Wednesday, 30 May 2012

Landlord paying Utilities!

I have just been reading a forum post about a concept derived by this person in USA. The concept itself is relatively simple, basically charge a slightly higher rent to the tenant, and in return, you will pay all of the tenant's utility bills, i.e water, electricity and gas. 

At first I was a bit skeptical of the concept, because you have no control what the tenant does with their house, so you are taking an expense out of your hands. But reading the description of how it all works, to be honest it sounds like a really great idea, a definite win win for everyone. Below is a bit of a summary of how it all works:

  • The property is first to be fitted out with high energy saving light globes, with timers attached to ensure vacant rooms are not left bathed in light
  • High efficient whitegoods are installed to ensure electricity is not wasted when using a dishwasher, fridge, dryer etc
  • A thermostat is fixed at a certain temperature, say 23 degrees celcius, all year round. The important feature is that this temperature is fixed. Heating and cooling can be a high expense, and you would not want a tenant to set a temperature up to 30 degrees in the middle of winter and waste all of the electricity that you are using.

By completing all of the above, you would hopefully be able to reduce the typical outgoings of utilities by around 20%. So already there is a benefit to the environment which is always a positive thing. 

Now see below for a working example of this situation, keep in mind these numbers are not based on any real scenario.

Initial utility expenses:

 Gas -          $200 per quarter
 Electricity - $300 per quarter
 Water -      $150 per quarter

With the reductions above, the  renovated utility expenses are:

Gas -          $150 per quarter
Electricity - $250 per quarter
Water -      $150 per quarter

The initial rent for the property was $400 per week, but now with all utilities paid for, this number becomes $450 per week (I believe $50 a week is reasonable given all utilities are paid for)

Rent collected initially would be $400 x 52 = $20,800 annually

Rent collected after renovations would be $450 x 52 = $23,400 annually
However there is the $2,200 to be paid in utilities annually
So the net received becomes $23,400 - $2,200 = $21,200 annually (greater than the initial $20,800)

Looking at it from the tenants point of view now

Rent paid initially would be $20,800 (as before) with the addition of utilities of $2,600 utilities
Total paid by tenant to be - $20,800 + $2,600 = $23,400

With landlord paying utilities the total paid by tenant is $23,400 (same as before)

So as you can see, the tenant does not lose out, and the landlord is a couple hundred ahead. But not only is there the financial advantage. There is also the potential dilemma of services being shut off due to bills not being paid, and then the connection fee providing an added expense for the landlord if the tenant is moved on. Also this will provide you with more tax deductions when performing your tax return, the cash paid on the utilities would be tax deductible! Although this may be countered by the increase in income which will have to be declared, however you still not be in a worse position than before so it is definitely a good move.

So I must state that I have not tried this myself, and the numbers above are purely an example, however I believe the practice should work well in theory, and is another way to get a bit creative with your investing to increase the cash in your pocket. One thing that needs to be looked into is the cost of renovating the property to suit the changes listed above, I feel this may run into the thousands, so it may take a couple years before you fully realise the profit from this change.

Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only.  Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

Friday, 25 May 2012

Buying Properties with Others

Living in Sydney, and being a first home buyer, I saw that it would be near impossible for me to afford a house on my own. I believe this is a situation that many young first home buyers would find themselves in. Now I am not saying that buying a property is the best investment to make, it may very well not be given your particular situation. I am just stating that buying your first property at a young age can be very difficult, and if you have a desirable area to live in, well you can almost forget about being able to afford something for years. 

One option to help out with purchasing a property at a young age, is to not do it alone. You can buy with friends, family, a partner, husband or wife. Adding a second income to your mortgage repayments is definitely one way to ease the financial strain that can be felt when paying off a home loan. Unfortunately there can be a lot of other stresses that come with not doing things alone. 

Let me take you back a few years when I purchased my first property, I was only 22 when I bought my first home (I am 25 now), and the cheapest house that I could afford in a location that I was prepared to live in was around the $300,000 mark. Having a decent job at the time, the bank was prepared to lend me up to the $270,000 I needed with my 10% deposit. But this meant repayments around $1,800 a month for the next 30 years of my life. Not to mention all the other associated costs with the property, and living costs, I would definitely be under a financial strain, my life would be restricted. In my opinion I think it is important that no investment should take away from your quality of life. There is no point making money in your life, if you have no life to live. 

What seemed to be a logical solution at the time was to purchase a property with my brother, he was 29 at the time, he was still renting but was keen to finally have something more permanent. So now not only with the extra savings he brought it, he also had the extra income to pay down the mortgage. Going to the bank, they allowed us to borrow up to $550,000, but this was not what we needed. We were still only hoping to purchase a property around the $300,000 mark. We did this for a couple of reasons: 

  1. We did not want to be under a financial pressure for the next 30 years of our life, we wanted to be able to still live a life
  2. Our aim was to pay off the property in under 10 years, so by purchasing a long way below our capacity, we should be able to achieve this
  3. If one of us lost their income, then the other would be able to cover the mortgage during the other person's down time
  4. It gave us some leverage when looking at a property, we could increase our desired mark if we found a particular property that we were interested in

And that is exactly what happened in the end, we found a property that suited both of our needs for $350,000. Slightly higher than our desired range, but it matched everything we wanted so we ended up going for it. 

Now at the beginning, we had to be open to each other about what we both wanted. We both had to be on the same page, otherwise it would never work out. So this was basically how we started, setting up a list of characteristics that the property had to have to suit both of us -

  • It had to be near a train station, preferably one that express trains go to (working in the city typically, I needed to be able to travel there easily)
  • We had to live not far from my brother's work, he worked in north west Sydney so we could not stray too far from that area
  • Had to live on a quiet road (when I rented I was on a main road and the noise was unbearable for me)
  • Walking distance to shops (I did not have a car and needed to walk to shops)
  • Minimum 2 bedrooms, preferably 2 bathrooms

Above was the basic criteria we had for a property, there were a few other things, but they were mainly just preferred options and not really essential. Once we had that list set up, and the price range. We were able to set on a location. We were searching around Western Sydney as it was the only area we could afford that matched the above criteria, in the end we purchase a property in Seven Hills for $350,000. A 2 bedroom, 2 bathroom townhouse built in 2004. If you are interested in more information about the property feel free to email us and I can let you know more -

I thought that buying the property would be the easiest part, but turns out that was only half the issue. We had talked before purchasing the property about how we would make sure everything worked out evenly between us, but nothing was set in stone. Being brothers, although not that close, there was still a strong trust between us, and we both knew that we never try and scam each other, so we were always going to be safe in that respect. But there was still the challenge about how to make sure everything is kept even. In the end, I was able to develop a spreadsheet which tracked all the repayments, and other house expenses. It would be simple to just both pay half the mortgage and half the bills. But because we were hoping to pay down the mortgage as quickly as possible, it was better for us to simply pay off as much as we could. This is where the spreadsheet came into it.

The spreadsheet itself is not too complicated, just tracks all the repayments made by each individual, and other household bills that have been paid. By tracking the repayments it is simple to see who owes who at the end of the mortgage. Before the mortgage I was also able to have a plan on how long it should take to pay off the mortgage, and where we should be at any given point in time. So by tracking the repayments, I have also been able to compare where we are in comparison to where the target is.

I will touch on this topic a bit more in later posts as there is a lot of information to cover, particular in intial agreements that should be developed prior to entering into a sort of deal like this, which involve exit tactics if either member wishes to pull out. Also with the added experience of purchasing an investment property in the US with my business partner, this will provide more valuable information for people looking to do the same.

If you would like a free copy of a loan tracking spreadsheet, feel free to email us at

Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only.  Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

Thursday, 24 May 2012

1st Purchase!

28th April 2012

So today was the day we have been waiting for the best part of 2 years ago. We finally landed our first property in the US. Like I said we started this adventure about 2 years ago, it has been filled with a lot of ups and downs, not to mention a lot of frustrations. But in the end, we have learnt so much on or journey. We do not plan on this being our only property in the US, so we hope that this information will allow us to streamline the process for future deals. Also we have a lot of things set up (LLC, Property Agent, Property Management) for this first sale, so we hope to be able to start looking for a new property very soon.

This property we were able to purchase in cash, the total price was $44,000, so we were fortunate enough to between us have that much saved up. As we have exhausted a significant amount of our savings, we will hope to obtain finance for the next purchase, however we will need to establish some sort of credit rating prior to being able to do this.

Over the next few weeks we will outline all of the steps we went through to purchase this property, hopefully it will allow people who follow in our footsteps to be able to streamline their efforts and make it easier for themselves. I believe our next one will be very difficult too however, with the added requirement of needing to obtain finance for the property.

Once everything is settled, we will also provide all the expenses we have incurred in order to obtain the property initially, and also to maintain the property successfully, once we have some history with this property, hopefully we will provide an accurate record for everyone.

But for now, it is definitely time to celebrate, along the way I had doubts that this would simply never happen, that it was all too difficult, that there were simply too many obstacles in our way that were there to stop us, but eventually we were able to prevail and now we are looking forward to our next step in our investing journey.

Sunday, 20 May 2012

Rent vs Buy

It is always interesting to see if it is better for people to rent or to buy. It is a big decision, a huge lifestyle choice either way. Financially speaking there is so much to take into consideration, such as seeing what the RBA is going to do with
I have always found it interesting, I think that people rush into the decision to purchase a house way to quickly, I mean, it is most likely the biggest purchase we will ever make, and yet we sometimes dive into it giving less thought to what mobile phone contract we will pick. When I purchased my first property (it was a PPOR) I made sure I researched as much as I could to see if it was the right thing for me to do at the time. It is interesting, at the time I thought I was making the right decision, I guess it has been ingrained into the Australian culture that owning your own house is the ultimate dream, and the sooner you can do this, the sooner you will be content. Looking back, I realise I may have made a mistake, not a diabolical one, but just believe I may have been able to make a better decision if I chose to rent compared with buying.
There are plenty of advantages compared with renting, mainly, typically because the rent paid will be less than the mortgage repayments, it will open you up to a lot more cash flow than if you purchase a property. For example, say you wanted to live in a $300,000 house, you would probably pay around $300 per week in rent. Whereas to purchase the same property, you would be looking at paying around $500 a week in interest repayments, a significant amount less in cash flow compared with renting. These figures do not include the additional maintenance, strata, utilities, rates etc that come along with purchasing a property. The extra funds with renting can allow you invest elsewhere, or to simply have a higher quality of life.
One more big advantage to buying compared to renting, is if you find out that you make the wrong decision with where you live, it can be so much easier to move when renting compared to if you bought the place. Sure the actual moving is a hassle, but apart from removalist and cleaning costs, it is nothing compared with closing costs of selling a property, not to mention the stamp duty required with purchasing a new property. Further on from this, renting will also give you so much more flexibility with where you can live, mainly because it is cheaper than buying, it allows you to live where you want, rather than where you can afford. And if your life status changes, then you can move to suit your new lifestyle. If you start having kids, you can move near a school, if you retire, you can move somewhere quieter. Of course you can still do this when you buy, but the buying and selling costs make it way too impractical. 
An example of the above is my business partner, Lenny, he works near the city, cannot afford to buy a house anywhere within 40 minutes that is also in a good area, so renting turned out to be the best option. It suited his lifestyle, he can be near where the nightlife is, near his friends. And everything works out great, in a couple years if things changed, such as his office changed location, it is not much of an issue to move to somewhere closer again as long as you continue to rent. If he gets married and starts to have a family, again it is not difficult to move into a more family friendly house. 
However just note that this is not only going to focus on the advantages of renting over buying, there are definitely aank 
It is also important to mention that flexibility is not for everyone, there are some of us that want to know where they will be year after year, they want the guaranteed security. When you rent, even with long term leasing, there is always the possibility that your landlord situation changes and the property no longer gets rented out. Whereas when you have a mortgage, you own the place, so there is the security that you will stay put in the same property as long as you want. Finding a new place to rent can be very stressful and frustrating experience, this is the main reason I chose to purchase a property as oppose to renting. 
So above I have outlined the sentimental reasons and touched on the financial advantages and disadvantages associated with buying verse renting. To look at this at a purely financial standpoint, I developed a spreadsheet which has fairly simple inputs to compare purchasing compared with renting.

If you would like a free copy of this spreadsheet, please click this link Spreadsheets 

If you have any other questions or comments, feel free to email us at 

Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only.  Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

Saturday, 12 May 2012

How to Manage Your Home Loan and Save Thousands

The most effective thing you can do when you are managing your own budget is to look at incomings and outgoings. By looking at these numbers you can see where all your money is being spent and where you money is coming from. The same applies when you have a home loan. It is important to be able to see the you are paying the correct amount of interest to the bank, that they are processing your deposits correctly. It's quite common for banks to make mistakes which could cost you thousands of dollars.

It comes to a point where you have to ask yourself, "Is my lender handling my mortgage correctly, are they charging me the right interest amount?" I know just about everyone will receive their mortgage statement in the mail, see a number which shows the interest amount charged for the month, simply assume it is correct and happily go along with their day. We are adding thousands of hard earned money and simply assuming that the bank is calculating everything correctly. I am the type who likes to be in control of my investments as much as possible and being able to track my loan is definitely something I do and encourage others to do the same.

This is why I created my own loan tracking spreadsheet when I bought my first property back in 2009, I was mostly curious to see how the whole mortgage repayment process worked. It was very useful being able to see the money coming in, going out, and being able to forecast for the future. To see when the amount owing would finally reach $0.00, to see how much money I had put into the mortgage myself, and most importantly, to see how much interest the bank was charging me.

By creating my relatively simple loan tracking spreadsheet, I was able to determine what the amount of interest charged should be for the past month, and then when I received my mortgage statement, I was able to see the actual interest I was being charged. If there was a discrepancy with the amounts I would simply call up the bank to see why there was such a discrepancy, and more often than not, I was refunded by the bank error.
Once you have a useable loan tracking spreadsheet,  it should only take a few minutes of your time a week to input the necessary data.

If you would like a free copy of this spreadsheet, please click this link Spreadsheets 

If you have any other questions or comments, feel free to email us at

Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only.  Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

Creating 'Investing'

When I got my first home loan in 2009, the interest rate was nice and low at 5.37% per annum. During 2010 there were several interest rate rises that saw this figure go up to 6.88% by the end of 2010. In just over a year, I was paying more than 1.5% extra interest than when I first got my loan. Now it was not a big problem, because when I first decided to purchase the property, I made sure I looked at the interest rate at the time. I made sure I would be able to still service a loan comfortably even if the interest rate had gone up 3.0%, so I was still fairly comfortable but not happy with the rate rises

A friend of mine recently told me that he needed $5,500 to go on a school soccer trip to the UK. Not being able to work too often with work commitments, he was short on ideas of where to get the money. He already had about $4,000 saved up but the extra $1,500 would have been difficult to make. He was telling me that he would probably just put it in the bank, collect the 6% interest and just do odd jobs around the neighbourhood to try and save up the extra money, which he ended up doing and in the end it worked well for him.

This got me thinking...the banks will give you around 6.0% interest on savings, the interest collected is then taxed at around 35 to 45% typically. So that gives a maximum 3.9% net return on your investment. So people earn 3.9% net return while I am off paying 6.88% interest on my loan. And then it all clicked, instead of people investing their savings at the bank, why don't they 'invest' in my loan instead.

I could act like a "bank", charge my own interest while reducing the amount of interest I paid on my loan. So this is what I ended up doing with a friend of mine. He took $20,000 out of his online savings account and deposited it into my home loan account. Obviously a fair bit of trust is required to undertake this type of investment or you could draw up a quick contract which you can easily find with google. I offered him a 6% interest rate per annum, compounded daily (where the interest earned is tax free). After leaving the money there for a year, look at the comparisons below -

Initial Loan Amount - $400,000
Interest Rate on Loan - 6.88%

Friend's Savings Deposit - $20,000
Interest Rate given to friend - 6.00%

First - by doing nothing, i.e friend keeps his savings in the bank collecting 3.9% net return:
Me - Interest paid on $400,000 for 1 year = $27,520
Friend - Interest earned on $20,000 for 1 year = $780

Now - if my friend deposits money into my account and I pay him interest:

Friend - Interest earned on $20,000 for 1 year = $1,200
Me - a) Interest Paid on $380,000 for 1 year = $26,144
         b) add on interest paid to friend = $26,144 + $1,200 = $27,344

Based on the example above, my friend would stand to make an extra 54% on his interest earnings and I would make a saving of about 1%.

So without too much work, we were both able to make some money, creating a win-win situation for both of us.