Q - My property manager just informed me that my tenant has given a vacancy notice. It will be towards the end of November and I am a bit nervous about vacancy during the holiday season or should I be?
The property is old and I think it needs a good coat of paint to brighten it up but I won't be able to do that until the tenant is out. The property manager wants to know what I want to do. I am not sure because it will be really close to the holiday period after painting and minor repairs etc.
What would you do if you were me? Or what action have you taken when you were in this similar situation?
It is really your decision but if you think the property is likely to be vacant for a few weeks then I would take the opportunity to do it up and then charge more rent once it's freshly done.
You can organise the tradesmen now, so that they can be ready to move in and paint as soon as the tenant leaves.
The property manager can still advertise the property as coming up for rent soon and promote it as freshly repainted.
One of the Reno King's suggestions is to advertise yourself for a tenant if the property manager doesn't get one organised - he advertises on a Wednesday when there is not much else available in the paper, and often gets them in by the weekend. The problem with many property managers is that they advertise on Saturdays, but nobody is in the office to take the calls!
Q - I was after some advice on starting out with investing in property. My husband and I live in a very small Victorian country town (population 200) and are waiting for the right farm property to come up, which can take a while in such a small town. We have around $130K saved up as a deposit, currently in a term deposit account, which while earning interest, we will also be getting taxed on. As it is taking a while for our dream property to come up, I am eager to do something with a small part of our money. I currently earn $55K a year and my husband around the same, but I will be stopping work next year to have a baby. I would like to buy a small investment property (around $150K) with the view of putting 10-20K down as a deposit and then using the rent to pay off the mortgage. This rental property would not be in the small town where we live, but a major town around 1 hour away. My husband is worried about repayments, bills, rates etc and I would just like your advice on if, in our situation, it is wise to enter into a debt for an investment property?
How exciting for you and congratulations on having some savings behind you and the expectation of a baby next year!
I can't give you any advice, but I can give you my opinion. I'm with you! You've still got funds behind you as you would only be using a small percentage of your savings for the deposit.
If you are purchasing a property around $150K, you should get a fairly good return which could be close to positive cash flow after tax perhaps.
The tax deductions you would get may offset the tax you pay on the investment you have.
If your husband is concerned about the debt there are two things I would suggest which might help:
Consider using a 100% offset account where the loan interest you have on the new investment property is offset by the savings you have left. If you borrow $130,000 but you have $100,000 invested, you would be looking to only pay interest on the net difference of $30,000. That would certainly help to make the property provide positive cashflow.
Do proper analysis on the property - or the type of property you're looking to buy. If you use good Analysis software you'll easily be able to see the effect on your income now, and you can do 'what if' calculations and reduce your income from the analysis to see the results of that.
Many men are particularly good at understanding the logic of the numbers - it helps overcome fear of debt by seeing the potential rewards of using loans wisely to invest.
If you don't have any analysis software, I'd recommend PIA which was written by Jan Somers husband, Ian Somers, who as you may know, was a legend in Real Estate investing a few years ago, so you can be confident that the software is good for investors.
Q - I'm 57 and recently divorced. I have been bankrupt in the past (joint business) so started again at 40 with literally nothing. I am nervous about not having 'money in the bank' now. BUT - I am self-employed and earning gross approx $80K with good potential for that to increase, have only been self-employed for 2 years though. I have one dependent daughter still at school grade 11, the others are semi-independent though I am still paying for some things for them. They have no-one else but me and I would like to leave them something!!
My property is worth approx $400K and have a mortgage of $125K still to go. No other assets, no debts/loans either. My main fear is that if I buy an investment property which I know will be hard to find as positively geared - (for me negative gearing is a tax offset anyway) - I may be struggling to pay the 'costs' having only me to rely on plus self-employment which of course can be 'risky' in terms of illness etc. I think I'm asking whether this sounds risky given that I don't have any capital, only equity in the first property, but will be paying 2 mortgages. Would it be better to rent and start this investment idea?
Your bankruptcy is over 7 years so I don't think that will be showing on your credit report anymore which is a good thing.
You have got equity and no other personal debts which is great.
Many investors I know have used equity to fund the shortfall of negatively geared properties - so having a good amount of equity can certainly give you a 'buffer' of cashflow.
If you are so concerned with the sole reliance on your income, how much better will you feel when you have got a few properties in your portfolio and the risk of your income isn't based just on your salary anymore as you'd have rental returns also.
Perhaps an option for you to consider would be looking for high yielding properties that are near new so that you get a better return and high depreciation to put money back in your pocket. Some builders for example offer their display homes to purchasers with guaranteed rental returns of 7-9% for a year or two. One of my previous students used that strategy and made sure that the property was also 4 bedroom and in a student area so that after the rental guarantee period expired they still had the option to rent the property by the room for a higher return.
I'm sure you could get 2 or 3 rental properties without moving out of your home. You can still use the equity in your home to help fund investment purchases no doubt.
Speak to a good Finance Broker and get an idea of your borrowing capacity. A Broker is often easier to talk to than a Bank Manager as a Broker understands the policies of many lenders and can give you different options to consider usually. You might want to try Finding Finance (www.findingfinance.com.au) as they are investors as well as Brokers which I think always helps.
Normally I would suggest you come along to one of our one-day workshops but there aren't any more planned for Australia now. However, if you like to learn from home, and replay information to help you absorb it more easily, then you might like to consider the set of 6 Audio CD's from one of the Property Women workshops which is now a Home Study Course. It has heaps of information that would help you, but also there's a lot of inspiration too and I don't think you can ever get too much of that. For example, one the speakers was in her 50's and lost her marriage and her business but she's back on track and doing really well on her own with a number of investment properties.
You have obviously overcome hurdles before - and I have no doubt you can overcome this mind hurdle that you currently have about investing.
Disclaimer The information, statements and opinions expressed in this email are only intended as a guide to some of the important considerations to be taken into account relating to property investment. Although we believe that the statements are correct, they should not be taken to represent accounting, taxation, legal or investment advice and you must obtain your own independent advice from an appropriately qualified professional.
Neither the publisher nor any people or organisations involved in the preparation of this material give any guarantees about its content or accept any liability for any loss, damage or other consequences that may arise as a result of any person acting on or using the information and opinions contained in this email.
