QUESTIONS AND ANSWERS

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10/08/2009

Q1 - Are you purchasing on interest only basis?

Since I started out as a property investor I have always purchased interest only and see no reason to revert back to interest and principle. If you wish to consider paying off some of the principle it works out much better for you to organise yourself. Eg; Find out what the interest and principle payments would be, then pay interest only and reduce the loan by the difference yourself.

Q2 - Is it necessary to pay down personal debt before buying property?

Every person’s situation is different, but generally speaking it is better to learn how to purchase as soon as you can, assuming that you are buying a property that can be value added to quite easily. The problem with paying down debt first is that while you are working hard at doing this the value of the property you would have purchased could have increased by far more than the debt you paid off. Better to learn how to organise your situation so you can buy earlier.

Q3 - Do you recommend managing your own properties?

Definitely not. Managing properties is a complex issue and it is far cheaper in the long run to get a properly qualified agent to do it for you. It is like having an insurance policy. As property investors it is good to focus out efforts on learning how to make money as opposed to trying to save money. My philosophy is to use the experts to help make us wealthy in our spare time and we stick to our day job until we can live off the income from our portfolio. The most important thing for property investors to work on is getting finance – how can I continue to get finance required to grow my portfolio? If you can get finance you can create money.

Q4 - How do you allocate unexpected expenses in the budget?

Try to make them not unexpected, which is much easier to say than to do of course, and as property investors you do require to allow for a certain amount of flexibility. We like to do 6 monthly projections of expenses and then by adding 10% to this in the hope we have it covered. Unfortunately for property investors there are always things that crop up that are unexpected, so we plan as best we can and then deal with what comes up at the time.

The great part of being a property investor, especially in a normal market where there is organic capital growth, the income from property fixes most things.

13/07/2009

Q1 - Do you recommend any news / information services for up to date information on housing / financial markets other than RP Data?

News travels like a Chinese whisper, the real story or messages gets distorted as it is passed from one media to another. Then the media and some of the well know so called property expert people often changes the story to fit their thinking making it their opinion. So I suggest you just keep reading as much and from different sources as you can. Then qualify these sources as best you can, do your own research and soon you will get to know who really knows what they are talking about. Property investing relies on knowing the facts not data entry programmes. They are a guide only and nearly all as useful and as use empty as the other.

Q2 - Is red square better than RP data in obtaining price details

Red Square is new on the market and is out there to create a competition for RP Data. But just like any other Real Estate website their information's are reliant on the Real Agent they have signed up as a member and how accurate and fast this Agents can give them the information to post in the website. Personally speaking even though this and other websites do help I prefer being out there and checking the information's myself.

Q3- Can we have David Kosch or Paul Clitheroe as a guest speaker?

When I used to watch Sale of The Century I used to admire Tony Barber (the host). I thought what a smart guy but I soon realise after reading about him that he is just another instrument of the media. In saying that I can only answer this question with a question: Are they property investor?

Dave’s spin;

Thanks Nat for putting your spin on the three questions above. Not much I can add although I probably would have worded the answers a little differently.

Q1 - Do you recommend any news / information services for up to date information on housing / financial markets other than RP Data?

There are a number of sources which provide data on the internet and they are all very helpful for researching property and these would include Domain, Real estate.com, Residex etc. I also subscribe to google alerts to keep me updated daily on what is happening in the market. When it comes to buying property however it usually gets down to people you know, contacts you make and how you analyse the deal. Hence I have a team of experts around me who all have contacts, get notified when a good deal has come on the market and are out looking at property daily. To research property you can use data information, to buy a property use personal contacts. 

Q2 - Is red square better than RP data in obtaining price details

Nat answered this question accurately enough.

Q3- Can we have David Kosch or Paul Clitheroe as a guest speaker?

My short answer is what for? The idea of creating wealth is very exciting and that is what gets most people’s interest, while the actual process of creating wealth is quite different and not exciting at all, In fact it is mundane, boring, emotional and scary. 

So if you want make it in property do you want a celebrity to teach you about property or a boring old property investor? Both the people you mention are very successful in their chosen profession and we wish them well. They are good at getting good ratings and get well paid for it. My question is that if the message they give was that good, and given the media coverage they get, why is it that such small numbers of people actually create wealth in property?

09/07/2009

1. Can you give us some tactics on how to encourage the banks to value the property for more than what you paid for it?

I have got a little long winded with the reply on this question, so apologies to all. Unfortunately this is a complex area to understand as the requirements tend to fluctuate all the time depending on the amount of work lenders have. For instance if they are not busy and not writing many loans then they tend to be more lenient with their re-values, if they are very busy they tend to be rather conservative.

At the moment with the values increasing and the FHOG creating additional sales we are going through a very tight period with lending and valuations so much of what you ask is on a case by case basis.

The best way to get an increased value from a bank would be for you to do some major improvements to the property first and then go back to the bank with a request for a top-up loan.

It is also possible with some banks to apply for a construction loan to do the improvements prior to starting the work.

However we usually follow a more basic plan of doing minimal work on the property so as not to over capitalise and then we apply for a top-up loan or refinance.

You must understand here that the banks usually like you to wait 12 to 18 months before agreeing to this form of top-up and although at times the lender will agree to a shorter time-frame it is not the norm.

There are a few things we have tried to do that could assist the valuer, such as supplying a folder with recent comparable sales in the area and recent improvements carried out, but in the current lending cycle, the valuer’s are usually not overly flexible.

It is important to understand that the valuer is working for the bank and not for the borrower, even though it is the borrower who usually has to pay the cost of the valuer’s report.

The other level of qualification the valuation of the property has to go through is that of the mortgage insurer who has the final say. Sometimes, even when we feel we have a good valuation, the mortgage insurer can reject it.

If the renovations you carry out are fairly substantial some banks will still give a loan increase in a short time-frame, but the better option these days appear to be to refinance with another lender who may be interested in writing NEW business.

However - even doing this does not work all the time in this market.

The best thing I can suggest for anyone wishing to get a top-up or refinance is to go through the DPG offices and let them make the initial enquiry for you.

We would go first to our contact with the current lender who could inform us on how valuations for top-ups are going and how flexible the funding is at the time.

If we are fortunate then good, if not we next approach our contacts in other banks and lenders to find out how they are going with flexibility on their valuations on refinances.

We can then make recommendation to you on where to place the top-up or refinance.

At this level we wait first for the standard value to be carried out and then if we feel it is too low we would supply recent comparable sales to the lender who would pass on to the valuer.

2. How long can you delay paying stamp duty

You need to speak with your solicitor or conveyance about the actual payment date for a particular purchase. It is possible to delay the stamp duty tax, but it is on an individual basis and usually comes with a penalty interest rate on top.

3. How can we get information on the median house price by suburb over the last 20 years (to demonstrate capital growth)

There are a number of websites including Domain, Real Estate.com, RP Data and Residex who can supply these details for a fee. We have access to the RP Data reports but we have to pay for them. If you wishe to buy the report and purchased through us you would at least get the information wholesale.

4. As full fee paying TNPM and Tam members who joined these programs last year, we are being charged for Pest & Building Report of $374. Please explain?

TAM members who joined before 2009 have the fee included for their first 4 property purchases. TNPM Pty Ltd is a separate company to TAM Pty Ltd. and no DPG Buyer’s Agent fee or Building and Pest report was included. When TNPM program is re-launched this November it will be run similar to TAM and the membership fee will qualify members for BA deposits similar to how the current TAM program works.

5. Is there any news about TNPM program?

Plans are for TNPM program to be re-launched in November 2009. Work has already commenced on the upgrading of the program which will now become the next level to TAM. They say that 2% of the population own more than 2 investment properties and 1 in 1,000 own more than 4. This is a frightening statistic considering how easy the process of creating wealth appears to be in theory. If it were that easy then everyone would be a property multi millionaire and financially free. TNPM will be a program designed especially to help you create, build and maintain a substantial property portfolio in GOOD times and in BAD.

6. Do you have an update on Tumut?

We could not proceed with the Tumut deal due to a lack of interested investors.

The developer got caught up in the credit crisis when the Government guaranteed the funds invested in banks and this put pressure on non-bank funders and this in turn meant the lender called in the funds from the developer. The developer was unable to meet the commitments (went into receivership) and we were doing what we could to help save the project.

Please note;

Ned Hoyt, Dave and Peter and some other chat club members have invested some funds that are tied up in this project. So if anyone wants to discuss assisting to raise funds to secure the project it would be appreciated.

The project is now going to auction and to date there are no sales;

The auction date is now 1st August 2009 and the feedback we have to date is that they expect 5 sales out of the 27 blocks for about $50,000 each. Being an auction we cannot be certain if this information is even close to accurate. We have current valuations of $55,000 on a few blocks

There is an opportunity for interested chat club members;

• If a group of investors unite
  

• To learn a nothing down strategy
  

• We can organise little to no money deals
  

• Investors can make a $20,000 to $40,000 profit with little outlay
  

• If we can make $20,000 without costing us any of our own funds or own time there is the potential for a great ROI.
  

Moving forward;

• The project will probably go to auction
  

• If we can take out the site in one go and Ned project manages the building of the houses a good outcome is likely for all concerned.
  

• The guys who have already invested funds in the project get their funds returned
  

• Those who invest under the No Money deal will stand to earn money in their spare time
  

The nigger in the woodpile;

To take the project out at Auction requires a commitment

• Either from a lender who can put up $300,000 short term or,
  

• 20 people who are prepared to get a loan to purchase a block of land
  

Meeting scheduled to discuss;

If you are interested please reply to this message

02/07/2009

Gazumping – Isn’t that illegal?

Congratulations

You've just bought a property.

BUT.......... Have you?

DON'T GET YOUR HOPES UP!

A word of warning!

Even if you have paid a deposit and signed a contract and offered full price the property is still not yours until the seller has signed and the contracts are exchanged.

HOW CAN THIS BE? ISN’T GAZUMPING ILLEGAL? THIS ISN’T FAIR!

HOW CAN SOMEONE ELSE OFFER MORE OR BE SHOWN THE PROPERTY AFTER THE SELLER HAS AGREED TO SELL TO ME?

The Reasons:

• Paying a deposit and agreeing to terms does not ensure you will purchase the property. All deposits are fully refundable right up to the point of exchange of contracts.
  

• You only have a verbal contract up until exchange of contracts. The seller is under no legal obligation until the written contracts are exchanged. (The seller may be under a moral obligation but often this goes out the window when extra money is offered by a second buyer).
  “Exchanged” means the two signed identical contracts are swapped. You or your solicitor receives the sellers signed contract and the buyer or their solicitor are given your signed copy and the agreed deposit is paid.
  
  
  

• All properties remain on the market for sale right up until the time that contracts are exchanged. This means that buyers who saw the property previously or had arranged inspections subsequent to your offer being made can still negotiate to purchase.
  
  
  

• UNLESS THE SELLER INSTRUCTS US TO CEASE INSPECTIONS THE PROPERTY WILL CONTINUE TO BE SHOWN TO PROSPECTIVE PURCHASERS.
  (Why? Because 15-20% of sales do not proceed to exchange of contracts and the seller can lose up to two weeks or more in marketing time if the property is taken off the market for an unsuccessful buyer).
  
  
  

• The true definition of gazumping is when you are not told of another buyers offer and the property is literally sold out from under you by the owners, another agent or your own agent.
  
  
  

• If you are told of another offer by another buyer you have not been “gazumped”. You are just in competition with another buyer and it is likely the seller will be tempted by the highest price offered. (Not always the way but experience has shown most sellers find it hard to resist the extra money).
  

• If you are in competition with another buyer it is possible that you could get involved in what is referred to as a “Dutch Auction”. This is where each buyer simply offers a little more than the other buyer until one gives up. This is very stressful and frustrating for everyone.
  

Declaring Your Highest Buying Price

Our solution to this is to have each buyer sign a “Buyers Declaration” (which simply asks each buyer to confidentially state the highest price they are prepared to pay for the property with no comebacks if they are beaten *Hint- don’t have your offer end in three zeros if you sign a Buyers Declaration). The sellers will then decide which buyer they wish to sell to and that buyer will be invited to sign and exchange a contract almost immediately to secure the property.

BIG NOTE: If another offer is received on the property you are negotiating on you will be told immediately by our office. You will not be told what the other buyers offer is but you will be asked to state the highest price you are prepared to pay and you may be asked to sign a Buyers Declaration depending on the circumstances. You will not be “gazumped” but will simply be in competition with another buyer. Any deposit paid is fully refundable up until contracts are exchanged.

Our Advice

• Get organised. Pay a deposit quickly as a sign of “good faith”. Have finances organised and if possible, a loan pre-approval for the amount you are seeking if you are borrowing. Note: Although paying a deposit does not mean you have secured the property it does let the seller know you are a serious buyer.
  

• If you are paying full price for the property the chances of being “gazumped” are lessened. Even so in a heated market many sales occur above full price so paying full price does not necessarily guarantee success as a purchaser.
  

• Move as quickly as you can to sign your contract taking advantage of the 5 day cooling off period if you can (not always possible). You will risk ¼% of the purchase price (e.g. $625 on a $250,000 property or $1250 on a $500,000 purchase) but no one else can buy that property during the cooling off period. You actually secure exclusive purchase rights for a week or so. If you decide not to proceed before the cooling off period expires you forfeit the ¼ % deposit to the seller plus you still have to pay for any reports etc you commissioned.
  

• Understand how it all works. If you are like most buyers, you don’t buy a property every day so read up on and research the buying process. If you don’t understand something ask us to explain it – we understand that this is a stressful time and that for some buyers its a once in a lifetime transaction.
  

• Don’t blame the agent. Only the seller can decide who they wish to sell to and at what price they will sell for. Your agent will advise the seller of the pitfalls of having multiple buyers but does not make the final decision. Only the seller can do that and although not always morally right, they have every legal right to choose which buyer they wish to sell to. Human nature however dictates that its usually whoever offers the highest price gets the prize.
  

• GOOD LUCK. We are here to assist and advise. The N.S.W Conveyancing System is archaic in many ways but does permit agents to exchange contracts with very good cooling off provisions. The cooling off period allows purchasers to secure a property at minimal financial risk and have the following 5 full business days to organise pest and building reports, finance, surveys etc. and to take a copy of the signed contract to their solicitor. In many cases the cooling off period can be extended for a few days more if all approvals are not in place but this is at the sellers discretion.
  
  
  

PLEASE…….. DO NOT SHOOT THE MESSENGER. In a heated market it is very likely there will be several buyers for the limited number of properties available. Your agent can be of immense help and if you heed the advice above you will be well prepared as a purchaser.

Can the refinancing module be inserted after Module 28 or soon after as it is somewhat daunting talking to the banks about this?

I checked with Nat and believe we can fit refinancing into next weeks module which will be Leapfrogging as refinancing is an integrate part of the whole program.

The TAM program is a hold your hand program and the finance side of it, as many are experiencing, is by far the most difficult and at times can even be described as frustrating and even daunting. At DPG we have 4 experts in negotiating finance and working through the minefield for property investors. We highly recommend that all members of TAM refrain from going direct to the lenders, in fact I would go as far as to say it should be mandatory that you go only through DPG. We will then have initial discussions with the current lender and do negotiations on your behalf. Once these initial negotiations are completed the bank will then deal directly with you, but please keep DPG fully informed.

You will find very few banking people who understand the requirements of TAM investors and don’t get carried away that lenders are doing the best they can for you – they do the best they can for themselves.

How long will the buy & sell strategy keep working?

I found an interesting article on flipping (buy and sell) that answers a number of good questions on the strategy, so have included below.

The simple answer on how long will it keep working well is open for debate because if you buy right then you should be able to sell right at any time in the market. The facts are that to sell you need buyers, so keep this in mind all the time. Remember also that property investors buy and hold. Flipping is classified as trading and more in line with a job replacement than actual investing. As an investor I use flipping in times when there is potential for strong growth as it helps me create chunks of cash, which helps my buy and hold portfolio.

7 Home Flipping Mistakes to Avoid (actually, you should avoid them all)

If you listen to the late night infomercials, any dullard with an ounce of initiative can make a fortune flipping houses. If only it were so easy. First of all, in some areas of the country, this isn’t the best time to try house flipping, although opportunities exist in many markets. In addition, the burgeoning numbers of foreclosures and pre-foreclosures are an opportunity for the flipping investor. 

You can make a very nice income flipping, and it is a better way than most for the average Joe to retire rich. Just like every other kind of investment however, you can get snookered if you don’t know what you’re doing, or make some bad decisions. With the amount of money in play, it doesn’t take many bad decisions for you to lose your shirt. Here are some of the worst mistakes.

House Flipping Mistake #1

Choosing the wrong house – This is the big daddy mistake, the one that’ll really get you soured on the whole house flipping thing. You want a house you can turn fast, so do your due diligence. You want a property with no major (or preferably even minor) structural problems. Look at the neighbourhood. Is it desirable? Is the net flow in or out? How about the schools? Is it easy access to freeways, shopping and major employment centres? That old real estate saying “location, location, location” exists for a reason.

You want a property that will appeal to the maximum number of people. The more assets it possesses, the better. Stay away from weirdness, unless it’s very easily fixed. I’ve seen some gems, like the house with the bathroom in the middle of the garage. Run like the wind from these places. You want a house that will appeal to the maximum number of people to avoid house flipping mistake #2.

House Flipping Mistake #2

Holding the property too long. The best case scenario is that you flip it before you make the first mortgage payment. Remember all the payments at the beginning of the mortgage are almost all interest. Every payment you make will affect the principal very little so it will come directly out of your profit.

For example, if you got a house for $250,000 (including costs) and end up selling it for nett $279,000, you will gross $29,000. If that takes 27 days, you’ll make no payments and you’ll make $29,000 minus renovation and transaction costs. Each month you hold the property and make interest only loan payments of about 6.2%, your payments will run about $1,350, depending upon your loan costs. Every one of those $1,350 mortgage payments you make comes directly out of your profit, so the best situation is not to make any.

The exception to this rule is if you are able to make improvements to the property that will take longer than the time window to make the first payment, but will generate substantial appreciation, well beyond the cost of the payment. For most people, the better strategy is turn and burn, however.

House Flipping Mistake #3

A big mistake made by flipping rookies is, when making renovations, making the house you like, instead of one with the broadest appeal. This flipping faux pas will directly impact you also making mistake #2. Remember you want to appeal to the broadest possible market. The more potential buyers in the pool, the more likely one of them will purchase your property. With that in mind, remember, when you repaint, all colours should be on the conservative end of the colour chart. No wacky oranges, bright yellows, or cobalt blue hues should appear on the walls. Keep with subdued, neutral colours such as off white, beige, light tan, light gray and so on.

Same with tile colours and patterns, cabinets, or any other detail that you may really, really like, but may not be appreciated by the average buyer. You’re trying to make money, not a statement. Unless you are trying to generate marketing buzz by landing on the pages of Architectural Digest, stick to the basics.

House Flipping Mistake #4

Spending too much money on renovations is a common error when flipping houses. This can be precipitated by first making mistake number 1, and selecting a home that needs major repairs. You should have found a property that needs painting, carpet, tile and cleanup. Look at everything in terms of R.O.I. Those renovation items typically have high R.O.I. If you have contractors that you can trust, and are both fast and reasonable, you may be able to make other alterations, but only if they’ll appreciably increase the selling price of the home. New light fixtures are another high R.O.I. improvement. In homes from the 50’s, 60’s and 70’s.

Great, inexpensive cosmetic upgrades are the best. These include anything that will entice the buyer out of the car and give them a favourable first impression. Examples of this include a new front door and hardware, painting the garage door, new walkways, refinishing the front porch, and interior entry treatments such as hardwood, slate and tile. Landscaping is great for this as well. Remember that cleanliness is really next to godliness in this case. The place should be clean as never before, and that should begin at the curb.

House Flipping Mistake #5

Not knowing your market. You need to know what sells. That’s the only way to know what properties to buy and what alterations will help you maximize profit. If slab granite countertops will make the home sell faster in the property’s neighbourhood, you can get them installed for $2,000, and raise the price of the home by $5,000, then do it. If homes in the neighbourhood all have 2 full baths or more, and you can easily turn a 1-3/4 bath house into a 2 bath house; that would probably be worth doing as well. What people look for in a property is essential knowledge.

House flipping mistake #6

Not doing what you do best and most profitably. This rule applies to all entrepreneurs, not just real estate investors. It’s very common, because people think they are saving money by doing things themselves. You need to look at the big picture however. How do you get paid? If you get paid by flipping houses, you need to spend your time doing that, not cleaning the yard, painting or replacing the carpet. These things can all be done by someone who makes far less money per hour than you do finding opportunities to flip. You should concentrate on finding your next home flipping opportunity, not saving $9.00 an hour by cleaning up the property. That’s what day labourers are for. You should spend your time finding, evaluating and closing real estate deals.

House Flipping Mistake #7

Not having a plan. Before you can do your ROI calculation you need to have a plan. What does the house absolutely need, what other improvements will you make, how long will they take, who will do the work and how much will it cost? Your flipping plan should have the answers to these questions. Remember to include items such as construction permits when calculating costs. In many cases you’ll need them even for relatively minor electrical and plumbing work. Like in many other businesses started by entrepreneurs planning is an often overlooked step in the process, but one that can help ensure success and maximize profit.

Hopefully this list of 7 home flipping mistakes can help keep you on the right real estate investing track.  If you need to know about the property investing strategy that catapulted me from broke at 57 to millionaire at 60 we have a free eBook about buying “bread and Butter” properties or you can purchase The Next Property Millionaire for $20 on the website (rrp $29.95) send a reply email.

Why is cash an advantage?  Because you can offer shorter settlement???

Basically it gives you additional negotiating power if the seller is desperate to secure a sale. They say that cash is king – especially during a property recession or down cycle. Those who have cash can pick up the really great deals available when sellers get desperate to sell (they call this a buyers market.) In a sellers market it gets harder to find great deals because it becomes a sellers market, so if you have cash you are in a strong position to secure the bargain as most people who want a quick settlement will accept an additional discount to those who have the funds ready to go.

25/06/2009

I am a first home buyer.  If I buy a property live in it for 6 months and sell it – will I pay capital gains tax and can I keep the FHOG?

The answer given by one of the members at the meeting was that as long as you live in the property for 6 months then you keep the first home owners grant and if you sell at anytime you would not pay GST.

What will happen if a vendor sells the house himself, is he required to pay the agent fee or commission?

Prior to signing the Agents agreement with the agent you need to state that if you find a purchaser yourself then there is no commission for the agent. Convincing the agent to agree to this is another matter and you will note that all Agent Sales agreements are worded EXCLUSIVE Agency Agreement.

Once you sign this standard agreement with an Agent you are giving the Agency the exclusive right to sell your house and this entitles the Agent to claim their full commission should the property be sold by them, another Agent or yourself.

So a simple answer to the question is YES, but you do have the right to negotiate with the Agent about the terms and conditions of the agreement, and the agreement can be changed.

Any alterations made to the agreement need to be signed by all parties.