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Benny
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May 22, 2015 - 7:59 pm
Hi JSmith,
I see you are a new poster – so a big welcome to you !! And good on you for taking a look at Real Estate to make good use of your windfall. There is a lot to learn, but, as Terryw pointed out, some things you may have heard decades ago :-
Go back and look at a house your parents bought 30 years ago. If they paid $50k for it then it may be worth about $1mil now.
Though I am not sure of any house going up 20 times in value in 30 years, the important point was “Even if no extra principal amount was paid off, the amount actually owing is as tiny as the original amount borrowed”. Thus, is there a need to pay Principal and Interest? What do you think now? Do you agree with Terry?
One thread I would like you to check out actually ties together a number of “new investor” questions, ideas, finance thoughts, etc. Do check it out, along with each link. The Offset account is a real friend when thinking of “paying off” any mortgage.
Here is that link :-
https://www.propertyinvesting.com/forums/general-property/4349450
Benny
Benny
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May 22, 2015 - 11:39 am
Hi there,
Question> What is the time, Anthony?
Answer> TIME FOR ANOTHER BROKER/ADVISER !!
Good luck with your hunt. Hopefully, some of our MB’s will direct your steps in reply…. Many of them know each other, and would also know “who is in Melbourne”.
Benny
Benny
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May 22, 2015 - 11:13 am
Hi again, Anthony,
For ongoing costs, they come under 5 main categories :-
Mortgage Interest
Rates, water
Maintenance
Insurance
Administrative – RE costs (if not self-managing) and accountancy.
Purchasing costs are a whole ‘nother ballgame. Costs come out of the woodwork during that time (Stamp Duties, Borrowing Costs, Solicitor fees, Registering title, etc, etc.
Most allow 3% of purchase price to cover most of these. Some of these can be added to the mortgage and paid as extra on your Interest (e.g. LMI) and some can’t. This area is complex, and a chat with a knowledgeable Broker and/or Financial Planner is well worth doing, if you are new to this.
Most MB’s (Brokers) on here would be well equipped to guide your early steps thru the lending, and to explain much of the stuff you need to know re $$ and financing. Most also have their own portfolio of IPs so are very knowledgeable in “all things IP-centric.”
Re them being in Melbourne, I suspect there are some MB’s on here that would be – but, as is mentioned many times, a MB can conduct business across States with the technology available today.
Of course, YOU may want to sit down eyeball to eyeball with a Broker – and that’s fair enough too. Look around at some of the signatures and you will soon notice all of the Brokers, their locations, and their knowledge will be on display too….
Benny
Benny
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May 22, 2015 - 9:07 am
Hi Inusure,
Welcome to our useful little community. I am glad you made that post, as this is a great example of how many people can get themselves into trouble. You though have been smart and have asked “Is this right?”
i was approached by some “Professional Financial Advisers” who suggested me that I should only buy New Home and Land Package( the one that is building/soon to be finished), and they told me that i can only get positive cash flow by purchasing this type of property.
They are obviously trying to sell you something, and it will likely be over-priced. To my mind, any business who will bend the truth to get you to buy from them is not to be trusted. The comment about “can only get positive cashflow by purchasing this type” is hugely incorrect!
Their explanation is that i can only claim depreciation of buildings and fittings and loan costs through this type of property?
Incorrect !! But a new build WOULD have MORE depreciation available to the investor than an older home (of similar style) would.
I am a bit confused, as i thought that we can claim tax depreciation on any types of properties?
You are CORRECT.
Then they explained that with old/already existed or built properties, we can claim tax depreciation for 5 years max( or 3 years? I cant remember exactly what did they tell me).
I would call that “selective correctness” !! They are speaking the truth – sort of !! They are not completely incorrect, nor completely correct. Capital costs can be claimed for many more years, depending on the build date. Borrowing costs can all be claimed within 5 years. With Depreciation, your choice of Prime Cost or Diminishing Value WILL affect how soon you will stop claiming depreciation. There is SO much to it all – they are sometimes right, and sometimes misleading. Be careful.
What they DON’T tell you is that a second-hand property may well be able to be bought in that area for a lot lower cost, thus making it cashflow positive (or near to it) WITHOUT any Depreciation needed (but still available to you anyway, and can further increase the positive cashflow).
Where you REALLY need to check though, is whether any OTHER NEW property in that area is able to be purchased for a lot less. If that IS the case, RUN A MILE.
Always ask yourself – is this person who is offering me advice going to gain as they direct me to purchasing a specific property?
The more they “turn you away from other options” the more your feet should be itching to RUN !!! Good on you for asking,
Benny
Benny
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May 19, 2015 - 9:20 pm
Hi all,
and if you have to break a 5 year fixed loan it could be quite expensive.
Just one thing I would suggest is that EVERYBODY who is looking to take on a Fixed Loan (especially 5 years) should KNOW the magnitude of any Break Costs. With IR’s as low as they are, it does appear that a lift in 5 years COULD be on the cards.
So, have a talk with your lender or Broker about “What if I had to Break after 4 years and a. the Variable Rates were still 1% below my Fixed Rate and b. If the Variable Rates had climbed to 1% ABOVE my Fixed Rates.
As a hint – if you BREAK a Fixed Loan and the reigning VARIABLE Rate is LOWER, be prepared to take out a mortgage to pay the Break Cost. How big a Mortgage will depend on the amount you have on the Fixed Loan, and the delta between the Variable and the Fixed Rate
If nothing else, simple BE AWARE just how crippling it could be if things went sour with a Fixed Loan.
DON’T contemplate putting any property on Fixed if you are planning to SELL it – unless you like giving your cash to the Bank….
Caveat Emptor with Fixed Rates !!
Benny
Benny
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May 16, 2015 - 12:57 pm
Hi Christine,
Just in case it is a help, do take a peek here:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/
There is a specific post in that link that tackles the question “Why use IO loans and not P&I loans?”
It may expand on the WHY you should use IO area. Of course, though IO can be beneficial to many, it doesn’t suit ALL.
Enjoy – and I hope it helps to direct your steps,
Benny
Benny
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May 12, 2015 - 10:41 am
Hi all,
While composing a reply to the age-old question “Is NOW a good time to be buying property?”, a thought struck me, and I went looking for an Article that held the info I was wanting to share. It was about the property “cycle” and the best/worst parts of the cycle to buy or sell.
Instead, I found this one……
https://www.propertyinvesting.com/buy-properties-in-australia/
….. and I liked its completeness around the subject of “a new person wanting to know when they should buy a property” that I decided to add it to this thread.
It is not the one I was originally looking for, but I will add that one’s link below once I do find it.
Much later…. I still haven’t found that graph – the one I was wanting to add shows how the Yield and Price curves are the Inverse of each other. e.g. Yield drops as Price increases, and yields will increase if the price drops or rents increase. Yield as a percentage will go lower, even though rents remain the same, if the Price goes up.
At its most basic, Yield% = Rent per annum X 100 divided by Price (e.g. $15,000 x 100 / $300,000 = 5% )
Now think of it like this – as buyers see that rents have gone up while Prices have not (they may have even dropped), they become drawn toward owning property instead of paying a higher rent. In the reverse situation (rents become relatively cheaper than owning) they don’t buy, thus impacting on prices even more. As time passes, rents rise, and so do yields thus making owning a property more attractive than renting – so prices rise, yields drop, and the cycle continues.
Look to buy when yields are (relatively) high and prices are still (relatively) low. The “Property Clock” offers a much more detailed look at this – buying at the right time in the cycle leads to better gains for you.
Benny
- This reply was modified 9 years, 3 months ago by Benny. Reason: Adding extra notes re "Yield vs Price"
Benny
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May 10, 2015 - 3:53 pm
Hi Minimogul,
I was happy to Log in and see that you still frequent this place (though maybe not so frequently as before??) Anyway, I was very happy to see you here again, and it reminded me of the Introductory Post to my “Big Picture” thread for newer investors.
This quote of yours says it all really !!
I don’t need to move markets, because I am no longer relying on the market to do anything.
If it goes up, great, if it’s flat, doesn’t matter, the profit is in the adding value. if it goes down 10 percent, my profits are affected of course but not so much that it’s not worth doing.
So by doing that you become the master of your own investing destiny and not so much a cork bobbing on the ocean of ‘market movement’ that you can’t control.
Minimogul, I salute you, and thank you for that post. I hope we get to converse more on this board into the future.
Regards,
Benny
Benny
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May 6, 2015 - 10:46 pm
Hi Catalyst,
In a few years some people are going to be in great pain. Especially those negatively gearing properties.
For sure !!! The big thing with future rises will be how carefully the RBA cranks the IR’s up again.
See, with the exchange rates at 2%, if the RBA lifts to 2.5%, that is a 25% increase. The banks will feel it, and, though they kept a few points to themselves on the way down (e.g. RBA cuts 0.25%, banks cut 0.18% keeping 0.07%), they will be SURE to crank up the full 0.25% and even more on the way back up again.
If the Bank rates were (say) 4.5% and they crank upward 0.25%, that is really a 5.5% increase – do that twice, and it is an 11% difference to your costs, not 0.5% as the media says !!! No wonder things can get tight so quickly and yes, even more so if negative geared !!
The RBA will need to be SUPER CAUTIOUS on the way back up again (maybe using 0.1% increase as an option instead of the ubiquitous “0.25%”). I can only hope they can be more considered than their past history displays !! If not, the “way up again” will be far more troublesome than the way down was.
Benny
Benny
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May 6, 2015 - 10:31 pm
Hi Catalyst,
How do you post photos on this site?
Check this out – Andrew gave someone else a step-by-step instruction to post a photo :-
https://www.propertyinvesting.com/topic/4995714-youngest-nobel-peace-prize-ever-winner-malala-yousafvsai/#post-4996543
Benny
Benny
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May 1, 2015 - 6:14 pm
Hi Lloyd,
First, welcome to this place – I hope you stick around and gain from being here (even if your posts aren’t answered right away). :p
To your questions, I can help with just one – to find who owns a property, you would need to contact the Titles Office in your State. Usually, they have a way whereby you can purchase basic Titles information Online.
With question 2 (rented or owner-occupied) I guess I would go rap on the door and ask !! (a bit hard if you are considering buying Interstate of course).
Re Google, I don’t use those features, so can’t help at all,
Benny
Benny
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May 1, 2015 - 8:15 am
Hi again,
Well, you see, THIS is why you need expert advice :-
Since you say it was your PPOR (your home, or “Principal Place Of Residence”) there would be NO CGT to pay up to Jan 2015.
It was only after I hit Submit that it came to me – you MIGHT need to pay CGT since 2005 – IF you had partially rented your PPOR at any time over that ten year period.
See, THAT is why an expert needs to answer you – there are so many little “extra bits” that I can’t keep track of them, and maybe haven’t even learned them all anyway.
Benny
Benny
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May 1, 2015 - 8:09 am
Hi Czerney,
Welcome to this place – I hope you get a lot from the experience of “being here”….
I got a licenced valuer to value the property based on the renting start date,
Smart move !! Well done.
but I guess my question is what will my capital gains tax obligation likely to be based around if I decide to sell. Based on the increase/decrease since the January 2015 valuation (preferable) or on the increase since the 2005 purchase price?
Since you say it was your PPOR (your home, or “Principal Place Of Residence”) there would be NO CGT to pay up to Jan 2015. There can be further exemptions past that though – and here is where you need expert advice (look out for a reply from Terryw or another accredited adviser).
See, as I understand it, your old home can be rented for up to six years and, IF YOU DON’T move into another PPROR (that is, you rent for yourself), then the CGT exemption can go on with this now-rented property. But you say you HAVE moved in – is the new house your PPOR yet? (Watch for ideas from others around that – re “nominating your PPOR” – that is a whole other subject, and some expert advice would be very good to get (not me!!!)
If you DO move into a new PPOR, I “think” that there can still be a period of grace where you might be able to have both properties as your PPOR for a short period as you change houses. Is that weeks? Or months? I don’t know – but Terryw or others will.
Certainly your CGT won’t be a huge amount – but maybe it can be zero (???)
Benny
- This reply was modified 9 years, 8 months ago by Benny.
Benny
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April 29, 2015 - 9:09 pm
Hi Chris,
Ideally i want to minimize my cash investment on the next house
i.e. borrow against the equity in your PPOR – sure, no problem if the Equity is available to do so.
…so i have looked into the idea of cross-collatorisation.
No need to do that – and you really don’t want to go there (mostly). There is a lot to consider, and a Property savvy Financial Planner or a good Mortgage Broker are the ones to guide you through this quicksand. One or two of them may well pop in with a reply too – look out for them.
You mention you have “$50k to $70k Equity on your house” – I can tell you now, we really need to know “What is its value” and “How much is still owed on it”. See, if you say your house is worth $400k and owe $350k on it, you have $50k equity – but you can’t borrow it all usually. Maximum loan is likely to be 95% (or $380k) so only $30k available to you, not $50k.
That kind of thing is where a Mortgage Broker earns their money – they come up with the “best option for YOU” based on your current fnancial position. They also can advise re cross-coll (whether to, or not, and why).
With your kind of wage, any tiny problem you might have will likely disappear quickly because of your very useful wage. Good one,
Benny
Benny
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April 28, 2015 - 11:20 pm
Hi Matt,
I understand that vacancy rates are the measurement of time where a rental is vacant, however, I’ve noticed its measured in a percentage.
It is measured in a percentage primarily because it involves numbers only, not time. Vacancy Rate is worked out like this :-
Number of properties available for rent in a suburb / Total number of rental properties in suburb * 100 (to get a %age)
Here’s an example :-
A suburb has 400 houses being rented and only 4 available to be rented. So Vacancy rate is 4 / 400 = 0.01 * 100 = 1.0%
1% is deemed to be a landlord’s delight, with 3% being the accepted “normal market” (from what I have read). At 1%, renters could well be queuing up, and even bidding up the rent, to get a place to stay.
Benny
Benny
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April 28, 2015 - 6:40 pm
Hi Ivan,
Yes those templates are still available. First, register your book via this link :-
https://www.propertyinvesting.com/store/0-130-properties-revised/register/ and a followup email takes you to the pages you want.
I believe the templates may have been updated to match the revised version of the book. So if you have the earlier book version, some of the data presented may not match with the book – but hey, it’ll all be good !! :)
Benny
Benny
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April 27, 2015 - 4:17 pm
Hi Matt,
The reason why I’m thinking of paying Principle and Interest is because I want to have an LVR of 80%, then change to interest only.
In that link I added last post, DO be sure to read the reference to Offset Accounts as well as the Do I pay PandI or IO?
See, Offset Accounts can have you effectively “paying off 20% of your Principal” without actually paying it off !!! It is neat, and is a very important concept to be familiar with.
Happy reading,
Benny
Benny
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April 27, 2015 - 9:29 am
Hi Matt,
Good on you for turning your sights this way at such a young age. It is really good that you already have a sizable amount of savings, and this will be the start of something good as you are obviously looking to use it in a profitable way.
What I would suggest is that you set aside time (and some $$) to educate yourself in your chosen investing technique BEFORE you get into it seriously. In my case, I gave myself almost a year once deciding to “do real estate” to learn, read, and meet other investors, and I paid to attend seminars too (selectively though….) before buying my first IP.
I’m hoping that the value will go up, and hopefully I’ll be able to pay a lot of the principle off over the next 3 years, then change the loan to interest only and be able to get a good Positive cash flow return.
Re the above comment, I’d suggest a rethink – and the link I attach may well help you. See, many investors avoid paying off the Principal of an IP loan, as any Interest paid for IP’s are Tax Deductible. Instead, they use their after-Tax (spare) funds to pay down non-deductible debt (car loan, house loan, personal loans, credit cards, etc).
Here is the link I direct new members to – it highlights a number of areas that new investors need to know :-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/
I hope it is of use to you. Do stick around and keep asking questions – it shows you are thinking, and that is great.
Benny
Benny
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April 24, 2015 - 9:03 pm
Capital Gains Tax (CGT) is a complicated beast !!
There are some “well-known” good bits (e.g. your PPOR remains CGT exempt for up to 6 years after you move out of it – BUT there are some conditions around that, so check first).
And, when buying, there are little gotcha’s that might trip you up – so read up, or ask away, BEFORE buying your PPOR.
Even if you THINK your current adviser might be missing something, or their advice doesn’t sound quite right in some way, ASK someone else (e.g. ask the forum!!)
Here is a thread started by one member who had some doubts over advice he had received :-
https://www.propertyinvesting.com/topic/5002930-capital-gains-tax-my-60k-mistake/
In the end, his “$60k mistake” should end up being a MUCH smaller mistake than that !! And he saved that $60k by ASKing on forum.
BEWARE – do note that the answers shown are not geared toward YOU and your situation, so don’t take these answers as “gospel” for your situation.
DO ask your adviser to recheck your situation (using information from here to guide them) if they seem to be steering you wrongly. The $$ you save can be massive – so ask away !!
Benny
PS This next link
https://www.propertyinvesting.com/topic/5031769-retrospective-property-valuation/
goes into more detail re the assigning of your PPOR for CGT purposes. Good answers from Terryw in helping a member whose parents had moved out of one home into another, and leased the first as a rental. Questions re “acquiring a valuation after the fact” among other things…. Well worth a read for more knowledge re the “PPOR and CGT” arena.
PPS Added 15Nov17 as more info comes to light.
https://www.propertyinvesting.com/topic/5041334-cgt-and-negative-gearing-question/#post-5041392
Once again Terryw steps up with even more interesting points re PPOR’s and CGT calcs. Read from this linked post on down a few to where Terry shares some intriguing possibilities (including choosing to PAY a small amount of CGT to save having to pay a larger amount in the future). The main takeaways for me were
1. That Terry shows an example of two properties that have been lived in, thus both COULD be PPOR’s, but that the nomination of the PPOR occurs ON SALE of one of them (and not before).
and
2. The example shows someone having two possibilities as PPORs, and extending the option for both of them before 6 years is up by going back to live in each one once again. He then looks at selling one near the 12th year of ownership, and CHOOSES (at that time) which one is his PPOR at time of sale AFTER calculating just which way is most beneficial from a CGT aspect (including perhaps PAYING CGT on one to keep the other as his PPOR and minimise/eliminate CGT on that house into the future).
3. Fed PPOR nomination and State PPOR (for Land Tax) are two separate nominations, and CAN be at odds with each other (one of the links above dealt with that one – mentioned here for completeness).
“Capital Gains Tax (CGT) is a complicated beast!” Well, it was, but thanks to Terry, it is becoming more tame than ever before !!
:)
- This reply was modified 8 years ago by Benny. Reason: Adding a further link re PPOR and CGT
- This reply was modified 7 years, 1 month ago by Benny. Reason: Extra info added 15Nov17 - see PPS
Benny
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April 20, 2015 - 6:45 pm
Hi Jason,
My knowledge of the associated costs, expenses, taxes..etc is quite limited. Would either of you know of any good resources, templates or guides I could download or buy that detail the above?
Steve’s books tend to include a number of examples of “numbers”, quite easily readable and understandable. Great for the new investor.
Another who provides lots of “numbers” is Jan Somers – her books have pages of “growth over the years” examples, showing how your next 10 to 20 years of investing might proceed – just replace her numbers with your own, using her examples as templates.
If you are familiar with spreadsheets, have a crack at making your own. I found for me that doing so had me learn so much more and grew my confidence prior to buying my first IP, followed by the second just 2 weeks later (my spreadsheet had convinced me that buying 2 or more was preferable to “just one”). It was right :p
Do check out the Articles in the Training Centre on here too. They are setup to provide a path that can be trod to learn quickly and to stay largely “out of trouble”,
Benny