Hi TNG,

  Ahh, all is good then.   The following comments from you sent my thoughts in another direction:-

  Since this is IP-secured, and since you are considering paying it down via the Offset, it may be worth looking at doing just that.   Pay it right out, THEN re-mortgage to purchase a second IP.  This then makes the borrowing tax-deductible from that time on.  

  Of course, doing this just to save tax shouldn't be the main concern – but it does appear to me to help "clean up" your structure for the future.  I'd be interested to hear what more knowledgable people on here think of that, in case there is an even better way,

Benny

Hi Scott,

  Welcome, and well done for asking the question.   A major part of "due diligence" is in asking questions and finding answers to questions that are "hidden" or not usually outlined during the purchase of a property.   i.e. Looking for the exit even before you buy, financing the deal, gathering input for a SWOT analysis, Council codes, demographics, etc.

  A friend was badly tripped up some years back – "oh yes, we'll give you finance up to $xyz to purchase that property" (the property would have grossed a 15% Rent Return).  He went ahead, won the auction, and then couldn't settle – "Oh no, we couldn't give you a loan since you are renting to students!"   The lenders knew of that upfront and nothing adverse was mentioned, but pulled the rug out once the deal was done.   Maybe the one saying "Yes" was a keen adviser wanting to meet a quota for the month ???  The REAL decision maker pulled the pin – knowing of such "hidden details" is part of due diligence.   So, if a lender says "Yes", be SURE it really is a yes before you commit.  Get the terms in writing as part of a Loan Approval document.

  Back to your situation – in what area are you looking?   Major Aust city?  Are you looking at just one apartment in a block, or a suite of 4 or 6 in the one building? 

  If you now have some doubts re "student accommodation", is there another area of Property investing that is of interest to you?  If you still wish to have a closer look, do add more information re your specific circs – others might be able to add value from past experience in that area (both good and bad). 

 Re the "Capital Growth" part of your question, do think long and hard about the old adage – "You make your money when you BUY, not when you sell".  To that end, how can you generate your own Capital Growth in the area you are thinking of?   Are you buying to renovate (thus adding value), or buying new (and paying the developer his 20% as part of the asking price)?   …another one to think long and hard over…..  

  Let us know what you think – we may be able to assist you further as you go.  

Benny 

Hi Logan,

  You said you were wanting to get into property developing….   That would apply mostly to houses then, wouldn't it?  Knocking them down to build new, or reno the house and split the block, etc.   So the way to go seems clear – go into houses, yeah?  

  Perhaps start by cruising through the posts in this forum:-

https://www.propertyinvesting.com/forums/value-adding

  Do run the numbers though – they will tell you whether to hold or sell.  And is your mate joining you on this journey, or are you going it alone?  THAT is important in the final decision.

Benny

Hi L,

  Welcome to PropertyInvesting.com – sounds like the beginning of a success story ….    I'd be interested to hear a bit more about just what you have done.  Your phrase "turn to houses" has me thinking you might have renovated an apartment (??)    Later: I see you have now added more info – great, I'll go check it out.

  Sounds cool – to help me out here, what kind of prices would a renovated unit fetch in that location?  $350k?  More?   Have there been any others in that same block that have sold recently?

  My early thoughts would be to run the numbers to see which way would make sense.  Also, it is important to consider whether it will be two of you going forward, or just one of you.  That answer might change the whole dynamics of the situation.

  Stick around on here and check out some of the different forums – there is a wealth of knowledge on tap right here.

Benny

Hi John,

  A broker would be better placed to advise you of the current scenario with different banks.   Certainly though, there are many benefits of being able to borrow over 100%.  And there are ways to do that too, depending on each investor's situation.  

  You seem to have "what it takes" in my eyes (based on your input), but others would be better placed to assist you in depth.  Main thing is to sit down with someone knowledgeable and map out your likely path (set goals) so that you will be heading in the right direction from the outset.

  Go for it,

Benny

  The East has a lot going for it particularly on the Eastern Seaboard of Australia. 

 1.  If travelling to or from work, the Sun is NOT in your eyes (assuming you work a 9 – 5 work-day.).

 2.  You are automatically going to be nearer the Coast with its cooling breezes.

 3.  There is LESS land available to the East – most evident in Sydney where there is diddley squat to the East, but what IS there is some of the highest priced (and prized) real estate.  Still applicable but to a lesser degree in Brisbane – it is about 25Km to the Coast when heading East.

  (I don't know how this East vs West thing might work in Perth…..) ????

Benny

Hi Sampson,

  Just a few thoughts that may help you choose…..

  I feel the older home has a few advantages over the brick home :-

     1.  Closer to the university (question – will students pay an extra $5 to $10 a week to save a bit of time?)

     2.  "Recently renovated" (read – could be some useful Depreciation $$ just waiting to be picked up)

     3.  Gross rental return ~8.5% (compare with ~7% for brick home)

  Of course, this is predicated on the 90 year old house being structurally sound.   Is it?   A building inspection would be mandatory methinks …..    What about the garage?  Is it "built under house" or "free-standing"?   Lots of DD required here too.   Is it legal height already?  Is Council happy to allow "dual tenancy" in this area?   And the big one (applies to BOTH properties:-

   I have heard that SOME Banks either won't lend for student rental, OR they lend at a lower LVR.  (read – do be sure you have finance approvals sewn up well before you go to contract on either one). 

  There are usually higher maintenance costs on an older home, but the "recent full reno" would have sorted out a bunch of the usual maintenance issues – do you know if the reno included rewiring the place?   How sure are you that the final figure of $350k will be accurate?   e.g. bringing a garage up to habitable standard will require considerable work.   What will you do with the pool?   Will you fill it in, or use it as a drawcard?  (Pools can be a very expensive cost to landlords….)    Maybe students will pay slightly more to have a pool too……

  Hmm……..    Which one were you feeling "attached to"???       Good luck with it,

Benny

Hi GL,

  You appear to have started three threads on the same topic.    I'd suggest you respond to this one (since you have had a response from Jamie) and leave the others to a Moderator to delete.  

Benny

Hi Manolo,

   I was about to say "Welcome to the forum", but I see you have actually been around awhile !!   So, well done on your first post.  

  You've posted a fairly complete scenario, so I wanted to swing by and add a few thoughts as an outsider.  (Note that I am not an adviser of any kind, but others who follow often are – do listen to them over me as I could easily get things wrong, though not intentionally).

  Here's what I think:-

  Makes sense to me.  It would help keep things "cleaner" for your accountant.

  Yes, I would think that the extra equity would be better "spent" on further IP's (assuming that is what you wish to pursue).

  Hmm, one thing often overlooked is the REAL increase as Interest rates tick up.   e.g. a jump from 5% to 6% is just 1%, right???     Wrong !!  It is actually a 20% increase in the Interest you pay on an IO loan.   So, good luck with jacking rents 20% as Interest Rates tick back up (see 2007 to 2008 when the cash rate went from 6.25% to 7.25% – the major banks added a further 0.55% to that, making a 1.55% increase into a 25% increase – Eeekkk!!!)    Know any tenants that will happily pay an extra 25% in just 12 months or so???

  Of course, that was the time of the GFC – while the rest of the world was madly cutting Interest rates, Ruddy was talking ours up with comments like "The inflation genie is out of the bottle"!!  .   Fortunately, the RBA saw the error of their ways, and proceeded to cut them WAY back again (to almost unheard of levels – a real overshoot/undershoot story).  Still a 25% increase is not an every day event – just one to be watchful for when Interest Rates start their Northward march again….

  And right now, they are still WAY low – probably necessary to get our dollar back where it should be (but then, I'm no economist either….)

  In answer to YOUR question, I'd think you should stick with other rental properties as they slowly tick up their rental rates – don't be too far behind, and add to your rent if/when you add extras that can command a better rental (one of the blogs from Steve – I think – mentioned some really good ideas re rentals – don't give money away, but reward good tenants with extras that actually add value to YOUR property as well as to their lives!!).  If I find the link again, I'll pop it in here…..

  Hmm, I'll pass on that one…..   Specialist knowledge required, and that's not me !!  :p

  I'll be very interested in the comments of others re that question.  For mine, I have often wished I had never heard of a trust…..    But that is likely to be my failing more than a problem using trusts.  

  Re using a Company, my book-reading has seen several authors saying a Company is NOT ideal for holding IP's (at least, not for the average IP investor – it might be fine if you run a business buying/selling property)   Again, one for somebody else to answer more fully.

Benny

PS  One final thought (re you buying a home that you like the look of).    Somewhere on here there is a brilliant thread that talks of "How it is financially better to buy IP's and rent a home for yourself".  If someone can post a link to that, I would appreciate it, and perhaps Manolo too.

Hi aussieguy,

  And welcome !!     I'm not a wizz on this stuff, but I had a thought or two that could help others to help you……

  First off, I read that you "bought PPOR in Sydney in 2009, and lived in it for 7 months".   All good.   Later, I see this – "so I figure maintaining the property in Sydney as our PPOR would be more beneficial".    Yep, with you there too…..   But then this :-

  "they cannot be a normal tax deduction as the property is not rented"      So, for clarification, has the Sydney place been not rented for the last 4 years?   Or is there more to the story?  e.g. "it was rented, but the tenants moved out xx months ago….."  

  As I understand it, if you haven't been renting it, and you haven't nominated your Brisbane property as your PPOR, then I believe there is no CGT to pay – end of story.  

But, if it HAS been rented, then I will step back, because you will need other input from more knowledgable people like Terryw and others who know this stuff backwards.

  Also, further to Terry's comment re "PPOR status" – isn't there something about "Even after 6 years (if it hasn't been rented) it can remain your PPOR with full exemption so long as you don't have someone else living in it…."  (something like that – I read it in a book, so that is only hearsay, and not advice by any means – but could be worth asking the question if it applies to you and your future plans).   And, of course, you don't nominate another property as your PPOR !!

  Anyway, good on you for asking first – it saves a lot of anguish later !!!     

Benny