Hi Jon,

It certainly seems strange – I think you might have hit on it with this :-

I am guessing the agent or the conveyancer wants to hide a low valuation

… and. to add to that, maybe a decrease in valuation from previous (a -10% wouldn’t look brilliant, would it?)

Of course, it may be simply a “nervous seller” too.

Maybe approach the agent to have them come back with a complete rates notice – or to ask for their explanation… Like you, I have never seen that before.

Benny

Hi Guy,
When I was making my decisions re purchasing in “my name or a trust”, I was heartened by ideas I heard from other investors. In essence, their “take” on things (while in the accumulating phase) was to keep borrowing against one IP to purchase another. In that way, any large chunks of equity were already “spoken for” in the form of a mortgage. This means that any equity you might have is tied up in mortgages, or in small chunks across numerous IPs.

You might have $1m in property, but only $100k to $200k could be said to be “yours”. And, if someone DID take you to court, then all of the selling costs, CGT, etc would eat up that $100k+ leaving three-fifths of five-eighths for those who are attempting to attack you. This fact then leaves any potential litigant in the “Is it worth it?” mindset.

So, where to from here? Hell, I don’t even know for sure whether the following can be done, (I think it can) but do check it out:-
Is your position such that you might set up a Trust, then borrow against your existing IPs for Deposit/Costs to purchase an IP in a Trust? Rinse and repeat!

This can then “move” your unprotected equity into the Trust over time, without invoking CGT, etc. As time passes, you would concentrate on keeping most Equity in Trust-owned IPs, while continuing to “milk” the early IPs for their extra equity as it becomes available.

Howzat?? Maybe that is news that is less difficult to swallow? ;)

Benny

Hi Peyton,
That depends on a heap of things that are for you to tell me. Are you looking for old or new, house or unit, price range, land size. Are you into renos or subdivision? City or regional? What return do you want/need? Is positive cashflow mandatory? Have you had a discussion re finance with anyone re what you can afford?

Without those (at a minimum) it becomes a bit like asking me “When I get to the end of this road, do I turn left or right or go straight?” The answer is “It depends on where you want to go” – tell me that, and I may be able to provide some better direction…. ;)

Benny

Hi Golderneye,

+1 for what TheNewGuy said !!

Add to that – how many townhouses in the string? 4 or 20? i.e. is this a boutique block, or a “slamasmanyasyoucanontheblock” build?

The important part is “How much land will you own?” Land is what appreciates over time – as infrastructure and desirability increase, so does the location of the land and thus the value.

If a boutique block, then it is likely that this could be in the heart of Burleigh with pre-existing infrastructure. If not, then you could be way West (near the M1) and into almost “greenfield estates”.

Speak to a different real estate agent than the one selling and get a rental figure.

… and also a comparable price for a similar townhouse for sale on THEIR books. If a rental guarantee is being offered, it doesn’t come free – you will be paying for it as part of the purchase price. A good deal does not NEED a rental guarantee.

Now, that is not to say that any Rental Guarantee is BAD !! But it is an alarm bell ringing, telling you to “Check further”. If too many alarms are ringing, I would be running away. Search the selling company by name to see if others have good words to say – or not !! If they are a “one-stop shop” (providing finance, solicitor as well as the property – RUN AWAY FAST!!!)

Deep breath, then get on the phone – and good luck,

Benny

PS If you are from Syd or Mel, $420k might seem to be a “giveaway price” – but don’t get caught! If the price is too high for a local, then it is TOO HIGH (paying for Rental Guarantee, extra $$ for the marketer, solicitor, etc). Gold Coast has been notorious for this kind of selling for decades – they sell the sizzle (beaches, etc) but hide the hook underneath it all.

Hi Alistair,

if anything it should be easier to decide to sell at a loss as you receive a future tax benefit rather than a liability if sold at a profit.

By taking a loss it allows you to offset a future capital gain…. is that what you are meaning? I must admit I had never thought that way – my kneejerk reaction was that a $100k loss meant a Bank would be chasing you down for an unsettled mortgage (or a Mortgage Insurer if not the Bank).

But, can it be that one can “sell at a loss” without actually being short of $$ on paying off a mortgage? Or is that an impossibility?

If the latter, HOW does one SELL without inviting further disaster by inviting Mortgage Insurers to the going-away party? Or am I missing something else? If so, I’d really like to understand….

Thanks in advance,

Benny

Hi Pimobpi,

I agree, Elizabeth’s question is a great question, and Corey has answered it with as much as he could, given the information provided:-

Just make sure the equity is ‘accessible equity’, theres a difference.

That quote (to me) is the key. Elizabeth said “I have $20k – $30k in Equity”. What was NOT said was if it was available equity.
e.g. Using Corey’s example, if Elizabeth’s IP has a value of $500k and a mortgage of $420k, then she does indeed have $30k of AVAILABLE equity.

Repeating Corey’s main point, a lender will not re-finance at a higher LVR than 90% – so if the mortgage is at $450k or higher, then there is no available Equity (even though there is $50k of Equity in the IP). It is a VERY important point, and one that has shattered many an early investor’s dreams.

One option that MIGHT give Elizabeth more available Equity would be to look at shifting lenders. This adds complexity, and may (or may not) be a viable option based on serviceability…. But what if she could take out a 95% loan with a new lender? Then (ignoring other costs) the val of $500k allows a loan of $475k, less the mrotgage that needs to be paid back ($450k? $420k? whatever it is) allows more equity to be borrowed. That then affects the serviceability when calculating if a second IP is a possibility – so a darn good time to check all this with a MB (like Corey and others on here) BEFORE doing anything.

And Pimobpi, good on you for questioning – I hope that hearing the information in a different way has you come to a better understanding.

Re your comments about Offset accounts, Elizabeth has an IP (and maybe NO PPOR??) going by this comment from her:-

I have one investment property with approx $20-30k equity, IO loan with offset.

Re “using her Offset account for Personal Purposes” you might like to have a read of this offering – it answers some of those kind of questions:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697973
Enjoy!!

Benny

Hi SM,

Well, given your last post (about sheeting over the top) and this earlier quote from you :-

but the house is probably some thing for the developers to tear down and replace down the track ,

This is all about safety – so if you were to use marine ply sheets, or an equivalent water-resistant material, and it was in large sheets (such that several joists were spanned by the sheet) then this would be a quick (and cheap) way to mitigate those safety issues while providing a useable bathroom with minimal disruption.

Then lino over the top for aesthetics if you wish.

Benny

Hi Codie,
One of those little traps is wrapped up in the Phrase “Jointly and Severally Liable” (think of severally as meaning separately – which it does).

In essence, each one of your group of 4 is considered to owe ALL of the debt for a property (separately liable) – but, if income producing, only one quarter of the rent is allowed to be apportioned to that person when considering their borrowing capacity. That will CRUEL any chances of further loans as their borrowing capacity takes a massive hit. This whole “severally liable” area doesn’t make much sense to Joe Average (or to me) – but it is “the way things are”, so best to be well aware of its massive implications.

This is a major reason why you will often read on here from Mortgage Brokers about the importance of “structuring your loans”. Get that part wrong, and things can go pear-shaped quite quickly.

Good on you for asking the questions – the answers to them are ones that all investors should take notice of.

I’m sure Terryw will confirm my point above, but, re the land tax and other questions, I will leave all of those to him as my knowledge is quite limited. That is another complex area that should be fully discussed before making any moves.

Benny

Hi Suave,
No second bathroom eh? Any chance of building an ensuite first? ;)

I don’t know if a week is required (but then, this was never my trade – you may well know more than I). What I would be doing is checking with a tradie just how long they say it would take, then allow a day for contingency. Get two or three quotes and comments re how disruptive each tradie might be – e.g. the need to turn off water (for how long?) and the need to have full access to the house, hallway, do they lay down drop sheets to save dirty boots in the Lounge (?????) etc. Is it possible for the tenants to co-exist with the tradies during this time?

Check your landlord insurance! Does it cover “putting up tenants in a hotel while doing remedial work?” Do the rotten floors constitute remedial work anyway (was there a flood in that bathroom some time ago, and was there any prior insurance claim on your watch)? By the way, it is common for insurance companies to NOT cover wear and tear – so don’t get your hopes up, but hey – it is worth checking.

How much would a week in a nearby motel cost? Or, are there any vacant apartments nearby that might be willing to provide a short term rental? Stress the safety aspect – you don’t want them falling through the floor, so the work MUST get done – the main question is HOW !! Don’t rush them to a decision either – they will need a few days to think of all of the different aspects of such an upheaval.

In a similar case of my own, we were re-doing the whole house so the work took some 6 or so weeks. They moved out into another rental place. I gave them the option of returning to my place once complete (excellent tenants who had been with me for many years – and yes, they came back after the reno, despite my lifting the rent to suit the new features).

Good luck with it,

Benny

Hi Zen,
A great answer from Corey – to expand a little more, it is land that rises in value while buildings depreciate. So when we read of Houses appreciating by 10%, it is usually houses depreciating by 5% and the land gaining 15%.

Project that thought into units, and you have the bulk of your value in a depreciating asset, and VERY little in the APPRECIATING asset (land).

And re buying new – accountants love to “do you a favour” by coming up with a huge Tax Refund cheque for you. So a new build will have a LOT of depreciation in years 1 and 2 and a larger Refund cheque.

Or they might be getting a kick-back from a developer or builder….. In reality, you will usually do WAY better by buying secondhand where you already KNOW the infrastructure is working, the neighbourhood is welcoming, shops are handy, schools, etc. And you might be able to buy a place needing a reno, where YOU can add the value and pocket the difference. When buying new, you are also paying the 20% profit of the builder/developer.

Buy larger land that may be subdivided into the future (a lot of older homes are on 800m2 or more).

I see this is Canberra – so do you get to own any part of the land anyway? Much of Canberra is leasehold (I believe).

Benny