Forum Replies Created
Hi Bec,
It may be you have come across this already, but if not, I didn’t want you to miss it, as the post linked below guides you to other threads that get into “What does and doesn’t work with x-coll!”Benny
Hi Valluvan,
As Terry has indicated, there are MANY more things to consider before making a call one way or another. As just one more example to think about, I could argue that living in your newly-built PPOR for 2 years, then SELLING it, might turn out to be a far better option than keeping it as an IP. But you would need to confirm that first with your favourite adviser, as my example may not work for you and your situation.So, if you speak with your adviser, and they take you through the benefits of “Selling after 2 years” as opposed to renting it out, then the subject of “Whose name to buy it in” could change markedly too, depending on which path you choose to take.
In short, you need to know just which way you are planning to act in the future BEFORE making decisions NOW. If you change your course of action halfway through, that could lead to massive extra expense (just because you changed your mind). Far better to KNOW in advance which way is best – and that means having ALL questions answered before you make your first move.
It would be awful to find you have bought in the wrong entity, costing you heaps in CGT in years to come, just because you weren’t sure which way was best when you first started out. I hope that gives you pause…. I’d hate to see you jump in when you haven’t yet fully learned what you are jumping into. As Terry said, go get some legal advice, along with any other education on the subject you deem necessary.
Benny
“If you think education is expensive, try ignorance!”
Hi MM,
Wow. I’ve been out of it awhile, so my “numbers” might be a little out-of-date – but that quote just blew my mind !! My first thought would be to get two more quotes (at least) and have them itemise the expenses – i.e. If they are not providing the DA part, where does all of the expense come from? Are there major earthworks to be done? ‘Cos if not, I’d think that first quote you mentioned is likely to be providing his Bali holiday later this year !!Benny
Hi Kengw,
Good for you for having a plan. That alone is a very good start.i’ve made every assumption along the way very conservative
1. I agree it is very conservative.
2. Your PPOR may not be quite as flexible as other IPs, so would its $3m be as accessible for investment as the others? Of course, you might downgrade to something smaller and have the extra to invest…..
3. Will a $450k purchase next year be achievable? That depends on where you are, and where/what you are buying. Maybe not in Mel or Syd? Or will they drop in value to meet your projection?
4. Assumption is that lending parameters will be flexible enough to allow you to buy as projected.
5. You’ve calculated this as though you are not paying down any debt on each property. Very conservative, or were you looking at neutrally geared (or -ve geared) properties?
6. Huge economic disasters aside, it sounds eminently “do-able”. Just don’t try to run before you can walk. Cashflow is King.
7. You sound like your head is screwed on well – make it even more secure by continuing to educate yourself – then go, go, GO !!!I predict you could blow this away in real terms once you have learned how….
Well done,
BennyHmm, my lack of knowledge of Units is showing – I only ever did buy houses.
Anyway, Kengw, the other thing that I recall the Body Corp might be doing is imposing a “Special Levy”. That might be another name for Sinking Fund – or it might be they don’t use the term sinking fund at all, but they might instead have a Special Levy that all owners must pay. Whatever it is called, these are all costs to you if you buy into a deal like that. Be sure you are aware of ALL such costs (no matter what they are called) before going to contract.
Benny
Hi Kengw,
First points to me would be these:-
1. Many lenders won’t offer finance on “tiny units” – and for those that do, they might only offer 60% as a mortgage. Would you have a spare $80k to cover Dep/Costs?
2. “What are your Body Corp costs for this place?” These could be a large outlay monthly – might include large Sinking Fund payments that could cruel any profits. Check with the Body Corp before you offer.
3. Gross return is just short of 10% – not bad, but once you take the above into account (along with the other “usual suspects”), what is your return then?
4. Though a smaller mortgage (thus smaller Interest costs), your money invested (Deposit) is now “stuck there” until you sell. So be very sure of your exit before you enter !!As you mentioned, the Opportunity Cost could factor heavily with this one.
Benny
Hi Dave,
If the sellers can’t see a good deal when it is presented, I’m wondering if you simply need to pay full price.However, if you don’t mind “playing games” and are wanting to twist a few arms, you might wish to put a sunset clause into each offer. That clause might simply state that they “Have 72 hours in which to accept (or start negotiations) after which the offer will be void.”
To ramp it up a little, maybe offer a price that, after 72 hours will DECREASE by $10,000 for each day that passes until another date 14 days into the future. The idea being to “get their attention early” and have them take notice !!!
What do you think?
Benny
Hi Zehra,
where to find the right suppliers for our timber , tiles , plumbing etc , my partner is not from here so he has no idea also
Tell us all where “here” is, and who knows – maybe one of our members might be able to help. ;)
If you are building in Rockhampton, knowing where to buy stuff in Melbourne wouldn’t be a lot of use to you. Do tell us where you are building, so that you get better answers,
Benny
Queensland per se is not the problem – the product you were buying was the problem.
Sorry guys, but I am sticking with my original statement (above). It may APPEAR that Qld was the problem, and there are reasons for that. One common “gotcha” is that Qld prices (locally) are way below similar prices in Sydney or Melbourne. Some marketers use that to pump up their selling price to unsuspecting buyers.
Prices here can appear “too good to be true” so the marketers help to overcome that by keeping the price nearer to “what you are used to”, yet still lower than you would expect. Thus, they seem like great prices.
Be careful when buying in ANY area where you are not familiar with the market. A course in due diligence would be advised. Take “Steps” to find such a course ……
;)
Benny
PS Watch out if you are approached with something like this:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/page/2/#post-5027703Hi Doug,
Whatever you do, DO NOT buy into Queensland unless you want to throw your money away.
Queensland per se is not the problem – the product you were buying was the problem. Sorry to hear of the outcome – but thanks for sharing your story.
Benny
Hi Terry,
Not correct Benny
A valuation is only needed if an existing main residence becomes income producing.
In this case an investment property is moved into so a valuation can’t be used.
The CGT will be worked out on the portion of the time that the property was a rental.Of course – I had it the wrong way around !! Thanks for the correction Terry – and the example helped greatly too.
Regards,
BennyHi Jon,
Welcome aboard this good place !! I can’t help with spreadsheets, but regarding meeting others to learn, here are a couple of links that let you know what is happening from time to time. You might wish to make contact with the two posters who advertise these meetings as I think they also conduct them.They pop up every two to three months, so keep your eyes peeled.
Benny
I think Terry is meaning the property will only be exempt from any further value increases from the time you move into it as your PPOR. But you will likely be up for any Capital Gains above original purchase price up until the date you move in. You will likely need to get a valuation as you move in – gains from that value upward would be exempt as it has now become your PPOR.
Terry’s first words mentioned “apportionment” – i.e. you might live in it for the next 50 years, but the portion of time it was a rental would still not be exempt. Of course, if you never sold it, you don’t have CGT to pay anyway (???)
Have I got that right, Terry?
Benny
Hi Steven,
After talking to a few agents, I was told basically the local council put this phrase on literally every property’s report and it looks like the council put down this as a “blanket to cover themselves as result of earthquakes in Christchurch”.
Hmm, so this is a Council Report then? I had thought it was a Building Inspector’s report….
I wonder what a Council is doing reporting on houses – is this perhaps part of the “new way of doing things” where they might have needed to consider demolition in some cases, and all following the huge disruption in Chch of a few years back. It could be that every house has to have such an inspection and subsequent report. My own sister’s house suffered minor damage back then, but is OK after having had one wall re-bricked. She confirmed there was liquefaction around her place – scarey stuff when it is happening….
In my recollection, Chch was never one for earthquakes – in my youth in Wanganui, a tremor was a more-or-less regular occurence. We would take a doorway each while the ground sorted itself out !!
Benny
Hi Steven,
An interesting phrase for sure. On one hand it might be as realistic as having someone reporting of a car for sale “Possibility of an accident if driven on roads”.On the other hand, if this property was in Chch (or a similar area where that actually HAS happened previously) then it would certainly be worth heeding. Further due diligence needed methinks – approach the report’s producer and ask them just what was meant by that, and how their comment was substantiated.
Is the comment verifiable (e.g. by approaching the Local Council or even local RE agents, newspapers, etc) or is it a bit of “over-reach” on the part of the person writing the report?As a counterfoil, consider a common event in Queensland where any/all builder reports might include a phrase like “evidence of termite activity”. These are so common as to be almost able to be ignored – almost….. But the phrase can certainly scare off someone who is not a local. The truth is that there are a couple of hundred different types of termites, and many that are active in the back yard. But only a few species (less than 20?) that will actually “eat a house”.
Good question, and a bit unusual ;)
Benny
Hi Sarah,
… and welcome to this good place. Just so you know, I removed the second thread you started – so we don’t get people replying in two different threads, all saying the same thing. By keeping it all together, I think you will find it easier to keep track – and so will we.Re the question, I would be looking closer at “buying old and buying well” rather than buying new. With you renovating an older unit over time, you will add value to it. The other option is to PAY for the value that the developers’ add to the new unit instead. That could be $200k more in some areas.
One other thought is that I prefer house and land – that way your owning of the place is autonomous – you don’t “share” the ownership with several other unit owners. Is a house and land in your thoughts at all?
Let’s see what others have to say too,
Benny
Hi Muzza,
Welcome aboard. That’s an interesting suite of questions, but in thinking around them, they lead me to question you even more – take a look at my thoughts:-1. You don’t mention current value or rent of a 2bdr in Wooloowin. But you said $250-300k to lift/expand it to a 4bdr. I took a quick look at re.com.au and it tells me a few things:-
a. That this is a high-value market, thus (depending on current value) it “might” be beneficial to do the reno/expansion – but that would depend on its value now. e.g. If it is valued at $300k now, then by spending $300k it seems you would increase the value by around $500k (good value!). But if it is valued at $600k now, spending another $300k might be over-capitalising. Hey, that is a rough guess, but it is something to think on.b. The stats on re.com.au show me that the Wooloowin market appears to be growing in value – the Median showing for a 3bdr in that area is $807k, but recent sales show $870k. It also says this is a “high demand area” with many wanting to buy there. A quick call to an agent should confirm much of this.
c. There was no median data for a 2bdr – is this a low demand size there? Are the likely tenants all families in that area? Who is renting it currently? And what is the current rent? Data says median is $420/week for a 2bdr, $470 for a 3bdr, but $700 for a 4bdr ????? So, are 4bdr’s in high demand and low supply? That could be a “tick” when considering whether to reno/expand this place. At $700 a week, this could be nearing 5% return instead of the 3% of a 3bdr……
Muzza, a question or two re this quote of yours:-
I moved to the outskirts Redland Bay after buying a business because of not wanting to commute and rent there.
What if it were to prove more financially beneficial to you to buy an investment AND rent yourself? Many do this (search for “rentvesting” to get an idea of how it works). There are several benefits to doing it – but, of course, there are also benefits in owning a PPOR too. The decision must be yours, but seek out all the facts of both ways first. As one example, IF the Wooloowin property is your current PPOR (i.e. you lived there) then talk with your adviser about Tax Exemption for 6 years after moving out of a PPOR. And also ask all around you renting while still owning IP’s – and how that can assist you (and work against you too). The answers could surprise you.
Have a good read of that PM I sent, and the link to the “big picture” topic. There are lots of good posts around PPOR and benefits for and against. Check the Index on the first page of that link.
Feel free to pop back to either add more info, or to ask more questions (we don’t bite unless you ask us nicely…. :p )
Benny
Hi Ithelien,
One part of your due diligence would be to have a Building Inspection done, yes? For the few dollars it takes, having their report on THE actual house would be good to have for your peace of mind.I believe there could be extra charges for “more than usual” inspections – e.g. If you required them to take a long, hard look at the roof from on top and under it (climb into the ceiling manhole and inspect). Maybe ring a few to get quotes re their charges for a basic inspection + roof (on top and under it) + any other “specialised areas” you might have concerns with (e.g. water issues, foundations, etc).
The way I see it, even spending $1000 is money well spent if it either saves you from buying a “pig”, or it allows you to sleep at nights, knowing that the house you are buying is sound. Ask them too about what guarantees they might provide with their report. Probably very few (if any) but it pays to know these things before you pay for them eh?
Benny
When you said about it being quicker to pay down our mortgage using equity growth, do you mean equity growth in an investment property obviously?
Correct. e.g. let’s say your wage has a bit of excess and you can find an extra $200 a week to put toward your mortgage. Roughly, that’s $10k in a year. Pretty good, right?
But what if you invested it in an IP that you manage to buy for $20k below market, and you spend a bit ($10k) to add value – like, paint, a new stove, carpet, whatever – and you can add a further $30k of equity that way. You’ve just created 5 years worth of your “salary excess” in a few months, haven’t you?
Of course, what you do from there has yet to be determined. You might want to sell (but then CGT might play a part, and RE commission, etc) or you might rent it out for a better rent because it now looks so much nicer. Or maybe the extra equity can be borrowed against to buy #2 investment – and do it again. That $50k could be a large chunk of a deposit on another, right? And far quicker than attempting to “save” a deposit, right?
This is where knowing WHY you are doing something, and just HOW to do it for best effect becomes important. Suffice to say most can create wealth more quickly than earning it. But one must also keep a weather eye on the market as a whole – including financing and any law changes relating…. etc.
So there is a lot to it, but then a lot of good that can come from it too. Softly softly, and check your assumptions with those who know prior to implementing things.
Benny
Hi Barlow,
I’m not sure just exactly what you mean by this:-We are now looking at possibly doing a house and land option
The main thing is this – if you are thinking of going to someone who is going to sell you a H&L package, DO read this link first:-
https://www.propertyinvesting.com/topic/4408921-anyone-heard-of-asset-partner-in-perth/#post-5043546Especially see the link within that link that talks of “Buying off-the-plan is dumb!!” It might sound harsh, but hey, we all need to be aware of what is in play when taking that path – and Jason has spelled it all out in that link.
But, another way would be for you to purchase the land, then approach a builder and build a house on it. That is a whole different kettle of fish.
If you are wanting to pay down a PPOR, I think Equity Growth can do that a whole lot quicker than paying it in after-tax dollars via your excess in salary. But just be sure that the path you are choosing really does do the job that someone says it will do (i.e. reread the link above).
;)
Benny
