Forum Replies Created
Hi mddedf,
I have a feeling the “influence our borrowing capacity” line may have been based on a very broad idea that units have higher yields than houses. Jacqui has pretty much summed it up our banks assess serviceability but it goes quite deep and each lender assesses it in their own ways so trying to calculate it yourself, particularly with an online calculator is all but a useless exercise (see a broker).With that aside and back to your original question then I would always have my money in houses as opposed to units. Y?
Well really it is a simple concept, land increases in value, buildings decrease in value. A unit has very little value add outside of doing a renovation on it once it ages. What this means is that the market is going to basically dictate its value. If the market increases then so will your unit, if the market stays neutral or goes backwards then so will your unit.
If you are a passive investor and your strategy is long term hold then maybe this is not a big deal because ultimately over time as property has proven then eventually the market will tip in your favour, but how long will that be? And do you want to sit by and have your money tied into a property doing nothing for 10 years? You will stump yourself by not being able to draw on equity.Let’s flip this around though and look at a house. With a house you have multiple strategies to increase your capital growth or income. For manufactured growth you can do a bigger renovation (you will almost always have far greater scope to value add given you also have landscaping). You can choose to subdivide and sell of the back lot or develop the site and add another 1-2 or even 3 properties.
If cashflow is your game then with a house you can start to get creative, put a granny flat on the back, buy a house with 4 rooms and rent it as student accommodation, the list goes on.Now ofcourse houses are more expensive and likely not as easy to rent out as shiny new unit but the multiple upsides I have listed above I believe far outweigh these small benefits with a unit.
Keep in mind you do not necessarily have to buy in the same suburb. If you are looking at units in Brunswick for say 450k then consider buying a house in Reservoir where you will get something on a bigger block.Good Luck!
Personally I would be applying for DA for both properties. I think trying to separate them is very risky and will limit what you can do. I take it you have never dealt with a council before? It is hard enough to deal with them on one occasion let alone on two separate projects.
Your also going to have increased costs as you will need to engage the same services twice. For example draftsmen/architects, council, utilities, surveyor?.
But ontop of that you are increasing your build costs. It will be cheaper to build both dwellings together as opposed to engaging a builder for two separate projects. Combined they will discount the project, source materials cheaper in bulk, less delays.etc
I think Jasons question is very relevant because it sounds as though you are mixing lifestyle with investment. This is a dangerous formula because it is likely your emotional decision is going to have a big affect on your investment. Without a shadow of a doubt you will make more money by doing the project in one hit.
Hey All,
I just stumbled across this very interesting topic but am having some trouble fully getting my head around it.Let us say I own 2 properties on a subdivided block. I live in property A as my PPOR and then rent out property B for 2 years. After the 2 years I decide to sell property A and move into property B.
From what I am reading I would be CGT exempt for the sale of property A.I then live in property B as my PPOR for 2 years and then sell that. Am i correct in saying that I would be liable for CG for the 2 years I held it as an IP before selling?
It depends on the state because that can have serious land tax issues.
In QLD you would probably use a partnership of discretionary trusts. Your DT in partnership with his. Better for land tax as you get double the threshold and also he controls his and you control use and so can be less messy. I do developments with my brothers and that is the structure I personally use in QLD.
Hi RPI,
Thanks for the info. I am based in Victroia and will likely begin by building my portfolio around here for the time being.Hey Chris,
There is a full CGT exemption if a property is your PPOR but, which according to the ATO
Full exemption
You are likely to be eligible for a full main residence exemption if the dwelling:
has been the family home for you, your partner and other dependants for the whole period you have owned it (ownership period)
has not been used to produce assessable income – that is, you have not run a business from it or rented it out, and
is on land of 2 hectares or less.
If the exemption applies your capital gain or capital loss is disregarded and you don’t pay tax on any capital gain you make (but nor can you use the capital loss to reduce your assessable income).Seeing as though I have lived their the entire time I have owned it and not used it for business or as an IP it out I would qualify for the CGT exemption.
In regards to the “clock might start again” then from what I have read the subdivided land on which the PPOR is located would still remain exempt but the new vacant block would now be subject to CGT if I sold it as a vacant block or if I developed on it.
The final point you make is where I am having difficulty understanding the best approach. I agree that the decision should be made before buying the property but we acquired the property with a totally different outlook. Our original plan was to demolish, subdivide, build side by sides and go our separate ways. It is only recently we decided we wanted to get into property investing together.
I think the FAQ avoids what they actually do which worries me and more focuses on questions about real estate in general. This is a company who talks about finding positive cash flow properties and offers a full end to end service.
But they do not answer any of the important questions in the FAQ?
Hey All,
Thought I could offer some feedback in regards to this. Around 10 years ago a builder approached my mates parents who were both close to retirement. They had a block of land in Airport West around 650m and had made no indication to sell or downsize but none the less this builder who they had not met, was simply door knocking!His offer was basically he would build them a brand new home in exchange for half of their land which he would be building another unit for himself. All they had to do was sign the relevant paperwork and move our for the duration of the build.
Since they were close to retirement, it was a perfect fit for them. The large block just had a massive yard that was a hassle to maintain and the 1950s home was rundown and in need of a fair investment to bring up to speed.
They accepted the deal and it was totally hassle free. The builder built them a great unit that was perfect for them, it was low maintenance with a great design. They have now happily been in the property for 10 years and still say it was a great decision.
My mate actually recently told me that this same builder had done this for many houses in the area. As Airport West is an aging demographic there were loads of elderly couples in the same situation who were more than willing to give up half the land for a brand new low maintenance home.
I cannot comment on how the developer faired from these transactions but given he did a large number of them I am sure very well. I am also not sure of his strategy but if it were to hold, given the areas worth now I imagine he is a very wealthy man.
Hi Ben,
Thanks for your very detailed response!Yeah it is quite crazy this practice was allowed. Our down pipes run into the ground and I did follow them to the end of the property where they just go off into the soil which is basically right up against the neighbors fence. The funny thing though is I spoke to my left neighbor who also shares his back fence with the same property as mine (large property) and his pipes visibly run into the rear property!!! You can actually see the pipe!
The property is in Melbourne’s North West so we get a little bit of rain but I have never experienced flooding before. I actually spoke to council about your suggestion and another someone suggested in regards to a rubble pit. They basically said this practice is not allowed and you need to connect to a council approved termination point which for me is to the curb, hence the need for pumps up my hill, OR there is a termination point on my street but 187 meters from my property, through the easement of 13 neighbors. The guy from council said you would need to get everyone to agree to running the storm water and that the cost would sit with me as the developer.
In regards to your questions:
a) I spoke to my dad about this who was a civil engineer and specialised in pipes and explained how the ceramic pipes will release the water at the joints so it would appear the water may be releasing into the soil before even making it to the end of the pipe. So as far as im concerned this is adequate but the problem is not with the current property, it is with the new dwelling and unfortunately I am not permitted to do this. Existing dwellings are not required to change storm water as this is how it was back in the day but new properties must conform to the new building codes and terminate at a council authorised storm water termination point.b)It would appear they do not! I would have thought council would have to take some responsibility for this but the problem is then who pays for it? I am sure people in the neighborhood with perfectly good storm water don’t want their rates going so someone can profit from a development.
c) They have not complained because as i said, the water is not even making it that far. Again though, the problem is not with the existing storm water, its that the new one cannot use that method and they are saying need a pump.
Thanks for your great suggestions and feedback Benny. It is definitely an eye opener as to how things are done, and how willing council are to assist in rectifying these issues!
Very interesting post as I would never have considered renting out my PPOR and renting somewhere cheaper but It does make some sense. For example my wife is keen to move back closer to her family which would be about $150 less to rent than what I could get for my place so that extra money could then pay off the mortgage plus then get the tax benefits.
Is this what people are referring to or am I a bit off the mark? Are there other considerations?I have not done a heap of research on these areas but know them all quiet well. If you are looking for the best capital growth then I personally think coburg would beat the rest hands down. Coburg from what I have read is a bit of a hot spot at the moment as many of the inner melbourne suburbs on the same side are becoming quiet expensive. That being said if you were to go for a standard 80%LVR then I think you would be hard pressed to find anything even neutrally balanced out there so would need to support it yourself a bit. Coburg has all infrastructure and ameneties available to see it continue to grow. Melton I have read from a few posters is growing ok but not at the rate I suspect you would want.
Growing up in melbournes west I always saw a lot of potential in sunshine, when I purchased my PPOR I said to myself when I’m in a position to buy an IP it will be in sunshine. Seems now that I may have missed the boat as prices have skyrocketed since the “scumshine” days. Still though I think it’s a great spot as whilst it is getting expensive you can still find bargains. It has all the infrastructure you could need and is a stones throw from the CBD. It’s still a long way off but as far as capital gains is concerned I imagine the new CBD/Airport link could be a huge boost once completed.
Keen to hear others thoughts as well.
I do this but a few warnings and considerations i have had to learn the hard way. It sounds like a no brainer but just make sure you fully understand the T&C’s of the credit card you are using. I mistakenly did not pay back the required amount for a month and it took 2 months before they would reset the balance. The cost to me was about $120 in interest payments which chewed up months worth of savings i had achieved.
Also make sure you use a card with rewards. I myself use Qantas and the points can be used to buy woolworths vouchers which in turn is used for shopping. So basically I see the points as cash. Some cards such as the woolwroths one I have, gave me 16,000 points just for signing up but be careful these cards also carry a yearly fee. This particular card i believe is around $150 a year, so unless I am achieving that in rewards>cash then it is not worth it. FYI it takes around 7500 points for a $50 voucher. So to break even I need to achieve around 20,000 points for the year. This particular card is 1 point for $1 dollar on mastercard which is great. A lot of cards only do .5 for mastercard.
So that being said for me, I far exceed a spend of $20,000 each year on my card so I pay that fee off with the rewards i get and the extra points is icing on the cake.
Finally as everyone said just ensure your purchases are not cash advances. Things such as depositing into say a sportsbet account is a cash advance. Along with the $2.50 fee you also pay interest immediately so these should always be done from your savings account.
I received my planning permit with little hesitation from the council to develop at the rear of my block which should be commencing in the next 4-6 weeks. It only took 6 months for everything and I’m building the place I want as well. I’ve completed some renovations on the PPOR including a stacked stone fireplace which has been absolutely fantastic as this melbourne winter starts to take hold.
Next 12 months will be real exciting for us as hopefully the build goes well and we make a decent profit on the development before taking on a full Reno of the PPOR including pulling down an entire wall to turn the floor plan open plan with a big kitchen. Super excited!
Oh and last but not least, read 0-130 and found this awesome forum which to me has been a big achievement :)
Thanks Jamie
The plan is to sell the rear dwelling upon completion so it will not be used as an IP.
Once settled I then plan on having the front property valued and will then purchase it from my brother at the valued price.Is there any special consideration I should make with this scenario? or as suggested just split the build loan into our current loans and then once the house sells, split the money and pay down our separate loans. Then I imagine my loan will be around 140k and I will then to again need to lend around 220k to purchase the property from my brother.
Hey Richard,
I know very little about cross collateralizing (Just spent 20 minutes reading) and can quite easily see the negatives associated with this structure. Actually i do not think i saw one article promoting it!
Just on my situation though, I have a split loan with my brother for our PPOR through Bankwest. We have been approved to construct a dwelling at the rear and estimate we will require a further 350k from a lender for the subdivide/build.
I am not sure if this is a silly question because it does not have to do with an IP but should i be looking to structure it so the build loan is separate from our current loans?
As in should we just create a new single separate build loan that we both pay off together. Or should we look into having the loans split again into different new loans that we both pay off separately as we currently do for our home loan. OR would we just get the additional 350k loan split and then added to our existing loans? for example my current loan is 280k which would then go to 455k?
Thanks in advance!
Unfortunately I may not be able to return the wisdom in regards to photography. I actually no less about that than i do about property investing. haha
I currently own my PPOR with my brother on a split loan with Bankwest. We both have separate offset accounts which offset our individual loans.
As i mentioned we have just received our planning permit for the development of a double story dwelling at the rear and am just awaiting a quote from the builder before I can approach a lender to fund the build. Our current combined loan on the property is 430k (My brother had a large deposit) and we anticipate the value of both properties upon completion will be 1.1mil and the build cost including subdivision to be around 350k meaning a 780k loan but still under the 80% that would activate LMI, i think?
Another option is I could potentially loan around 200k for the build from my parents, meaning only needing to borrow 150k from a lender, but I am unsure if this is wise?
Hey Jamie,
Firstly i just want to say a big thank you for all your assistance on these forums, your continued advice and guidance is always extremely appreciated.I think a valuable lesson I am learning is to wait until the morning to try and understand something because at night after a days work my brain basically does not function! haha.
First thing I did when i came in this morning was read over your original post (you had not yet responded) and it made perfect sense why I would be only available to access 10k equity.What sort of things do lenders base being able to access 90% equity on. Does your/your partners income play a part in this? The example i have been using is where i will likely be in about 1 years time. Currently i am in the process of developing at the rear of my property with my brother and i anticipate once everything is done, that is the position i will be in and I was then planning on using the equity to fund my first IP.
Until yesterday i thought I could access it all so this changes things dramatically.Hey Jamie Im still having trouble getting my head around how it works. If I have 100k of actual equity, why can I only access 10k? Could you maybe give me an example of how the figures work?
If my home is valued at 450k and my loan is 350k If I want to buy an IP of say 300k then I would require 60k for a deposit of 20%. I thought in that situation I would be able to access that 60k of equity for the 20% deposit?
Very interesting post and a lot of food for thought.
One thing I am curious about is how the equity loan works? Is it any different to a standard home loan? As in does it have the same interest rates, can it be paid over the same long period.etc?For example my home loan is 350k and my home is valued at 450k meaning i have 80k equity available.
If i wanted to draw this equity for an IP how would that look? Would i be paying:
350k loan on my PPOR at say 5.5% over 30 years costing me $458 a week.
80k loan of equity at the same meaning I now need to pay $458 plus the additional $104 equity loan per week? Meaning my payments have now gone up to $562?Of course there would also be the IP loan but that I understand. I am just having trouble getting a grasp on the equity loan.
Your most welcome Pat :)
As i continually keep saying I myself am like you and just starting out and things such as this forum are absolutely invaluable. Forum users like SuperAndrew and Richard Taylor will be much more educated and informed to give you the right advice.I always like to offer out suggestions though as i find it the best way to interact as opposed to sitting on the sidelines. If the advice I give is incorrect and a more educated member is able to amend the statement, i think it helps everyone and adds to the beauty of the forum :)
In regards to your situation I totally understand where you are coming from. You are looking to lock something away and get it working for you and as Super pointed out with enough deposit you can make this happen to have it cashflow positive. Perhaps its worth speaking to someone like Richard Taylor who can help you get on the way :)
Good luck! I wish I had the passion I have now when I was 26. You have 6 years on me and sounds as though you have your head screwed on right.
Hey Jamie,
Thanks for sending that through. You have written that article extremely well and very easy to understand.
I guess the thing I am still having trouble with though is can you claim any tax benefits when your property is positively geared?Take your positively geared example from your blog:
Total investment property costs $2,000
Total investment property income $2500
Total income per month= $500This amounts to an additional $500 per month to John’s taxable income or $6,000 per annum. This means that John’s new taxable income is $56,000 – meaning he will have to pay tax on the additional $6,000 that his investment property has earned.
But what happens if John purchases a new split system that costs him $2000 for his IP? He would still have earnt $4000 that year on the IP but can he claim the split system as a depreciation? And if so how does that work?
