Author Topic: I bought an IP today ;)  (Read 12702 times)

marty998

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I bought an IP today ;)
« on: July 28, 2014, 03:31:33 AM »
Ok, readers outside 'Straya will choke on their biscuits when they see this post. So please look away now, before you start shouting 1% rules and such at me. I'm not listening hehe.

In the absence of champers, a nip of vodka is as good a way as any to celebrate. So thats what I'm having as I type.

Exchanged contracts today on a 2/1/1 unit for $450,000. Currently rented for $390/week. Honestly I feel like I've made $25k already as there was an identical unit in the same block that sold for $475k today too. I got lucky, yippie.

Bank is lending me 104%, being purchase price + stamp duty + legals. I'm putting down the grand total of zero for this deal. Double yippie.

Negative gear looks like it will be an $11k cash expense for the 1st year, but after the tax benefit + more for depn and capital works I'll be out of pocket approx 3-4k cash per year.

Long term historical growth rate for the units in the suburb (15 years) is 4.3%. The growth is generally chunky, with 2-3 years being flat followed by periods of 15-20% for 1-2 year. Sydney property market such as it is :)

4.3% growth on a $450k asset is upwards of $19k a year. Hmm fingers crossed the world doesn't collapse and the good times continue.

waltworks

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Re: I bought an IP today ;)
« Reply #1 on: July 28, 2014, 07:24:11 AM »
Jesus.

Good luck.

-W

malacca

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Re: I bought an IP today ;)
« Reply #2 on: July 28, 2014, 10:02:28 AM »
Anyone outside of Australia won't understand this investment.

I almost bought a few houses in Perth after the crash. But I just bought A$ instead - which turned out to be a great investment (bought in at $1.50 per USD).

This one could work out in the long term as along as you can handle short term ups and downs. Overall Australia will continue to prosper with its rich natural resources and active immigration program.

I personally think much of Australia is a risky investment at this point as most areas are overvalued. Australia's economy is hot right now but that could change quickly if China stumbles.

Good luck. Give us an update in 4 or 5 years.

The Falcon

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Re: I bought an IP today ;)
« Reply #3 on: August 02, 2014, 11:39:27 PM »
Yep, won't make sense ex Oz.

I'm guessing Sydney south or west as that money won't do the job inner west or north anymore!

I'm a lurker on somersoft and saw your post ;) good luck, I think it's a fairly safe bet to be honest...with "big Australia" , foreign money and australians love of property - supported by smsf buyers I don't expect the arse to fall out of the market in the foreseeable future.


happy

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Re: I bought an IP today ;)
« Reply #4 on: August 03, 2014, 02:01:25 AM »
Good onya Marty. Figures look like most IPs  figures I see. Sydney's alleged property "bubble" shows no signs of slowing right now. Every few years I think, she's  flattening out, must be the end of it… and whooshka off she goes again.

To be honest,  worst case scenario (which is pretty unlikely),  if you kick the arse out of the loan (which you are capable of), even if the housing market crashes,  you will be left with the rental yield. People still need somewhere to live even if the property value drops. Multiple negatively geared properties is more of a worry to me at least.


marty998

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Re: I bought an IP today ;)
« Reply #5 on: August 09, 2014, 05:51:14 AM »
Yep the bubble continues. Just up the road a couple of similar units are advertised for $520k.

Sometimes I wonder where all the money comes from. I mean, aren't we supposed to be a bunch of whingers, bitching about the high cost of living?

happy

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Re: I bought an IP today ;)
« Reply #6 on: August 09, 2014, 08:00:15 AM »
Looks like you got a bargain then.  Yes, I often have moments when I think " Hmm I'm supposed to be a high income earner and I couldn't afford that!" I know the debt side of the equation is not visible but some of the conspicuous consumption in Sydney seems inordinate.

mooreprop

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Re: I bought an IP today ;)
« Reply #7 on: August 09, 2014, 04:30:21 PM »
I don't want to rain on your parade, but why buy anything if it is going to cost you money each month?  Would it not be wiser to save that money each month until you can put a big enough downpayment to have positive rather than negative cashflow (if you insist on investing in places where it doesn't make sense to invest).

You don't want the "alligator" that you just bought to "eat" you if you lose your job and are unable to afford these monthly shortfalls.

The Falcon

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Re: I bought an IP today ;)
« Reply #8 on: August 09, 2014, 05:03:22 PM »
^ sure, its somewhat of a bullish move but this is a growth play. In time, rental growth will turn it from negative to positively geared, and no, IP investors don't want to pay 20% cash deposit, but want to borrow 100% for maximum tax effectiveness. Positive cash flow properties at time of purchase in OZ are typically junkers in areas with limited capital growth potential / one horse/industry towns. I am not an IP investor myself, but I understand how it works.

marty998

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Re: I bought an IP today ;)
« Reply #9 on: August 09, 2014, 08:21:59 PM »
I don't want to rain on your parade, but why buy anything if it is going to cost you money each month?  Would it not be wiser to save that money each month until you can put a big enough downpayment to have positive rather than negative cashflow (if you insist on investing in places where it doesn't make sense to invest).

You don't want the "alligator" that you just bought to "eat" you if you lose your job and are unable to afford these monthly shortfalls.

Bolded for emphasis, as Falcon says, its a growth play. Rent will never cover the interest initially, and the shithole suburbs where the yield is high are, well, shitholes that you shouldn't invest in.

The idea is that you use your own money for the roof over your own head. You use the bank's money for investments. Cash savings go towards your own place, not your investments, better for tax that way.

Nords

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Re: I bought an IP today ;)
« Reply #10 on: August 09, 2014, 09:05:57 PM »
Hmm fingers crossed the world doesn't collapse and the good times continue.
That's an interesting risk-management perspective.

What evidence do you rely on to convince you that this is different from the real estate markets of the U.S. or Great Britain or Canada in 2007?  Or rather, that you'll avoid buying into the real estate market experienced by those countries in 2008?

AlexK

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Re: I bought an IP today ;)
« Reply #11 on: August 09, 2014, 11:35:21 PM »
What evidence do you rely on to convince you that this is different from the real estate markets of the U.S. or Great Britain or Canada in 2007?  Or rather, that you'll avoid buying into the real estate market experienced by those countries in 2008?

I have a few friends around here who bought in the mid 2000's with negative cash flow and expectations of huge appreciation to make up for it. At the time they couldn't imagine the possibility of prices going down, they thought the worst that could happen is a price plateau. We had things like 103% financing back then too. These guys are still clawing their way out of the deep hole they got themselves into when prices dropped.

marty998

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Re: I bought an IP today ;)
« Reply #12 on: August 10, 2014, 12:06:15 AM »
Hmm fingers crossed the world doesn't collapse and the good times continue.
That's an interesting risk-management perspective.

What evidence do you rely on to convince you that this is different from the real estate markets of the U.S. or Great Britain or Canada in 2007?  Or rather, that you'll avoid buying into the real estate market experienced by those countries in 2008?

Said in jest obviously Nords. You can't protect against an apocalypse, but if spend all of your time worrying about an event like it you'll never invest at all.

What evidence do I have? We'll lets see for starters:

- I've bought in a suburb that has shown average growth of 4.3% p.a. for 15-20 years
- Price I've paid is less than 4 times average dual-income household income
- Population growth is such that there is a gigantic shortage of quality housing in metro areas - a huge unmet demand
- Prices in Sydney metro area either did not fall, or if they did fall have subsequently rebounded higher during the worst global financial/economic conditions in 70 years
- Sydney market is not a one-hit wonder like the regional centres exposed to 1 mine or 1 manufacturer.
- Unlike the US or Britain, our economy and financial system is actually run by people who know what they are doing
- Unlike the US, you cannot just leave the keys in the letterbox and walk away from a mortgage if you don't feel paying it anymore.
- Credit assessments are tighter here. A ninja (no income, no job, no assets) would never get a loan, and our government is not stupid enough to enact laws to force the banks to give people like this loans, like previous US administrations did.
- The culture down here is different. People will pay their mortgages before putting food on the table. Default rates are 1% or less
- The Chinese and Singaporeans like the place. They are buying up everything left right and centre and that is not going to stop anytime soon

I could go on, but thats enough for now...

dragoncar

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Re: I bought an IP today ;)
« Reply #13 on: August 10, 2014, 12:29:22 AM »
I've owned 127.0.0.1 for years...

stripey

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Re: I bought an IP today ;)
« Reply #14 on: August 10, 2014, 03:34:29 AM »
I've owned 127.0.0.1 for years...

^ Very clever!

(Also @OP, the figures look right, and good luck. I am trying to bolster up the courage to do something similar)

marty998

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Re: I bought an IP today ;)
« Reply #15 on: August 10, 2014, 05:12:17 AM »
For those of you scratching your head:

http://knowyourmeme.com/memes/hack-127001

Nords

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Re: I bought an IP today ;)
« Reply #16 on: August 10, 2014, 10:25:58 AM »
Hmm fingers crossed the world doesn't collapse and the good times continue.
That's an interesting risk-management perspective.

What evidence do you rely on to convince you that this is different from the real estate markets of the U.S. or Great Britain or Canada in 2007?  Or rather, that you'll avoid buying into the real estate market experienced by those countries in 2008?

Said in jest obviously Nords. You can't protect against an apocalypse, but if spend all of your time worrying about an event like it you'll never invest at all.

What evidence do I have? We'll lets see for starters:

- I've bought in a suburb that has shown average growth of 4.3% p.a. for 15-20 years
- Price I've paid is less than 4 times average dual-income household income
- Population growth is such that there is a gigantic shortage of quality housing in metro areas - a huge unmet demand
- Prices in Sydney metro area either did not fall, or if they did fall have subsequently rebounded higher during the worst global financial/economic conditions in 70 years
- Sydney market is not a one-hit wonder like the regional centres exposed to 1 mine or 1 manufacturer.
- Unlike the US or Britain, our economy and financial system is actually run by people who know what they are doing
- Unlike the US, you cannot just leave the keys in the letterbox and walk away from a mortgage if you don't feel paying it anymore.
- Credit assessments are tighter here. A ninja (no income, no job, no assets) would never get a loan, and our government is not stupid enough to enact laws to force the banks to give people like this loans, like previous US administrations did.
- The culture down here is different. People will pay their mortgages before putting food on the table. Default rates are 1% or less
- The Chinese and Singaporeans like the place. They are buying up everything left right and centre and that is not going to stop anytime soon

I could go on, but thats enough for now...
That response is a little different than "crossing your fingers".  Thanks for the extra details.

arebelspy

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Re: I bought an IP today ;)
« Reply #17 on: August 30, 2014, 10:36:01 PM »
Very neat marty.

I wouldn't personally buy a property that had negative cash flow counting on appreciation, especially when there are places that will give you double digit cash flow and appreciation, but hey, to each his own.

Good luck to you.  :)
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Sdsailing

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Re: I bought an IP today ;)
« Reply #18 on: August 30, 2014, 10:39:52 PM »

What language is the OP writing in?   ;)

arebelspy

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Re: I bought an IP today ;)
« Reply #19 on: August 30, 2014, 10:59:49 PM »

What language is the OP writing in?   ;)

This language:







We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

marty998

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Re: I bought an IP today ;)
« Reply #20 on: August 31, 2014, 04:44:25 AM »
I'll admit it's an odd contradiction. We live in a land with one of the lowest, if not the lowest population density in the world, but with some of the highest real estate prices you can imagine.

In some respects I envy you ARS with easy access to CF positive properties. If you wanted a CF positive property down here I think you'd probably throw your hands up in disgust and buy shares instead.

omni

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Re: I bought an IP today ;)
« Reply #21 on: August 31, 2014, 06:04:44 AM »
Congrats on your purchase Marty! Numbers seem ok for Sydney. At least for now the market still seem to have quite a lot of steam left in it.

swiper

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Re: I bought an IP today ;)
« Reply #22 on: August 31, 2014, 06:12:53 AM »

arebelspy

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Re: I bought an IP today ;)
« Reply #23 on: August 31, 2014, 10:39:55 AM »
In some respects I envy you ARS with easy access to CF positive properties. If you wanted a CF positive property down here I think you'd probably throw your hands up in disgust and buy shares instead.

No, I'd just be going elsewhere.  ;)

If our markets were swapped, I'd be buying rentals in Australia right now.

In my opinion, buying a good investment with slightly more hassle is better than buying a bad one with ease.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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marty998

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Re: I bought an IP today ;)
« Reply #24 on: September 09, 2014, 02:14:30 AM »
My investment property settled yesterday. I am a Landlawwwwd. Yay.

Purchase price          $450,000
Stamps, legals etc     $18,055
Total purchase price  $468,055

Debt funding:           $468,000
Equity funding:         $55

Comparable sale:      $472,500 (identical unit that sold at the same time as mine)

Day 1 cap gain:         $4,445
Less costs:               ($640) Interest, Insurance and bank fees already paid
Net return:                $3,805

return on equity:       6,918%

Annualised return on equity: 2,525,136%

LOL, my laugh for the day.

Past performance is no indication of future performance.

happy

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Re: I bought an IP today ;)
« Reply #25 on: September 09, 2014, 03:15:18 AM »
Quote
Past performance is no indication of future performance.
Glad you understand this…not sure how long the 7 figure%return will hold up :D

potm

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Re: I bought an IP today ;)
« Reply #26 on: September 09, 2014, 04:45:12 AM »
Also have to factor in the selling costs :P

arebelspy

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Re: I bought an IP today ;)
« Reply #27 on: September 09, 2014, 07:43:30 AM »
My investment property settled yesterday. I am a Landlawwwwd. Yay.

Purchase price          $450,000
Stamps, legals etc     $18,055
Total purchase price  $468,055

Debt funding:           $468,000
Equity funding:         $55

Comparable sale:      $472,500 (identical unit that sold at the same time as mine)

Day 1 cap gain:         $4,445
Less costs:               ($640) Interest, Insurance and bank fees already paid
Net return:                $3,805

return on equity:       6,918%

Annualised return on equity: 2,525,136%

LOL, my laugh for the day.

Past performance is no indication of future performance.

The way to look at this is either you paid market price, and they overpaid, or they paid market price, meaning you got a discount of ... just under 1% (4,445/472,500).

Typically RE investors hope to pick up something 20% or so under market, if trying to buy at a discount.  It appears you paid market price +/- 1%.

Buying at market price can be fine; I've done it often, but usually only in a distressed market.  It' just not a "deal."

Another way to calculate it is what you'd get if you sold today (the day you buy) - as the saying goes "you make your money when you buy" - so some people like to have a profit day 1.  That may be what you're going for with your calculation.

Imagine you sold your new property today, for that higher amount, 472,500.  Pay closing costs.  You're ending up with a net loss.

Not trying to bring you down, just provide information as to how one would actually look at these numbers, since although you obviously knew your way was silly and were joking, someone else reading might not.  :)

Congrats on the closing, I hope it works out for you!
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

waltworks

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Re: I bought an IP today ;)
« Reply #28 on: September 09, 2014, 08:26:50 AM »
Woot! 100% financing! They aren't making more land! Buy now or be priced out forever!

Sorry for the snark. I do hope it works out. Us yanks have direct experience with this sort of thing in the recent past, though...

-W

AustralianMustachio

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Re: I bought an IP today ;)
« Reply #29 on: September 09, 2014, 10:48:56 AM »
Congrats! Will be interested to see how it goes for you

Nords

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Re: I bought an IP today ;)
« Reply #30 on: September 09, 2014, 10:49:12 AM »
They aren't making more land! Buy now or be priced out forever!
I came across this link the other day.  Apparently "they" are making more land, and at a very attractive price!
http://www.staradvertiser.com/specialprojects/2013/kilauea30years/20130103_Kilauea_30_Years_of_Fiery_Flow.html

dragoncar

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Re: I bought an IP today ;)
« Reply #31 on: September 09, 2014, 12:03:53 PM »
They aren't making more land! Buy now or be priced out forever!
I came across this link the other day.  Apparently "they" are making more land, and at a very attractive price!
http://www.staradvertiser.com/specialprojects/2013/kilauea30years/20130103_Kilauea_30_Years_of_Fiery_Flow.html

See also: Palm Islands

http://www.youtube.com/watch?v=0BXGh0EYJtE

marty998

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Re: I bought an IP today ;)
« Reply #32 on: September 09, 2014, 04:07:14 PM »
My investment property settled yesterday. I am a Landlawwwwd. Yay.

Purchase price          $450,000
Stamps, legals etc     $18,055
Total purchase price  $468,055

Debt funding:           $468,000
Equity funding:         $55

Comparable sale:      $472,500 (identical unit that sold at the same time as mine)

Day 1 cap gain:         $4,445
Less costs:               ($640) Interest, Insurance and bank fees already paid
Net return:                $3,805

return on equity:       6,918%

Annualised return on equity: 2,525,136%

LOL, my laugh for the day.

Past performance is no indication of future performance.

The way to look at this is either you paid market price, and they overpaid, or they paid market price, meaning you got a discount of ... just under 1% (4,445/472,500).

Typically RE investors hope to pick up something 20% or so under market, if trying to buy at a discount.  It appears you paid market price +/- 1%.

Buying at market price can be fine; I've done it often, but usually only in a distressed market.  It' just not a "deal."

Another way to calculate it is what you'd get if you sold today (the day you buy) - as the saying goes "you make your money when you buy" - so some people like to have a profit day 1.  That may be what you're going for with your calculation.

Imagine you sold your new property today, for that higher amount, 472,500.  Pay closing costs.  You're ending up with a net loss.

Not trying to bring you down, just provide information as to how one would actually look at these numbers, since although you obviously knew your way was silly and were joking, someone else reading might not.  :)

Congrats on the closing, I hope it works out for you!

You don't have a sense of humour do you?

Woot! 100% financing! They aren't making more land! Buy now or be priced out forever!

Sorry for the snark. I do hope it works out. Us yanks have direct experience with this sort of thing in the recent past, though...

-W

I know what you're like :) Water off a ducks back. You yanks have a property market that I don't understand.


arebelspy

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Re: I bought an IP today ;)
« Reply #33 on: September 09, 2014, 04:13:35 PM »
You don't have a sense of humour do you?

Only rarely.  ;)

Like I said, just trying to provide information as to how one would actually assess those numbers.  :)

The learning and knowledge is the best part of the forum, IMO.
« Last Edit: September 09, 2014, 04:31:50 PM by arebelspy »
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

marty998

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Re: I bought an IP today ;)
« Reply #34 on: September 09, 2014, 04:15:50 PM »
They aren't making more land! Buy now or be priced out forever!
I came across this link the other day.  Apparently "they" are making more land, and at a very attractive price!
http://www.staradvertiser.com/specialprojects/2013/kilauea30years/20130103_Kilauea_30_Years_of_Fiery_Flow.html

See also: Palm Islands

http://www.youtube.com/watch?v=0BXGh0EYJtE

hmmm, Volcanic flows tend to turn into some of the most fertile ground in the world. Just need to be a bit patient while the toxic plumes and gases disperse :)

The UAE indulge in making land for ego purposes. The Dutch on the other hand have been trying to reclaim land for years for more practical purposes with a variety of locks, dams and man made harbours, given much of the Netherlands is below sea level.

Australia is a funny country. Averages 2 people per square km across the country, and yet everyone wants to live on Sydney's North Shore.


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Re: I bought an IP today ;)
« Reply #35 on: September 09, 2014, 05:51:47 PM »
Australia is a funny country. Averages 2 people per square km across the country, and yet everyone wants to live on Sydney's North Shore.
Not me - Sydney is definitely not in the top 100 places I want to live! My brother lives in Bellevue Hill - so I guess he doesn't want to live on the north shore either. What are the advantages?

happy

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Re: I bought an IP today ;)
« Reply #36 on: September 10, 2014, 03:26:12 AM »
Escapee from the norshor here.

The Falcon

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Re: I bought an IP today ;)
« Reply #37 on: September 10, 2014, 04:10:25 PM »
Lilli Pilli 2229 represent y0 ! Gods country on the Port Hacking :)

happy

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Re: I bought an IP today ;)
« Reply #38 on: September 10, 2014, 04:14:47 PM »
Lilli Pilli 2229 represent y0 ! Gods country on the Port Hacking :)
The Shire? Lucky we all like different things or some places would be mighty crowded, eh.

The Falcon

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Re: I bought an IP today ;)
« Reply #39 on: September 10, 2014, 04:47:09 PM »
Yep, it takes all types.

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Re: I bought an IP today ;)
« Reply #40 on: September 10, 2014, 05:12:34 PM »
Well, I'm from Australia and I still choke on my biscuits at how much property investment here relies upon hoping that, in what is already considered to be one of the most expensive countries in the world in which to buy real estate, historical bountiful capital gains continue to make up for abysmal rental returns. My time in the military taught me that hope is not a strategy.

Nonetheless, it seems you've done your due diligence and the projected numbers work out for you. Pardon the military pun, but don't let me rain on your parade! :)
« Last Edit: September 10, 2014, 05:14:35 PM by Ozstache »

Chicken

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Re: I bought an IP today ;)
« Reply #41 on: September 10, 2014, 05:43:10 PM »
You yanks have a property market that I don't understand.

I suspect you would have understood it quite well in 2006...

AustralianMustachio

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Re: I bought an IP today ;)
« Reply #42 on: September 10, 2014, 09:14:01 PM »
Ugh I would hate hate hate to live in Sydney's North Shore. And my family comes from there and I have plenty of relatives there, so I know what it's like.

marty998

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Re: I bought an IP today ;)
« Reply #43 on: September 11, 2014, 03:38:44 AM »
Lilli Pilli 2229 represent y0 ! Gods country on the Port Hacking :)

It's about freaking time another shire kiddo turned up.

Regards
2233

The Falcon

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Re: I bought an IP today ;)
« Reply #44 on: September 11, 2014, 04:28:59 PM »
The dine or the cote?

marty998

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Re: I bought an IP today ;)
« Reply #45 on: September 04, 2015, 02:57:44 AM »
One year on thought I'd give an update...

My investment property settled yesterday. I am a Landlawwwwd. Yay.

Purchase price          $450,000
Stamps, legals etc     $18,055
Total purchase price  $468,055

Debt funding:           $468,000
Equity funding:         $55

Cash losses              ($8,532) (Rent minus interest & costs)
Depreciation:           ($5,521)
Tax benefit:               $4,909

Net cash out of pocket: $3,623

Comparable sale        $550,000   (unit down the hallway sold last week)

Total gain                  $78,322

Did very well :)

Don't expect the growth to happen again this year. Even if there is no growth for 4 years it is still worth holding onto. Happy to sit and wait for the long term.

potm

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Re: I bought an IP today ;)
« Reply #46 on: September 04, 2015, 03:32:03 AM »
Have you managed to get a rent increase on it?

sammybiker

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    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: I bought an IP today ;)
« Reply #47 on: September 04, 2015, 04:41:39 AM »
Thanks for the update!  OZ re scares the shit out of me with the heavily negative cash flow but as long as the appreciation keeps up, you're OK.  Best of luck.

marty998

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Re: I bought an IP today ;)
« Reply #48 on: September 04, 2015, 05:15:15 AM »
Have you managed to get a rent increase on it?

Yep, just put through a $15 a week increase from $390 to $405.