferengi....they are a race of aliens who just love making money. Every Ferengi as a child must learn the "Rules of Acquisition"....I think there is about 285 of them...can't remember off hand. Here is one for your situation and the mob you had the apparent misfortune of dealing with:

"Hear everything, trust nothing"

Hang in there Steve

John_P
 
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Reply: 2.2.1.1
From: Rolf Latham


Hi John

This be well said. Time heals all wounds and this is so even in most property transactions. Rental yields are not the best in Sydney right now, so they will pick up, as capital growth slows a little.

Ta

Rolf
 
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Reply: 2.2.1.1.1
From: Jeremy Laws


Steve,
What you have is NOT bad! It's not what you might have done with hindsight, but $30-$40 week rent fall is not a disaster at all. You will get a nice depreciation allowance from a new property, and what you have done is way way way better than doing nothing. Chances are you would have bought the thing anyway if you were told that the rent would have been $230 week from the outset. You are still over time (3-5years min) probably still making 50-60% a year on the property! Rental market is stuffed at the moment, and all of us have taken a tumble in that department. You bought a 'fully' priced property (who hasn't????) and you now know you don't need to buy a 'new' property. At least though you won't have water heaters and things falling over in 3 months time! Or 3-4 months vacancy when asking say $500/week on a 700k property! You haven't done badly, you just have a bit of buyers remorse (DONT SELL!) and you think there are better ways out there. Well yes there are.....and yes there are far far far worse things you could have bought!
 
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Reply: 3
From: Adam McGuinness


Steve

Thanks for sharing your experiences.

One question to the forum:

When you talk about positive cash flow, do you mean after tax deductions are taken into consideration, or positive excluding tax deductions?

Thanks

Adam
 
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Reply: 3.1
From: Steve B


Adam.
AFTER tax deductions are taken into consideration.
Steve
 
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Reply: 3.1.1
From: Always Learning


Just think, in comparison to investing in shares you could have gotten 50% finance for Telstra shares, purchase $100K worth 3 or years ago when they where above $8 a share,when analysts predicted over $40 (in the long term). Now they are less than $5. And that's blue ribbon share market, you could have purchased any .bom and lost BIG time!
Chart
<p>
The above comment was corrected a little so Robert's and Tibor's comments wont make sense now...I had mistakenly charted the wrong Telstra.
 
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Reply: 3.1.1.1
From: Robert Forward


Hi AL

I think you've got your figures a bit mixed up. The TLS that you've looked at on the Yahoo Finance site is a Telstra Corp on the NYSE. This is the TLS.AX on the ASX here in Aussieland. http://au.finance.yahoo.com/q?m=a&s=tls.ax&d=c&k=c1&t=5y&a=v&p=s&l=on&z=m&q=l

But you are correct in their being a large drop. Around January 2000 the TLS.AX shares were worth over the $9 mark and now they are worth nearly half that amount at $4.72, that equats to about 47% drop in value.

Cheers,
Robert

Property Inspection Reports @
http://www.creativefinance.com.au

The Sydney "Freestylers" Group Leader.
 
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Reply: 3.1.1.1.1
From: Tibor Bode


Thanks Rob, I started to get worried about that I just missed something on Telstra's price. I think it was the low $9 ish the high point, so I was reading with absolute amazement about the $40.

Cheers,


Tibor
 
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Reply: 3.1.2
From: GoAnna !


Adam

BEFORE tax deductions are taken into account.

GoAnna !
"Real knowledge is to know the extent of one's ignorance."
-Confucius
 
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