Forum Replies Created
Hi Jason,
Is there a “rule of thumb” re how best to develop a smallish block e.g. is it as simple as “jam on the most 2 bedders you can fit” (or even 1 bedders in some areas)? Or can it be financially better to build a smaller number of 3bdrs? Are such decisions “area dependent”?
Pros and cons between townhouse/villa and/or duplex/standalone.Hi Adam and Brinks,
Seems to be a quiet time the last few days on forum. Hopefully our usual gurus will pop back in and lend their knowledge to your cause.Meantime, though I CAN’T answer all of those questions, here are a few thoughts that might be useful…..
1) As a first home buyer, if I build do I get the first home owners grant if I live in one and rent the other?
If you bought, I would think you would still be eligible for FHOG – but if building, I am less sure. There are major financing differences between “buying newly-built” and “building” – maybe one of those differences would affect the FHOG (???)
2) I can borrow $300k if I live in the property, but as an investment property I can borrow up to $500K, but if I build a duplex I don’t know how much I can borrow if I live in one and rent the other out?
It is the extra Income from Rents that would make that difference. If the quotes you got were for single unit dwellings, then it is possible buying TWO will allow more of a loan – depending on your DSR (Debt Servicability). A Broker would be able to give a better guideline, but would need heaps more info from you first.
3) Just in the early stages at the moment and going through the pro’s and con’s, are there any hidden things that I would need to know or keep a look out for? and what would your advice be?
First off, don’t be in a hurry. Read around on here to get the feel for IPs in general. The link below covers many of the early questions and also highlights many useful things (e.g. Offset Account).
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/Come on here to ask specific questions as they arise. I’m sure there will be some gurus along some time, so do check back here too. What area of you looking to buy/build?
Benny
PS I think you know it from my words, but please treat my comments as opinion only as I am not an accredited adviser.Hi Wayne,
This is a very good question :-I don’t mind if the Child Support Agency add any profit I make at the end of the year as taxable income, though my concern is that they might add the weekly rental income into their calculations regardless of the deductions claimed against it.
Things might change from year to year, and it is not an area that I ever researched as it didn’t affect me …..
BUT…..
I have some vague recollections from years back where the way that some Govt entities calculated these things just seemed wrong, and NOT what would make sense to you and me. Something like adding Income TWICE when calculating…. whatever it was, it DIDN’T benefit you. It is good that you are questioning this, as you wouldn’t be able to GUESS what should be, and you really need to KNOW before making your plans.
I hope one of our learned colleagues can add a bit more for you. Or go straight to the Govt entity and have them tell you how it will be,
Benny
Hi Euroboy,
Welcome aboard – good to see you have joined us. And what a great opportunity that souns like. I hope you are able to chase it down to a beneficial conclusion. Families though can become a bit fractured, depending on each individual. Still, even if not all “want in”, it may still be worth having a shot at.Unfortunately, I can’t help you with the financing except to say that I read of many who make VERY GOOD $$ from developing. Thus the opportunity you have should be chased down until it either proves to be unworkable, or it delivers as promised.
A few points I picked up prompt me to add a few thoughts though –
First, I’m with you re this being an “awesome investment”. Your sister might work in a Bank, but is her role one where she is dealing with Loans daily? (I suspect not). I have heard that Commercial Loans are a bit more onerous, and that you can’t borrow 80% like with residential. I think it would be well worthwhile to sit down with a broker or similar who deals in these things DAILY. There are a number right here on the forum – maybe follow a few threads in “Finance” and see who answers in there. At times like this, you need KNOWLEDGE and not supposition.
This thread talks about Financing a development – maybe some clues there?? :-
https://www.propertyinvesting.com/topic/4994626-finance-for-construction-of-6-townhouses/Second, do treat my comments as supposition too – anything I say would need to be checked out, but the thoughts imparted might (I hope) prove to be a spur to you.
Third – I read regularly that a developer would want a MINIMUM of 20% profit before entertaining doing a development. Given that, won’t it mean that he/you would be building these for AT LEAST 20% less than a H&L developer would SELL them for. i.e. you would be buying them at a discount, and generating sizeable Equity in them from Day 1.
This is particularly so as the Land is already “covered”. The $200k that 2 of your siblings want to split might well become three times that amount. e.g. let’s say the Land Value makes up $400k of the expected $550 – 600k your parents could sell for. Now, that means each Townhouse would be built on land that only “costs” you $100k, but would probably be worth $200k+ once divided up and a Townhouse built on it. So, right off, the Land component has doubled in value, if not more.
Then, you are building at a “wholesale rate”. The possibilities on the UP side look pretty good. But then, the DOWN side needs more accuracy – the loans and numbers related to them (Interest Rate, LVR, etc), any Council fees, GST, etc – and all that I will happily leave for someone else as I have no bl**dy idea… :p In the end, the “numbers” will tell you if it is a goer or not.
Please do update us as you discover things, Euroboy. I would be interested to learn how it all unfolds. Good hunting,
Benny
Hi Knox,
This may sound like a stupid quetion but, is it wise to outlay more money, to bring the price down and therefore turn it to a positively geared investment?
By adding more deposit you are bringing the Mortgage down, not the price (but then, THERE’s an idea !! Read on…)
Let’s look at “the numbers” in a slightly different way, then see if you think it would be wise to do – OK?
You say it would take $100k of your money to positive gear it. Allowing (say) $15 for costs and $60k for a 20% Deposit, you need to stump up an extra $25k just so it doesn’t cost you money to hold. So, if you didn’t pay that extra $25k, that would mean you would be paying 5% Interest on an extra $25k of mortgage instead – which is (roughly) $1250 a year, or $25 a week.
If you paid an extra $1250 a year off using the “saved” $25k, how long would it last? TWENTY YEARS !! And, if instead you invested that $25k, you might be able to make 5% with it, and be neutrally geared anyway. That $25k remains under YOUR control – you could put it into an Offset account against the mortgage and effectively have it “paid” off the mortgage (Interest paid on $25k less than what is owing) yet remains under your control, and you can call on it at a moment’s notice without having to ask for it. Read up on Offset Accounts later on in this link :-
https://www.propertyinvesting.com/forums/general-property/4349450To me, a big part of the charm of property investing is the massive leverage that is available to you. Of course, leverage is a two-way street, and risk is also leveraged, so softly softly. A better way to go is to pay less for it, or derive more income from it.
Outside of your initial question, does a 2bed 1ba house fit with your intentions, and is it in character with the area? (e.g. if this is an area of 3 bedder family houses, how does a 2bedder “fit in”? Is it a bit lonely, like a shag on a rock?)
But wait, is it a 2bedder that is large enough to (fairly easily) be made into a 3 bedder? i.e. can you add value cheaply, thus lifting value, and rent? THAT could be a useful idea for the spare $25k, or some of it. But first, will it work?
2bedders can be hard to sell, depending where they are, and the surrounding demographics, so keep this in mind before looking to purchase one. Often they are hit hard when negotiating a purchase price, simply because they are NOT a 3bedder.
Good on you for making your first post. :) And don’t worry – its the questions you DON’T ask that are the silly ones, so go right ahead and ask away. That’s what we are here for – to help you come to grips with a complex subject.
Benny
Hi Farhad,
Click on the link below to go straight to his Profile. From there, you can send him a PM (Private Message).
https://www.propertyinvesting.com/members/RPI/I note he hasn’t logged on for a few weeks, but a Private Message will be waiting for him when he does.
Or, read some of his posts, as he has contact details in his signature,
Benny
Hi Rich,
I am happy to recommend Nick from Strategic Wealth Management. I have used him in the past and was very satisfied with his expertise. He’s also a helluva nice bloke. When I was there, about 4 years ago now, his offices were in or around Hurstville.Benny
Hi Lance,
Question is what should we do with spare cash as I want to get all my deductions back at tax time.
I guess the answer to the question should come from you. You have done really well, but the main question, I believe, is “Are you now finishing with the accumulation phase, and moving into consolidation? Or are you still looking to further grow your portfolio?”
Your personal situation will have a major bearing on your answer. e.g. If you are looking to retire in a few years, perhaps you should be starting to consolidate what you have. The answer to your original question might well be different, depending on your answer to the above, as, in consolidation mode, the saving of Tax becomes way more secondary than before IMHO.
Benny
Hi westsub,
WHat I think I am hearing (reading) is that you wish to borrow against the IP to provide a deposit for a PPOR.To many, a redraw means to ADD to an existing loan (i.e. you pay down a loan, then borrow it back via a redraw). In that case, only one loan exists. If that were the case, you would be mixing personal borrowings (for a PPOR) with the rest of the loan for the IP). That DOES create a mess.
However, if you were to draw on the Equity in the IP using a SEPARATE loan (for your personal purposes), then the original IP loan remains an investment loan, and is not “mixed with personal borrowings”.
Keep the loans separate and distinct, and there shouldn’t be a problem. But I am not an accredited adviser – so do treat my answer as opinion only. There are others on here who are accredited advisers (see their signatures) and can comment with authority,
Benny
Hi Andrew,
in the future I would be moving back to the city, I would like to move to The Vines in Perth, should I buy a million dollar propety now and rent it out or should I invest small in the suburbs and buy my dream house latter?
For CGT benefits alone, I would suggest holding off its purchase until you are ready to move straight into it. Meantime, another IP would probably be useful. The beauty about an IP is that it can be in an area that suits a rental role, where you may have a better return and a lower cost (you might even be able to afford two !!)
Of course, all of the above depend totally on your scenario – do you need Income, or Growth? What is your primary goal with IP’s? Is Perth a good option right now for rentals, or is it declining (I don’t know Perth)? Are you looking for buy and hold, buy/reno/hold, buy/subdivide/build/hold, etc.
With your cheap rent, it’s a great time for you to build your wealth – well done for joining us and inviting others’ thoughts,
Benny
Hi again,
Good point from Terry – having a CGT exemption is a real asset when it comes time to sell your PPOR. So, if selling, do consider buying another, rather than renting, then borrow against the new PPOR for IP’s. Of course, it would make sense to buy low and reno any new PPOR too – cost less to buy, then add Equity to borrow against!!Given the extra info (wanting to buy/reno/hold IP’s) is the PPOR a suitable location for keeping the various gear you will need if doing handyman things (e.g. storage of timbers, tools, various goods, etc) or is it better to be more centrally located – sell PPOR and buy another.
If wanting to buy more positive geared IP’s maybe the current IP is worth selling, or turning it around in some way so that it becomes +ve geared – can that be done easily? Do you want to share more data re that one? (e.g. location, value, rent, potential, etc).
For the reno’s of new IP’s, are you planning to “stay local”, or to set yourself up so you can drive a mobile home/workshop to “wherever” and spend some weeks fixing up a new buy?
I’m interested in what you decide.
Benny
Hi Terry,
There is no need to move back in or even to have an intention to move back in.
Hmmmm, I’m not sure which part of my thoughts were suspect, Terry, but it was a bit of a muse re how the law might have come about. So, yeah, I could well be quite wrong – point taken.
Anyway, since your answer didn’t seem to answer Adam’s original question, I went looking and found this (for you, Adam) :-
There are several examples, and even some calculating how CGT is calculated if rented for more than 6 years. What it does seem to say (and I could be still reading this incorrectly) is that a PPOR can be rented for up to 6 years and still claim exemption.
BUT I still don’t see anything on that site that talks to “restarting the clock” by moving back into it (as per Adam’s original question). And, if doing so, DOES it give you a further 6 years exemption if rented? Terry, can you help with that one for Adam?
For sure, I can’t…. ;)
Benny
I think the answer lies in “other things” not yet mentioned. Like these :-
Are you still working and what date do you have set for retirement?
Do you enjoy living in the PPOR you currently have?
Is your plan to buy Growth properties, or Income? Or a mix of both? In the end, the “numbers” will have a lot to say!!
Expanding on Terry’s answer, any borrowings against the PPOR can be Tax deductable if you still draw a wage (i.e. pay Tax).
If selling the PPOR, what is your requirement for the $500k+ that is released? Does it need to provide you with an Income? And how much?
If current IP has an LVR that low (180/340 = 53%) and it needs to be to give a +ve return, would you buy another one (negative geared), or shop for a better return?The good news is that you have a truckload of Equity – and that can be a real blessing, and a catapult if you go about things the right way. Well done. Now, don’t be in a hurry to make your next move. Spend some time reading, posting more (asking more questions), learning more, and pull the trigger only AFTER you have a very clear, meaningful, and successful path mapped out.
Benny
Hi Mike,
The yield ranges between 2.75-2.85% over the 10 year period after taking consideration of risk premiums and outgoings.
We usually work on Gross Yields when checking if a deal is possibly viable (it is a quick rule-of-thumb check). From your words, it appears you may be talking a Nett Yield of <3% So it may not be as bad as it sounds…..
e.g. Many on here would be looking for a 10% Gross Yield on a potential purchase. Of that, probably 5% will go on Mortgage Interest, and a further 1.5% or more on other costs. So something around a 3% Nett is not nearly as bad as it sounds. Especially as it is 3% on a rather large amount that is BORROWED !! :) I’d take it !!
Also, percentages hide a multitude of sins, and can be open to manipulation. e.g. like when Interest Rates go up 1% from a 5% base – the real increase to us is 20%, not 1% !!!
Why not share info re actual costs and values – the answers you get may be far more meaningful. Note, I am ONLY looking at the “numbers” here – I believe there may be other reasons that serviced apartments are not considered so highly, but I will leave that to others with experience of them,
Benny
PS And a big welcome to you on your first post !! :)
Hi Adam,
That is a great question !!Question: How long is an “acceptable period of time” so that my property remains my PPOR when I re-rent it out?
I believe the 6-year rule was brought in to assist where (for example) someone is transferred interstate or overseas, but plans to come back to their home down the track. Given that was the original tenet, an “in demand” person might arrive back at their PPOR, only to have the company they work for wanting them to move again within a matter of a few weeks/months.
The “reasonable man test” says this should be perfectly acceptable, so long as the intent remains to “come back home” in the future.
So, that I believe is the background to the 6 year rule.
Could it be that “just a few weeks/months back home” is acceptable for one who is returning from interstate – but might be unacceptable for one who is simply looking to legally minimise their taxes due. Perhaps a private ruling is the only way to really know??
Just a thought – and, no, I am not an accredited adviser,
Benny
Hi Brett,
When working out if a H&L sales outfit is “good or bad”, the main thing to know is the values in the area in which they are selling.So many of the “bad dude marketeers” will be selling in an area foreign to YOU (e.g. they would fly interstate people up to the Gold Coast FOR FREE). Without knowing the “local values”, you could be swayed into thinking “Wow, how cheap is this?” when the REALITY is that the area they are selling is even MORE cheap than they are selling.
It is like going to a smaller city away from where you live – it is LIKELY that homes in (say) Orange will be WAY cheaper than Sydney. Your job is to find out HOW MUCH CHEAPER, and is the H&L group trying to sell for $40k MORE than a similar dwelling in that area sells from a builder. Many of the bad dudes will also offer a rental guarantee just to counter any reservations on your part (but YOU will be paying for that guarantee).
The group you are using may well be one of the many “good guys” – I don’t know, but with careful consideration, YOU will be able to tell.
Benny
Hi Alex,
My hunch however is that we won’t be able to push through the DA and associated paperwork if the title is still in the vendor’s name? Can we get some opinions on this please?
I have heard “There are ways” – these might include taking the vendor into the deal as a JV partner.
Or purchase an option from the vendor with a long enough time-frame and including conditions that have him sign as the owner. The situation with an Option is that you would have the right, but NOT the obligation to proceed with it. It may even (I believe) be onsold to another investor ahead of its expiry date.
The vendor gets the benefit of having a DA in place if you DON’T go ahead, thus raising the value of the place for his next sale. So, an option not completing is not that big a deal to the vendor.
Do note that was ALL opinion – just stuff I have HEARD over the years. I haven’t done it personally, but maybe RPI will add more ideas re these to the mix, and guide you through the various choices.
Good luck with it – sounds like it can be a real winner,
Benny
PS Nearly forgot – a big welcome to PI.com too !!
Hi Mark,
Welcome aboard !! You have started well with IP’s to have two already. I find it a bit hard to say whether one way is better than another as I don’t know the areas, the rent returns, whether one or both are negative geared, etc.I’m getting married next year and looking for a PPOR. We don’t wish to live in either IP.
Based on that, I guess you should look at which of the IP’s is returning the best Income, or could be upgraded (cosmetic reno) to provide a better rent. Then run the numbers based on having reno’ed the better one, and having sold the other. What do the numbers tell you? Can you keep it and buy a PPOR, or must you sell it too? Do keep in mind that you will likely be up for CGT on any sale, so do check with an accountant re the effects of that on your expected $$ outcomes.
Do update us and keep on asking – we will help if we are able to,
Benny
jmsrachel asked (in another thread)
Steve / admin – Don’t get upset I tried for hours working out how to start a new thread with photos. Ended up pulling my hair out.
Since that comment supports this thread, I wanted to put it here to add to the count !!
Benny
Originating post is https://www.propertyinvesting.com/topic/4990259-my-latest-reno/#post-4990259
Hi Patrick,
Smart move to ask first – especially re Fixed Loans – they can bite, and bite hard, if you are not fully conversant with them.If it were me, I would be staying Variable IO with Offset account, and pay down nothing off the loan. What you WOULD have paid can be saved in the Offset account, then removed to be Deposit/Costs on your next PPOR (or on another IP if your plans go that way) without reducing deductability.
Others on here will no doubt be able to add more, and with more authority too. Watch out for their replies….
Benny
