Sounds like its the first time you’re building, I’d say add another 15% from the fixed price. Make sure you crunch the numbers properly. I haven’t been able to find a buy land and build with +’ve cash flow anywhere in Oz. Perhaps I’m not teaming up with the right builders or buying the wrong pieces of dirt. I had achieve positive gearing (vs cash flow) results a couple of years back but with the soaring land and building costs, this has really thrown the margins and rent returns out. I find its a catch 22 really – regionals have cheap land but expensive build costs and in the city, cheaper build costs but exhorbitant land prices. And don’t forget land is cheap in the country for a reason – theres heaps of it. Don’t forget the old adage about land appreciating and building depreciating. Find the right balance and good luck!

I would for $10K or even for $1. Granted someone could add to the paper thereafter but I’d be able to argue subsequently that I had no intention to give away or do whatever those additions purported to do. What is a signature? It is only one small element of forming a binding contract? And if all other elements are not present at the time of my signature, I’m not worried. So hand it over!

Isn’t it interesting that all these big boys play in a completely different league? $5 Billion leaving annually is massive. These guys must all have a quiet giggle at our 3x1s and reno jobs… Anyone have big brother who would let me into their playground..?

We all have to start somewhere mate. Guys in Capricorn (lucky devils) have got on at ground level, banking on this WA market continuing to do well in the next couple of years so when it comes time to settle next year, land will already be worth what they paid for + profits. Decision is yours whether you want to take that risk like purchasing OTP. However note that these guys are NOT first time investors so they must have all done their due diligence. If I lived in Perth, would’ve driven up there to reserve one too but you have to weigh it up yourself: building costs would be higher this time next year plus another 6-8 months to build or maybe longer with no rent to support and if the WA market stalls in 07, you will be left with very little equity to make up for it. The Capricorn development is unique in that the developers won’t allow you to flip the block so investors will have to be in it till house is built.

From what GMH454 is saying, the stalling could easily occur in WA too. Thise who have made $ are those who got in early and took a punt on the estate doing well in future. Most of these older estates have been around for a few years but it wasn’t until the last couple of years that prices have gone crazy as land becomes scarce.

So in answering your question of what the risks are – at this current cycle, plentiful. Land is getting very expensive and so are building costs. Rents will barely cover your holding costs even after depreciation benefits. So you want this market to keep powering along if you were to take on a H&L project. Research the estate as theres no shortage of land in WA. At the end of the day, you’ll just have to take a punt like the rest of us. Good luck.

Hi Simon and Mal,

Are you guys sure that interest on interest is not deductible? I asked a friend who works in tax and she sent me this exerpt from her email.

The Commissioner’s view is that:
“Interest on a new loan will be deductible if the new loan is used to repay an existing loan which, at the time of the second borrowing, was being used in an assessable income producing activity or used in a business activity which is directed to the production of assessable income”.

To me, that means interest on interest is deductible and to stretch the interpretation further, even the capital component. We currently have a structured investment product out there which is sold on this basis (which have had partner sign-off from one of the largest law firms in Oz) so I can’t see why the same logic can’t be applied to IP loans.

Has the ATO made a specific determination that interest on interest for IP loans specifically are not deductible?

Curious to find out cos am just about to start sorting out my finances in setting up a few different savings and investment accounts in the New Year. Thanks guys.

ASDF

Can anyone help Apostle and I out? How is it different to just a call option? Many thanks gurus!

Hi Paul, May I ask which seminar you attended recently and how much that cost you? From the sounds of it, you probably got all your moneys worth.. and then some.

Positive cash flow is getting very hard to come by. Most pundits advertise only new properties with ambitious rents and nearly $7-10K worth of depreciation deductions on the highest MTR only to get it to a neutral CF position. And from 06, the highest MTR threshold will move to $125K, which is about 2.5x national av. salary so doesn’t make these deals very attractive at all.

Might need to look at blocks of units or commercials to get your +ve CF. Then again, these do require a lot of capital hence +CF should be a given with these investments.

Unfortunately rules are made to be broken. It will be naive of us to believe that the agents would not get on to a deal themselves if they thought was a good buy. I’m interested to find the statistics on how many agents get prosecuted for perpertrating this. I read somewhere that agents are in the best position to get the scoop on a property. Perhaps a similar analogy would be insider trading with shares. Theres really only been a handful of insider trading cases that has been successfully prosecuted and this stuff happens EVERY DAY in the market. They make all insider trading cases high profile for a reason. It is very difficult to prove and this coming from a govt that has made a very concerted effort to clean up the securities industry. The mas and pas will just have to take a second fiddle even though they are investing 10 times more of their wealth in property than shares.

Perth in 2007? Better get something now before it goes another 20%. As most of the WA forumites well know, anything would be better than nothing right now. Theres been a heap of discussion on this & other forum re WA. And you’ve obviously seen the plethora of brokers than can assist in finance. Good luck!

Hey Flatout, good work re Mandurah. If the experts are right, looks like its set for another run. All the analysts are definitely bullish the Rocky – Mandurah area. But the prices are starting to match those of Brissy so I think further upside will probably be in the single digits. ie. no longer undervalued. But returns over the next couple of yrs will still be better than out East. I don’t think building in the SW is a lucrative option for investors anymore. Building costs are 10%-15% more expensive down there and have also increased over 30% in the last 12 months. But you may see same prices down there as Mandurah if this freeway finally gets funded. The other plus is I find rents in SW are about 20% more than Perth for equivalent homes.