Hi Ross,
Do you know of any other useful treads that might be of interest to me as I’m only starting my investment journey.
I plan to add them to that same thread as I find them.

Can you think of things that could/should be added? After that, it is a matter of FINDING (or creating) good answers for the thread. What of your early questions need an answer right now?

Benny

Hi Ronnie,

I enjoy reading it and wanted to ask if jwareham1985 converts his loan to interest only loan and rents it out as an IP how will he ever get to pay the loan off?

Well, that depends on many things. Your overall question seems to infer that JW should pay it off. And you might be right – but each investor’s situation is likely to be different, and what is right for one may not be optimum for another (even if still “right”).

Let’s question the pros and cons of “paying down a loan on an IP”…..

PRO’s of “paying down a loan” :-
Creates a lower LVR, thus creating a good Bank history (i.e. more loans?)
Security – or “sleep at night” factor enhanced
…

CON’s of “paying down a loan” :-
If other debt exists (credit card, PPOR loan, car loan) these should be “paid down” first (the IP remains Tax deductible – the others aren’t mostly)
Reduces Tax refund as amount outstanding drops (less Interest being paid)
An Offset can have the effect of “paying down” a loan while retaining flexibility – pay extra into the Offset instead.
…

That’s just a quick starter list. I’m sure there will be MANY more CON’s (and some more PRO’s too – though I can’t think of too many). Anyone else want to help Ronnie out by adding to the list?

As a final thought – there are myriad ways of making IP investing work. The difficiulty in creating the list above is that it can become too generic, and taken as gospel. There are many “Ah, but what if…” situations that can turn a right answer into one that may not work in every case. Let’s give it a go anyway – I’d be interested to see others’ thoughts on this one.

Good question Ronnie !!! *applause*

Benny

Hi Brizza,
Re your question” – “do the beneficiaries have to be named when the trust is drawn up?” – I have had a Trust set up for me some years back. I recall that beneficiaries can be included without names where they are actually “unknown” (e.g. children of a beneficiary who are as yet unborn).

We have Primary beneficiaries, and there is also a Secondary and a Tertiary group. Our family group (Mum, Dad, and two sons) are Primary (and named) Beneficiaries. Any “children yet to be born” go into the Secondary or Tertiary group. So, there is provision for “expansion” shall we say.

Re Terry’s comment “must be known with certainty”, that makes sense – i.e. if one of my sons were to sire a child, the certainty would be in the form of a Registration of Birth with my son as the father – even though un-named today, this future child can still be a future beneficiary.

I can’t help with the other questions, sorry – I hope someone else can help with those.

Benny

Hi Ronnie,

Would we be treated taxable income together since the property is under both names eg 50k + 50k = 100k salary minus the $5000?

I believe you would do separate Tax Returns (thus your Tax benefits will be lower than if one of you earned $100k). That’s simply because those on lower wages pay less Tax, so any refund will be less too.

Talk with an Accountant re how the $5000 is apportioned – I wouldn’t want to hazard a guess on that one. If it were $2500 each, then both of you would be taxed as though earning $47.5k and any Tax you had paid above the required amount would be returned to each of you from the ATO.

Make sure your losses include Depreciation and all the other “non-cash losses” too. Again, an Accountant will set you right. It’s a whole other dimension. But you sound like you have the basic idea – well done. Now to add to that knowledge eh?

Benny

Hi Ronnie,

To be honest I don’t know much about property investing, just read an article on the train one time about brief explanation on positive gearing and negative gearing.

Have a quick look at the link following – it will answer a lot of early questions to get you up-to-speed and warn of dangers.

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

Enjoy,

Benny

Hi Anthony,
Welcome aboard !! :) I just wanted to post a few thoughts that might not answer the NRAS question, but will hopefully be of some benefit to you :-

1. Being “in a complex of 104” this sounds like an apartment – is it??
2. If yes, then a rent of $375/wk for a $385k property sounds quite restrictive. Are you sure you will only be down $20 a week? e.g. have you factored in RE agent fees, Insurance, body corporate fees, rates, etc?
3. Have you compared other (similar) properties in the same area, but in another complex? How do their prices/rents compare?
4. I expect this might be in a major city (going on the price) e.g. Cairns, Townsville….

And, in case it helps (as you are a new investor) do check out this link – it may answer a few other questions that you might not even have yet !!
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/

Hope it helps,

Benny

Hi munmum,
ONLY because of the bump, as I’m not sure these two gents are still active…. both are (were) in NZ.

In NZ, my mind immediately goes to Olly Newland. Wife and I bought our first house from him in the 70’s. I know he has been quite active in education there for decades – he presents, writes books, mag columns, etc.

The other is Kieren Trass. A search on the name should turn up a lot of info. I don’t know much about Kieren.

Benny

Hi Sonya,
Welcome aboard !! It is good to hear that you are looking for options – this means you have your future firmly in view. I think a good move for you is to keep on reading, checking, questioning, and working toward that future. A chat with one of the Mortgage Brokers would be useful too – they can take your whole financial situation into play when working out HOW to buy another property.

For now, I just wanted to point out a common trap. And that is in thinking you have “80% of your equity available” !! It is not quite right, so let me set that right :-

You said :-

Assuming we can only use 80% of our equity to purchase another house that is still $150(?)k towards another house, plus the $80 cash we have, we should be able to buy another property even with the drop to one income.

The way to calculate what you can borrow is as follows:-
First, look at the “amount owing / house value”.
In the case of your PPOR, owing is $390k / value is $520k that is 75%. But you CAN’T borrow 80% of that remaining $130k (your Equity). Just $16k more will bring your total loan to $416k which is 80%.

You could draw a bigger chunk of Equity by considering paying LMI and borrow at 90% (or 95%) instead of 80%. That would release another $78k (or $104k) for you.

With the Unit, things look a bit better – Owing $312 / Value $425 is around 73.5% LVR right now. By going to 80%, this releases $28k – or pay LMI and borrow at 90% (or 95%) to release $70k (or ~$90k). And HERE is where you need the services of a professional to run different scenarios for you in your circumstances.

WHAT you buy will play a part too – do you purchase another IP? Or another PPOR? Your answer will have a major impact on the outcome – or, the Mortgage Broker can chart BOTH scenarios, thus allowing you to make an informed choice.

Main thing is though, I hope you can now see that you can’t borrow “80% of your Equity” as easily as it sounds. You have about $240k in Equity, but to borrow 80% of that ($192k), you need to borrow it at an LVR of 95% plus !!!!

And don’t be concerned if it is all still not clear. Once you sit down and “do the numbers” with an adviser, it will become a lot clearer.

You are in good shape though, and I’m sure something can be done to improve your future with property. Let’s see what a MB tells you,

Benny

• This reply was modified 8 years, 10 months ago by  Benny. Reason: Fixing an earlier transcription error

Hi Ben,
Wow – sounds like a problem… and, no, I don’t think i have the whole answer, but wanted to share a couple of thoughts :-

1. The home we bought 30 years ago had a similar thing. No slopes to speak of, but the thing that rocked me was that downpipes were ALLOWED to “splash-feed” onto the ground rather than being piped away (according to laws that existed back then). But then, I found the builder HAD installed underground pipes from our down-pipes – the underground pipes ran into the property next door – and stopped….

2. I don’t know how much rainfall you might get (especially when compounded by run-off down that slope), but maybe there is a chance of creating a “sink-hole” i.e. get in a bobcat and cut a big wide trench across your property, fill it with rubble, and allow the water to dissipate underground to surrounding soils. You would obviously need to check a number of things (via a hydrologist??) like :-

a. re your comment “The interesting thing though is the soil was not wet?” – does that mean the rain is soaked up by surrounding soils BEFORE it even gets to a depth of 30cm? In which case IS there any problem? Could it be that the existing easement and drain is more than sufficient as is?
b. do “problems created by past (inadequate but acceptable) laws” receive any leniency in rectifying the problem today?
c. what does your “neighbour with the big block” have to say? If they have never noticed a problem with your run-off, is there one?
d. what cubic capacity would the sink-hole need to be, how deep, and do you have adequate space to create it on your property?

I have only a layman’s knowledge of water and its effects, but I recall hearing that heavy rains become a problem AFTER the ground surface soils have saturated – after that, any excess “runs off” without being absorbed. And of course, a steeper slope will have run-off occuring more quickly than a gentle slope (with the latter, water has more time to “sink into the gorund”).

Could some kind of action taken with your soil make it more absorbent to minimise any run-off (assuming you have grassed areas – no good if all concreted) – by action, I mean using a cultivator device of some kind to allow water to “sink” rather than running off. Or perhaps utilise products that could be sprinkled ON your grass (e.g. like those capsules that absorb water – used when planting to assure moisture to the new plants).

Hmm, maybe not much actual knowledge there, Ben – but hopefully some ideas that “might” work – good luck with it,

Benny

• This reply was modified 10 years, 5 months ago by  Benny.

Hi Ms New,
Welcome aboard. Anything new like property investing can seem a bit scarey at first, but as you say, there are places that can help (like, right here…).

In case it helps, do check out this link (and all of the links of interest within the thread):-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/

It takes you through some of the early questions, and can either provide an answer, or at least point you along the right path. If there are other thoughts or questions that arise while reading this, do post a reply to that thread, and I will endevour to find answers to add to the value of the thread. One of the problems with a resource as big as PI.com is in making valuable information easy to find. Hoepfully, threads like the linked one can go some way to helping.

I can’t help you with anything re Perth – but stick around, keep asking questions, and keep reading. THe answers will come,

Benny