Forum Replies Created
Hi Lizu,
The bank has said that the only way to avoid paying the fee would be to close the offset account and convert to a standalone loan account.
Oh, goody !! And then you could receive Interest like 1% instead of the 5% you get as an Offset now. Me, I’d pay the $10 a month and say Thanks !!
An Offset is TOO GOOD an option to just stop it. As you say, it allows you a swift clean, trouble-free exit if you chose to turn it into an IP down the track. $120 a year is a cheap insurance to allow you to do that.
Benny
PS All just an OPINION, as I am not an accredited adviser – so do check the ideas with your adviser.
Hi Raasta,
I think you might’ve got lost in my words. I mentioned that we often think of spending $30k on a reno to gain cashflow and equity but not the other option – see here:-Would it make sense in your case to spend that $30k on Selling costs and quit property B? What would be the “rent return” in that case?
You would need to satisfy yourself that this would make a meaningful difference of course. I know Steve talks of “multiplication by division” – and in a nutshell it is this :-
Sell a non-performing property to gain back the cashflow it is costing (thus the servicability) and instead parlay it into TWO better performing properties. Now, THAT option may not have the desired result in your case, simply because you have almost NO equity in property B. But hey, it would SAVE you $300 a week wouldn’t it? Or more? That’s where YOU need to tell me what the actual numbers might be, but they are HUGE imho.So, if you have a chance of selling B and instead buying a positive geared property, also with a chance of future equity gains, why would you NOT sell B and replace it with a better IP?
Once again – food for thought…… ;)
BennyHi Raasta,
Wow, you appear to be very highly geared. Is this because of a downturn in values that I believe hit Perth over the last few years? Or was it a recent, deliberate move on your part?At a quick look, and without getting out a calculator, it seems property B is the biggest part of the problem. You would have the actual numbers that would tell you.
My thinking is that we can comfortably accept spending $30k or more on a renovation that might create a chunk of equity but only provide an extra $100 a week in rent. Would it make sense in your case to spend that $30k on Selling costs and quit property B? What would be the “rent return” in that case? Seems to me it might be making a $300 a week difference or more (and don’t forget, I still haven’t pulled out a calculator, so my numbers might be off the mark).
You tell me – just how much immediate relief would be gained by selling B? And, of course, it seems you might have a quite decent wage taht allows you to hold these anyway, and you also might be willing to invest further (perhaps positive geared?) anyway.
As Steve says look for a deal that “Makes the most money, in the shortest time, with the lowest risk, and the least aggravation”.
Food for thought !!!Benny
Hi Puredaycent,
however if we decided to sell after a year I believe I would be stung for capital gains tax.
I would advise you take up with a MB to discuss your financial options – moves such as you are contemplating are complex, and having a heap of more accurate information would help immensely. See, I believe you are quite wrong with the above statement, and that Capital gains Tax won’t likely come into it “in the situation you are describing”.
But, if you suddenly went in a different direction, then CGT “might” become an issue. So do be sure that you check again once you are settled on a plan.
I believe most Sydney-siders would gain (initially) when moving to Qld – with the difference between house prices from one city to the other. But that can be short-lived if you DO sell up. Really, it would depend on what you did with the proceeds. It seems while invested in a Sydney home, the values have been appreciating very well. But, once the $$ have been taken out of Sydney, what then? Will many of them disappear as you set up in the new environment? Or will you pay down/off any mortgage you had by buying a cheaper house and investing the rest?
There have been other good ideas passed along too – keep on “talking and listening” until you have a better feel for the situation, find an option that sounds like it would suit, and THEN check out all of the financial ins and outs to ensure that the different path hasn’t changed what you thought to be true.
Further to the “talking and listening” bit, share what the likely value and likely rent of your current home might be if you were to rent it out. One of our members might then be able to come close to predicting whether it would be positively geared, or not.
Benny
Hi Wezwaz,
a block of land that has a land valuation (according to rates notice) around $120,000.
UCV’s are notoriously low, and have been ever since I can recall. The UCV (Unimproved Capital Value – i.e. supposed “land value”) is used to determine Rates, so this maybe keeps the number artificially low (???).
Don’t use a Rates Notice to determine land value – check it out with a RE agent. It seems you are largely aware of that.
Now, we are all told buildings depreciate. Therefore, theory says the house should be fully depreciated and the total value of house and land should be $120,000?
Hehe – tell me where you are selling, and me and my mates will buy every one of them !! :p
THEORETICALLY you are right – but REALITY is not like that, eh? The ATO allows us to write down the Capital Value of a house over 40 years at 2.5% pa – thus, at the 40 year mark, houses are (supposedly) worth $0. At this point, (also theoretically) the house should be knocked down and another one built. In many cases, this happens earlier than 40 years (e.g. development and subdvision) but if the house survives past that date, it still has an intrinsic value so long as it is inhabitable.
This “inhabitable” tag may well be related to how much is spent over its lifetime to KEEP it inhabitable – so, by spending Maintenance $$ on it, aren’t we pushing out the “use by date”? ;)
Anyway, in theory, your theory makes sense – in reality, reality is somewhat different ….. :p
Thanks for the question – I enjoyed having a crack at it. Let’s see if others can add their thoughts too,
BennyHi Viz,
1. I have been told buying in partnership is a BIG no no by my mortgage broker, exception if its your spouse, not even your parents and reason being, the bank will look at the total loan owning not my portion and my equity will be only my portion. Would love to hear from anyone who bought in partnership other than your spouse and some experiences? Also how true is that statement?
1. I think the statement you are talking about appears on a contract showing each partner to be “jointly and severally liable” for the mortgage (which in today’s English should be read as “jointly and separately liable” – i.e. each one owes the whole amount as well as owing it jointly with the other).
And so we end up in the situation where (because you jointly own a property) that you will only be apportioned HALF of any Income. But, since you are also SEPARATELY LIABLE for the mortgage, the WHOLE amount is owed by you (yes, AND your partner too).
Talk about the Bank “having its cake, and eating it too”. But yes, it is often true – look out for that phrase whenever you go sign a contract in partnership with another person. This phrase can severely slow down both parties from further investing (unless you can find an investment where the Income is SO HUGE that it doesn’t impact you to owe double the cost).
2. I would think that the smaller amount might limit you to residential. I have heard that commercial requires deeper pockets (but then, I haven’t any knowledge of commercial investing, so I don’t really know….)
3. Me too – I prefer larger land content. But, if going to buy an apartment, then I also would want an older (often larger) apartment in a prime rental area rather than a new one in a tower.
Good luck with your hunting,
Benny
hi James,
All I just want to terminate the contract as the house have active White ants. What to do to terminate the contract? If they say I can’t dispute the contract I am legally obligated to buy this house?
I hope you have had a solicitor helping you through with your purchase. If you have, then they should have advised you to formulate the contract with the right words so that you CAN void the contract if the building and Pest report is not satisfactory.
Look at the contract you have in front of you. If it has conditions like that, then you can void the contract. If you don’t have words like that, then I think you should see your solicitor asap. In fact, see them anyway – as, if you are to cancel the contract, then THEY will be doing that, and notifying the vendor’s solicitor, etc.
I hope all is good, and your solicitor has helped you draft the contract up-front,
Benny
Hi Cattleya,
“how does scrapped negative gearing present great opportunity? Is that because prices are expected to fall?”
Since it is a poll, it is up to you to choose if you think it might benefit you.
One possibility I can see is if it is to be scrapped by some date in the future (July 2017?) then there is going to be a scramble to buy so that your IP is “grandfathered” as a neg geared property. That will create a short-term opportunity for some – e.g. for those wanting to “cash out” of their portfolio as they retire. The loomng date will likely create a short-term boom, and a lift in selling price for second-hand properties.
At the end of that time, there will be much “Sitting on hands” from some investors as, once they sell, they will be buying anything secondhand as a “non-negative geared IP”. Hence less selling of existing property and more buying of new ????? Over time, of course, things will settle down and the “new normal” will be created.
But then, YOU might be a developer who is building new – and the talk is that “negative gearing WILL be allowed on new property” so you could be gearing up to commence selling your newly-developed properties to investors as well as the usual home buyers (i.e. your base to sell to has GROWN as investors who want to neg gear MUST now buy new). This hiatus allows you time to prepare to take maximum advantage of the impending shift by perhaps locking in more purchases for subdivision, perhaps looking for investing partners, etc.
Such a big change will impact tens of thousands – some will be winners from it I’m sure….. Is that you? ;)
Benny
Hi RYF,
Use the Search button – on the Home page, look right and down – below Training Centre and Register your book.
Benny
Hi Deedee,
Just a thought out of left field – I think I have heard of some groups that can help you clear your credit file. Maybe worth checking (googling?) to find one of these? Sorry I can’t add more – but I thought I recalled reading of such firms a few years back….Since the debt has been repaid without discounting (assumedly) you might have a good chance,
Benny
Hi RYF,
You have lots of questions – and that is a good thing when starting out. It is far better to ask than to assume.
Anyway, my best advice right now would be to take a look all through this thread:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/There will be answers there to some of the questions you are asking. There may also be answers to questions you haven’t asked yet (but were thinking of them). All in all, it should help to direct your thoughts in a measured way toward some chunks of worthwhile early knowledge that will allow you to progress….
Enjoy !!
Benny
Hi Nan,
I believe it is a good idea – mainly for asset protection. Imagine if you had a loan for your home for some years and you suddenly wanted to go buy an IP – AND got finance from your current Bank.First, they OFTEN set things up so that the two loans are “crossed”. I have found you need to nip that in the bud when first seeking a loan. By using a different bank for the IP loan, this means the loans CAN’T be “crossed”.
Also, let’s say you did go ahead and borrow from your “bank of many years” for an IP loan too. And suddenly things go badly wrong, and the IP is suddenly not worth what you paid for it, AND your employment gets cut OR your job goes away !!
Things start getting a bit serious then. Now, with your “Bank of many years” holding both mortgages, there is a chance that they might want you to sell your HOME (as it has a lot more equity than the IP) to repay them for the IP loss. With a separate Bank, that could still happen, but it would likely take a while longer as they don’t have the mortgage on your home.
Really, I just like the idea that one bank looks after the loan on your home, and another bank(s) can look after the loans on IPs… and never the twain shall meet !! ;)
Benny
Hi Cris,
PPOR = Principal Place of Residence = their own home (or once was – conditions apply).and Cris, I am not sure how you got this :-
and initial CGT is 25% of capital gain
…so let me give you an example of CGT that I am reasonably sure will be somewhat correct (as I am unfamiliar with Lease/Options and payments being Rent, or not, I will leave that part out). Here is a simple CGT calculation:-
Using some of your numbers :-
Cost Base = Vendor purchase price + purchase costs ($20k) + any renovation costs (let’s say $0) = $300k +$20k = $320kSale Price = $400k – selling costs ($10k) = $390k
Capital Gain = Sale Price – Cost Base = 390 – 320 = $70k
Thus, working out Capital Gain Tax assuming the seller owned the place longer than 12 months, and assuming it was NOT his PPOR is like this:-
Taxable Gain = CG of $70k x 50% x Marginal Tax Rate = $35k x Marginal Tax Rate. So, HOW do we calculate Marginal Tax? Something like this…. If seller earns $40k per annum (and currently pays Tax on that amount of $3670), then the $35k is added to his Income for that year to total $75k, then taxed for the year at the appropriate marginal rate to pay a total of $12,300 (this from the personal tax rates for 2015/16).
Now, subtract the tax they WOULD have paid if no sale had occurred ($12,300 less $3670) = $9k approximately.
Note that I DIDN’T add in any Levies (Medicare, etc) so some small differences would come into it. But that should give you a better idea of how CGT is calculated – it is not overly straight forward, but also not impossible to understand…..
Now, I don’t quite understand that first phrase of yours (the one I highlighted) but your calculation of CGT came out remarkably close to mine. So maybe your guess was pretty good, or maybe you DO understand it and had used what made sense to you to arrive at the right answer. Well done…. ;)
Benny
PS For anyone reading, I am not an accountant or other licenced adviser – so the above is all how “I think it works”. I could be wrong !! Get proper advice rather than depending on the above…..
Hi Cris,
Keep in mind that many times the seller may not need to pay ANY CGT. Main one is if they are selling you their PPOR. It is probably important that you know just how a sale affects the seller, so you can create a deal that they can say “Yes” to, eh?Then, as you say, there may be other ways to assist – e.g. if you are paying Rent for 5 years, then that could perhaps be treated differently to a Deposit payment (or, would it?). Now, I don’t know of just what can/can’t work, but it could be that there will be a different treatment of monies on an ordinary sale when compared to a Lease Option sale.
Perhaps check some of these with the POAA crew – here http://www.poaa.asn.au/ If I have it right, many of those in that group are using alternate methods of selling/renting properties. Some are around as members on here – maybe one of them will stop by to offer you some ideas.
Re CGT and its calculation, you are right in that the total profit is taxed appropriately depending on the seller, and will often be less than 25% of the total profit gained (based on the 50% discount if owned longer than 12 months, and then taxed at the seller’s Marginal Tax Rate). So, the amount paid could be quite different for each seller.
Good luck with your hunting down of the information you need,
Benny
Hi Barlow,
You haven’t shared too much in the way of details, so I will answer generically. First off, you are right in that you need some amount saved to kick off. That can come in many forms, depending on your starting point:-
e.g. if you are fresh out of school, I would think other matters are way more important than property investing.
If you already have bought your own home and are paying it off, there might be usable equity that can become your Deposit/Costs for an IP.But if you are not that far along, then take a look at what you DO have – it could be that you have a vehicle that might be worth $20k (or more) that you really don’t need to be using. What if you sold it to kick off your “fighting fund” and bought a vehicle worth $5000 instead (sufficient for your purpose). Or, save like the devil (or both). And yes, look at the option of having your folks going guarantor for you, or even them becoming “silent partners” in your property business. Have them get some equity growth even as you build yours.
ALL of the above would be well worth discussing with someone who is an adviser in finance (e.g. a Mortgage broker) to get some really useful learnings re your current situation, and how best to go from here. You may be surprised with just what CAN be done.
Also, spend some more time here, and reading books, etc just to get the feel for “What works, and what will work FOR YOU”. See, no use talking of “Finding properties that need work, having someone else fund the purchase (another investor, or Mum and Dad) and you investing your time, and small cash, into adding value prior to a resale or a re-finance” if you HATE renovating, or are useless at using a hammer, etc.
So, find a path that sounds like “you”. If you haven’t already, do check out the “Big Picture” thread – it is a sticky in the General Property forum. There are a couple of examples in it about what other people did when they were starting out.
Benny
Hi Ben,
say you’ve claimed depreciation each year, and it was a new house, so there was $5k worth of dep. each year that you claimed in each tax return. This gets taken off your cost base.
Just one further question if I may (as this is an area I am quite unsure of) – you mentioned Depreciation needs to be taken off your cost base. Richard mentioned Capital Allowance which is (I believe) not the same as “depreciation”. Isn’t Capital Allowance the cost of building (and yes, renovating) the house and fixtures?
I can understand a reno ADDING to the Capital Allowance claimed, and yes, that would be done via the Dep schedule. e.g. I don’t believe that Carpet is a Capital item, thus it wouldn’t be adjusting the Cost Base…. OR WOULD IT?
Extra words around this subject from yourself, or Richard (or anyone else who knows) would be most welcome,
Benny
Hi Macc,
l’m desperately needing and wanting to get resettled for me and my daughter. l like the town, like the house , love the spot and it is a buy and a half, it’s just that l would be going out on it for awhile at first.
Sounds good to me, even if a bit tough…. but hey, I have found your gut is the one that will tell you for sure. Listen to it, and if it is totally happy, go for it.
If it isn’t, endeavour to work out what it is not happy about (e.g. it might be that you “half-noticed” something adverse that your conscious mind is not considering).
Benny
Hi Jaish,
Those building their own homes (subdivision and developing) can make great capital growth. If you are not building your own, your chances of buying a bargain “new” are quite limited (although the last blocks or H&L packages in a subdivision can sometimes be bought cheaply as the developer wants to close out the development and move on to the next.Other than that, buying second-hand and adding value (or solving a problem) is your next best chance to gain equity. Hence, buying new from a developer or a marketer is not giving you much of a chance to grow equity quickly.
Have a look at some of the links in here and see what you think :-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/Benny
Hi Raftim,
Welcome aboard and great to see you posting a question right away!!
That confliction you feel is quite common – maybe because we are not exposed to “alternatives” when growing up in the average household.
Should I buy a house to live in first and then look at investing?
Both ways have benefits and the decision should not be made lightly. But, read this (following link) for a bit of an “alternative look” at that question.
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697967In short, the author shows that renting and owning an IP can be FINANCIALLY better than buying your PPOR. But then, there might be NON-financial aspects that need consideration too – so the decision remains with you, as you know YOU and your situation best !! ;)
Benny
Hi Sha,
Yes, a big welcome to you and hubby. You will have already seen from Richard that there can be “lots of different ways” to do things. Some work better than others of course, and some work for one couple, but may not work so well for another. The whole subject is quite complex – and there is where we need the knowledge of people like Richard and a host of others on here.The good news is that 1. You are here, and 2. You are asking questions. So, where to next?
Well, I wanted to introduce you to my “Big Picture” thread that sets out to answer a lot of the early questions that new investors have. Some useful things are “Do I buy a PPOR or an Investment Property first?” and then there are financial things that are discussed, and how/when/where to buy properties. So go make a cuppa, then sit down to tackle this thread:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/
You might want to “skim through” and only reading what seems of interest to you. And that is fair enough. Just be sure you do go back later to pick up on the other stuff that “sounded complicated” as these will all help you to learn to make better decisions. It will also help as you will be more familiar with some of the words and phrases for when you sit down in front of a Mortgage Broker to discuss your situation.
Anyway, again welcome – now go enjoy that cuppa and the read !! ;)
Benny
