Rent To Buy: Bootcamp Highlight Notes

These notes were taken whilst listening to a webinar from Rick Otton who was discussing the highlights from one of his bootcamp seminars.

• Webinar is being recorded (TODO: get the recorded version)
  
• Life is limitless!!!
• The only limits in life are those that you set yourself...anything is possible - if you haven't done it yet, you just haven't found the processes' and/or tools.
• Rick consults with "powers to be" (implying government officials etc) in regards to "what is happening" and continues to state that the Census has an option: "are you purchasing your property by: a) ... b) ... or c) A Rent To Buy Scheme
• Indicating that this is becoming so popular that it is bound to be the way forward...

• INSTALLMENT SALE aka TERMS CONTRACTS aka VENDOR FINANCE
• Allowing the sale of a product via installments
• nb: "The Block" the TV show was bought using an installment contract or 'vendor financing'
• Has delayed settlement and a monthly payment schedule between settlement date and exchange
• A lot of students will just use this method and nothing else
•  
• HANDY MAN SPECIAL
• Most people would love to do the Reno themselves (design the way they want)
• Happy to pay full price
• As long as you make it easy to purchase the property in the first place
• Buyers has emotion and energy invested in teh property

With these two strategies you're relaly just a stepping stone into the mainstream banking system..."don't look at me like a bank...but rather, look at me as the ladder to get you into the banking system"

Allows people to get their credit back in order.

Can show lender their ability to make payments on time.

LEASE OPTIONS - RENT TO BUY (not Vendor Finance as it's not a Finance contract)
Can if they want to, buy the property but they dont have to!
They don't pay stamp duty or legal fees.
Easy paper work
Residential lease and the option.
The option gives them the right but not obligation to buy
Give money up front, this goes to the property purchase
They could even transfer that into another property down the track if they want something else

Three Documents Required to do this strategy
1. Option to buy
2. Residential Tenancy Agreement (can buy these at a newsagent)
3. Contract for sale

If looking for solicitor (to draw up these agreements)
Use a commercial solitior as they have more experience with these documents

BACK TO BACK LEASE OPTION
Lesae option with the seller
Lease option with the buyer
aka sell the option you got from the seller to the buyer
You are now transacting the right to buy the property...
They don't attract any taxes or stamp duties until ownership
Mcdonalds starting doing all these lease option.
Lease option for land
Lease option to the franchise owner
Made money on arbitrage between the options. More detail in the book: "beneath the archers"
Buy a house for $1 this way!
Lunar Park went for a $1
Volvo went for a $1

Nobody wants their Debt Bit, everybody wants their Cash bit!

Sometimes won't always get it for $1 sometimes $1,2,3,4,5K

AJV Assistant Seller
JV with the Seller
Go to the market and split the profits 50/50
Assumptive Joint Venture (with a person that is in a property)
1 person brought the money to the table and the other person does all the transacting ( make the transaction seamless)

Deposit Finance
Recognise that the buyers don't have deposit
Buyer borrows as much, vendor lends them the deposit.
You buy property. Ultimate buyer buys property, and gives you monthly installments for the deposit. you then take the mortgage to the next property and continue the cycle...

Some Now Some Later
Make offers to RE Agents - give some now and bit more later
Agent: "how much can you give now?"
Give large sum of money to vendor to begin with - normally comes out of the mortgage
Vendor may get it later with interest (eg 5 yrs time with interest all in one payment at end or with monthly interest installments) sometimes needs stepped interest rate. Depends on what you need to do to bring the whole thing together.
By the time you need to give the rest of the money to the vendor, you've on sold the property to the next person.

Getting Started
Choose your areas.
Just go and start speaking to everyone in the game:
Solicitors, Accountants, Real Estate Agents, Buyers Agents
Internet: Google Videos for the strategies
Let it become a part of you...think it, feel it, breath it, live it!
Start small:
1. Call 3-5 agents
2. Let the agent know what you're trying to do

Which strategy if you have no money
Back to Back
AJV
Installment Contract (then get an investor to come in with the $ and then give the investor 50% of the profits)

What to do if you have Negatively Geared Property
Rent2Buy
Change from Rent to Rent-2-Own
Current tenant may not want to change (they'll be paying a lot more than they're used to)
Give the current tenant a share of the $ as an incentive to help sell the property to prospective new tenants
Installment Contract

What if you have Fear/Lack of confidence

Why Buy When The Market Is Down

I've been trying to keep an ear to the ground, listening to experts regarding what affect the recent Share market crash will have on the Australian Property market.

The general consensus seems to be: don't fret, in fact investors come back to property when shares don't perform.

And: this is a good time to buy - when consumer confidence is rattled as it opens up unique buying opportunities to the savvy investor!

BUT: what does that actually mean?

WHY is this a good time?

HOW does this translate into opportunity for the 'savvy' investor???

Finding A Deal: Question 2 - Transport?

The area you choose to focus on should have easy access to public transport

How Do I Find Out If Public Transport Is Easily Accessible?

• Check the council website for the area
• Google for 'area name' transport map
• Find the name of the company running the transport in that area and visit their website
• Once you have all the maps (bus/tram/train) save them somewhere safe - you should include them in any Business Plan that you are showing to potential investors

Finding A Deal: Question 1 - Employment Area?

We hear that it is important to ensure that the area you are focussing on offers close proximity to an 'employment center'.

Well, what is an employment center?

• Where the money is made
• ???

How close should my area be to a definitive employment center?

• ???

How do i find out if my area is close to an employment center?

• Start with the Area Council website. 
• Have a look at their zoning map; look for industrial and commercial zones within your chosen area
• ???

Finding A Deal - My 3 Areas

My three areas that i'll be focussing on are:

1. Parramatta
The size of Parramatta is approximately 6 km².  It has 18 parks covering nearly 23% of the total area.  There are 8 schools and 5 childcare centres located in Parramatta.
The population of Parramatta in 2001 was 17,236 people.  
By 2006 the population was 16,721 showing a population decline of 3% in the area during that time. 
The predominant age group in Parramatta is 20 - 29 years.  
 
Households in Parramatta are primarily sole parent and are likely to be repaying between $800.00 - $1000.00 per month on mortgage repayments. In general, people in Parramatta work in a non-specific occupation. In 2001, 31% of the homes in Parramatta were owner-occupied compared with 33% in 2006. 
Currently the median sale price of houses in the area is $648,750.

STRUCTURE: 
Couples with children (20%)
Childless Couples (22%)
Group Households (8%)
Lone Households (21%)
Single Parents (26%)


HOUSEHOLD OCCUPANCY (2006)
Renting (63%)
Owns Outright (13%)
Purchaser (19%)
Other (5%)

MyRPData Full Report

2. Newcastle
The size of Newcastle is approximately 1 km².  It has 7 parks covering nearly 11% of the total area.  There are 2 schools located in Newcastle.  
The population of Newcastle in 2001 was 2,414 people.  
By 2006 the population was 1,918 showing a population decline of 21% in the area during that time. 
The predominant age group in Newcastle is 20 - 29 years.  
 
Households in Newcastle are primarily sole parent and are likely to be repaying over $2000.00 per month on mortgage repayments. In general, people in Newcastle work in a professional occupation. In 2001, 38% of the homes in Newcastle were owner-occupied compared with 43% in 2006. 
Currently the median sale price of houses in the area is $495,000.

STRUCTURE: 
Couples with children (8%)
Childless Couples (27%)
Group Households (3%)
Lone Households (24%)
Single Parents (37%)


HOUSEHOLD OCCUPANCY (2006)
Renting (55%)
Owns Outright (21%)
Purchaser (22%)
Other (2%)

MyRPData Full Report

3. Blacktown
The size of Blacktown is approximately 16 km².  It has 52 parks covering nearly 8% of the total area.  There are 16 schools and 11 childcare centres located in Blacktown.  
The population of Blacktown in 2001 was 36,676 people.  
By 2006 the population was 39,586 showing a population growth of 8% in the area during that time. 
The predominant age group in Blacktown is 20 - 29 years.  
 
Households in Blacktown are primarily couples with children and are likely to be repaying between $800.00 - $1000.00 per month on mortgage repayments. In general, people in Blacktown work in a non-specific occupation. In 2001, 65% of the homes in Blacktown were owner-occupied compared with 63% in 2006. 
Currently the median sale price of houses in the area is $380,000.

STRUCTURE: 
Couples with children (35%)
Childless Couples (23%)
Group Households (14%)
Lone Households (6%)
Single Parents (20%)


HOUSEHOLD OCCUPANCY (2006)
Renting (33%)
Owns Outright (30%)
Purchaser (33%)
Other (4%)

From Wikipedia:

Blacktown is located 34 kilometres west of the Sydney central business district and is the administrative centre of the local government area of City of Blacktown. Blacktown is the largest of any suburb or township in New South Wales and is one of the most multicultural places in Sydney.

MyRPData Full Report - ABS 2006 Blacktown Census

Rent To Buy Real Estate: Question 1

These are the questions i have about the idea of Renting To Buy Real Estate:

1. If the motivation for 'The Buyer' is to get into the market without the Banks for the purpose of 'Refinancing' down the track...what are they going to be Refinancing?

 - I assume that the vendor holds onto the Title throughout the term of this transaction, so what is there available for the 'The Buyer' to ReFinance on???

- Perhaps the answer lies here:

says St George will accept rent as a form of savings for a home deposit if there is evidence of a minimum of 12 months continuous, satisfactory rental history and the property is leased through a licensed property manager.

How To Choose The Right Properties & Quickly

These are the notes i have from a Webinar with Yza Canja as part of the ProInvestor course...

Never about what you can and cant afford or what you can and cant do...its about what is a good deal => focus on the profits.

Amanda completed a no money down deal and has only been in the course for a few months.

The Formulae

Area choice: 3 areas to focus on.
NOTE: Just because something doesn't fit into these doesn't mean that won't be profitable - just means they may require more effort or $ to get the profit out of it

An area is not necessarily a 'suburb'. An area are places like Paramatta, St Kilda Council area.

Growth Rate: Steady 10 year growth or Fast growth in 2-3 years. Or if there a few different indicators (eg Sunshine coast about to house the biggest hospital in all of QLD plus roads, businesses are relocating and people are following). You want plans approved and underway, don't want just plans...use RPData.com.au and Residex or a Real Estate Agent for growth figures.

Surrounding Features:
Private school promitiy is good because it iwll attract those with high levels of disposable income.
If there is new infrastructure it means that other people have ALREADY invested in that area and they believe that area is tipped for growth or that infrastrucutre will tip the growth into the profit zone...
Don't relly on only one infrastructure factor eg just one major shopping centre reno isn't enough...its a lot but you'd want to see other things too

Shoulder Areas
Prices are going through the roof in one area, a lot of activity, looks great. But its at the boom time of its cycle, then its a good idea to move to shoulder area as prices are about to peak and at that point, people will look next door, for the next closest, similar area..."spill over area"

Not Too New
You don't want too much competition as it can make prices stall or go down because vendors are offering against each other...this is why a whole new massive developments are not the best idea. You want a shortage of supply and high demand.
Areas with Heritage and Height Control create lids on the supply, coupled with high demand = constant performance as they can't add more supply to meet the demand = constant demand.

Vacancy Rates
Need vacancy rates less than 2%. We want properties that are going to out perform the rest of the market.
Find the rates by speaking to as many agents as possible and find out how much of their list is vacant.

Rent Return
New areas in the $400K = $400 per week rent.
5% Rental growth each year...means next year should be $420 per week.

Demographics
Young professionals and gay communities - high disposable income, few dependents, (gay couples also have tendency to enjoy lavish lifestyles and house proud that keep things well and willing to pay more)

Make sure there is a minimum population of 40,000 with a high percentage of young couples. If majority is big families, they’ll probably want budget properties.

Demand

What is most in demand in that area? Are most sales units/townhouses/houses

If vacancy rate is low and majority of demographic is renting, then may have good cash flow. But good capital growth is often pushed up by home owners. The end home owners pay more for that property.

Therefore, you want a balance between renters and home owners.

Befriend the Agents

You need to get EVERY agent in the area working for you. Tell them you’re looking for more than one property. Here is my criteria…im not a buyer/owner, I’m an investor looking for more than one! Develop the relationship so that they’re calling you before things hit the market.

Speak at least once a week…”hey, (banter)”, got anything for me.

Give them incentives: once I get the property, you can help me rent it out and/or on-sell it when I cash in.

Need to make it clear that you can make it quick decisions. But mention: sometimes I’ll be quick sometimes I won’t It depends on the people I’m working with. I’ll do my best to not stuff you around, just know we can’t do all deals but we’ll do all we can!

Choose best 3 streets in area

Proximity to lifestyle, scenary and transport. Look at surrounding blocks and they are the highlight areas. Look at every property that is for sale first. 

Make contact with all agents for each property and fill in the Property Inspection Template. You don’t necessarily inspect all at this stage. Use this to narrow down further.

If you’re looking interstate, use the checklist + google earth. Then get the agent to take photos of everything for you. If it’s still a possibility, get someone in that state to inspect it. If you can’t just make sure the numbers stack up first!

Notice:

Are properties on the market mainly new or old? Mainly houses/units/townhouses?

Deal

Make sure that the property has been on the market for more than 2 months – this opens up the plate for negoiation.

Find out the reasons for vendor selling up – tells tale son the time frames to settlement and level of desperation – or if something is wrong with the property (an opportunity to knock price down and add value yourself)

Don’t assume why someone is selling

Don’t assume what the vendor will accept price wise.

Mortgagee sale – often need a quick turn around time – need finance ready – which means you’ll probably need to put money down.

Unless it is like a wholesale scenario…go to the possessor and neogiate a price based on the fact that you’ll take multiple properties off them.

Eg deal in townsville ; went to possessor and said we’ll take a few if you can give a discount and they got 10% off the deal.

Not Too unique

If properties that are similar to yours are not being bought and sold, prices will not go up. If there are no properties like yours it probably won’t be in demand.

New or Old

New preferably; easier to hold, better cashflow wise and better deductions.
If old; make sure there is room to renovate/update. Or it is already neutrally geared (preferrably before discount/negoiation but if not, at least still room for updating and ability to create extra value on top of the negoiated neutral gearing)

Choose ones that are larger than average in size than comparables in that area.

Make sure, also, that they are close proximity to newer, more expensive properties – this will be your comparison

Also need to be 20% cheaper than brand new properties of similar type. Older style properties will, in most cases, be of less value even after reno than new properties of similar type. And you need to create a good end deal for ultimate buyer whilst creating a profit for yourself.

Don’t Buy At Auction

You loose the ability to negoiate on your terms. You need control over the whole transaction. In Auction, you have NO control.

BUT if you can negoiate before the Auction.

Make sure they agree, in writing, to all your conditions and terms before the Auction.

The whole idea of the Auction is that they are trying to get more $ out of you by getting you caught up in the emotional roller coaster.

Selecting the property

Get the agent to run through the Property Inspection Checklist

Inspect the property yourself at different times of the day to see it in different lights.

Comparable Sales

Similar properties. When they sold. How much.

You’ll need these to negoiate your price AND your valuation.

Once you have these, you can then simply update your data. Have a file for each comparable sale.

Become an EXPERT in this suburb/area so you can quickly get a gauge on whether a deal is good or not.

You may find properties that are similar to yours but sold for less, but if this was six months ago…could just mean that the market is in an upward trend.

MUST ensure that there are some properties which are similar but that have sold mofr more than yours – so you know there is room for the price to go up!

If you cannot find any similar properties – without compariable its going to be hard to maintain your value (eg 3 bed unit, 70sqm. All other 3beds in area hav min size of 100sqm – none are even close to similar so you can’t even justify your price, let alone determine the initial value). Your property is either too big, too new, too small or too old for that area.

Some Rules

1bed untis sould b at leats 60m2 internally.

No studio apartments, serviced apartments, etc. as they are hard to get finance for = hard to sell

Choose area with 10kms of CBD – in which case townhouses and apartments as first preference. But make sure you just stick with what is in demand in that area.

2-3 bed apart within 10km of CBD needs at least 80m2 internally

Choose properties with a car parking space – if property has 3 beds, have at least 2 car parks. Unless property is right in the CBD, then property may not need space as properties with one don’t necessarily sell for more.

Townhouse/hosue min internal 120m2

Wollonggong.

How To Loose Money In Property

You often hear all these amazing strategies on how to make millions in property, or own 10 properties in 10 years, etc etc.

Today, my eyes and brain were refreshed via Michael Yardney's blog.

He wrote an article on some sure fire ways to loose money in property...a lot of which certain 'trusted sources' that i've listened to in the past were trying to push to me as a great idea.

Granted, every strategy has its place but it is good to know why certain things won't work instead of always hearing the "why you need to buy this now" guff...

Have a good read of Michael Yardney's: 8 sure fire ways to loose money in property