Hi propertyboy,

   “I hope the government is reasonable on this.”

Yep, me too – I’d recently heard the comment that commonsense is also in lockdown, and, though sarcastic, it did make sense to me at the time !!  Was it to do with Govts?  Not sure – I think it was more to do with the hoarding/blackmarketing of toilet paper.

From where I sit, I would have thought that the injection of dollars that is occurring would (should?) have been to minimise the pain that is being felt all over.  Or, in other words, that we all should be tightening the belts a little, so that no one group is shouldering all of the burden.  And if Govts are saying “Give renters a holiday”, then there should be something similar for landlords.  Small businesses are getting some help – and isn’t landlording a “small business”?   On the flip side, this whole drama is monstrous from a whole heap of angles, so if Govts are needing a bit of time to get their heads together on it, I understand that – so long as they keep on correcting any “unintended consequences” that may come about as they take frantic moves to keep Australia’s head above water.

Benny

Hi CMS,

Thanks for your VERY informative post.  I do take your point re “be cautious about retaining a loss”, and I admit my thoughts at the time of posting didn’t cover “How do you get to finalise a loan where a sale doesn’t cover the full mortgage” – I was simply assuming Anton WAS able to settle things with the lender, and that losses recorded on the ATO side of things could later be beneficial for him in offsetting future gains.  Of course, if we don’t fully pay out a mortgage, we CAN’T claim a Capital Loss with the ATO if we didn’t complete the mortgage payout in full.

Your points are well made, CMS, and could prove to be super-beneficial for others out there, so I thank you for taking the time to educate us all re that situation you were in.  It seems the insolvency company has been a big help for you through this.  Though it is not yet “over”, I wish you the best outcome possible and hope things get back to a less trouble-some “normal” some time soon.

Re “can you name the insolvency company on forum”, I will come back to you on that in the next day or two.

Regards,

Benny

Hi Anton,

I’m sure you are not alone in having taken advantage of “good times” during the mining boom, then having it all turn bad some time later.  It is good that you are here though, and I hope to perhaps turn on a light or two for you.  I see you have a few options.  That can be a curse or a friend – a curse when trying to make a decision with too litle knowledge, or a friend when “only one option makes sense” so you automatically take it.

First off, please note – I don’t know Perth at all, or its markets.  I am also not an approved adviser of any kind (e.g. not a lawyer, accountant, broker, etc – I am just an old bloke with an opinion or two :)   So be sure to get other views from those more qualified as well.

Let’s go:

You haven’t mentioned rents, only values, so I can’t suggest too much re “which one to sell” based on week-to-week losses.   But from other factors, this is what I see and would ask you to consider:-

a.  If/when you sell, you LOCK IN the loss.  That can be good or bad.  At the moment, you are continuing on hoping for things to turn around so you can sell one or both.  That doesn’t sound good to me, as you are continuing to throw money away weekly rather than investing in something that ADDS value for you and your family.  But then, since I don’t know the numbers, maybe you CAN’T sell the apartment as you won’t receive enough to pay back the mortgage?  Is that so?   Are you “stuck” in that way?   Many who bought in the mining boom have found themselves in such a situation.  Advice from a relevant adviser would help in THAT situation.  Or maybe if you sell the townhouse first this WILL release enough cash to allow the selling of the apartment too, and clear all debt with the bank.

b.  The good part in selling at a loss comes when you find that you are now able to SAVE each week, and can even afford to purchase something that WILL make you money weekly.  Also, since you have sold at a loss, this means there is no CGT (Capital Gains Tax) to pay to the ATO.  Any loss can be retained and used to OFFSET any capital gains you make in the future (e.g. your next investment property might nett you $200k in profit – subtract the losses from this earlier loss-making sale to lower the CGT you owe on this new sale).

c.  To quote Benjamin Franklin, “empty the coins in your purse into your mind, and your mind will fill your purse with coins” – i.e. spend some money on education that steers you toward the HOWs of investing so that your future investments will more likely all be positive ones.   Enthusiasm is great, but it can lead us astray where it isn’t tempered with knowledge.   Or (one quote I often use on here) “If you think education is expensive, try ignorance!”

d.  Anton, you are certainly not alone in “having a go” a wee bit too early, or unadvisedly.  That’s OK – learn from it, and turn the current situation into a better one for you and yours.  In my early years of investing, a quote I loved was “You can’t change direction in a parked car” – and I used that quote to gee myself into action in making that first purchase (the first one is hard, have you noticed?).   You are already past that first hard one, but now it is time for you to move on.  Spend bit more time finding out the BEST path for yourself by reading on, checking with advisers, educating yourself (if that’s in property, that’s great – but it might be shares or something else – up to you, but we need to be investing, yeah?)

Come back with more info, or questions – it’s all good, and welcome !!  :)

Benny

Hi Mark,

Thanks so much for that – and thanks to Steve for asking you to step in.  This sounds as horrible as I had first thought it was – but it is good to have clarification since it IS now Law.  Wow!!

One to watch out for if you are an expat, or contemplating becoming one, eh?

Benny

Hi propertyboy,

Before the rule change if they lived in the house for 15 years then moved overseas, as long as they were non resident for < 6 years, they could have sold whilst overseas and paid no CGT? Is that the key change?

I think it is far worse than that.  Note I am NOT an adviser in this – so my opinion only – as I recall, previously they could sell even after 6 years, and all the ATO would base the CGT on was for the time it was a rental.  So, sell before 6 years is up, get full CGT exemption (with conditions perhaps? maybe they had to move back in – not sure) or sell after 6 years was up, and they’d be taxed on the total years it was rented, divided by the total years it was owned.   As a quick example, if they lived in it for 16 years then rented it, and sold it 8 years after moving out, then CGT was on 8/24 of the gain (or 1/3rd of the gain in value).

This new legislation (according to the article) seems to be wanting to base CGT on the gain in value over the full 24 years of ownership (even though 16 of them were as their PPOR).  THAT to me is the big change – and (to me) wrong !!

Benny

Hi Mozza,

I’ve had no experience with this kind of situation – but one thought that sticks out is the old chestnut of “When a student goes on holiday for 3 months, where does my income come from?”   Now in your case, it is NEAR the Uni, but is also near a train station – so that means you might be able to rent to non-students.   At this time I think it would be good to consider just which demographic is to be your favoured tenant.

See what others think…..

Benny

Hi Matty,

I would think “returning it to its original condition” should be no problem in making a repair claim.  Thus replacing tiles, etc, should all be claimable (but NOTE – I am not an adviser of this kind of thing, so treat my thoughts as opinion only and check it out with your fave adviser).   Re the re-painting, is that the whole roof, or just where the repairs/replacements were made?  If the latter, I’d think painting is a normal part of a repair.

But if you are painting the whole roof, that would lead to more questions – like, did other damage (e.g. hailstones) affect the original paint?  In which case, returning it to its original look should also be fine.   But if painting a whole roof just because you think it needs it, that could turn out differently.   Like, tiles aren’t originally painted, are they?  So is this something new?   Thus it could be a capital cost.   Or is it fair wear and tear after 10 years?  I dunno.

Anyway, as I said – I can only give my thoughts as opinion.  Perhaps my thoughts have helped somewhat….

Benny

Hi Trevor,

I wanted to start by saying “Good for you for using a spreadsheet to start tracking this”.  For me, I found it helped me to learn Excel from scratch, while also allowing me to finetune my thinking re my early Real Estate days as I went along.  Each time I met another investor, or went to a seminar, read a book, etc – it all helped me to revise my thinking and thus make adjustments to my spreadsheet(s).  In all, it was the learnings from that time that gave me confidence to take the first step and buy my first IP.   So, go for it.

To your spreadsheet, it appears basically good to me.  One point I’d suggest is that whatever equity you draw from another property should be considered to be the “cash” you put into the new one.  That is because you are taking something of value to give you your Deposit.  So (example) if you took $150k to be Deposit and Costs for a new IP, I would put that amount as my “cash down”.

Of course, the very act of borrowing to get that deposit also adds some extra Loan Interest into the equation, and in that case, I would include that loan cost as part of your total borrowings too.  So you’d be paying interest on an IO loan for the bulk of the purchase, and also Interest on the Deposit/Costs Loan too.   i.e. in effect your mortgage will be for like a 100% loan (maybe even 105%).   That will make a huge difference to your monthly bottom line – but it needs to be considered in my opinion.

Other thoughts – I saw no line item for Insurances.  Can be substantial depending on what you buy.   I also noted some of your examples had no Body Corp, so you are obviously looking at houses as well as apartments or plexes.   Were these actual examples, or simply a bunch of made-up figures?  The reason I ask the latter, is that there appears to be a HUGE range of diverse options – so I’m leaning to “made-up numbers”.  Am I right?  If not, no worries, as (like I said before) it was my PLAYING with my initial spreadsheet number that gave me a base to grow from.  So, keep it up.

I’m not a full bottle on NOI, ROI, etc so I’ll leave that to others – but I can say that Steve’s STEPS program goes VERY deeply into these, as it takes you through the Due Diligence path from beginning to end of a purchase, including all of the expenses and the various acronyms that go with it all, and (most importantly) how they interact to show you the TRUTH about a property based on its numbers.

Come back if you have more questions,

Benny

• This reply was modified 4 years, 11 months ago by  Benny.

Hi Ben,

Terryw has provided you with a Mortgage Broker’s view of your situation, with a warning or two.  Sounds like things will go better after June when you become full-time (but even that might need some minimum period of employment to qualify – I don’t know, as I am not a MB, but check it out ahead of time).

What I’d suggest though is that you use the time between now and then to grow your knowledge of property – educating yourself about the market you want to buy in (go to open homes, talk with RE agents, go to seminars, etc), learn how you might buy at a discount (so your $420 property might only cost you $380?), learn how to evaluate a house’s value – like its position, land value (desirability of location), its likely tenants, any improvements YOU might make after purchase to add value, etc, etc.   And that is the tip of the iceberg – there really is so much more…..

In a word – don’t be in a rush to buy something – plan for it, and reduce any risk by educating yourself ahead of a purchase.  Read around on here – check out the Training Centre and its numerous articles and other topics.   Oh, and welcome aboard, :)

Benny