Hi Jonesey,
Sounds to me like you have a couple of choices – and different choices to many others of us who are investors. That difference comes from your trade as a builder.

Now, I am NOT a registered adviser, but I think it might be beneficial for you to discuss the idea of developing/building as a Company, rather than as a private investor. Gains right off the top of my head could be
1. Being able to buy stuff at trade,
2. Being able to sell within 12 months and only pay 30%
3. Being able to only pay Tax on the profits after all expenses have been deducted.

As an overall thought, I would err on the side of retaining cashflow – even if that means selling BOTH of the first development, or one out of every two over several developments. Once you have a huge buffer, you can then look at building to keep, etc.

Anyway, I will be reading others’ thoughts in reply avidly. Some really great ideas pop up in various replies – looking forward to reading them, especially in your case.
Benny

Hi Terry and Chat,
I was so busy penning a reply to the first question that I missed all of the subsequent answers and questions. So, sorry if it looks like I was butting in.

I think I see where Chat is getting things confused – if I can make one further comment, it might help:-

Are you saying that if the rental income on a property exceeded all its outgoings that you could not then claim for interest on the loan?

Well, whether positive or negative, you actually ARE claiming BOTH income and expenses.

e.g. When you say you expected you could claim for the full amount of $16k in Interest – Well, YES, YOU CAN. But then, you MUST also pay the Marginal Rate OWING on the Income that you receive of $15k!!

Sound fair? In actuality, we subtract expenses from Income to find out how much the ATO pays us (if negative geared), or how much extra Tax we pay the ATO (if positive geared).

Hi OS,
I know nothing more than the next bloke about Canungra. It is a pretty little town that has become a bit of a meeting place for travellers, and there has been some (limited) growth in the centre of town over the last several years. It was always (for me) a place to drive through, rather than “to go to” – as there was nothing there that would attract me, apart from the occasional “pub lunch” when touring.

I was rather shocked at the figures you showed (Returns around 4%, median values ~$450k, rents $390) as I would have expected differently (like, more positively geared, and lower cost). Anyway, though the growth figures presented could indicate a growth spurt, they could also be a factor of the low sales. e.g. With just 23 sales, the median value will be the twelfth from the bottom, or from the top. ie. the middle price of 23 prices.

Now, we KNOW four of those prices were for Mr Fung buying up large lots and this would likely have lifted the median by occupying the top four places on the list of 23. If NO real movement were happening, the median would still reflect the value of “Eighth from the top of the rest, with twelve more homes below that new median” – thus lifted somewhat from normal. IYKWIM – it is hard to explain…..

One to watch – I don’t know for sure WHEN Mr Fung’s purchases would have actually shown up (did he buy them 3 months ago?). I guess one would need to visit there to assess the mood, and talk with RE agents and shop-owners to get a better feel for what is really happening. Anyway, OS, thanks for letting us know. I will take a bit more notice of things when I next pass through Canungra.

Benny

Hi SM,

Once it is fully built, it will be a great Capital Gain booster to the property price in COOMERA and UPPER COOMERA area.

If the new Disneyland employs 1000 people, it certainly wouldn’t hurt the values of properties in the area, and might even lift rents in the area a little too ….. unless China uses FIFO workers to man the attraction, in which case all bets are off !! :p

Nah, I am kidding – but then, maybe if it were to need 10,000 people, that is exactly how they would play it. No wages for Aussies then, so no rental uplift from Aussies moving to where the new work is.

I guess there could be a small uplift in sale of goods to the new attraction (especially foodstuffs). And I dont see a mass influx of people who just “want to live near the new Disneyland”.

So, which way will it all pan out? Let’s wait and see,
Benny

Hi Corey,
Awesome thread – thanks. I know just where I can use this….

https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/

Been looking for a great thread about LMI for quite some time…. ;)

Benny

• This reply was modified 8 years, 11 months ago by  Benny. Reason: adding link to "Big Picture" thread

Hi Jessica,
Thanks for that. Right off, it seems you are paying Interest Only on the Mortgage ($140 per week on $156k is just 4.6% – so I am guessing it is IO). If you were paying P&I, I would have suggested changing to IO anyway. Let’s quickly “do the numbers” re how things are right now and see what shows up:-

$240/week Income = $12,480pa (gross return of 7.3%)

Mortgage of $140/week = $7280pa (divided by $156k = 4.6%)

$12480 – $7280 = $5200 – that is $100/week to pay all outgoings remaining – PM, rates, etc

Now, what if that $240/week were held in an Offset acount until needed? Most payments are Monthly, so there $$ would be offsetting the Interest on the Mortgage for most days of a month. Then remove as needed to pay the bills (Insurance, rates, etc). For bills that are paid yearly, the total could be offsetting the mortgage Interest for a year.

I will leave it to the financier types on here to say whether it can be done easily (recent changes might have cruelled the possibility of making the switch). Or, of course, you might already have an Offset account !!! Do you?

If you want to read up on some of the benefits, check this out:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697973

Now, back to the “What do I do next?” question.

Right now, it seems you may have bought in to this property at the peak, or were led to it by a marketeer (?) Since real estate runs in cycles, it is NORMAL for prices to surge over a short period (2 to 3 years) then stay flat, or even decline, for the next several years. I think of it as going up the stairs – a long flattish period, followed by a lift, then another flat period. So, is it going to appreciate over time? Barring major economic changes, I would say Yes. How soon, and by how much? I don’t know.

Since it costs you little/nothing to hold, it could be argued that it is worth keeping for now, in HOPES of a lift in values. Conversely though, if you had other investments that you wanted to pursue, then this one might be holding you back. Since selling it will not return you much money, I would think the latter is unlikely.

If keeping it, look at maximising its contribution to you. A lot will depend on the location and its “numbers” – if this area only needs the kind of rental you have, there is little use in upgrading your place to something else. If $240 a week is the max rent, don’t spend any more in seeking a higher rent. Read up on Offset accounts and, if you already have one, change your use of it to maximise what it can do for you.

Do come back with any questions, Jessica – I hope some thoughts expressed have helped to clarify your options,

Benny

Hi Jessica,
Welcome, and well done for making your first post on any property forum. Let’s see if we can help turn a spotlight onto the puzzle of “What to do next”.

Good to hear that it is cashflow neutral – my first question(s) would be around that :-

1. Are you paying Interest Only, or P&I?
2. What is the amount of the mortgage and you monthly payments?
3. Are you including Tax benefits in your “cashflow neutral” calcs? (i.e. is it neutral WITHOUT any Tax deductions?)
4. Is the $240/week rent “about right” for the area and for what the house provides? Or is there room for a rent lift?

A few more figures around the $14k equity would be useful. Keep in mind the costs of selling, including CGT. Also, is the house in good shape (i.e. are maintenance costs reasonably low?).

Add a bit more to the picture, and it may become clearer, allowing a clearer answer,
Benny

Hi Cheyne,
Richard made a very salient point. So that I don’t assume anything, let me ask you these questions:-

1. Are you purchasing your own airline ticket?
2. Are you also going to be looking at existing properties?

If you answered “No” to either of these, please take careful note of the following.

First, if a marketing company is providing you a “Free airline ticket”, CANCEL your plans with them RIGHT NOW. If you feel awkward about doing that, push through and CANCEL ANYWAY. Any marketing company worth its salt would NOT be offering you a free airfare (plus steak knives?) just to get you to go there. Be afraid – be very afraid.

Second, if it is just you choosing to fly up there to check out the area, do consider what many have been saying in this thread and the other one I linked to.

And you might want to have a quick read of this Article :-
https://www.propertyinvesting.com/choosing-the-right-investment-property/

Now, buying new CAN be a worthwhile way to go for someone who has learned of all the options and has considered that NEW serves their purpose best. But in most cases, they would likely have found a BETTER WAY to obtain a new property (like developing it for themselves, or in a Joint Venture, rather than buying from a marketing company).

Cheyne, I hope I am giving you pause to consider a few more things. Nothing wrong with wanting to come up and check things out for yourself – just don’t limit yourself to one option (House and Land package) when you could be leaving a possibly far better option untouched.

Benny

OMG – yes, I had forgotten about Studio Village. Thanks for the reminder.

If you would though, Richard, do tell me why you see it as “on the wrong side of the highway”. I see this feeling all through Logan, with Eastern suburbs being preferred, and always wondered “Why?” Like, does being 1Km closer to the Pacific Ocean make a difference? :p

Or is there something else? Certainly, the West side does appear to be the “poor cousin” in my area (Logan) and I wonder what ACTUAL advantage an Eastern suburb would have over a Western one. Does that apply on the North side of Brissy too (i.e. with West being poor cousin up there too)?

Benny