Forum Replies Created
Hi Hoppy,
After reading the other replies and thinking further about your excellent situation, I’m wondering if it might be beneficial to pay out one or two of the seven IPs. I’m thinking there of keeping flexible ahead of possible troubled times. e.g. Have you heard about “bail in laws” that I’ve been hearing about for about a year now – where banks may simply “take” your money if they run into trouble. Will things get to that? I don’t know, but then I hadn’t considered ever seeing Interest Rates at all-time lows either….
So, maybe there is some merit in choosing one or two of those IP’s that you would plan to keep over the long term (perhaps the location is likely to see better Capital Growth than others, or perhaps their return is higher than others) and use their Offset money to pay them off completely. That means you can then retain them despite any adverse future financial situations that might arise. It also provides diversity of your financial position too. The Banks could not “bail in the cash from those Offsets” if it’s been used to pay off the house and the IP is now YOURS.
Interesting points from Steve too – you get into debt to get out of it, but also an alternative thought that it is better to have cash and not need it. i.e. you have CHOICE – do you pay some off and keep the cash in the Offsets of all the others? If so, which ones, and how many of them do you pay off? Like two bob each way eh? Can’t be bad, and your situation leaves you open to making your really good position even more secure.
Benny
Hi Hoppy,
Wow, your are doing way better than I first thought (and I was impressed then!!)
…..with the offsets we have them filled to the entire value of the Principal amount for each property
So your total P&I payments are paying down the principal amounts, eh? How cool. Based on that, and after hearing Terryw’s thoughts re tax on further loans perhaps being non-deductable, it seems to me you are better to keep going as you are.
Other thoughts I have relate to “where to from here” and our economies. There has been a huge cash injection in all major countries – think Jobkeeper, Jobseeker, etc but similar in USA, UK, etc. So lots more money printed, all looking for a home, leads to inflation. Thus we are seeing banks and other finance gurus (who had first thought Covid would send our property market into a tailspin) now seeing property values surge i.e. people pay a higher price for the same object = inflation.
So, (at least for now), doesn’t that mean that cash in the bank is doomed to lose value? i.e. is it better to own assets than to keep large amounts in a bank? And properties (at least for now) are headed for a rise in “value” in dollar terms? Is another investment a better option? And hey, I certainly don’t have the answers Hoppy – I simply put my thoughts out there like a coconut shy (for others to have a shot at, as I’m sure there is FAR MORE to the current situation than I am seeing…..)
Anyway to you, SO well done !! Keep on, ;)
Benny
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This reply was modified 3 years, 12 months ago by
Benny. Reason: Making the quote work - for clarity
Hi HoppyM,
Is there a downside to paying back the IP Principal in the interim or better to continue saving?
Sounds like you are in good shape !! Well done. Re “paying back IP principal”, it sounds like you are already set up to do just that.
Or, are you considering moving any extra savings in the Offsets to pay down the mortgages even more? See, that latter move (to me) would not do you any good – in fact, could do quite the opposite. Simply put, your Offsets are already minimising any Interest paid (as if the money HAS come off the Principal amount owing) and yet that money in Offset is YOURS to keep, and it can be removed at a moment’s notice. This can be very useful if you have the “deal of a lifetime come your way” (or an emergency) and you need cash NOW. So by keeping it in the Offset, you get the best of both worlds.
To me “Saving in your Offset” makes a lot of sense. One thing I’d suggest though is to look at moving all Offset monies to be against ONE property (simply because this can be against the mortgage with the highest interest rate, AND it means being able to remove a LARGE chunk of change with one transaction when needed). It is all about staying flexible in my eyes.
Let’s see what others think too….. ;)
Benny
Hi Nick,
Welcome aboard – this is one good place to start. I personally found that the Internet led me to meet with many others who are doing what I wanted to do then (i.e. invest in property). Today the forums have declined somewhat as Facebook and other social networks have tended to attract a “Now” clientele. Steve has such a site too – go there to join up with hundreds of others – https://www.facebook.com/properinvesting
Also, depending on where your base is, you might find some investors meeting up (usually monthly or two-monthly, depending) and you could go along to check them out. I know of them in Melbourne and SEQueensland with other occasional one-offs – go looking in this forum for “what’s coming up” :-
https://www.propertyinvesting.com/forums/community/heads-up/
Over Christmas and New Year, things do tail off somewhat, so do check back on here every week or so. Failing that, share with us where you are – who knows, someone from here might live in the same suburb and be willing to meet up for a coffee…..
Even better, why not share some info on those first 3 purchases – What and where you bought, what went well, what didn’t, what you learned, etc. Your words might well inspire others to share their thoughts…. or provide some answers for another new investor.
Benny
Well, it pops up now and then – a question re the creating and/or using of a Trust to invest in property. These are such an unusual beast that the average Joe knows little about, so we are dependent on having advisers who know them (and all their wrinkles) from front to back.
The link below brought a question from a poster, then a reply or two from someone knowledgeable, then more questions, and more answers too. In the end, a LOT of good information was spread throughout this topic about Trusts and I commend it to you. Here it is:-
https://www.propertyinvesting.com/topic/5068817-home-loan-borrowing-using-trust/
Keep in mind a saying from Steve (from elsewhere) that it is possible to build a strong defence using Trusts that protect “not much”. And for those starting out, this is a good point to consider. i.e. If you are putting your toe in the water re investing, and are not sure if you will do more after your first purchase, is it wise to incur the cost of a Trust straight off (because they can be quite costly ongoing).
But then, if you ARE going to build a large portfolio, it is also costly to ADD a property to a Trust after you have bought it in your own name – so, it’s all a bit like Catch-22. There’s a couple more questions to discuss with your adviser when considering whether to use a Trust.
Benny
Hi Terry,
Thank you for such a full explanation of what can be a confusing subject for many (myself included). Thanks to Steve too, and to those who have proposed the questions that led to this learning. Good stuff,
Benny
Hi rliwanen,
“I hope you wouldn’t mind if I seek further clarification.” Indeed, that is why we are here, so feel free. We don’t learn to ride a bike the first time we are on it, but we get there with a bit of help !!
Benny
Hi Terry,
“Some lenders, most lenders, treat guarantees the same as borrowings for serviceability.”
That is an interesting point – a lot like when lenders assess credit card limits – the borrower is deemed to be borrowing up to the limit, even if they owe nothing to the credit card company.
So, the way out of that is what? I would think the history of the borrower and their structure would be key here, yes? e.g. Someone who has borrowed for years using Companies heading up Trusts, and those companies have always made a profit, and there has never been a need to call on any guarantees made to support these Companies’ borrowings. Surely that manager is seen to be doing a fine job, and borrowing will likely mean more profits once again, so the lenders will likely smile on them?
Is it simply a matter of “don’t try to run before you’ve learned to walk”. Where does the would-be investor start? How do they get their first Trust operating? Is it only with a personal guarantee from them initially? And then, how do they get the next one? Is it by proving their worth over time?
What say you Terry?
Edited in later – thanks for your words Steve. Your path has been an inspiration to me over many years, and that chapter 9 is a big one in my book. I hope the original poster can see a path for themselves after hearing those words from you. It is relevant to note that none of Terry’s words are at odds with your book (which is pretty much as I had thought anyway) – always good to hear it from the horse’s mouth though – thanks !! ;)
Hi Rliwanen,
You say this:-
“The claims in the book and what Mr. Terry seems to be exact oposite. Can Mr. Mcknight please shed some light on this matter. We would like the idea of what is taught in the book but a lawyer says otherwise.”
I have always thought chapter 9 of the updated “0 to 130 properties” is very well written and quite complete. But you do need to read and assimilate ALL of it, as there is so much information to be absorbed. Like Terry says, it is possible that “the wording is loose” in legal terms but I, as a regular reader with no legal training saw no such contention.
My take on the words “putting under a Trust structure instead of personal name” might confuse someone if they already have a Trust with themselves as trustee (i.e. the Trust is administered by themselves under their personal name). From what I recall of chapter 9, Steve does not use that structure, but instead has a Company acting as trustee of the Trust.
To take this further, and to provide more clarity, please identify just which words you are reading that have you saying “The claims in the book and what Mr. Terry seems to be exact oposite” and “a lawyer says otherwise”. Once we know just where your concern lies, we can better shed some light on it.
Other than that, DO re-read all of chapter 9 slowly, carefully, and completely – it may just answer all of your questions. ;)
Benny
Hi SydMan,
I imagine whatever your next moves should be must depend on where you WANT to be. Let me explain:-
You look to be in good shape financially, with several options. Your path could take several different paths – e.g.
1. sell your house and move North and pay cash for your next PPOR, without paying a cent on CGT, and say goodbye to $356K of debt.
2. depending on the numbers, perhaps sell one IP to liberate cash to pay off another, (CGT applies) or
3. borrow to purchase another IP or two, with better Income prospects (i.e. NOT negative geared), or
4. Sell existing neg geared to buy pos geared (CGT would apply though, so do the sums first)
In short, I would be looking to clearing the neg gearing either by selling, or trading, or renovating, or doing a few chunk deals to produce cash to pay down debt. Thinking that way, I imagine Steve would be saying “buy residential to grow your Equity, then later, move to Commercial for a better Income”. So Sydman, is it time for you to make THAT move? Is that something that appeals?
You have lots of options – but what sounds like it might work for you? i.e. what skills do you bring that would have you favour one path or another? I know, questions, questions – but they are yours to answer….. Let’s see who else has some thoughts that may be of benefit. Come back with more info if you wish,
Benny
Hi Jane,
Wow, it is awful when laws change and the results of your earlier decisions become a minefield through no fault of your own. I don’t know the answer for you, Jane, but I wanted to say there are a number of very smart people who are members, and I am hopeful that someone might have an answer that they can share with you. I will leave it there right now, as I can offer no more than a little hope for you, but I do at least that – I hope things work out for you in the best way they can.
Benny
Hi Suri,
“I am being pushed as the builder is saying if I don’t pay up by Monday next week they will start charging interest.”
Don’t be railroaded – work out WHAT that interest cost would be, then decide if it is worth having the “insurance” of a third party’s report. e.g. let’s say you owe $100k to the builder, and they want to charge 5% interest. That is approx $100 a week. If an engineer’s report is going to take 3 weeks, then allow an extra $300 as the cost of your “insurance” (the structural engineer won’t be cheap I’m sure). Once you have some “numbers” things become more clear.
One further thought, if downstairs is level, then it seems unlikely to be a ground subsidence issue to me. Is that right? What do you think? One old trick I’ve heard (works for hard floors) is to take a marble with you !!! ;) See which way it rolls.
Good luck with your decision,
Benny
Hi Jen,
I was told by the agent that the vendor will not look at any pre-auction offers below the $700k mark. Is the agent meant to update the quoted price range to reflect that?
I wouldn’t have thought so. The agent is simply saying that the vendor is hopeful of having a “lively auction” where the price could go above the expected range, and that (for now) they won’t entertain any offers below that $700k number. At auction, it could also be passed in at $640 or so, leaving the door open to other offers then.
For a price though (the uplift to $700k or above) they might be willing to “look at” your offer ahead of time. Otherwise, go to auction and be the highest bidder (hopefully after it gets passed in….). Good luck with it,
Benny
Hi Kiwi,
To me, one of the major questions is this – are you wanting to buy a house in Newcastle to be your own home, or to be an Investment Property? Depending on your answer would change what I would do. Here’s why:-
1. You have some good equity in the Whyalla place – if it is not selling, that could mean you are asking too high a price for the current market. That equity is available to you if you sell, with no CGT to pay either (as it was your own home). And that way works well if you are wanting to buy “your own home” in Newcastle as it provides you with a sizeable deposit.
2. If you want to buy an Investment property in Newcastle, then you might instead borrow against the Whyalla property (use some of that equity that is just “sitting there” right now) to help to buy the new IP – any loans are deductible, thus helping your income stream. But then, this depends on your current Income and how secure it is. If you are employed and quite stable, or you run a successful business, then this way might work out well for you.
Whichever way you go, there will be different angles that you will need to consider. Terryw has already mentioned some, but there will be a host of others depending on your first decision (above). Do come back to ask more….. :)
Do check out the link I sent you in your Welcome PM – the “big picture” link. It has some really worthwhile thoughts (also from Terryw) on the various options when looking to sell or keep a property that has been your own home. Some valuable points in that one – actually, I’ll post it here, so others can find it too:-
Benny
Hi Propdir,
“Does this -22% still apply, and if so, what meaning can we put to it?”
I would think it does apply, and indicates a 22% loss. I don’t know of any more complicated way to view it, but would be interested to hear from others on this too (especially if my answer is wrong, or incomplete).
Benny
we are taxed on the increase of the asset not on the total asset.
That’s a very good point Sinner. Tony Robbins does say to “take out 30% tax at each stage” and I hadn’t questioned it further, as my calcs seemed to meet with his original answer.
Well considered on your part though – that was a good catch.
Benny
Hi Sinner,
I took a look at your workings and noted a couple of things:-
1. After the second line, you were only removing 15% instead of 30% and
2. You seemed to double the original expected figure (1, 2, 4, 8, 16, 32, etc) instead of doubling WHAT REMAINED after the 30% tax was imposed in each year.
So to clarify, your first 4 years in the Net Asset column showed this :- 1, 1.7, 3.4, 6.8
…while mine showed 1, 1.7, 2.89, 4.91
After 10 years you had $870.40 while I had $201.60
Did that help?
Benny
Hi Philip Green,
Let’s say that 10 years ago, when you first purchased your home, interest rates were 5% on your 30-year fixed-rate mortgage. Now, in 2020, you can get a mortgage at an interest rate of 3.5%. Those one-and-a-half points can potentially knock hundreds of dollars a month off your payment, and even more off the total cost of financing your home over the term of the loan.
That WOULD be a good idea, except that the lender will have break costs on a Fixed Loan that is likely to cost you ALL of what you would save, and then some more. So, before anyone goes “breaking” a Fixed Loan, ask for a payout figure first, then do your sums !!!
Benny
Hi again,
I hear you, and yes, your questions make sense – Steve mentions two phases – accumulation, then consolidation. As I understand it, the accumulation phase is where you go “all out” to gain equity that you can then convert into Income down the track. Steve makes the point that Commercial Properties give a better yield (Income) than residential, so he talks of building your equity with residential properties first. Once you have the equity you need, use it to buy Commercial that then throws off extra cash so you can leave your job.
But beware, those few words are the nutshell – there is far more to it than just that, and of course, you might need to have a high income to be able to grow your equity. So, yes, you might need to buy 50 properties – or just 16 (see a story that comes from the topic called “The big picture” – about a young bloke who wanted to accumulate quickly) :-
One line from that link is this – “He created rental incomes of $200k in 2 to 3 years”. That was gross income, but hey, there was a lot left over for him (to buy more, or simply to live). He posted later to tell us where he is now…..
You’ll be able to access the whole “big picture” topic from there too. Or look for it in the Welcome PM you received. There are a host of other ideas in that link,
Benny
Hi Big Lachie,
From your words, I suspect you’ve got to page 100 or so, but perhaps not much more yet? I see where you read the part about “thirds” – it is between pages 92 and 100 – or thereabouts. Did you spend time on the other two “thirds” though, and what each of them does for you? ‘cos it is all about the whole picture. Steve used the “thirds” to good purpose – but perhaps it might be that things can work better (for you) by utilising ALL of the postive income in just one area rather than three? But to round out Steve’s idea of thirds, let’s take a bit longer look at them:-
One example of what the second third can do is told in later chapters – see p235 for Vendor finance and how that can lead to a lot more income over time, OR indeed a lump sum equity jump instead (depending on how things go for the purchaser). Either way, the investor (you) is covered – via income or equity. Note too though, that Steve’s earliest purchases used that system as it worked well with inexpensive properties. Even then it only worked in a small number of areas – Steve needed to change his focal point once that area (Ballarat) values grew too high to use that system.
Steve talks of “Multiplication by Division” too (see p49) – revisit those pages to see how he was able to recoup “lazy equity” by selling one to enable him to buy two more. That’s another way to increase BOTH your income and your equity (capital).
And then (on page 99) he talks of using shares for capital gains (as one can make money whether share values are rising or falling). In the end then, do you need 50 properties? Maybe – maybe not – it is all about “how you choose to structure your investing”. From what I can see, Steve’s way is a patient, sure way where you walk the path to financial freedom. Not a sprint, but more a marathon.
There is a lot to it, Lachie – do come back with more questions as you go – I hope the above helps in some way, :)
Benny
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