Forum Replies Created
Hi Steve,
Welcome to this place – you will find it is a good place to be, I’m sure.
I was wondering if anyone could shed any advice onto my situation, as to what areas I should look into, or what even the fatal flaws with my poorly thought out plan are?
It is a smart man who knows his limitations. Yes, there is a bunch to learn, and yes, there are some duties or taxes that apply to an investment that don’t apply to a home. But conversely, there are some Tax benefits that DO apply to an investment, and these DON’T apply to a home. So, lots to learn – but stick around, soak up the information that is free here for the taking, from knowledgeable folk like Richard and many others. The path gets easier as you move along it.
Right off, do have a look here –
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/
…. that thread contains many of the early questions, and also some of the answers. Take your time and gradually come to grips with what can be your new reality – as a successful property investor.Benny
I’ve liked this one for years:-
Good judgment comes from experience – experience comes from bad judgment – Jim Horning
and another I have used on here from time to time:-
If you think education is expensive, try ignorance. Jeff Rich or Derek Bok – I thought I should at least TRY to give attribution – Googling it gave me two names as possible authors….
What about YOU? Do you have some sage, witty, or memorable quotes that make YOUR day?
Benny
Hi Jambv,
The long-standing rate is 5% for the first $18k, and 2.5% thereafter. So, add $18k to the price, and take 2.5% of the resulting total, and you get $9,200 as the REA commission.
Though this was the Maximum Rate when introduced, it quickly became the de facto “standard” rate, with very few accepting a lower commission (I have heard of the odd ones – e.g. Gecko – who will accept a lower rate).
Benny
PS I haven’t heard of any recent changes, but always prepared to hear from others who are “in the know”.
Hi Jason,
1. Do you think Templeton’s quote should be applied to the Australian property market in general? Why or why not?
I’m not even convinced that he is totally correct, though he is approaching things from the right angle. To me, the quote chosen seems a bit too “folksy” to be correct. A bit too convenient, even contrived.
Let’s see – if enthusiasm has built up to fever pitch, buyers will be bidding up to buy anything available. So, in that way his words are sound…. but then consider other words where it is said “Booms go for FAR LONGER than they should” (Sydney reminded me of this about a year ago) so prices continue to climb even after they should have peaked. In the absence of any major national or international “bad news” the boom might grow for another year or two yet.
And the obverse side of that coin ….. how does that stack up? Templeton says time of maximum pessimism is the best time to buy. Again, he is close for sure, but wait….. I’m sure he is talking of a market pessimism (e.g. Sydney) rather than International (e.g. a world-wide depression) so in that vein, again pessimism is a meal that takes a lot of slow cooking over an extended period. Often-times, the depression is individual-centric, and this allows “bargain buys”. But a “Market Pessimism” would be all over the news and “the herd” would be building up to maximum pessimism even as green shoots of a recovery begin sprouting.
Add to that there is no bell at the top and bottom of any Market. Similarly, no bell is rung when Max Pessimism is reached. So, HOW does one tell when Max IS reached? What if the Max has “more to go”? Like booms, busts can go way too long, and undershoot too.
Just HOW does one accurately gauge Max Pessimism – except in hindsight?
As I started, he is in the right ballpark – but we ignore our own knowledge and experience (even our gut) at our peril !!
Benny
PS A recent comment in a property investing mag went like this:-
“80% of buyers purchase real estate way too late in the cycle”. This must surely distort any truisms about Maximum Optimism – i.e. if 80% remain positive even as a market falls…. Or could it be that the Optimism reported in the media might lead to further buyer optimism, leading to further optimism-fuelled buying? Hmmmmm !Hi Thomas,
Ah, THERE is the big clue !!“House and pool subjected to approvals”
It seems to me like the house might’ve been moved there, or even built there, without getting all of the Final Approvals done. Same with the Pool. Maybe an Owner/Builder did this….. ??
Now, depending on the Council, this might be a minor, or a major, problem. If you are even thinking of buying this, do ask around. As NewGuy says, ask the RE Agent, and (if you ARE considering purchasing it) then DO see the Council to get an idea of just how much of a problem this might be.
Depending on the age of the house, this may not be a big issue – i.e. if built 60 years ago, when building codes were less strenuous, it might be a simple matter of “ticking a box”.
Keep in mind that, if major work needs to be done to get a “Final”, then this could be a good bargaining chip with the Seller to get the price down. Other option, pay near full price, but demand that the Seller makes the moves to get Finals on both the house and the Pool. (They might not want to do that – in which case, tread softly – maybe they know something that you have yet to find out).
Just a thought – this might be an ideal buy for a builder – someone who can size it up, and even do the work necessary to bring it “Final”
Benny
Hi PS,
Although I am NOT an accredited adviser, I would think that if your transaction with your cousin was at “arms length”, then there would be no issue. But “arms length” is the operative phrase.It swings on your meaning of “His payment will be a lot!”
If this “lot” is an unrealistically high “lot”, then I would think you will have a hard time justifying it – indeed, in a worst case scenario, you might even be facing fraud charges (the ATO might take quite a dim view, and they have a LOT of power, so don’t take chances).
But if your cousin has expertise in this area, and you are paying him a similar amount you might need to pay to an unrelated party for the same work, then “Why not?” The latter sounds like it should be doable and reasonable. Of course, a private ruling would ensure your safety.
And because I am NOT an accredited adviser, I will be very interested to read any replies from those who are !! ;)
Benny
Whoa !! That is one helluva move on the part of the Govt. And I wonder if this outcome was planned for, or simply an “unintended consequence”?
It is easy to see in hindsight what might happen, when you are looking. Or do Govts over there farm their decisions out to “advisers” like we seem to do here? Then, when things go wrong, they can point to the stupid adviser (that they paid millions of dollars to….) I should say WE paid $m’s to (the poor old taxpayers – the schmucks who bear the brunt of such lunacy).
Benny
Hi Thomas,
and a big welcome to you. Your question has me scratching my head, but lets ask a few questions of you, and see where that leads…..First off, I guess I need to ask “How did you hear this? e.g. Did an Estate Agent say this? And what were their exact words?”
See, I have never heard of a house being Subject To Council Approval. Usually it could be its CONDITION is STCA, but then you say it is sturdy. Or, any plans to develop a house (add an extra bedroom, lift it, shift it, etc) might be STCA.So it all comes back to WHO said this, and exactly WHAT did they say? Was it posted in an For Sale advert? If so, please copy the advert word for word.
The other thought is (of course) to ask the Council….. Good luck – do come back with some answers, and/or even the outcome,
Benny
Hi Sundipb,
As I am not an adviser, the best I can do is to slap on my “reasonable man” hat to see if some thoughts might be valid (they WILL need to be checked with those that really know, but hey, if what I say is Reasonable, maybe the ATO might see things the same way?)
You have owned the property for 9 years, and will be needing to find $25k to fund what is (obviously?) a maintenance issue. Now, as always, a PPOR buyer is way out in the cold for ANY expenses, whether they be for maintenance, rates, insurances, mortgage interest, anything. On the other hand, an investor has the advantage of being able to claim many expenses against their income.
So, if you suddenly become aware that it is TO YOUR ADVANTAGE to rent out your PPOR and to rent someone elses’ place, then surely you should be able to do that. This would then mean that most/all expenses are suddenly deductible. Nothing new there – people do it all the time. And you even have an Offset account that will likely HELP that change to go ahead.
Now, re the “deductibility” of the Special Levy – like all other expenses, this is one that “should” be deductible to an investor. I would think the ATO’s only objection might be that you could be changing from PPOR to IP as a “scheme”. Of course, a private ruling would cement that. For now though, why not look to see just what other benefits might come if you DID make your PPOR into an IP. Just like “It is the taxpayer’s duty to pay the minimum legal amount of Tax” (Kerry Packer?) isn’t it also our duty to save ourselves the most amount of hassle, and lower our expenses by whatever legal means are at our disposal (and that should include turning a PPOR into an IP if it sensible to do so – not a scheme, but a business decision).
There are a few pros and cons to consider in all of this:-
1. It might be that you can rent closer to work, saving money and time in travel
2. It also might be that your expenses for your old PPOR are now suddenly “deductions”, putting $$ in your pocket. How many? You tell me !! :p Savings that can go toward your new rent !!
3. You might change your P&I repayments to IO (and continue to use the Offset to save $$ – effectively “paying down the principal”)
4. If you go and rent, you can retain your PPOR CGT exemption for a further 6 years on the new IP.
5. But, if you BUY a new PPOR, rethink 4. as it will change !!
6. If not wanting to rent, you obviously have enough equity to buy another PPOR – but what about serviceability (DSR?)
7. You could always SELL the PPOR now – no CGT problem, but maybe a $25k lower sale price to offset the Special Levy that will hit the new BUYER.
8. Could a partner be a “new Buyer” of the PPOR, as an IP? What advantages might come from that? I need help there …..Anyway, that’s me – let’s see if any thoughts stir the pot a wee bit to make a nice stew !!! :p
Benny
Hi Zen,
I guess having a business in buying real estate these costs maybe deductible.
Yes, OR if you already owned property in New Zealand or interstate, then necessary trips CAN be deductible too. i.e. You ARE already receiving income from there, and a trip needs to be made to ensure the income continues (e.g. inspections re maintenance issues).
But if you haven’t yet bought, no. Similar are deductions for education – if you already ARE a property investor, then paying for further education CAN be deductible (and that can include books, seminars, etc). But if not already an investor, guess what?? ;)
With those trips – if you happen to turn a “trip to inspect an IP” into a five-day holiday, then do get your accountant’s advice before you go claiming it…. the ATO doesn’t like funding your personal time off !!
Benny
Hi Peter,
So just going to paint it when it settles bit of touch ups.Agent said if i left it the way it is ill get renters in straight away!
With a bit of water under the bridge, how did it all go? Interested folk would love to hear from you…. ;)
Benny
Hi Bjoern,
Though you may be correct with the “numbers” (i.e. if you save interest via the Offset it has you paying a bit more Tax as you have less Interest expense), to me the MAJOR advantage of an Offset Account is the flexibility it provides you!!
It allows you to keep the original Mortgage untouched while “paying it down” via the Offset Account (Interest payments are reduced by the same amount as if you had paid it back to the Bank).
But, if you HAD paid it back to a Bank instead, you would be having to make application to them for another (LOC?) account to buy Shares, or whatever. With an Offset, it is all YOUR Tax-paid money and it is immediately available to you – you don’t need to ask the Bank – you just take it !! For Shares, as a Deposit on another IP, whatever you want…..
That is so easy in comparison – what is that “ease” worth to you? ;)
Benny
Hi Busybee,
I was offered in new ‘Waterford County Estate’a new Duplex Property just under $700K.
Wow !! Must be paved with gold !! Or I am mis-understanding something…..
Before I go too far, let me clarify something – you see, I took your comment above as meaning that you are buying ONE of the two Duplex properties. If, in fact, $700k is the price for BOTH, it might not be such a bad deal after all.
Keep in mind, that I don’t know Chisholm at all, but a quick search of Chisholm’s market via realestate.com tells me that you can buy a brand-new home (4Bed 2Ba 2ga as a free-stander, not a Duplex) for somewhere in the $450k – $600k range. Also, the Median values for these show as $595k. And a 3 bedder from $400 – $500k.
One interesting point is that EVERY house For Sale in Chisholm appears to be brand spanking new – this must be a whole new Greenfield Estate, is it? i.e. it might have very little infrastructure? Maybe the values are all “over-egged” by developers as there are no existing homes to compare with. I would want a whole lot more background on this one before I came to any decision…..
Do come back if you can add more info, Busybee – it could change the whole look of things,
Benny
Here’s a time capsule from Scamp (from his first post in May 2008)
“Don’t invest into property : The australian market is CRASHING !!
Can’t you see that 9 times annual wages per house is not sustainable and that the bubble is already bursting?
It’s more than evident that the market is 50% overvalued. Take this from a seasoned property investor.”Well, Scamp – here we all are – in August 2016, with Sydney recently attaining a Median House Price of $1m. Could it be your words might be more valid today????? They didn’t work out too well eight years ago…
Following your alarmist words in 2008, we DID have a period where prices corrected…. falls of 10%, and perhaps 20% in some areas. Oh but wait, we HAVE seen falls of 50 to 70% (but only in some mining towns where prices were jacked thru the roof – yes, these were true BUBBLES in those cases!!)
It is a long thread, with umpteen differing views from many members. Let’s revisit a few of them in Summary, just for fun:-
Seank – “I don’t know your motives but I reckon people like you should be banned from these forums, for giving out such false advice.”
Units4me – “Are Scamp’s comments re a potential housing crash any more damaging than those who say property will keep on rising?”
Scamp – “I’m not bearish, we’re past that point : I’m right.
Do NOT buy yet, save your money, buy later ( January 2009 ) and offer only 30% in January 2009.”
L.A Aussie – “I think we are all quite able to hear both sides and make up our own mind. As for Scamp’s big warning; I took it as a signal to get the check book out.”
Scamp – “I know when to pull out, which is why I sell it this summer instead of december ( when I am expected to come to Australia to buy a nice property for a deflated bubble price ).”
Tony B – “I also feel the banks are not stupid – they will not lend money for housing, (100% in some cases) if they think, as many on this site do, that property prices are about to fall.”
blogs – “Michael Matusik is a joker – tell him he’s dreamin!!! lol interest rates have plenty of up before they can even THINK about coming back down…. (yep, they got to 9% then dropped like a hot potato – ‘cos they HAD to !! Benny)
Bardon – “BIS Shrapnel predicts house prices will rise as much as 40% across the nation in the next five years, because of a growing shortage in housing.”
Scamp – “Oh yes, banks won’t lend you more than 4 times your wages, and ‘equity’ can’t be used in getting new mortgages. Believe me when I say this will all happen.”Oh yes, Scamp, we believe you mate…. :p
Everyone else, have a quick cruise through this old thread – there are some good laughs sprinkled throughout.
How did YOU go these last 8 years? I hope you weren’t waiting for the prices to crash so you could buy in….
Benny
Hi Colin,
I have had clients tell me that bank staff have told them that redraw and offset are the same thing.
That is a HUGE danger then….. How do we reach the masses to warn of things like this?
I have dealt with many Bank people over the years – the major problem is that the good ones are moved out and upward, and “juniors” are shifted in to take over as the new advisers. Hence the problem – as these new ones don’t know what they don’t know – this problem is quite common in the early stages of any business, including investing.
The biggest problem therefore is that the average Homebuyer DOESN’T KNOW that their Banker “doesn’t know” either !!! Aarrgghhhh !!
Benny, tearing hair out…..
Since this scenario is a common one, I wanted to “bump” this subject back into view.
Many banks talk to people of Redraw, and “Yes, no problems, you can just borrow the money back again if you need it!” In our ignorance, if we don’t check with others who KNOW, (like Richard, PLC, Terryw, or Catalyst above), then we really can create a rod for our own backs.
And Catalyst’s comment is key:-
“Pity. Lots of people fall into this trap. That’s the difference between a redraw and an offset.”
If you own any IP’s, or are even thinking of buying them into the future (perhaps by turning your current PPOR into an Investment Property), then READ UP on these two NOW !!! You can thank us for it later :p
Start by reading the whole thread above. Then go looking for all you can find on Offset Accounts, starting here – https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697973
Benny
Hi Scott,
Keen to understand if this is a realistic option to consider for positive geared options.
This totally depends on WHAT and WHERE the holiday rental property is. e.g. if Gold Coast, then holiday times can command a good rate BUT it can languish through the rest of the year, unless you have the time or ability to manage an airbnb style short-term rental. This then adds heaps more time/cost in managing the laundry/cleaning and promoting further guest visits.
Or, it could be a “tree change” style rental in a forest or up a mountain. If this is a place that regularly draws people to stay on weekends, AND the short-term rental price can trump the usual long-term rental on a lease, it COULD be viable and positive geared.
Some plusses of this kind of rental (usually weekends only) are that it remains available for you when not rented. It is also often available through the week for setting things right (cleaning, getting tradies in to fix things, etc) ahead of the next visit.
To be successful, supply and demand is key – but so too is the capability to absorb the extra costs of preparing the place between each visit. Positive geared, possible but not a given. e.g. even if you can regularly book a weekend and AND this is at double or triple the rent of a standard lease, HOW MUCH of the profit disappears in taking care of the place? If you can get around that one, it can be a winner.
Economic hard-times will affect this rental style too. We are still struggling to get back to the levels we enjoyed up to mid-2013 !!
Benny
A further hint for your mate, DM – if the spiel is about buying a new property (OTP or newly built) then there are FAR better ways to make it in property investing than that.
And, if they are willing to fly him “for free” to somewhere else to buy, then warn him to RUN A MILE as quick as he can, ;)
Benny
Thanks Terryw,
I Googled the authors’ names and up came the book on Ebay. Looks just like I remember it. And thanks too, for the warning about LOC’s.http://www.ebay.com.au/itm/H-GILL-S-THERRY-HOW-TO-OWN-YOUR-HOME-YEARS-SOONER-/371417618753
Even today I think it is worth the few bucks one might pay to get it. I am sure they had many other thought-provoking ideas in the book itself – I just posted those I could recall.
Benny
Hi Bjoern,
Or are there other/better ways to use credit cards?
There was a book out about 15 years ago that talked of some interesting ways of using a credit card. Back then there was no Offset Accounts, but there was some kind of loan that worked in a similar way. I will talk of using an Offset Account as it makes more sense today.
The premise was that, since interest is calculated DAILY but added monthly, with CAREFUL use of a credit card, the homebuyer could do some serious damage to a mortgage. In our case, put some serious extra cash into an Offset Account.
The skeleton of the plan was to put EVERYTHING into the Offset Account as it arrives – this includes salary, lotto winnings(?), a birthday gift of cash, a Tax Return cheque, etc.
1. Shop weekly and all purchases go on the credit card.
2. If you eat out with friends and cash is pooled on the table, collect the cash and pay from your credit card, but Deposit the cash into your Offset Account next day.
3. If your Mum has saved up for a new Lounge suite, and is about to pay cash, offer to pay it on your credit card and take the cash and… (you guessed it) pop it into the Offset.
4. Think of other ways you can take cash in return for using your card – e.g. maybe shop with Mum and Dad, pay for THEIR shopping on your card, and take their cash.It sounds a bit strange, but if your parents know they are helping you by doing this, wouldn’t they want to? In fact, maybe THEY would like to contribute some savings of their own – offer them a BETTER Interest Rate than what they are getting in their savings account.
The MAIN thing is that your credit card is PAID IN FULL on the due date (no slip-ups mind…) from the Offset account. In that way, you pay no interest. Don’t draw cash from that credit card though – pay everything on the card – if you need cash, draw it from the Offset.
So what do the savings look like? Let’s say you earn $5000 a month after Tax. And maybe you need $4000 a month to live (food, petrol, clothing, mortgage, etc). You need a spreadsheet to work it out, but you might have a few days with $5000 in your Offset before you need to take some out. If your Mortgage Interest Rate is 5%, then $5000 earns you about $20 a month.
OK, not big news right off – but over time, as your Offset Account grows (by at least $1000 a month – and, did Mum buy a new Lounge Suite, or did she offer to drop $20k in your account?) you could find yourself with $20k or $50k in the Offset. The more that stays in the account DAILY, the better off you are. And with $20k in there full time, that is around $1000 a year.
And now, though it shouldn’t make any difference, (because you ALWAYS pay off the credit card as it falls due, so no Interest is paid) WHAT now can you do with another 0% credit card? Will it allow you to keep your IP expenses separate from your daily living expenses? Can RENT be added to an Offset account but all bills for the IP paid from the credit card? What will THAT allow you to save? Given that rent is paid weekly, but Rates are paid quarterly, there is a serious amount that accumulates before you need to pay Rates. So all good…..
Bjoern, I’m sorry I can’t think of the actual name of the book, and I don’t even know if it is still available to purchase. The name was something like “How to pay off your home loan earlier” (or similar to that). Hope that helps…..
Benny
