Question on purchasing multiple properties

Question (paraphrased slightly)

How does a normal person on a normal salary get to a position where they can accumulate multiple properties purchasing negatively geared properties?


Response

What a great question! And one everyone should ask himself or herself prior to starting to accumulate property.

Step 1: Work out what each property you’re looking at will cost you on a case by case basis. The best way to do this (I think) is to read Jan Somer’s investment books on residential property and formulate a spreadsheet (excel is great for this) which takes into consideration all estimated expenses (land tax, insurance, property management fees, marketing, estimated maintenance, body corporate, interest and more) and then factors in any tax and depreciation benefits and works out approximately how much that property will cost you to own per week.

Step 2: If your goal is to accumulate lots of properties, the closer to neutral and positively geared properties you can find, the better. That’s easier said than done in many markets, but I think the best way to find these properties are:
- Look at lots of properties and do lots of research
- Get a property manager (not a sales agent) to give you a rental prediction on any property prior to you making an offer
- Don’t be afraid of making cheeky / low offers. If you’re worried about offending the owners of the properties, just remember, they can always say no. But if you don’t offer them anything, they never have the chance to say yes and you usually have little idea about their circumstances or motivation.
- Revert to step one and work out your numbers (all of them including EVERY expense)! The most common mistake I find these days comes down to basic math. If you’re paying $350,000 for a property and it’s renting for $350 per week that’s NOT a 10% return!

Step 3: Talk to your account about the best entity / people to own the properties under. For you it might be in one partner’s name or in a family trust, but work out what’s going to get you the best protection and the best tax benefits. You might also want to talk to your accountant about getting the amount you are taxed at your main place of employment decreased on a regular basis rather than getting a larger return at the end of the year – this can be great for cash flow.

Step 4: Maximise your rent by:
- Finding a great property manager who will get you top dollar
- Staying on top of regular market rental increases
- Looking at ways to increase the rental return on properties (if a tenant is prepared to pay extra for different heating, a carport, new carpet etc: work out your sums!)

Unless you work towards the above steps you may find it hard to accumulate more than a couple of properties as your cashflow will be depleted. Perhaps this is why around 80% of Australian investors only own one investment property!

Now of course there are lots of other strategies, but what I’ve outlined above is a fairly simplistic strategy for buying and holding residential property long term.

Of course, this information is general and should not be construed as financial advice. Consult your accountant for information specific to your circumstances.

Kirsty

By Kirsty Dunphey with No comments

Buy Fast, Buy Cheap, Buy Now?

I’ve just spent the better part of the morning marvelling at the ridiculously low prices that you can get real estate in the United States for at the moment. Case in a point, a 5 bedroom, 2 bathroom, 3 storey brick home just sold for $7,102 USD in front of my eyes in an online auction.

I get so many emails at the moment from investors keen to grab their $7,102 investment property in the States sight unseen thinking it’ll be a gold mine for them as prices eventually go up and the rent will cover the teeny tiny mortgage in the meantime.

“Caveat emptor” is Latin for “buyer beware” and it’s my motto when buying any piece of real estate for investment or otherwise. Whether the property is in the States or 3 hours away in Australia, regardless of the price I still advise you to go through a lengthy research process including:

• Finding out what the street and suburb are like. What are homes of similar quality renting for in the area? Have you had an independent property manager (ie: not someone working for the company selling it) go and give you a rental estimate? How long are properties taking to rent in that area?
• Is the home even rentable in its current state? What repairs need doing? Have you had a building inspector look at he property?
• If you’re looking in the States, what back taxes are owing, are you buying the property outright or taking on debt from the previous owners? Are you buying through a legitimate source? Also check out www.zillow.com for some great info on neighbouring properties.
• Have you made contact with a good (no, great!) property manager to look after the property for you?
• Do you have someone looking after your legal interest and making sure that any contract you sign protects you adequately?

And please please please consider going to visit the property before buying it. A few hours on a plane gives you an opportunity to see the neighbourhood for yourself, to view similar rental properties, to chat to neighbours and so much more.

By Kirsty Dunphey with 1 comment

Getting the deal across the line

So, you’re about to buy an investment property, or any property for that matter and you want to get the absolute best deal. Always keep in mind that a contract for purchase doesn’t just consist of a price. Many times there are other conditions on the contract which are just as important to the seller as the price.

If you’re trying to get your offer accepted and it’s not quite at the sellers asking price, or you’re in competition with other buyers and want to make your offer stand out… here are a few things you can try to help smooth the deal.

1. Leave the settlement date (the date when you officially own the property) off your original offer and let your agent know that you’re happy to settle whenever suits the seller. If a certain time specifically suits them (quick or a long), being flexible may just help you get the deal across the line

2. Put down a sizeable deposit. This shows you’re serious and are capable of completing the contract. Oftentimes attaching a cheque for the deposit to your offer is enough of a mental stimulus for the seller.

3. Where possible make your contract unconditional or subject to as little as possible. Unconditional means that a contract isn’t subject to a building inspection, finance, selling another property etc. If you can get your building inspection done prior to offering and have your finance approved, this can be a very strong incentive for a seller to sign and put the sold sticker up straight away.

4. Consider letting the agent pass on your circumstances. You’d be surprised how many sellers I’ve dealt with over the years who like to know who is going to own their property after they’ve moved.

It’s important to note that if you’re not able to do points 2 and 3 – DON’T! These are only handy hints and they only work if you’re able to do them.

The points also work in reverse if a seller wants you to come to their price. You can then start to be more rigid with settlement date (perhaps you want to stretch it out so that rent increases can be completed) or deposit (perhaps you want to put down NIL deposit so that your cash isn’t tied up).

Contracts are like living breathing organisms and they’re open to being changed, amended and reworded so that they best suit the parties involved. Before you sign any contract make sure the agent takes the time to explain it and that you’ve read every part of it. Where possible, take it to your conveyancer or solicitor to check over.

Happy purchasing!
Kirsty

By Kirsty Dunphey with 1 comment