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Ah, that sounds better !! No dramas after all. So, if selling your buy-n-hold properties, is this to be “as a business” from here on, or are these just clearing the decks to start a business?
Benny
Hi SM,
Let me reply to some of your posted comments :-Because in Sydney, most of the Real Estate agent who markets the affordable H&L package promotes Park Ridge all the way up everyday,
If they are offering free flights too, RUN A MILE !! This kind of “greenfield estate” at Park Ridge is also the kind of development targetted by marketeers who promise you the world as long as you sign (and they will likely also have solicitors, finance, etc all at the ready for you too). Be very careful of that kind.
If these are ordinary RE agents who are not pressuring you to “sign”, they are likely OK.
According to my friend who bought it last few weeks ago, it was a profitable deal that is once in a lifetime due to:
Hardly “once in a lifetime” for mine – this area is basically rural land that is being developed to build Brisbane’s next “super city”. Yes, there will be lots of houses for sale – land is freely available (except for Govt manipulation). The block sizes and house sizes (2bd on 313m2 of land) don’t seem to be a steal at a $300k price tag to me. But about right for these times perhaps.
1. For approximately $301k you get H&L package, considering the second stage is $400k, so it is surely a capital gain increase.
When is next stage commencing? Two years, three? Five? The idea sounds good – but if too many developers build too many new homes on too many tiny blocks in Park Ridge, prices are not likely to be looking at $400k any time soon.
2. Land size is 313 sqM (doesn’t matter as long as it has a land component, then it is always appreciates over times).
True – it is likely better than an apartment. And this size might well be the “quarter acre of 2020”. But, while one can still buy second-hand 3bd, on 700m2, with the potential of adding equity via reno for less than $300k (and in a nearby suburb), my money won’t be buying new in Park Ridge any time soon.
Have the promoters mentioned a likely rental rate at all? You would probably want $400/wk minimum, and again, I am not seeing that for a 2Bd place in that area, even though new.
Benny
Here is one that actually surprised me – as, on the surface, I figured it could have made a few more $$ per week for myself as a landlord. Why not?
https://www.propertyinvesting.com/topic/4999285-provide-internet-access-to-increase-rent/
Read it end-to-end yourself, and see how “Just Do It” could be a big mistake.
Benny
Now THIS tip actually surprised me (I was expecting the opposite) :-
Think twice before providing an Internet Service to your property !!
See this thread for the whole story- https://www.propertyinvesting.com/topic/4999285-provide-internet-access-to-increase-rent/
Benny
Hi TJ,
– I don’t want the tenant associating the quality of the internet service with their need to pay rent.
Wow, that is GOLD !!! Thank you,
Benny
Hi PPJ,
Again, there will be a host of questions – and I am sure I haven’t thought of them all. At times like this, I would strongly suggest you get some expert advice around taxation.What I “think” I know is this :-
1. Since you haven’t yet had anyone else renting it, this perhaps could be a PPOR for you – but then, what happens to existing PPOR?2. If you were to sell this “11 month reno” now, you would be paying full price CGT. Wait 12 months (plus a bit more to be sure) before attempting to sell it, and Cap Gain is cut in half (so CGT will be lowered too). The ATO uses the Contract Date for CGT purposes (not Settlement date – watch out !!)
3. If you have “other Capital losses” then a loss can offset the Gain on this house (e.g. if you sold Shares for less than you bought them, then that is a Capital Loss).
4. Re “How much”, I can’t be sure as I am not a Tax adviser. I do know that you can include Selling Costs as a loss (RE agent fees, transfer fees, etc). So these can subtract from the $110k so that you pay (a bit) less Tax.
5. Whose name(s) is the property in? If in two names, you “might” be able to split the gain over two people to minimise the CGT.
Roughly how CGT works is that (after the 50% discount when held for 12 months or more is applied) the $ Gain (sell price less cost price, less other deductibles) is ADDED to your Income for the year. Depending on the amounts, this “might” push you into a higher Tax bracket, so the Gain might be taxed at 35% instead of 30% (or whatever these numbers are these days – told you I’m not a Tax adviser… :p )
Go talk to a suitable adviser (Accountant, Financial Planner, etc) about this whole scenario. The LAST thing you should do is to go ahead with a sale BEFORE you know the likely outcome. That could hurt bigtime, so do find out first, eh?
Benny
Hi PPJ,
I think moving in now might be “shutting the gate after the horse has bolted”. But then, I am not an adviser on Tax matters, so I would rather have someone else check my answer there. There might be some situations in which you CAN buy a house, do it up (i.e. add value) and then nominate it as your PPOR (or perhaps nominate it as of a date prior to its renovation ???)If you moved into it, what happens to your current PPOR? Will you rent it out while living in this other one? If so, and you have nominated the OTHER house as your PPOR, then you will have CGT to pay when it is sold. Or would it be better to SELL your current PPOR, thus negating any CGT on its sale, and allowing you to move into this new one. Does that work?
I am not so sure that attempting to choose the “best way to go as far as tax is concerned” is going to lead you to the best answer.
Perhaps some better questions are
“To bring me closer to my goals, should I sell this newly renovated house?”
or “Is it liable to gather more equity in the near future (thus inviting me to rent it and hold on)?”
or “Does my portfolio require more Income, or more Equity (or cash) right now? If I sold this renovated property, what would be my plans for the released $$? Would I have a better way to grow them? Would selling one house allow me to buy TWO more, thus increasing my equity, but also my liabilities (mortgages)”
“Selling my existing PPOR may work out to be a far cleaner way to release a large chunk of equity and turn it into cash. What would I then use the cash for?”As you can see, PPJ, there can be a host of questions surrounding that one property. Without a full understanding of your personal situation, none of us would offer a “You should do this” kind of answer. That requires you, and your knowledge of your situation, perhaps along with an adviser (perhaps one from on here, after you have shared more of your situation with them).
Hope the thoughts help a bit….
Benny
Corey got it in one :-
Reports which aren’t based on reality get quite boring. Fact is that most first home buyers do not necessarily NEED to buy a median property for their initial purchase.
When DID it happen that any couple’s first home HAD to be a McMansion with 4bd, 2ba, 2g ? What happened to sitting on orange boxes in a humble little “below median” first home until your wage (and equity in that first home) allowed you to move on.
A friend, back when we were doing this, had urged “First, get on the train – you can always change carriages later!” He maintained that we needed to get onto the equity growth train that hauls even the most humble of properties along. So we did.
Our first home was purchased in 1973 via a Sale by Agreement, and certainly below median for the area. A year later, we refinanced (as per the purchase conditions) with another lender. Ten years later, we sold it for two-and-a-half times what we had purchased it for. That equity boost (along with a wages boost) allowed us to move up a rung or two.
Of course, that was then – but is it really so much different today? Sure, the prices are way higher, but so too are wages.
Benny
Hi Liam,
Does this mean for first time buyers like me, purchasing investments as PPOR and using these new benefits is becoming more relevant. If i bought a place for 200k and moved in for 6 months, renovated, then sold and repeated, i could take advantage of lower interest rates and slashed CGT?
That has been a time-honoured way of bettering your personal accommodation for decades. Even if you only move every year or so, if you sell no CGT to pay, and the equity that you have created while living there is cash in your hand. That provides a better deposit on a “next-level-up” home.
Probably a good way to go while still single, or while two of you still have no kids. It gets a bit harder after that, but not impossible. This way is still a good way to go without a lot of the stress of being a landlord.
Benny
Hi Gaurav,
As others have said, you can do way better. Do a Search for Coomera on here and you will find lots of words that will paint a rather dull picture. Here is one post as an example – scroll up/down to read more :-
https://www.propertyinvesting.com/topic/4405022-coomera-qld-investment-property/#post-4657842I see Coomera as an areaa that will have its day – but probably in ten or more years time when any new developments are OFF the main Highway, and on even smaller blocks than they are today.
There is PLENTY of land at Coomera, so the major selling point is “These are NEW” (but you pay a premium to buy them). Buy older, where developers or marketeers have no involvement. You might buy a 20 year old home in good shape on a 800m2 block for a comparable price (all garages built, fenced, concrete in place, etc – and a settled area).
Benny
Hi Steve,
first post on here so please go easy on me!
Welcome aboard !! Don’t worry, we don’t bite unless you ask nicely !! :p
I’m looking for 10 year+ hold but early growth for equity would be a bonus.
OK – that is a start, but do put some more detail around what type of property you want. I say this, because some suburbs/towns may suit positive gearing, while others suit “buy and hold”.
Have you sourced finance yet? If not, don’t go looking for a suburb yet. No use in looking in a $500k area if you can only manage $350k pricetag.
In your case, you mention buy and hold – but is that OK for you if negative geared, or do you need some income from your purchse?
Are you able to add value by doing a renovation, or a sub-division? If yes, is that only in your area (to do it yourself) or would you be up to handling a remote reno?
Steve, do come back with more detail – if you aren’t sure yet, that is OK. Especially with your first purchase, take your time to get it “as right as possible” so that you can accelerate into the next one. And do check out this link – there might be some pretty neat ideas in there :-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/Benny
Hi Coalfinger,
You and your nephew will be showing on contract as “jointly and severally liable” (read that as “jointly and separately liable” – it makes more sense that way). So, in a nutshell, you are each separately liable for the WHOLE AMOUNT of the mortgage, and for payments to it.Be sure this doesn’t screw up any proposed borrowings you might be planning – e.g. if you are wanting a personal loan for something – that loan might be out of reach after taking on this one !!!!!
Yes, the Bank can come to you if your nephew doesn’t make payments – and yes, foreclosure will be one option the Bank has.
Benny
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Benny.
Hi MDD,
May I ask why cant we refinancing our original loan to a larger amount?
Oh, you CAN do that, no problem. It is HOW you do it that can be a problem.
Initially we have $400k loan on our PPOR with A bank, we now are going to refinance this loan to $600k with B bank, so we can use the $200k equity for deposit.
Bank A won’t be allowing Bank B to provide you with $200k, so I assume you must be moving ALL of your borrowings to Bank B, yes?
When you do, keep $400k for your PPOR as one account, and take a separate account for $200k (also borrowed against your PPOR) for the IP Deposit. As I said before :-
just be sure that the extra loan against your PPOR is a SEPARATE ACCOUNT which keeps deductible and non-deductible loans apart.
So, don’t just borrow $600k as ONE loan – make it two loans – one for $400k and one for $200k – THAT is very important.
Benny
Hi Ronnie,
If I were to just have a principle and interest loan and no offset account and had dumped the $100,000 to my repayments nothing would change, my repayments would still be $2000 per month the only thing would change would be the loan term reduced in years, is this correct?
Sounds right to me !! And, if you wanted to get it out again, a whole new application, etc…..
I think I am getting the idea of it now, why doesn’t everyone use offset accounts when setting up there mortgage?
Why indeed? But then, this stuff is not taught in school, and, if your parents were not involved in IP’s, where would you learn it?
A good question for the Mortgage Brokers might be “Why don’t Banks promote Offset? Is there more in it for them by pushing people toward Redraw?”
Benny
Hi Adnie,
Just an overall “common pitfall” (not from any subdivision experience at all) – and that is to ensure you retain sufficient Cashflow, or at least cash to tide you over any rough times. The words “tied up capital-wise” sound a bit like it could be a struggle (??)To that end, I would suggest erring on the side of caution, depending of course on just how much free-board your business has. If nervous about maintaining cashflow, go the “quick cash” route. You can always make your big money on the next one.
Benny
Hi MDD,
I guess there is not much choice for us to go with different banks, only limited banks would consider our case.
Good on you for asking, rather than just guessing – a much smarter move !! ;) I think you will find (possibly today, from a Broker or two on here) that there may be less limits than you thought. At the same time though, what I used to know has changed recently, so I will leave further comment to those who KNOW.
Our broker’s strategy is refinancing our PPOR loan to a larger amount, so we will have a PPOR loan and the extra cash for deposit of our first IP…. Park the cash into an offset account then using it as the deposit for our first IP.
Your Broker maybe already has this in mind, but just be sure that the extra loan against your PPOR is a SEPARATE ACCOUNT which keeps deductible and non-deductible loans apart. DO NOT just “refinance your PPOR loan to a larger amount” on the original loan (as your words infer is about to happen).
It is very important that your finance setup is done correctly, so if your Broker is thinking of doing what I am warning against, I would recommend that you consider cutting them adrift, as it sounds like they do not know what is best for you – and that WON’T help you.
I am pretty sure one or more of our resident MBs will pop up to add their assistance with these questions. I, for one, am very glad you ASKED THEM. Give yourself a high-five !!
Benny
Hi Ronnie,
What Corey means is this :-
You have a $480k mortgage on a property. Mortgage is Interest Only, and you have an Offset account against the Loan. Loan repayment is 5%, so $24k per year or $2000 per month in Interest to be paid.You put your salary into the Offset, live off your Credit card for the month, then square up with cc once a month (thus pay no Interest on the cc). A fair chunk of your salary remains in the Offset for much of the month, reducing your interest somewhat, and thus reducing your Interest payments.
THEN, you get a $100k windfall. Put THAT into Offset, and immediately the $480k loan is “offset” by $100k, bringing the amount you pay interest on down to $380k. From that point on, Interest is $19k pa, or $1584 per month instead of $2000. Sound like what you want, Ronnie?
All these Broker guys on here know and love Offsets. Just have to make sure they get set up RIGHT when starting out.
Benny
Hi ROnnie,
Mate, you need to read up about “Offset Accounts” (the greatest thing since sliced bread :p ) In a nutshell, if you get a windfall, pop it into the Offset. While it sits in that account, it reduces your Interest Bill by the amount in Offset (effectively “paying” you Interest of 5% WITHOUT it being taxable – cf savings account).Once you decide what to do with that windfall, just withdraw it (no bank application, as per redraw – no drama, it is YOUR cash). The property mortgage that was being Offset now charges you more Interest again – and, if an IP, the mortgage IS deductible.
There is a reference within THIS link :-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/Go check it out (look for a post about “Offsets”)
Benny
Hi all,
Aside from all of the number crunching, fact-finding, pavement pounding, and deal finding related to property investing, there is another HUGE side of the equation – the emotional side of property investing.For those starting out, it is COMMON for well-meaning family and friends to WARN against something that is foreign to them, or of which they have heard bad stories. Who HASN’T heard of marketeers who fly potential buyers from Sydney or Melbourne to the Gold Coast for FREE – yer, right – to buy the “deal of a lifetime”, only to have them unload an over-priced, poorly built, new house in the back of beyond – and then call “Next!” while that buyer licks their wounds?
Emotional responses can help keep you out of trouble, but then they can also take the wind out of your sails as you endeavour to chart your own property investing course. Not their fault, nor yours – but this emotional side of things deserves a whole new look.
Can you add to this conversation where a poster asks about that very thing? Post your reply in that thread….
https://www.propertyinvesting.com/topic/5013926-fear-2/Benny
Hi Curtis,
Just in case you didn’t find this oneA common question when investing is, “Why use IO loans and not P&I loans?” Click below to read on….
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697976Benny
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