Forum Replies Created
Hi RPI and Don,
Thanks to you both for your replies.RPI – I have emailed you as requested. By all means reply (without ID) on forum. It is a subject others could do with knowing more about. Whatever you can add would be welcomed.
Don – a good point about FOI. That is not an area I have trodden – any pointers re “getting started”? Does FOI allow me to discuss someone else’s property that was sold about 7 years ago? Interesting point……
Thanks again,
BennyHi Kurtuk,
Well, it seems that area can ask that sort of price, as I see (on the internet) many 2bdrs selling at that price and above. Even some 1 bdrs are asking near to $400k. Which is yours? If yours is a 1bdr, you might like to check this out :-http://www.realestate.com.au/property-apartment-qld-bowen+hills-117474263
I don’t know any more than what I see there, but I wonder if having 2 side-by-side might offer opportunities that could trump other possibilities. e.g. what would be the income from TWO apartments, with a purchase price of $260k each? Can you service an extra $120k? What risks? What yield? Serviced or not? Location? Why the “low” price (an investor wanting to liquidate)? etc…..
Anyway, just thought I’d share FWIW,
Benny
Hi Callie,
I can’t answer your question from a legal standpoint, but it does appear to me (I’m just a layman) as still having possibilities for your parents-in-law. I’m sure our financial gurus will be able to shed more light, but for now, this is what I see for them:They have a heap of Equity in a valuable shared property. This Equity could help turn a broken egg into an omelette. They could look at arranging to “take over” their daughter’s mortgage, or re-finance completely for 50% to pay out their daughter and pay off her mortgage. I would think they could take out a 50% mortgage pretty easily, especially if they were OK with renting out the other Duplex. Again, one of the more qualified members on here will be able to give more of an idea.
Or, have your parents take a look at “strata titling” THEIR half of the property – the Bank holding the mortgage might have something to say, but it possibly could be done. Of course, this means that they would then have “someone else” buying the duplex next door – and maybe they would rather sell out than stay on the property in that situation.
The major problem I see with selling out “as is” (without strata titling), is that their market is probably limited to investors, or other families who want to try a “shared property” with their kin.
Anyway, good luck to your parents-in-law. I hope they are able to find a way through a situation that sounds pretty stressful.
Benny
Hi Kurtuk,
$400k could be a high price or an OK price, depending just where in SEQ the flat is. Have you seen similar flats in the block you are purchasing that confirm this price?What about costs? Body Corp, Rates, etc. A 6.9% gross return sounds good, unless there are other costs that will chew major $$ to leave a low Nett return.
Benny
Hi Shibby,
Welcome, and good on you for entertaining thoughts of investing at an early age. Your post shows you already have a good grasp of what can be done, and it is now a matter of refining your thoughts to suit just where you want to be. The good bit is that, with careful planning, your journey can retain flexibility, allowing changes in direction with minimal disruption. How? Read on…. ;)My thinking is, wouldn’t it be better to have as little of my cash as possible ‘stuck’ in the property by using the smallest deposit I could? So that if I turned the PPOR into an IP down the track I would have a larger amount of deductible debt that I can claim? OR would the LMI costs affect me too much?
I like the way you are already thinking – to have the “best of both worlds”, read up a bit more on “Offset Accounts”, and on “Do I buy an IP first, or a PPOR?” You will find links to both esconced in this thread :-
https://www.propertyinvesting.com/forums/general-property/4349450
Look at using an Offset Account against the property loan to give the best effect. Whether you buy IP first or PPOR, do all of your saving in the Offset (assuming you have no other non-deductible debt (credit card, car loan, HECS, etc). That way, the only decision you will need is “Which first?” – the link above might help with that.
Depending on just where your savings are sitting right now, it may be beneficial to move all remaining savings into the Offset too. Your financial adviser, who sees your situation in its entirety, will be better placed to guide you on that one. Or, instead, it might even be preferable/possible to buy TWO houses (one of each?) Who knows….
THe world is your oyster,
Benny
Hi bns,
Basically I’m asking the age old question PPOR 1st/ IP 2nd or IP 1st/ PPOR 2nd.
It certainly sounds like you are starting to understand things better, bns. Your questions are well-thought-out, and you mention several things that show you have been doing some research – well done !! I suspect you might have already seen this, but just in case, do take a look :-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697967It will provide evidence to show which way is best financially. Of course, there can be several other non-financial reasons to take the other path. e.g. spouse, family, security, etc. And at certain times in the property cycle, it may be CHEAPER to take the other path (i.e. buy your home first). But then, if renting is costing significantly more than paying a mortgage, it could be that property is about to boom, and rental yields will drop as house values rise. At a time like that, it is good to be “in the market” with property, whether as a PPOR or as an IP. And a PPOR can provide CGT exemption.
Are we better off renting for another 2 years then buying our house (PPOR) and drawing equity from that to fund the IP? (Setting up IO loans on both, offset on the PPOR , all incoming and outgoing funds into the offset and using credit card to pay for expenses) Ideally this is the way to go to maximise our tax deductions yeah!?
Any answer to “Are we better off renting for another 2 years” requires a crystal ball, or detailed knowledge of your local market. Some believe that inner Brisbane is set to soar, so waiting two years might ensure you pay a lot more than it would cost today. But then others still believe all Australian house prices are due to collapse by up to 50% (but that is not me!!).
But If we were to purchase the unit first, how could I end up with the above scenario and restructure the loans to ensure we have maximum tax deductible debt?
SuperAndrew has already covered that well, and you affirm that it is the way to go. Offset account on your IP first allows you to totally withdraw the Offset funds for ANY purpose (e.g. a deposit on a PPOR) and the original IP loan (IO) remains as the full amount. With no funds left in Offset, the Interest payments on the IP mortgage revert to the full amount, and are all Tax Deductible.
Set up a similar Offset account on your new PPOR (also IO) and pile your savings into that. The Offset will emulate “paying down the loan” and, as this is non-deductible debt, it is the right one to “pay off”. But by paying it off in Offset, flexibility remains, allowing you to change your mind in years to come, by perhaps making the PPOR into another IP.
Or, if keeping it as your PPOR, you “could” choose to pay off the mortgage once the Offset funds exceed the mortgage. Or, as Equity grows, you could borrow via a separate loan for deposit/costs on another IP (deductible for that loan, as the purpose was to invest, not buy a PPOR)….. and the beat goes on…..
Hope that helps,
Benny
Hi Solomon,
Wow, from a Branch Manager that is pretty much unforgiveable !! One might expect such “advice” from an over-zealous new hire, but surely a Manager should have known better.Thanks for sharing the story – for sure, it puts a red flag up for all. And I agree the large majority would have no idea that they were being misled.
Re similar bad advice, the worst that has happened to me was that an Accountant whom I trusted sold me on the idea of using a Hybrid Trust to purchase a property. That has turned out to be the biggest sink-hole for cash and I now wish I had simply bought in my own name.
There are supposed benefits with a Trust, but here are some of the unanticipated troubles associated with it :-
1. Land Tax (Qld) is 10x what it would have cost if held in person – $100+ per week today (instead of $10 per week).
2. Difficulty getting finance – not so many lenders would look at it when purchasing in Hybrid Trust (that may have changed now – purchase was in 2004). It didn’t start out that bad, but changes to laws have contributed to the massive difference I see now.
3. Extra Auditing/Accounting fees per annum to comply with stricter rules.
4. Rules seem to change from time to time, making the existing Trust “non-compliant” and requiring $$ spent to bring it right again.
5. Asic fees – $212 per year – but DON’T ever be late in paying THESE. It quickly doubles and more if an oversight has you not pay them on time.Not something I will be repeating in a hurry, for sure….
Benny
Hi Paul,
Like others earlier, I also don’t know Reventon. I’m sure the majority of house and land marketers are kosher – but those that aren’t will typically display some tell-tale signs :-1. They will check that your PPOR has sizable equity before wanting your business. This is so the excess equity in your PPOR can make up for an over-valued IP that they want to sell you. Of course, any salesperson might quiz you to see if you have “Deposit and Costs available” – either in Equity or savings. Those with bad intentions want to see EXCESS Equity !!
2. They will make it a “one stop shop” (make it easy for you) by providing you with financier, solicitor, valuer, etc.
3. They may even offer “free flights”, limousine, etc – making sure you are driven on a route that does NOT advertise other H/L packages at reduced prices from what they are trying to sell you.
4. They will endeavour to press you to sign THAT DAY (or you will miss out – including having your consultant receiving SMS messages saying “Another one sold – only three left now…” and using similar pressure tactics).
5. They will be touting the “investor” line (Tax deductions, property doubles in 7 to 10 years, etc) and massaging your ego to become an investor, set up your kids’ futures, etc.
6. There will usually be a Rent Guarantee – well-built, well-priced IP’s don’t usually need a guarantee.
Paul, if any company is happy for you to use your own financier, solicitor, etc and their prices seem about right when compared to similar properties for sale via the Real Estate market, then they are likely one of the many kosher operators
Any salesperson will be applying SOME pressure to have you sign, but if they allow you the space/time to “check things out” with your solicitor or adviser before signing, then again, they are probably OK.
I’d suggest you sit down and have a chat with a financier yourself BEFORE going to see any Sales group. In that way, you will already have a good idea of the Deposit/Costs that apply for a NORMAL purchase. Then, if a subsequent meeting with a Sales group seems to be quoting figures that are way too high, it is a warning sign to keep both hands in your pockets. Or, as Jenman warns – “Don’t sign anything”.
Benny
Hi Chris,
Well done already !! I’m with JacM in suggesting you look at Interest Only. WHY? Well, “assuming” this is to remain an IP into the future, there is no need to hurry to pay it off, particularly if it is positive geared. It sounds like it would be positive if converted to an Interest Only loan.Smart move using an Offset too – as this effectively reduces the Interest Owing each month, making your Offset grow even quicker, thus Offsetting even more of the current mortgage. If you REALLY wanted to pay it down, then the funds in your Offset COULD be utilised to do that – but that should be a well-thought-out decision after consdering your whole situation in detail.
If wanting to “move on” with investing, keeping surplus funds in the Offset is KEY (rather than paying them off an IP loan). Do take a look at the post refering to “Offsets” in this link :-
https://www.propertyinvesting.com/forums/general-property/4349450Do read any of the other posts too – these are a cross-section of questions and answers that affect newer investors. Ruminate over each, and think how the suggestions posted might affect YOUR situation too.
Re going Fixed, it is probably a pretty good time to do this. Keep in mind though that any “paying down” of the Fixed Loan might be limited by the lender. AND it will also mean that you re “locking in” any sale of that property for x years. Break costs come into play if you suddenly want/need to sell while under a Fixed Loan.
If it were me, I would certainly be looking to use the Equity to purchase again, or at least put it to good use in another investing method. It is available to you, so do consider how best it can work for you. Maybe make contact with JacM or one of the other Mortgage Brokers that add sound guidance on here.
Benny
Hi Ty,
Welcome aboard !! It is great to see a young’un getting into this kind of thinking – and very smart to seek out “those who have done it”. It took me FAR more years than that before I received a “whack on the side of the head” thanks to Robert Kiyosaki and his “Rich Dad, Poor Dad”. I totally recommend that book to all young investors (especially ruminate on Chapter 2 – it is one of the “key tenets” I reckon).After that, spend time and a bit of money buying a few books, just to get into the fundamentals of property investing – Steve’s and Jan Somers’ books have a lot of “how to” information in them, along with a very good general knowledge of all sides of investing – financing, property, tenants, taxes, etc.
And be a sponge on here too – just by reading a host of the different questions and answers, you will quickly get to learn which things tend to be “problem areas” as well as those things that just “work”.
Do check out the following link for a few “getting started” hints (answers to questions you may not even know you have yet):-
https://www.propertyinvesting.com/forums/general-property/4349450And go along to some of the seminars (the free, or well-priced ones – no need to spend a fortune right up-front). Meet up with investors who are planning meet-ups in your area, just to have a coffee and a chat. Spend a few months doing an “apprenticeship” before striking out and buying. It is important that your first buy is a GOOD one, so that you don’t burn a lot of your deposit money. Don’t be rushed the first time in – share a heap of information on here and we will rush to support you, or to warn of any possible issues.
Great start !!
Benny
Hi Woody,
I wanted to get a $60k LOC to leave sitting there until I find my next property. COmmbank want a contract first.
Could it be a LVR concern – that there is not sufficient Equity in your place? e.g. if $60k is a bit tight, they might be wanting to cross-coll your PPOR with a new IP (don’t do that !!).
Or, is it a DSR concern? Are they wanting to see extra Income from an IP in the equation?
If you are able to share a few more of the “numbers” we may be able to help more,
Benny
Hi Mercury,
Also, if i moved into this property as my ppr for 12 months, there would be no CGT?
As I understand it, this is true – but with some caveats:-
1. As long as you didn’t move into another PPOR (instead, go and rent), or, you sell it as you move out of it.
2. It retains PPOR status for up to 6 years (subject to 1.) after which you must move back in to “restart the clock”.
3. I’m not sure re the timeframe – 12 months sounds OK – but this is really a question for an Accountant (or ATO) to answer…It is always good to run such situations by an Accountant or similar adviser.
Hope it helps,
BennyHi Camp grenada,
Wow, you appear to be in REALLY good shape !! With that amount behind you, I’d be thinking there would be a way to turn this ship into “positive geared” so that you can retain all properties. As you say, holding property in Sydney is usually a Growth play.A little bit of confusion from me though – you mentioned two IP’s with little Equity, but followed up that they are “unencumbered”. I’m not quite sure what you mean there. What I would suggest is that you lay out a few lines with :-
Area/suburb Value Mortgage Rental Expenses
…. for each of these four IP’s. See, with the amount of Equity available, you could look to purchasing more positive geared IP’s to Offset any losses from the others, or even look to diversifying into Shares to “top up” the Income. Perhaps even use a smallish Margin Loan.
I’m sure many advisers would LOVE to have a client like you !! There will certainly be LOTS of options for you, so don’t go rushing headlong into anything right away. Do read up on Offset accounts (if you aren’t using these ATM) – you can find a post on them somewhere in here:-
https://www.propertyinvesting.com/forums/general-property/4349450Meanwhile, I’m sure some of the stalwarts on here will have some really useful info for you. Keep watching – I’m sure there will be heaps of ideas coming your way soon,
Benny
Hi Mr LV,
What general area is your IP in? North, South, etc, or even a suburb if you are comfortable.I had a property sold for me on the Eastside – I was NOT going to use the managing agent’s Sales Team (our Rental Manager was tops, but not the Sales team), so went looking for an alternative.
We compiled a shortlist by checking out houses each prospect had sold, their success in the area, etc. Wife and I then met with the prospective agents, asked questions re HOW they would market our property, and WHY they chose that way, their expected Market Price range (was it realistic rather than “over the top”), etc.
We then chose one that we felt comfortable with at the interview – both with answers to questions, and their persona – did we feel comfortable with them – the old gut feel. Our choice did very well for us – they were tops in keeping us in the loop, and in working for US rather than the other party. Happy to recommend them (if they are still in business – my Sale was a few years ago now).
Benny
Hi SwiftE,
A good problem to have, for sure !! If you have $170k in Offset, then you would be CREAMING your mortgage (only paying Interest on $27k, and the rest of your monthly payment will be paying off principal). I would suggest you check out just how well your Offset is already working. It MAY be advantageous to NOT pay it off your Home Loan (especially if you have ANY plans of turning this PPOR into an IP down the track).See, while in your Offset, all of the $170k is YOURS, to do with as you wish. You have paid Tax on it – you can take amounts out to do what you wish. But if you pay it off your mortgage, then any requirement for chunks of cash will either have to come from more savings, or from a Redraw. Think long and hard (and ask a heap of questions) before doing this.
In case it helps, do take a look at this thread :-
https://www.propertyinvesting.com/forums/general-property/4349450That thread has a post specifically about Offsets, and how GOOD they are. The other posts endeavour to answer a heap of “early questions” that may be worth considering before making your next move.
Do keep in touch as you arrive at your decision points. As NewGuy says, working out just what you want to do probably comes first – then, HOW do you make that happen. The HOW “might” mean paying down your Home Loan and having less outgoings per week, or it may not. Good luck with it,
Benny
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Benny.
If both houses are similar in value, couldn’t he create a contract where the gifted house is chosen only after both houses have been built in order to avoid the builder to funnel most resources to his own property?
I like that thought, David – it prevents the builder from building “his” better than yours. Basically, YOU (Theresa) choose which one you’ll have after he builds both.
Of course, the Builder must then have the capacity to carry the costs of building two homes (offset by negotiated pay-backs from the buyer i.e. stage payments). But then, the builder would only receive stage payments for ONE property – he would have to be able to carry the second one himself, AND build both to completion – then allow Theresa to choose which one they want. The Builder then gets the other.
As so many have already said, it must all be water-tight….
Benny
Thanks for all of the replies thus far. Interesting point about LMR and its restriction to 3 levels. On 809m2, would this allow something like 12 units?
@nigel – “Once you know you could get a permit for the site a developer will certainly pay you a premium for that”
Hmm, the RE agent is talking like SHE already knows they CAN get a permit.And, the house next door was sold about 6 – 8 months ago (half the size of ours). But if the same developer had bought it, and was now wanting to buy ours, it increases the value of the whole site, or at least makes it more easily possible to add extra units. With ours being the larger block, its purchase would be worth paying “over the odds” perhaps?
It gets interesting-er and interesting-er !! :p
Benny
Hi Matt,
Welcome aboard !! That is a bit of a different scenario, for sure. I don’t know the answer to your question. I do know that if you sell the old one, there should be NO CGT payable. But if selling the new one – ????? Hmmmm.Hopefully one of our more experienced members can shed some light. To that end, my reply will bring your question back into the spotlight as a “new post”.
Out of interest, what led to the change of plans? Was it sudden “exposure” to property investing? i.e. being advised by someone that selling the new might be more beneficial for you.
Anyway, let’s see what happens now,
Benny
Hi FLW,
Welcome aboard !! Wow, no replies in a week? I can only think it got missed by most. Let me start by saying “I don’t KNOW Perth”, so my thoughts are more general. In the end, you will know more than I do, but maybe my thoughts might help focus you on the right choice for you.Re the three choices you mentioned :-
1. “Rent out property, load up Offset etc…..”
This has some possibilities – it sounds like this is currently your PPOR – is it? If YES, then you have a CGT exemption for up to 6 years if you don’t take on another PPOR meantime (i.e. you live in another property that is NOT your own home). So this can be a major benefit when you do sell this place. Also, I hear from others on here that “Perth is a buyers market right now” – thus, perhps not a great time to sell?2. “Keep IP, leave it as negative geared and still load up offset account…”
Though different words are used, the first part sounds like 1. to me. Am I missing something? Maybe it is simply that you are adding “the possibility of taking money in Offset to develop”. In both 1. and 2. just by loading up your Offset with any spare cash, this could turn the apartment into positive geared quite quickly – so both 1 and 2 sound good that way.3. “Sell, take some profit and use that profit to fund property developments” That is one for you to answer – if this takes you closer to your goal, then by all means consider it. With Perth possibly a “buyers market”, do you think it is likely to grow in value in the short term? Or are you able to use the released funds in a more efficient way by developing? Again, that depends if you are “ready to rock’n’roll” with developments.
Hopefully others from Perth may be able to add some value to those thoughts of mine. DO come back with more info – we may be able to add some extra thoughts as your proposed action becomes more clear to you,
Benny
Hi Colagirl,
The major four are – Rates, Insurance, RE fees, and Maintenance – and, if a unit, add in Body Corp!!Sounds like you have thought through most of them – re Maintenance, do you need to consider lawns, gardening, or is the tenant taking care of those?
Benny
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