When is the right time to buy if you intend to migrate to Australia?

Post to SinFongChanRE.Wixsite.com on 18/3/2018 1:38 PM
Commenting on “When is the right time to buy if you intend to migrate to Australia?”

A reader messaged me via the web Contact:

"We intend to migrate to Melbourne next year from Malaysia. 
When do you suggest is the good times to buy a house for own stay in near future? Thanks in advance!"
_________________________________

A year is a long time. Circumstances change, lifestyle changes, economy changes, government policy changes, and so many things can happen.

My advice is don't worry until you arrive. Rent a place for a year, get yourself familiarised with the new environment / suburb before you buy your house. You may decide to move to another city because of employment or family's needs / education.

Any time can be a right time to buy. It depends on one's circumstance at that time, even if it is for own stay. If your employment, e.g. a medical doctor, requires you to work in the a remote rural area, the timing can be very different.

DO NOT buy an expensive car even if you are loaded, unless you have so much extra money to splash. Spend the extra on the house you own one day, and turn it into a lovely HOME. There are many big houses costing millions, but they are only used as showpiece, generally lack the warmth of human's presence, clinically clean and unwelcoming.

In my opinion, a luxurious car is a personal possession, while a home "belongs" to the family. A happy home is filled with great unforgettable memories, love, joy and laughter. Please remember, the size of the house is not the determining factor!

Feel free to share this post with people you know who may ask the same question.

Thank you for reading.

How I generate very satisfactory Return On Investment (ROI) in my real estate investment

Post to SinFongChanRE.Wixsite.com on 14/3/2018 2:04 AM
Commenting on “How I generate very satisfactory Return On Investment (ROI) in my real estate investment”

About 2 decades ago, an acquaintance mentioned about his investment in Cranbourne. It was leased to a hair dresser saloon and he was getting a very good return.

Although weekends were precious little time for my wife and I, because we were still very busy working full time, we still drove to various towns and outer suburbs to check out properties. We did not have much spare cash because of other financial commitment. However, we had paid off our mortgage by then.

We drove to Hastings, Red Cliff, Balnarring Peninsular, Dromana, Rosebud, Morwell, Inverloch, Wangthaggi, Phillip Island, Ballarat, and Geelong. We normally just walked around the main streets in the town centres, or sat on a park bench and enjoyed our home-pack lunch. In a couple of instances, we walked into a real estate agency and asked anyone on duty to show us some properties on sale. We made very clear that we were not serious to purchase yet. So far, we had not bought a property in any of the town mentioned.

It was until about 12 years ago, we finally paid a visit to Cranbourne, about 50 km southeast of Melbourne CBD or 30 km from home. We had no idea what to expect because we knew nothing about the suburb. Upon arrival of Cranbourne, we drove rather aimlessly checking out the surrounding. We finally parked our car outside a real estate agency, and dropped in to have a chat with a sales staff who was on duty. I asked about the area, approximate property price of a 3-bedroom house, and the monthly rental. The information I got back was what I would consider as good.

When I left the agency, I took a pamphlet from a rack outside. We found a property we could visit but the open-for-inspection (OFI) would be over in just 15 minutes.

The sky turned dark fairly early, the lighting in the property was rather dim. However, I could recognise that it had been renovated recently, and decorated fairly “tastefully”. Unfortunately it was priced above our target range, so we did not pursue further and walked out. The young salesperson in charge of the OFI caught us in time, and suggested that there was another property close by worth considering. It had a granny flat at the back, and was currently rented out. The front was vacant then, and if rented, the combined income would be generating positive return from day one - that depended on whether the agency could find a tenant before settlement date.

It was difficult to inspect a property in detailed, but It did not take us more than 20 minutes to decide to buy the property. The mathematics showed a good return on investment.

Fast forward 12 years later, a nearby property sold recently at a price well beyond my imagination. The property sold price is two and half times the original purchase price. The mortgage payments throughout these years covered fully by the rental income.

Let me show you the mathematics about the investment. This does not take into consideration of opportunity loss on the initial capital outlay, which is 10% of the purchased price. Excess income from rental is also ignored in the calculations.

For ease of calculation, the purchase price is assumed to be $200,000.

Case 1
Purchase price = $200,000
Sale price = Purchase price x 2.5 = $500,000
Gross profit = Sale price - Purchase price = $300,000
Capital outlay = Purchase price x 10% = $20,000
Return on investment (ROI) = Gross profit / Capital outlay
                                                  = $300,000 / $20,000 x 100%
                                                  = 15 x 100% = 1,500% or 15 times
Assume if I had to spend extra $20,000 to maintain/update the property
Return on investment (ROI) = Gross profit / (Capital outlay + Maintenance)
                                                  = $300,000 / $40,000 x 100%
                                                  = 7.5 x 100% = 750% or 7.5 times

Case 2
What if the property is sold for $550,000, can you calculate the ROI?
Gross profit = Sale price - Purchase price = $350,000
Return on investment (ROI) = Gross profit / Capital outlay
                                                  = $350,000 / $20,000 x 100%
                                                  = 17.5 x 100% = 1,750% or 17.5 times
Assume if I had to spend extra $20,000 to maintain/update the property
Return on investment (ROI) = Gross profit / (Capital outlay + Maintenance)
                                                  = $350,000 / $40,000 x 100%
                                                  = 8.75 x 100% = 875% or 8.75 times

What I have not mentioned is that 12 years ago, I could borrow 105% from the bank, which means I borrowed every cent of the purchase price, plus stamp duty, all fees and charges. The rent received covered all the mortgage payment, which means a gross profit is between $300,000 and $350,000 in 12 years.

Property investment is for long term, and one should not sell it for a quick gain, unless in financial trouble.

I am not a qualified investment adviser; so do consult one should you include property investment in your investment portfolio.

Thank you for reading.

Tips for Potential and Budding Real Estate Professionals

Post to SinFongChanRE.Wixsite.com on 13/3/2018 8:28 AM
Commenting on Tips for Potential and Budding Real Estate Professionals”

My wife answered the door knock. There were a young man and a young lady at the door from a real estate agency, wanting to know more about the neighbourhood; or to be more precise, these are rookie real estate representatives wanting to map out the profile of the residents in the area, so that they can do “target marketing” in the future.

We are always cautious about strangers knocking on our door, and so my wife just talked with them at the entrance with the door half-close. 

It brought back a lot of memories of the time when I was a agent's representative. I was probably fitter then, because I used to walk a lot, dropping brochures in letter boxes, knocking on doors trying to meet the house owners and hopefully score a listing or two.

After a few minutes of conversation, I offered them to come into the house. It was a rather warm day, and a glass of cold water or drink would help to relieve their thirst.

In order not to reveal too much of the identity of these young people, I shall call them X and Y respectively.

X and Y have totally different characters. X has a smiling face, spoke very little, but attentive. I consider X as underdressed for a real estate professional, and may not present or project the right image to potential clients.

Y is chatty, in fact a bit over chatty. This approach may be alright to deal with younger people, but not so for some senior house owners. Y was very enthusiastic, and got excited after knowing that I was a former Malaysian who had been in the real estate industry for a long time. Y started to drop names and mentioned previous unpleasant work experience.

I did give X and Y some valuable pointers about how to be an ethical real estate professional. For the benefits of my readers, I want to share some valuable information just in case you or someone you know are interested in joining the real estate industry.

1. Respect Client’s Privacy - Do Not Drop Names
The world is a small place. If an agent or agent’s representative understands the concept of 6-degree of separation, they should never drop names in any conversation unless it is relevant and important to do so.

How do I know that the same agent or representative will not go round talking about me, and my property?

2. Know The Clients - Win Their Confidence
Before meeting a potential client, it is important to find out through initial contact about the cultural background of the potential client. This is a multicultural country, and greeting potential clients in their culture can be a good ice-breaker. However, it must be overdone, because one must not be pretentious. Cultural differences can be a good starting point to talk about how people live in the community.

Discussions of the similarity and differences in lifestyle, qualifications, family makeup, etc. are topics that can put the clients at ease, and it is the first step to win their confidence. The technique in conducting such conversation is beyond the scope of a blog.

3. Know The Markets - Real Estate Markets
Is it enough to know just the local real estate market? The word local can be ambiguous, because it can mean a suburb, a state or even the whole country. It all boils down to the client’s knowledge level.

It is a good exercise to spend time going through the real estate news section each day or week to keep abreast of the industry. Clients especially property owners are keen to find out more from the professional what the real estate market is like outside their own properties. If there are documented evidence to substantiate the claim, the owners will be very impressed, and will consider the agent present more favourably than those ignorant ones.

4. Know More Than The Markets - Knowledge is Power
It is not a bad idea to be a Jack of All Trades, or more specifically, a Jack of All Knowledge. Industries closely related to the real estate industry are finance, interior decoration, landscaping, education, public transport, etc. A house is a property made of out of building material, but what is inside the building and the surrounding form a total package.

Japanese, Koreans and Taiwanese are really good in packaging their products for sale. It does not matter whether it is a run down house or a mansion, as long as it is packaged well, the property would sell.

5. Marketing - Sell What the Buyers Want To Buy
Any salesperson who has not attended a marketing course, should learn from a book or cyber site what Marketing is about. Marketing is not selling what the salesperson wants to sell. It is selling what the buyer wants to buy.

A real estate salesperson should learn as much as possible what the clients want and need. That is why Point 1 above is so important - Know The Clients. If one has no idea what a buyer wants to buy, the deal is not closed with satisfaction on the buyer’s side, and that can scar future transaction with the agency and the salesperson involved.

6. Tell the truth
Not telling everything is not the same as NOT telling the truth. It is easy to break a good news, but it takes a lot of skill to break a bad one.

In a declining market, property owners may still think that their properties worth as much as the boom time. In an attempt to win over other agents to get a listing, an agent may appraise the property to be close to or above the seller’s expectation, not what the market is prepared to pay.

Although there are rules about underquoting, there is no rules about overquoting. If the agent can’t sell it in the given time frame, they will change the story and hopefully return the authority to market it for another period.

Trying to get a listing from a owner, Point 3 is used with modification. An agent requires to sell themselves to the owner their professional expertise, and most importantly, trust. Most owners can see through the facade of an agent, and in this dog-eats-dog world, honesty and trustworthiness win the race.

In order to work in the real estate industry, the requirement is to complete satisfactorily the agent’s representative course. REIV, many TAFEs and private colleges offer the course. This course does not make one a good or successful salesperson. In the current market, one not only requires to understand the legislative knowledge, but also sound life experience and grit.

Thank you for reading.

Flipping houses? Is it worth it?

Post to Facebook on 4/3/2018 at 12:34 PM
Commenting on “Flipping houses? Is it worth it?”
https://binvested.com.au/flipping-houses/

A former student and her colleague in construction related business are considering to try out house flipping, and ask me for advice. They have contacts with many tradespeople who can help in tarting up or renovating the properties. They intend to do it as a side income.

What is house flipping? An investor purchases a property not for his own use, but with the intention of selling it for a profit. That profit is typically derived from price appreciation resulting from a rosy real estate market or capital improvements to the property – or both. An investor might buy a rather "tired" property in a "hot" neighborhood, renovate it, and then put it back to the market.

Such concept is not new. In fact, more than 30 years ago before I worked in the real estate industry, I saw potential in such venture. I did not have enough fund to buy another property, because I was just about to pay off my housing loan. I approached my close friends to pool our money to invest in a run down house, and fix up the property together.

We were all having full time jobs, and the only time available would be after hours and weekends. Most of them were not financially well off, still had children attending schools. Furthermore, none of us was a tradesperson. I was probably the only one that was more "handy", because I worked on my first home, and single-handedly landscaped  the architect-design house I was living in then. Unfortunately, that proposal did not get a thumb-up.

In recent years, popular TV shows such as The Block, House Rules, Homes and Garden have excited a lot of viewers, especially the Generation Y, to believe that there is big money to be made in flipping. According to CoreLogic, the percentage of properties owned for less than two years has grown – coinciding with strong capital growth in the major cities.

The highest rate of flipping for the year to June 30, 2017, occurred in Sydney, was 8.3% and in Melbourne 7.7%. The days of buying just about any property in Sydney and Melbourne, re-selling it quickly and being almost guaranteed a profit is over.

Besides all those TV shows, there are many gurus giving free seminars explaining how to make huge profits in house flipping. How can they afford and make money by giving free seminars; they need to hire the venue, promote the seminars, employed a few helps on the day, free coffee/tea, and may be a giveaway token present? After all the salivating seminars, you find so tempting to sign up to learn more - what so big deal for a couple of thousand dollars if you can make tens or even hundreds f thousands by signing up some courses.

If these gurus are so good, why don't they continue to use the same method to make more money for themselves, instead of flying down from the sunshine coast state - "beautiful one day, perfect the next"?

Some house flipping experts, including Charyn Youngson from Adelaide, have some simple rules which can possibly help you to make a fast profit:

• Buy below market value - 20% below
• Buy at lower end of the market - less risky, more buyers can afford to buy
• Cosmetically renovated not structural - around 3 to 5 weeks
• DIY and upstyle - style with furniture, artwork and accessories
• Hire the right team - engage trustworthy tradespeople who also charge a reasonable price
• Build a good team around you - engage tradespeople who are ready to work on it ASAP
• Think positive - have the right mindset
• To do or not to do - DIY or engage skilled tradespeople to work on the project
• Be realistic and do your research

What are the cons?

• Lack knowledge of the local market
• Difficult to pinpoint the real estate cycle
• Most low end run down properties need more than cosmetic touch up
• Require contingency or reserved fund when things go pear shaped
• Profit gets eaten up by associated costs which normally exceed the budget
• Difficult to find reliable and good tradespeople
• Need time, skill and experience to coordinate the project
• Loss opportunity with money tied up

If you are serious about giving a go at house flipping, I suggest you go to attend some handyman courses, paid or free ones, and start with the property you are living in, provided you are not renting the property. One of my former neighbours who was a painter by trade did exactly the same. The following is a list of pros and cons:

• No initial capital outlay
• Know your local market
• Style it and enjoy it
• Associated costs are absorbed since you are the occupier
• Learn the nightmare of finding the right tradespeople
• Coordinate with tradespeople
• Best of all, there is no Capital Gains Tax (CGT) on selling the property

Thank you for reading.