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General => General Discussion => Topic started by: DannyG on November 03, 2016, 11:04:04 AM
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We are going to sit down with our accountant when he gets home from holidays (he is semi retired and loves fishing) to discuss this with him but in the meantime I couldnt think of a better place to get some information on the matter ;D
I need some schooling on owning a rental property. As I have mentioned on another thread, real estate in Tassie is quite affordable and in some areas there are some real bargains to be had.
We have an opportunity to buy one of these bargains. I have looked at some rough figures and after we pay the 20% deposit (financing less than 80% to avoid mortgage insurance), the repayments on the amount financed is covered by the net rental income after realestate fee's. In fact it is line ball....return = repayment at its current tenancy.
We are able to cover the repayments if for some reason there is no tenant for a short period of time and also the extra rates etc.
I know the rent received is taxable income and from my understanding all associated costs in regards to maintenance, including interest on the loan are all able to offset the income. Is that correct?
Im looking for lurks and perks and pros and cons from those that have an investment property???
Being Tassie and its location, the value of the property most likely wont go up a great deal over the next decade or so, so for us it is about having someone else pay off what should turn into another means of financing retirement.
Any advice?? Thanks in advance for any input.
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Yes, I've had a couple for a decade or so now. We bought them when we returned from OS as we didn't pay super for 8 years. It's a bit of extra self super for us so hopefully will never need the pension.
You are correct. Interest, council rates, all expenses along with depreciation is all deductible from your income.
Use a mortgage broker to structure the loan(s) and maximise your borrowings so you can deduct as much as possible. Capitalise all the costs of buying. Legal fees, stamp duty, building inspections etc etc. Put the 20% deposit on your own home loan if you have one rather than the investment loan. Once you pay down the Investment loan, you can never redraw on it. The ATO doesn't like that.
Be prepared for interest rates going north. You might be able to cover expenses now, but what if they hit 9% again or more?
Keep good tenants happy. Don't be greedy and up the rent too much. A good tenant paying less is worth so much more than a crap tenant and/or no tenant.
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Use a mortgage broker to structure the loan(s) and maximise your borrowings so you can deduct as much as possible. Capitalise all the costs of buying. Legal fees, stamp duty, building inspections etc etc. Put the 20% deposit on your own home loan if you have one rather than the investment loan. Once you pay down the Investment loan, you can never redraw on it. The ATO doesn't like that.
Be prepared for interest rates going north. You might be able to cover expenses now, but what if they hit 9% again or more?
Keep good tenants happy. Don't be greedy and up the rent too much. A good tenant paying less is worth so much more than a crap tenant and/or no tenant.
We do use a mortgage broker, he is a miracle man. I cant get into it here, nor would I want to, but what our broker has done for us over the last 12 months when everyone else said we were mad is amazing.
Are you suggesting we pay the 'deposit money' off our current mortgage and finance the rental property as high as we can (which would mean paying mortgage insurance if it is financed separately)?? What would be the advantage of this besides the tax advantage on the interest paid?
You make a good point in regards to the interest rates, the one thing we have on our side is that we are not talking large sums of money. It is cheap realestate in a small Tassie town. I could stop buying take away coffee and almost afford the repayments with that saving alone :cheers:
I agree about the tenants and not being greedy.
Thanks for your input, I appreciate it.
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Yeah I can't remember what we did with regards to mortgage insurance. I believe we got away with paying it, but it is a good while ago.
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Not sure if an accountant can give financial advice, has to be a financial advisor, is a legal thing. Remember they make their money from you. If your after capital growth over years then location is a big factor. If your property doesn't grow then you don't make much. Take out capital gains tax and you get less. If you pay it off and live off the rent expect no pension as the government screw you there. You could do the place up whilst renting it and claim the costs, some cost might be done as depreciation. I have a few, not all do as well as others. Would I buy another? In the right spot at the right price yes, at my age now no. Get the advice, think over it and good luck.
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Not sure if an accountant can give financial advice, has to be a financial advisor, is a legal thing. Remember they make their money from you. If your after capital growth over years then location is a big factor. If your property doesn't grow then you don't make much. Take out capital gains tax and you get less. If you pay it off and live off the rent expect no pension as the government screw you there. You could do the place up whilst renting it and claim the costs, some cost might be done as depreciation. I have a few, not all do as well as others. Would I buy another? In the right spot at the right price yes, at my age now no. Get the advice, think over it and good luck.
Thanks. We were thinking more along the lines of having a tenant pay of the mortgage and in 20 years time sell it to supplement our retirement income. Even if it didnt grow, which is unlikely, but it would still give us several years of income from the proceeds of the sale that we wouldnt have had otherwise. Or at least that was the line of thinking....maybe reality is quite different.
Im not certain I will get a pension when I retire. I am 46 years old so I have a lot of working life left yet. No doubt Ill have to be 70 to even get a pension and then the means test in year 2040 will most likely stop me getting a pension anyway, I could be wrong though. Thanks for the food for thought.
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I have recently moved back into our property after having it as a rental for the last few years.
This is our family home that we intend to keep for a very long time, it was a work commitment that dragged us away for a little while and technically turned it into an investment property. So my experience is not going to be the same as yours.
There where a couple of points that I have taken out of our short experience as landlords.
Firstly;
Our situation was always going to be temporary, I signed a 1 year contract, verbally agreed with the boss to say for 3 years and privately agreed with the wife that we'd do 5 years max.
So with that in mind we massively negatively geared. And I mean massive, our account said on paper we'd struggle to survive, but our returns should be big.
The reality was our returns where only marginally above what we got when we lived in the house. I did a bit of negotiating with my boss and stretched a few loopholes to get a bit of extra cash and make the move worth our while, but it was hardly the money spinner we expected it to be.
Secondly;
Yes you can claim repairs and expenses, but these are usually just repairs that need to be done anyway and hardly add value to the property.
And finally;
Look after good tenants!!!!
We only had 2 different tenants in 5 years. Every time they move there is more damage.
We did have to change agents 3 times in 5 years. 2 agents closed their doors and 1 was a joke. The final agent was OK, slightly bias towards the tenants, but did a fair job in the end I thought.
So what I took from my personal experience;
I would never leave my family house in the hands of others again. The financial returns where not worth the hassles.
If we where in the financial situation to get a true investment property in the future, I would do it. But at least now I would do it knowing the reality of the returns we can expect.
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Mate it might pay to consider using your super if you have or are thinking about setting up a SMSF.
I have had an investment property for about 10 years and when I got around to setting up my SMSF my financial planner said very clearly do not buy anymore properties outside of the super fund. Not for everyone of course but at reduced tax rates it may help in the future in regards to any capital gains losses.
As has been said need to get a good planner to outline all the pros and cons
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Rent cannot just cover morgatage payments it also needs to have a buffer built in for maintenance and repairs. Speaking from a tennants perspective there is nothing worse than a landlord who bitches every time something has to be fixed and cant get it in their head that a 15 year old water heater and 10 year old oven will have to be replaced.
I would also look for a property with minimal or no yard as this adds another maintenance complexity
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And finally;
Look after good tenants!!!!
We only had 2 different tenants in 5 years. Every time they move there is more damage.
Agree.. If your lucky to find good ones, kiss them weekly.
Mate of mine has had the same tenants for over 25 years... Lawns manicured, house always well looked after, windows washed, so he went the extra mile looking after them for so long.
The killer was they had kids, their kids became teenage scrotes... burnouts, broken Shitbox cars rusting away in front garden, yards became weedfests, and constant complaints from neighbours and the cops made the hard decision for him.
Second people he had in their for something like 8 (under 10) years, and they moved out on their own, so he has just moved back from Perth to the house to be closer to his olds...
So as said, good tenants = Gold.
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How are you defining bargain? Cheaper than _________?
There is a reason things are priced how they are; do you know the area well enough to decide you are getting a bargain as opposed to a property in the cheaper end of town because it is next to _______? The road I live in bisects town, one end is near an interesting area, the other is industrial. In the middle there are properties at $1m, either end? $250-350k. Are those bargains in comparison to the middle section? Well, they are cheaper and they are typically owned by older people (those in their 60's+) who are now downsizing as the kids have moved out. BUT there are a number of cheaper rentals around them at one end in particular, and the tenants there are some of the ones mentioned above to avoid...
How long are you looking to own for? Can you see the property still being desirable in that time frame with minimal work? Here we have rentals that look like they haven't been touched since they were built, and they still ask strong money for them (great for the Landlord) but there are some modernised places that are available for the same money... which do you think attract the better tenants?
I've lived in rentals for a good chunk of the last 18 years, and I will always chose somewhere that has a decent kitchen (something from this decade) and a reasonable bathroom (again this decade is good, but generally tidy and not going to give me grief is always good). We also have laminate floor in our place, and that has been problematic for some of the trades (plumber made a mess of fixing the taps and the floor boards swelled up and then recovered) but is pretty good for us.
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landlord who bitches every time something has to be fixed and cant get it in their head that a 15 year old water heater and 10 year old oven will have to be replaced.
You sound like a ball breaker of a tenant. ;D
Nothing wrong with a 10yr old oven, mine is from 91 and still stand :) I did replace the hot water service 9yrs ago.
Kitchen is 1960 and has that homely feeling :D
Just looking into another property.
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Pm sent
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If you do it make sure you get a current valuation ( capital gains tax) purposes & a depreciation schedule created bith 100% tax deductible of course
Swannie
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not a financial advisor and treat this a highly as you would advice from a random fat bloke in the pub:
• Yes, rent is taxable income.
• Most expenses associated with the property (landlords insurance, trips to inspect the property, repairs and maintenance, agents fees etc etc) can be claimed as deductions against the investment.
• Definitely get yourself a surveyor’s depreciation schedule. It allows you to claim internal items like ovens and carpets (Plant and Equipment) and on the construction costs of the building itself, e.g. concrete and brickwork (Building Allowance). If you buy a new or off the plan property the amount you can claim is much higher than established dwellings. If your property was built after July 1985 you will be able to claim both Building Allowance and Plant and Equipment depreciation. Prior to this date, and you can only claim depreciation on Plant and Equipment. But it will still be worthwhile.
• For ease of mind just get a good agent so you don’t have to deal with all the issues. You just authorise the repairs etc. If there are any issues they deal with it… We had a set of tenants that drilled 1" holes through the wall to fit their own Foxtel dish without permission. Lots of other minor damage so we terminated their lease. We were having the place repainted and they came back slashed the tires on the painters vehicle and smashed the headlights. Agents sorted it all out, so no stress for us. Not the brightest bunch, as they went and boasted to the agent that they'd done it. It made finding the culprits easy!
• Don’t be a douche to your tenants and keep the good ones. Our current tenants are awesome and keep the place immaculate so we've been more accommodating to some of their requests than others. Its a two way street.
• Do get landlords insurance. It protects you and it is tax deductable and you’re probably not covered under normal household insurance.
• Get good advice...
In your case I presume you’re looking for capital growth by covering your costs with rent and hoping over the life of the property it appreciates in value. Which over 10-20 years is a reasonable assumption. But its always a gamble. During the GFC my mother’s house dropped in value by 40%... Investment properties around Qld took a big hit a few years ago. Some of the properties on Magnetic Island dropped 70%. Its a unique case but a good example of what can happen.
So are you expecting your growth to be greater than what you could get simply by putting the money in an index tracker fund returning 4-10% a year, re-investing the dividends in the fund and leaving it for 20 years for example? What are the growth projections for the area you are looking at? It may be cheap to buy but are you going to experience any growth in the property? Is it in a location that has a good supply of tenants? Lots to consider.
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If you have some equity in your existing property you can use that as collateral security. This usually avoids mortgage insurance and you can borrow 100% plus costs. Just be aware that you will either need the cash upfront ( which you will get back n settlement) or exchange with a deposit guarantee. Not sure of the rules in Tassy, but in NSW you can pay the stamp duty at the time of settlement along with other costs.
Happy hunting!!
Cheers
Andrew
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I would recommend a property near public transport and or employment. The tenants you want need to go to work every day. Just saying.
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I would recommend borrowing the same amount as the house to invest in a managed portfolio. Invest in a building portfolio if you like houses, by all means. No I'm not a planner, yes I have had rental houses. I am a builder and still don't have rentals anymore.
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Negative gearing will only work if your overall expenses exceed your rental income. From my experience you'd have to buy something really really cheap and have good rental returns to even hope of covering the mortgage payments. However, typically where houses are cheap it generally follows that the going rate for rent is cheap too, otherwise most renters would become home buyers themselves.
Nothing is really free, so a good return at tax time is usually because you've had to shell out for expenses during the year. You'll only get 'back' what you've spent.
Be prepared and have the capacity to pay for replacement of household items (with 5 minutes of notice from tenants) for things like hot water services, ovens, along with services from plumbers, electricians etc. Over the years we've had several situations where the tenants have stopped paying the rent for various excuses. Sometimes they tell you, some times they don't bother. Either way the bank won't care about issues you have with getting your rent but will still expect their mortgage payments from you on time. You need to consider if you could cover the mortgage for days, weeks, months whilst you chase the tenant for outstanding payments.
It's easy to think you can just kick someone out of your property if they don't pay the rent or aren't looking after the place as agreed. Unfortunately it's not as simple as that and you need to follow a process, which can be tedious, otherwise as ironic as it sounds you could find yourself in trouble with the law.
Decide whether you manage the place yourself, or get an agent to do it. We've had a terrible run with agents that have let tenants run riot, run the places down, not chased for rent etc, so for us they have been a waste of money. We now manage our investment properties ourselves. It's more work for us but at least we feel we are in control.
Be prepared for your rental to be damaged over time and don't expect people to live like you do. No point in having any emotional or sentimental attachment to any property you buy. People simply won't treat the place like it was their own and care factor (as a generalisation) is pretty low by tennats. Don't expect too much sympathy from the rental tribunal either if you ever have to go down that path, as they generally err on the side of the renter.
If you plan for a worst case scenario and end up with a decent tenant that looks after the place, is clean and pays the rent on time then it's not a bad experience. If you can reduce your taxable income along the way whilst getting some appreciation on the property then you're winning, but I'd suggest property investment is very much a long term investment for the best gains and benefits.
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We have an investment property for over 5 years.
It s managed by a property agent which takes all the hassles away.
The current tenants are in the house for 3 years and we have had no issues.
As said before, most expenses are tax deductable.
However I see it as an investment for the future.
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For me the investment properties are about handing them to the kids with a mortgage at today's numbers not in 10 years time
Swannie
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We're going through the process of removing a tenant ATM. Apparently, rent is optional.... ::) ::)
Weeds are about fence-high in the back yard, but at least they're not knocking the place about.
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We have an investment property for over 5 years.
It s managed by a property agent which takes all the hassles away.
The current tenants are in the house for 3 years and we have had no issues.
As said before, most expenses are tax deductable.
However I see it as an investment for the future.
I've had one for 10yrs now.....mine must be labled wrong, because I can't see the investment part of it ? Worth bugger all more than I paid, 10 yrs on....yep, right on the coast, but a dead area for the property market. No matter when I sell, it will be a loss in real terms for the amount of money I have spent.
At least I have good tenants.
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We have a duplex in a low socio-economic area. Had mostly good tenants and a couple of bad ones. We find the problem with having a property in one of these areas is that the tenants only stay for 12-18 months then bugger off. Then you need to repaint/repair/clean the whole place properly otherwise prospective tenants don't look twice at the place. Then the re-letting fees, inspection fees etc etc all add up. Then trying to find a suitable new tenant is another battle, lots of people with no previous rental history (ie the trashed someone else's place under another name). We repair/replace anything broken as soon as the tenant complains so I don't think we are the problem haha!
Again, it's only a tax benefit if you are earning enough to be paying lots of tax in the first place!!!! No free lunches in the rental game...
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Thanks very much for the replies. I'm at work atm and have another busy day tomorrow so I'll reply properly on the weekend.
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We have a unit in surfers paradise. Great tenant, great location, as in close to public transport, ground floor etc. when you look at a buying something you need to look st it from a tenents point of view, not as something you would like if you know what I mean. Agree with keeping good tenants. We just resigned our for another year just today and didn't put rent up as they have looked after the place great and being trouble free. Even got a bottle of wine in return. For us it is part of my super as I am self employed.
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I used to ave a few.
I hate owning residential as an investment.
I only have my own house and a holiday house I don't rent out to anyone.
Have a look at commercial property.
Much better returns and outgoings generally paid by the tenant.
Stronger cashflow and if you do your homework much higher potential gains by virtue of rezoningor town planning upgrades.
I am biased but!
:cheers:
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We've been majorly eff'd around numerous times in regards to our rental properties. One time we sold out because it was just more hassle than what it was worth. ( involved cops removing tenants, property manager couldn't/wouldn't do anything)
There will always be ongoing costs other than loan repayments, this can be in the thousands at a time so be prepared for that.
We have only one now which were currently doing the numbers to sell or hang onto. I'm at the stage where I'd rather put the money back into my own lifestyle than bother with residential investment.
If property values are not expected to rise then I'd look at putting your money elsewhere.
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Couple of things:
As pointed out, make sure area has employment and transport, but also check for schools, churches, shops - the stuff everyone needs
Also remember that negative gearing is negative. It relies on later capital growth. This can take a LONG time.
If you do a study of returns on property v shares since the 1960s you will see that overall they are pretty much even.
If you invest in property and need some cash you have to sell the entire investment; with a share portfolio you can sell just part of your exposure if required.
Make sure you understand the tenancy laws of your state as they vary around Aust. Don't give your tenants an inch; if they default on a week's rent go straight to the tribunal for a judgement. DON'T leave it by being kind. It is a business deal so run it that way.
Good luck
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I used to ave a few.
I hate owning residential as an investment.
I only have my own house and a holiday house I don't rent out to anyone.
Have a look at commercial property.
Much better returns and outgoings generally paid by the tenant.
Stronger cashflow and if you do your homework much higher potential gains by virtue of rezoningor town planning upgrades.
I am biased but!
:cheers:
Agree Nomad, similar to you we have our principal residence and a place up the Sunny Coast for our use. The only difference being is our principal residence includes a second dwelling that we get a "boarding fee" from the daughter and partner. It helps them so they can get ahead while paying the bills for us. With this arrangement depending on how it is structured being a principal residence it is not subject to capital gains tax or included in asset test. In the future we have the option of renting it out or even moving in to the 2nd dwelling and rent the main house enabling traveling for us. All the while it offers a the potential to capital gain especially as the larger lots surrounding are being developed for green field blocks and the sprawl will meet us soon.
As it is mentioned elsewhere the other issue is with a investment property you can't sell part of a property if you need a portion of the money.
your advise with commercial property is spot on as depending on the property type the maintanance costs are next to nothing. For example, a tilt up concrete factory unit there is very little to go wrong., as they have a simple kitchen setup, a bathroom and not much else. The tennants pays fit out cost. Your costs are reduced by the 10% GST that can be claimed. Typically the leases are over longer terms. And if it is not rented then you have somewhere to store the caravan.
I often joke to wife that if we separated I will put a unit in on a mezzanine floor of the factory unit and live there and will have all the room downstairs to have my toys, the ultimate man cave.
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I have had a few rental properties sold one last year outer suburban Melbourne, nice Town house fully detached good out look, 3 bedrooms, 2 bathrooms, powder room down stairs purchased off the plan good sized 2 car garage with a small store room off it. A big reverse cycle aircon unit. Sold it after 11 Years, I will have lost money on the deal. I felt I needed to get rid of it while interest rate were low. It took 3 years and 2 agents to sell. My break even point was $275k it went for $30 k less. The other is in a inner suburb 1 bedroom unit off the plan again. No capital growth after 6 years due to the huge over supply in Melbourne, I will bend over backwards to look after the tenant, due to the reletting costs. I much prefer the stock market.
Greg
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Danny, I have only scanned all of the responses but as you are going to contribute 20% I would make sure that the lender does not LINK your owner occupied property to the investment loan in any way, shape or form. This will protect your home in case something goes wrong with the investment property...
Tenants move out, markets fall, circumstances [aka "Shite" happens] & the last thing you want is to have the additional worry of potentially losing your home. The worst that can happen is the Bank sells the investment property, takes it's money & you get anything left over.
Sounds pessimistic but after 30 odd years in finance, you need to be sure.
Hem
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Disclaimer: I'm a real estate agent and I have an 'investment' property in Queenstown, Tas.
You need to look at the reasons you want to buy this unit - are you looking to get capital growth out of it, or an income in retirement? The answer to this is when you intend to sell.
It is fine to negative gear, keep the mortgage high and pay interest only, if you have a place in a great location that will appreciate over time that you plan to sell come retirement time, however if you are looking longer term and want an additional income stream in your retirement, and never plan to sell but leave the property to your kids when you die, then I would be paying P&I (principal and interest) payments so it is paid off by the time you retire (assuming 25 yrs), and then capital growth doesn't matter so much, but your place will be paid off and your rental income then becomes your retirement income.
Places in Tasmania do not have great capital growth and I am happy to use myself as an example. I purchased my unit there as it had a great rental return at the time at what I thought was a cheap price. There are now units for sale in the same complex for $20k less. Also my great rent return went from $160pw to being vacant for 14 months before I was able to secure a tenant at $105pw!
I would be hesitant to purchase in a small Tas town again, however if you are comfortable with the scenario of the above possibly happening to you then go ahead.
My strategy is option 2 - income in retirement, so I don't care what the values are - couldn't care if they went down to $10. The rental returns matter more to me, and a vacancy of 14 months isn't great but while I'm working I can deal with it, but when retired I wouldn't be so happy.
All things to take into consideration.
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It is fine to negative gear, keep the mortgage high and pay interest only, if you have a place in a great location that will appreciate over time that you plan to sell come retirement time,
That's what I thought I was doing 10 yrs ago. My mistake was probably not enough research. What could go wrong with a unit in a popular seaside town ? Stagnant property growth for 10 yrs, plus the GFC just after buying didn't help.
My personal preference would be to have an "investment" property close to home.....I couldn't trust a real estate to manage a "remote " property 1000K's away !
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I am pretty happy with our property agent.
Very helpful and inspections done at a regular basis.
We are going to Melbourne next year so I might do flight the tax deductable.
But that means that we have to go to the property/agent.
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If you really want to invest in property, have a look at defence housing.
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Personally, I would never buy an investment property. I have spent 8 years, when in realestate, watching people lose hundreds of thousands on investment properties.
The big issue is greed, they never want to sell when the market is a sellers market then complain when they have to sell in a buyers market and lose money on the sale.
People can make money but need to do their homework which the majority don't.
Travel and enjoy life, thats my advice ;D
Mark
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I am about to go to auction tomorrow to sell my last residential investment property. I will be relieved when it goes.
I did buy a bargain, but cheaper properties usually attract a cheaper type of tenant.... another example of the classic saying that you get what you pay for.
Yes, I could have held onto it, but after having it for 15years, it was due for a massive injection of funds- and I simply would not have seen a return on that kind of expense. Yes, I did regular maintenance, painting etc, but eventually things age to the point of big-time maintenance.......... it just becomes more hassle than it's worth.
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I convinced my wife to sell her investment property for the following reasons, too many headaches having to get repairs done, as they where units had to have sinking funds for major repairs then having to have majority of owners agree to "upgrade" as apposed to just repair major issues.
Since this we have bought a few shares, only blue chip so in for the long haul. Also quite a few blue chip shares are still worth buying for medium term gain
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Hey Danny. We have a few rental properties here is Tas. Capital growth isn't great, but over 15 years some have done well, some haven't (St Helens). The beauty of investing here is that picking the right property means it will be positively geared, unless there are unforeseen maintenance issues.
As someone else suggested, pay the 20% deposit you have off your own home and then borrow against the equity in your home. You want to maximise your debt on rental property as the interest is tax deductible, the interest on your own home isn't. I personally would (initially) get the investment loan as interest only. Any 'excess' rental money can then be paid off your home loan. Once your home is paid off then start paying principal and interest off the investment loan. The idea is to have as little personal debt as possible.
My philosophy which has worked so far:
Buy brick with aluminium windows (weatherboard and timber windows requires too much maintenance)
Be prepared to update the kitchen, bathroom and laundry every few years. These are the things tenants pay most attention to and attract higher rental return. I don't mean fully renovate, I mean paint, new vanity, retile etc. know you're a handy bloke, so I'm sure you could most if not all of that yourself.
Get good agent (we use Living Here in Launceston)
I think rentals are a good investment, but I think a broad strategy is best. Even if that just means investing more in Super, i think it is better to have more than one source of retirement income.
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wow I didnt think this would be such a hot topic.
Id like to reply to each response but instead Ill simply outline our situation and reasoning for considering this, and give some figures to try and make better sense of it.
But firstly its fair to say that everyone has different expectations for a so call investment property. And the true sense of the word 'investment' may not be the right term if your expectations are some what different to perhaps a person in a bigger city who at some stage wants returns on interest paid and all expenses occurred in the shorter term.
For us it is a real simple (I am a simple man who lives a very simple life :D ) scenario of buying a modest property and having a tenant pay for that property over the next 20 years and then sell the property to give us some extra money in retirement. Why cant it be that simple??
So just to give some clarity Ill give some figures so you understand we are not talking sheep stations here, so my idea of an 'investment' property is going to be far removed from those of you that have a lot of money on the line in other parts of the country.
The house is only $150k and it is currently returning $165 per week after realestate fee's in income. We were considering mortgaging it separately to anything else we have going on, so we were thinking of paying a 30K deposit (only financing 80%), this would leave us with repayments of around $140 per week.
So as you can see it is chicken feed compared to you wealthy mainlanders!! So to answer some of the concerns, yes we are able to cover the loan repayments if we have a period of time it is not occupied. Yes we have enough savings to cover unexpected costs that will arise from time to time.
The property is cheap because of the situation of the current owners. In fact vacant lots of land the same size as this block of land (just over 1000sm) in this area are selling for this sort of money.
It is near shops, schools etc and has a very nice outlook. The dwelling on it is nothing special but it is clean and tidy and only about 13 years old, albeit very basic.
Growth down here is not great but who knows when the next real estate boom may be???? But having said that, there is absolutely zero chance of this properties value going down, in fact I believe we have an opportunity to grab it a very good price.
So once again we are simply considering buying it so we can one day sell it to give us some more money in retirement. Or who knows, perhaps we will be comfortable in retirement and we will keep it for the kids or perhaps I might get hit by a bus tomorrow so who knows how the next 20 years will pan out.
But having said all that, the only variant may be in how we go about this. I appreciate all the replies and suggestions of how best to do this, it has given us a lot to consider.
We are also in the process of preparing 4 acres of land near Launceston to build our final resting place so to speak >:D Sounds morbid, but it will be our final home in life if everything pans out as we expect........
So we need to be careful not to jeopardise our plans there. Next week we are anticipating talking to the bankers to make sure we can make our future plans work.
Sadly my grandfather passed away about 12 months ago and he left us kids with an opportunity to get ahead a little in life, so another reason we are considering this property is to make the most of the position he has put us in.
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As someone else suggested, pay the 20% deposit you have off your own home and then borrow against the equity in your home. You want to maximise your debt on rental property as the interest is tax deductible, the interest on your own home isn't. I personally would (initially) get the investment loan as interest only. Any 'excess' rental money can then be paid off your home loan. Once your home is paid off then start paying principal and interest off the investment loan. The idea is to have as little personal debt as possible.
Gday Mate hows things up your end of the woods? Still doing the 4wd tour thing??
Thanks for that, this is the area we are not sure which way to go. Im hearing what your saying and agree but we need to be careful that we dont put ourselves in a situation where we are over committed at a later date.
In regards to the actual property it is a one off opportunity due to some circumstances of the current owners and our connection with that. We havent actually gone out and started looking for properties to buy as an investment, this has fallen on our lap so to speak.
Ill keep this topic updated with our progress.
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Disclaimer: I'm a real estate agent and I have an 'investment' property in Queenstown, Tas.
Queenstown still has people and properties?? ;D ;D
I would be hesitant to purchase in a small Tas town again, however if you are comfortable with the scenario of the above possibly happening to you then go ahead.
In some ways all our towns are small. The property we are considering is up the north end of the state so whilst it is a small town I guess, it is a long way from the West coast small towns if you know what I mean. I live in the area, or at least near it.
My strategy is option 2 - income in retirement, so I don't care what the values are - couldn't care if they went down to $10. The rental returns matter more to me, and a vacancy of 14 months isn't great but while I'm working I can deal with it, but when retired I wouldn't be so happy.
All things to take into consideration.
Thanks. Im comfortable this property wont drop in value but I wont be buying a block of units with its growth, so this is for retirement. Thanks for your input, I appreciate it.
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Gday Mate hows things up your end of the woods? Still doing the 4wd tour thing??
Thanks for that, this is the area we are not sure which way to go. Im hearing what your saying and agree but we need to be careful that we dont put ourselves in a situation where we are over committed at a later date.
In regards to the actual property it is a one off opportunity due to some circumstances of the current owners and our connection with that. We havent actually gone out and started looking for properties to buy as an investment, this has fallen on our lap so to speak.
Ill keep this topic updated with our progress.
Hey Danny, yeh all good! Had a tree change, living on a couple of acres just out of Launceston (north end). Yep still doing the tours.
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Hey Danny, yeh all good! Had a tree change, living on a couple of acres just out of Launceston (north end). Yep still doing the tours.
Really? We just bought 4 acres near Dilston! We might be future neighbours ;)
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Really? We just bought 4 acres near Dilston! We might be future neighbours ;)
Underwood! We were originally looking down the river, but this one came up and we both loved it.
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Underwood! We were originally looking down the river, but this one came up and we both loved it.
Nice. We wont be living at Dilston for a couple of years yet until our youngest finishes high school out this way. We dont want to make her change schools at this stage. She will be going to college in Launceston, I work in town and the eldest two boys both work in or around town (assuming they will still be living with us in two years) so it makes sense to move closer to town.
Im not one to want to live in suburbia, I wanted to keep the rural lifestyle so we grabbed this property up on Doctors Hill. Most of it is quite steep but we didnt buy it to use the acreage as such, we bought it to give us space from neighbours and for the outlook. Plus the previous owners business went belly up so we grabbed it from the banks at a good price ;)
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Danny at those numbers your yield will be about 5% annually.. Anything around 5% these days in this economy is ok. But I do strongly suggest you deposit the cash into your home and borrow the maximum amount. its better for you to drop your $$ in your own home. it also gives you a buffer to redraw for repairs or lifes unexpected as you have the cash
swannie
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Have only browsed the thread, but will add a couple of cents.
We have just sold, waiting on settlement, and investment property. My wife had a savvy investor for a father who bought her and her siblings a house to live in to go to uni with an inheritance. Once all were married we bought out the others and kept the house. Fully repainted it inside before renting it out. The first tenants made a shocking mess (show prints on ceilings) and left a replacement stove looking like the 20yo one that burnt and took out some kitchen cabinets. The replacement tenants stayed for 10 years and looked after the place well. Our other investment property, sold a couple of years ago seemed difficult to get tenants and keep them, but was well looked after by those that did move in and we made a good gain on the price due to the market rising.
We got an estate agent in after the tenants moved out to see if it was worth replacing the aging kitchen and leaky bathrooms and painting and renovating the whole place. The agents opinion was to sell as is. We could have spent a lot of money to update the house, but his opinion was that the renovation would not create a bigger return, and it would have taken quite a few months of hard yakka with me doing most of the work to make it worthwhile. Decision made, and on the market it went.
Overall I'm not sure it was a great investment, but it was a way of forced savings becuase it was negatively geared, the money that went in interest costs might have been spent. Fortunately the housing market here has been good to us and we have sold at a good price. If we had chucked all the money into our home mortgage initially would we be in the same position? No idea, but we will be mortgage free soon so it's worked out ok.
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If you really want to invest in property, have a look at defence housing.
I have seen comments from investing guru's saying not to invest in Defence homes.
Yes, guaranteed, trustworthy tenants, but apparently DHA take quite a hefty bite out of your returns, & there's usually not a lot of capital growth in the homes.
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I have seen comments from investing guru's saying not to invest in Defence homes.
Yes, guaranteed, trustworthy tenants, but apparently DHA take quite a hefty bite out of your returns, & there's usually not a lot of capital growth in the homes.
DHA charge a 15% management fee instead of the usual 7% that other managers charge. But they do all the minor maintenance for that, they cover the cost of cleaning between tenants, you get rental income even when they are unoccupied, and when the lease has run out, they re-carpet and repaint the property. We have one DHA rental, and one managed by a real estate agent. I know which one I prefer. The rental income for DHA leased is usually at the top of the bracket for the area, and as far as capitol growth is concerned, that is entirely dependent on the property market in that area. Unfortunately for the OP, there doesn't seem to be many DHA properties in Tassie
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DHA charge a 15% management fee instead of the usual 7% that other managers charge. But they do all the minor maintenance for that, they cover the cost of cleaning between tenants, you get rental income even when they are unoccupied, and when the lease has run out, they re-carpet and repaint the property. We have one DHA rental, and one managed by a real estate agent. I know which one I prefer. The rental income for DHA leased is usually at the top of the bracket for the area, and as far as capitol growth is concerned, that is entirely dependent on the property market in that area. Unfortunately for the OP, there doesn't seem to be many DHA properties in Tassie
I will give you a DHA tenant customer perspective on this one.
I am a long term defence employee here, over 25 years service and have lived in DHA properties ranging from absolute dumps to brand new properties. DHA are supposed to maintain the property for the owner. From my experience DHA are 10 times worse than normal real estate agents. I have also had investment properties so know what it's like dealing with real estate agents long distance. If you can get some one to come around and do the maintanence or fix what is actually requires repair. The amount of band aids or outright crap fixes performed by DHA that I have seen over the years I will never never never have a DHA INVESTMENT PROPERTY knowing that "the investor" is paying top dollar and through the nose for this supposed premium investment service.
In between tenants ( posting cycles) they are suppose to have the property professionally cleaned etc and they actually take this out of the defence persons allowances now on posting. The bullShit charges they Can also impose on a member borders on criminal. You have a vacation inspection a few weeks prior to your removal date and they will identify issues that require cleaning/fixing. You can have your married quarter spotless, have the gardens immaculate and then still get stung after you have moved out. A lot of members are taking photographic proof now on vacation to stop this from happening otherwise it is your word against theirs.
Most properties are not professionally cleaned because a lot of older defence personnel are used to having what we used to call the white glove clean when defence housing was run by defence. They clean the properties to an inch of their lives for fear of been slugged thousands of dollars in charges for absolute minor things. Very rarely a carpets cleaned in between tenants although they are charged for it. DHA will send cleaners around just before tenants are supposed to move in and are lucky to have a lick and a promise. This grieves me no end when we are forced to pay Hundreds of dollars to have a house professionally cleaned and we clean it out ourselves and then have to do the same thing at the other end. Nine times out of ten before you move in to a defence property you ask to get the keys early so you can clean it before your effects arrive. If the average person saw what goes on with DHA during Posting cycle they would be moritified.
Long term defence personnel know to take dated photos of the property when they first move in, ensure they have an email trail for all maintanence for The property they moving into so that they do not get stung by DHA trying to shaft the tenant with repairs they were supposed to fix either prior to a tenant moving in or during tenancy through wear and tear etc. Most defence personnel I know would prefer to be in their own homes or seek private rentals than have to deal with DHA because the experience is that bad.
Thank god for a number of years I now have my own home and I no longer have to deal with DHA.
Also define fair wear and tear. A lot of defence families can stay in one property for 9-12 years. I have seen members been told they have to pay for full refurbishment and repainting of houses after living in them for that long. Most members will improve homes, establish gardens and increase the value of the property. A lot of the time houses were already old before moving in and in poor to average condition before they moved in. Add children growing up from babies to teenagers, of course a property will deteriorate and have fair wear and tear in carpets on walls, vertical blinds etc. The stress and threats a member has to go through on a already very stressful period during posting is unbelievable if their are housing issues, usually resulting in internal DCO advocates having to be appointed to try and resolve the issues.
I have been in two brand new homes over my years, the first person to move into a brand new property. The lists of defects we have had to try and get DHA to fix on both occasions would make your eyes bulge and if you were the owner investor you would physically be ill. I have even had to engage a lawyer to resolve a maintanance and safety issue with DHA with a brand new oven that had a design fault that caused the oven door to fall off. Theovendoor caused a serious foot injury to my wife and 18 months of rehab to fix. Luckily she was in defence as well so all our medical bills were paid for. We were without a useable oven for months because DHA would not replace it claiming there was nothing wrong with it. It took a letter threatening to take them to court and A letter from and independent repair person at my own cost identifying that the supplied oven was faulty and had been identified with a safety recall which I had already provided them with before they finally replaced the oven with a new model. To make things worse these ovens had been bought in bulk and were fitted to nearly all the DHA houses in the estate we lived in and ours was the only one replaced that I am aware of. . I hate to imagine what would have happened if the same injury my wife received happened to a a child or defence spouse who was a civilian and had to pay for the medical bills themselves that we experienced.
DHA is a money making machine, they charge premium prices for poor to average builds at best, rip off the owner with massively inflated management fees at double the standard rate. They are now almost a law to themselves and just about untouchable. There have been a number of inhouse investigations on DHA within government on their "management practises and behaviour".
Ask any defence spouse about DHA, there will be very few that will give you a positive view of them.
Would I invest in a DHA property, from my experience as a customer (tenant), experience first hand what actually happens to the properties and having my own investment properties over the years I most definitely would not.
Cheers, Chris
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Two stories
First one - my boss had a DHA house he purchased new. For the 15 years it was u der DHA it increased in value by 100% from around $265k to around $540k but that is in the hot Sydney market out Windsor way. He recently took back control and f the property as the DHA contract finished and now uses a civilian agent for a private tenant. Upon the defence tenant moving out the property had all the required maintenance and painting done and the yard was returfed at the tenants cost due to their dog. My boss was very happy with the last 15 years.
Second one - I live in a street of 13 houses in a 13-15 year old development. 3 houses are DHA. We have seen some feral tenants and some excellent tenants, much the same as civilians. Two of these houses are bagged and painted exterior. I have seen these painted twice in 10 years. Some of the civilian houses have the same exterior finish and haven't been painted once apart from initial build but do seem to look presentable. The DHA have been painted around 3 times internally. My house has been painted once and I have two young kids, well they are 14 and 11 now so have grown up in this house. Between rotations all have been carpet cleaned again more than my house. In the street that runs off the end of ours there are another 8-10 DHA. Again most seem to be maintained.
I don't know if DHA have been unreasonable in their dealing with tenants in story two but the poster above seems to have had a rough trot.
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Yep, I was a defence member for 22 years, and that was prior to DHA. All rental properties were administered by Housing Section, apart from approved external rentals, but they weren't very common. At least with DHA the houses need to meet a minimum standard, and be of a minimum age, not like the old dog boxes we were supposed to live in. Anyway, that's right off topic.
From a property owners point of view, DHA are a pretty good deal, and they make sure your property is looked after, unlike many other rental property managers. And I've had a couple of crap ones managing a property that was distant from where I lived at the time. Funny thing was, one of the worst tenants was actually a defence member who had punched holes in doors and a wall, left dog crap on a carpet in one room, nail polish spilt on the carpet in another room, the yard was a pig stye with a mound of more dog crap behind the garage about 3 foot high, missing fittings from the house, etc, etc.. I found out about this after driving from Melbourne to Port Stephens, arriving at the house ready to move back in.. When I approached the agent who was managing it, about the state of the property, her reply was "Yes, that property is pretty bad isn't it" FMD.. I went off... And they had even OK'd the tennants getting their bond back from the Rental Bond Board..
In the end the agent paid for our accommodation for 2 days in a motel while they cleaned the place up a bit, and arranged to get the damage repaired. But it was a bodgy job, and I ended doing it properly myself anyway. The agent we have now is good, but I keep a pretty close eye on what happens, and do most of the maintenance on the place myself anyway.
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I've got THREE stories.
1. Bought as an investment in a country town in the early 2000s, and due to good luck it earned more for me in capital growth that year than my salary. Sold at close to 100% profit after just over a year. Lesson: luck comes in handy.
2. Bought a much more expensive townhouse off the plan in a country coastal area and put it on holiday rental. Struggled to sell it after about 15 years and lost about $150k. Lesson: if there are 5 units and three of them are on the market, you'll have a problem. I wouldn't buy a unit again.
3. Bought a beachside block, built our retirement home (big, modern, fabulous views etc) rented it out while waiting to get old enough to move in - god I loved that place. Then grandkids started to come into the world and suddenly we wanted to be a bit closer to them and our kids, so we sold it just for that reason. In retrospect it still worked out as a good investment but would have been even better if we had borrowed the same amount to put in the sharemarket. Lesson: it's hard to plan ahead sometimes - your priorities get thrown aside by the most ordinary of events.
Don't lose sight of the fact that negative gearing is of real value if you are highly taxed, but not so good if your tax is low. And if you invest in shares you can always sell just a few as needed, but you can't sell just a part of a house - it's all or nothing. Good luck. It's great to have a plan and I'm sure you'll do well with all the advice that is coming your way!
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We built and 'maintained' for DHA for 15 years. You couldn't pay me enough to deal with them again. Work orders would come through like "Repair cracked cornice in lounge room". Upon attending site it took 2 seconds to ascertain that termites had eaten the house starting from the leaking shower in the adjoining bathroom, and that the reason the cornice needed fixing was that the wall it was attached to is now an inch shorter. They used to have qualified people administering contracts - not any more. In the end, trying to justify normal work was just too difficult and they were handing contracts to non qualified handymen. Not what I'd want any property of mine to be treated like.
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I will bend over backwards to look after the tenant, due to the reletting costs.
How much is the reletting cost?
I just it took two months for myne to be let.
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Any good, bad and plain ugly realestate agents at the Sunshine Coast?
I am not impress with my current agent (Coolum Beach Realestate) and am think of moving.
Also, do you go with big estate agents or go with the smaller local guys?
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Any good, bad and plain ugly realestate agents at the Sunshine Coast?
I am not impress with my current agent (Coolum Beach Realestate) and am think of moving.
Also, do you go with big estate agents or go with the smaller local guys?
PM sent.
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Any good, bad and plain ugly realestate agents at the Sunshine Coast?
I am not impress with my current agent (Coolum Beach Realestate) and am think of moving.
Also, do you go with big estate agents or go with the smaller local guys?
Have a chat to Greg Glover at PRD in Coolum.