Forum Replies Created
Each state is different on the exact rules of getting the FHOG. It might be worth you ‘moving’ in for a couple of months. Just read the fine print and see if you can move in without actually shifting your furniture, if you know what I mean. The FHOG applies to your first home too – whether you live in it or not. Ie, if you don’t get it on your first home, you wont get it at all – this is my understanding.
As some advice, don’t claim the rental costs on your tax before you move in. It can be designated your PPOR even if you don’t live there, as long as you buy it in your own name and move in at some stage during a six year period. As long as you don’t have another PPOR, then you’ll get the Capital Gains tax free, which should be
worth a lot more than any claimed interest costs.Talk to an accountant or solicitor wtih experience in your state.
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We all need somewhere to live – but do we all need a CBD apartment?I’m with you on this one. The yields that are being asked for are simply ridiculous. There are so many more things in the universe of investments which will give better yields, yet industrial property continues yields continue to slip. I bought one property 5 years ago at 10% yield. At the time I planned to buy one every couple of years and build up a portfolio of them. But since 2003-4 the yields have been uneconomic. I’ve talked to several people about this and everyone agrees.
It could be that the yield was historically high, and now it is just moving to the other end of the band, and is historically low. Perhaps the long term average yield for industrial property is 7%?? The days of 10% industrials have gone the way of 10% residential properties.
However that’s not to say the properties aren’t ‘out there’, I personally know of one industrial property recently purchased at over 10%. The previous property owner had fallen out with the tenant and just wanted out. The business was being sold at the same time as the premises and there was no lease in place. The new business owner quite happily signed a lease at market rates which resulted in the yield of 10.5%.
But I do know of another which was well advertised in the paper and after contacting the agent (late in the afternoon, I might add) I was told of 5 other written offers on his desk, all above the advertised price in the paper. The advertised yield was 7%, so I’m guessing someone bought it for somewhere near 5%.
It’s worth checking out some of the listed property trusts from time to time, particularly after a sharemarket correction. Sometimes you can pick up decent LPT shares for very good yields. It’s best to sort out the ‘good ones’ before hand, and know what price you will buy, and then just wait. You’ll even get 50-70% LVR on some of them from a margin lender. Not as good as 80% LVR on a quality industrial property returning 10%, but better than sticking it into 5% industrial or 2.5% residential.
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We all need somewhere to live – but do we all need a CBD apartment?Most PM’s will want a week’s rent to put someone into a property. This will add up if you have high turnover, however, managing the property yourself is going to take a fair it of your time.
I rent an IP to students most of the time as it is adjacent to a university, but as a ‘normal’ rental, not as a short term, by the room type. There’s nothing intrinsincally wrong with students. Like every ‘category’ of people, there are good one and bad ones. The PM’s in the area are used to dealing with students and have good ways of working out whether they can pay the rent, normally by either sighting Govt handouts or getting parents to sign either an income guarantee or the lease itself.
I’ve found some of the best to be the asian (singapore, HK, Malaysian) students here on full-fee paying degrees. They pay the rent and just quietly go about the business of getting their degrees. No parties, drugs, ‘undiscovered’ tenants. But there are always bad eggs in every batch of people. In fact, I’d have hated to have rented to either myself or anyone I went to university with! [blush2]
It might also pay to get chummy with anyone in the immediate vicinity of the property – perhaps a gratuity from time to time (movie tickets, bottle of wine?) – to keep an eye on things. They’ll soon let you know if there are problem tenants in the place. It doesn’t take long before a neighbourhood works out someone isn’t being a good neighbour.
I think the irony is that most universities are in districts that have become ‘desirable’ simply because they have a university in them – which drives up prices and excludes students from being able to afford anything. St Lucia in brisbane is a prime example, and I’m sure there are plenty of others. Still, that creates opportunities for people who want max yield from their place because there is pretty much unlimited demand for good quality by-the-room lets near universities.
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We all need somewhere to live – but do we all need a CBD apartment?Thanks for the responses guys.
It is a PPOR for both of them – neither have any other property. I guess the ‘price’ of the transfer would be whatever it needs to be, but both of them definitely want their share of the capital gain. CGT doens’t come into it as it is PPOR for them both.
The issue is really the stamp duty, which is calculated on a transfer price. I spoke to an accountant about it yesterday, he said there is avenues to claim that the original contract should have had both of them, but as others have poitned out, that could just dig a deeper hole and create a worse mess. Not to mention having to hand back the FHOG which got used to pay the stamp duty at the time of purchase.
The only strategy I could come up with was for the brother with the title to sell to the one that didn’t have it, but keep the purchase price the original purchase price. This woudl attract 50% less Stamp Duty because it’s basically half what the place is worth now. Because the mortgage was arranged on this purchase price, the banks not goign to worry because it is still financing 80% of that purchase price (less,actually, because the loan has been paid down) Then the brother who was getting out would be fixed up for his half of the capital gain through refinancing with a new mortgage a month or so after the deal has gone through. Because there are no CGT implications, I can’t see how the OSR would be concerned if someone gives $100,000 to his brother. I mean, they could just be good siblings, right?
I’m happy to take any commentary on my strategy.
This whole episode should warn people about properly structuring deals and thinking about the long term consequences of fiddling for short term tax or other benefits. That original $7k in FHOG looks like costing them $20k in stamp duty, and a whole heap of unwanted aggravation. It’s a good thing that the whole thing is still on good terms – imagine if they as joint investment partners had had a falling out. [blink] This isn’t the first time I’ve heard of brothers going into property together and the whole thing ending in tears. It’s great to do joint investing with family members so that two people can get a start in property, but I think a written plan to get out before you get in is the first thing that should be signed before the contract.
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We all need somewhere to live – but do we all need a CBD apartment?SPAM!!
Sara, if you want customers for your business, then become a regular forum contributor and add your expertise to people’s problems. It’s OK if you want to leave your contact details in your sig, but blatant advertising is not wanted or appreciated.
I would say that you are more likely to harm your business reputation than help with this type of posting. Posting SPAM is against forum rules, and it just aggravates people. If you were having a conversation in a cafe and someone bust on it and started trying to sell you something, you’d be rightly peeved. IMO a forum environment is just like that.
Instead, you should post answers to people’s specific questions in your field of expertise. By giving of your knowledge, you’ll be appreciated by the forum community, and this will probably lead to referrals and business in the long run.
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We all need somewhere to live – but do we all need a CBD apartment?I would suggest that anyone can get started in property if they truly want to.
I think the question is not how much money you earn, but what do you want to achieve, and why? If the why is strong enough for you, the how works itself out. If you persist with enough determination towards a goal for a long enough period of time you will achieve it, sure as night follows day. It’s only when you give up that you don’t succeed.
You’ll have trouble getting finance, so take Steve’s mantra of money follows management. You could build up a list of cash-rich and time-poor investors and then set about finding completed deals for them. After a few f these you’ll have the money to get started yourself, and you’ll have learnt how to analyse and put together a good deal. You’ll be on your way. But there are plenty of other ways.
Just remember that Frank Lowy is one of Australia’s richest men, with his wealth moslty built through property. Yet he arrived in Australia after the war as a penniless immigrant who didn’t speak english. He didn’t know how, he just had a big enough why.
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We all need somewhere to live – but do we all need a CBD apartment?I’d use a broker. They’re going to find the best deal for you, and they know how to ‘dress’ an application to ensure that it has the best chance of being approved. Spend your time chasing the deals, leave the insurance to someone you can trust.
It probably doesn’t apply to you, but I’d recommend anyone takng out income protection while they have a full time job. In most cases the insurer will keep up the cover even if you change to being self employed. Just as you don’t change the type of work (ie from office work to handling power tools on a daily basis) I don’t think they are terribly concerned. They’re not so much worried about where your income comes from (I mean from a full time job to self employed) so much as how much personal injury risk you run while doing your job.
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We all need somewhere to live – but do we all need a CBD apartment?I have a business (pty ltd) which is the trustee of my investment trust. I hold shares and real estate in the name of the trust. My wife and I are directors and shareholders of the pty ltd company.
I use the business for non investing income, and own all ‘doodads’ in the name of the business – ie cars, phones, compfuters. These are all assessable tax expenses and done properly with logbooks and depreciation schedules – all in MYOB.
The trust has a minimal income that comes in each year and gets distributed to either me or my wife, depending on who has the lowest assessable income for that year. We are both named as beneficiaries. We don’t take any cash out – just the tax for the income, and the ‘distribution’ counts as capital placed back into the trust. At this stage i have a personal guarantee on the loans of the trust but hopefully one day it will stand as it’s own entity for lending purposes and I won’t be tied debtwise to it.
The big difference with trusts vs businesses is that the profits must be distributed each financial year, whereas with a business (as long as you don’t qualify for PSI rules) you can retain profits and pay them out over a number of years. If you are doing a lot of property buying and selling, a company might be the way to go. Some people form a single company per deal and keep a hierarchy of them.
However with my other business activities it makes sense to hold assets in a trust in case of either bankruptcy, legal action or whatever else people dream up to try and take what you have. It (the trust) also helps in estate planning (hopefully not a problem for a long time yet)
It costs several thousand per year of accounting fees to keep all this together so not for people starting out on their first property deal unless they have got the cash to spare. I also spend probably 10 hours a month with accounting tasks to keep track of everything. However I have a bound set of financials going back 5 years and I don’t fill out loan app forms, I just throw the financials on the desk along with a typed ‘proposal for finance’ which gives them much the same info as lenders application forms. Trust me it works.
This setup just suits me – every person has different goals, is at a different stage in life and has different amounts of assets. Talk to an accountant. Don’t just Google it, pick up the phone and make an appointment.
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We all need somewhere to live – but do we all need a CBD apartment?You’re unlikely to find any accurate, up to date information as much of the rental market is very informal.
If you want to know about rental yields and vacancies, just go to your local real estate agents on the weekend and pick up all the for sale lists, and the renatl listings. If there are very few rental listings, there isn’t much vacancy. Compare the average prices of the particular types/areas of property with the average rentals, and you’ll get a good idea of the rental yield.
It’s fun to trawl the net but while you are, other people are out finding and closing deals.
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We all need somewhere to live – but do we all need a CBD apartment?I’ve read the for’s and against’s on this thread, and I’ve got something for all of you: You are all right and you none of you are right.
The idea that someone can say ‘shares is better than property’ or ‘property is better than shares’ is as sensible as people of different religions slaughtering each other with the battle cry of ‘my god is better than your god’.
Each investment class has it’s positives and negatives. What matter not is the class of investment but it’s suitability to the investor, both in terms of the investor’s skills, risk tolerance, investment goals, available resources and experience.
Warren Buffet is the 2nd richest man in the world on the back of sharemarket investing. Clearly he would hold property but recommend shares. Frank Lowy is one of the richest men in Australia on the back of commercial property. Clearly he would recommend property. The point is they both made their fortunes working with their strengths.
Sharemarkets are liquid and you can quickly and efficiently realise profits. You can move on opportunities very quickly and it is easy to profit on both up markets and down markets. You can do all your research and investing on the internet and never talk to another soul. (something to think about for the myriads of people who post ‘I can’t find any positive cashflow property on realestate.com.au, but haven’t talked to any agents)
However you can’t borrow much against a sharemarket portfolio and the risk of getting a margin call is very real. You have no direct control over your investment (note that direct control over the management is probably one of Buffet’s advantages) and you can’t, for instance, go into a company you own and fix up an ailing division like you can repaint an investment property and build a double garage.
Property has the opportunities to create profits through your own problem solving and allows very high leverage levels (sometimes exceeding 100%). The market moves down pretty slowly and property is always required by people as somewhere to live.
However property is illiquid and finding and sourcing good deals takes a lot of legwork and persistence. It involves much higher up-front capital commitments and leverage to get started.
What would-be investors should be doing is figuring out which investment class suits their circumstances and requirements and researching that further. Within that class, they should be finding out which approach suits their needs and pursuing that. Some people make their fortune on the back of renovations and developments. Some on commercial property. Some buy and hold median houses and negative gear them for years. Some sharemarket investors are buy-and-hold value investors, some are short term traders who are constantly buying and selling. Some are trading with borrowed money, some are not.
The successful investors in all asset classes are the ones who are using an approach that is right for them, or changing themselves and breaking down comfort zones until they suit the approach they have chosen. Read Steve’s and Robert’s books and you should be gaining not a recommended do this, then do that, approach, but be realising that it is a journey you need to travel on and find your own way of doing what is right for you.
Personally I’m into both, and I’m fully aware of the ebbs and flows of each of the markets, and there is a right time to get into property and a right time to get into the sharemarket. That right time depends on the approach, the goals, the resources (you get the picture).
And as for people who doubt the rental jumps reported – my IP in Brisbane jumped $50 / week in rental when I signed up new tenants in December. If we see some sort of capping of rental jumps then expect worse times ahead for tenants as the incentive to build new properties or sign long leases dissappears and the rental shortage gets worse. Friends of mine in Sydney had to vacate their house when the landlord put the rent up $90 per week. New tenants were waiting to move in straight away. Whenever governments attempt to intervene in the market processs they always make it worse for the intended helpers. Just like they bought in a FHOG to make it easier for first time buyers to get into the market and ignited a property boom that put prices even further out of first-timers reach.
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We all need somewhere to live – but do we all need a CBD apartment?I can’t comment directly on the situation that you’re in, but my advice with any type of financial transaction is have a full set of audited financial statements bound and ready going back 3 years. Give this to the underwriter doing the insurance.
As a general comment on Income Protection insurance – if you’ve got a regular job and you’re thinking of quitting it and either doing full time property investing or any other type of self employed activity, it pays to take out an income protection policy BEFORE you quit your job. They will assess and price you on your current status. Keep your lip buttoned about your upcoming career. Whilst you may fall foul of the policy rules (read them carefully before committing), as long as you don’t change the ‘physical’ nature of your work (ie from office job to professional investor) they’ll probably let you keep your policy going. If you go from being office boy to building renovator running around on a roof with a powersaw, they’ll probably have something to say, like NO, or they may just double your premium.
I’ve changed from salaried employee to self employed, and kept my income protection insurance. I spoke to the insurance company, and while they didn’t jump through hoops about it, the policy stays. Basically I am still doing the same thing, just not in a big office anymore.
On another point for everyone else out there : WHAT? You DON’T HAVE IP insurance? Give yourself a slap. Property Investor or Full time worker. Think about it, you probably spend $500+ a year on insuring a vehicle worth maybe $10,000+, and you don’t spend a red cent on insuring an income probably worth $50,000 per year. Some policies will keep paying your income for every year that you can’t work. My IP policy is worth twice as much as my car (per year), and yet costs half as much per year. That to me is a bargain.
Don’t think your employer will make things right if you have a bad accident or get seriously ill. Once your sick leave is gone and you’ve used up your holiday pay, you’re on your own, buddy. Then who is going to pay the mortgage?
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We all need somewhere to live – but do we all need a CBD apartment?I was looking at a recent refurb and they appear to have done the splashbacks with glass painted or coated on the wall side with white.
It looks quite stunning and very easy to clean. Has anyone had any experience with this?
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We all need somewhere to live – but do we all need a CBD apartment?A friend of mine was renting his refurb project to his son whilst working on the exterior (completed interior first). However his son decided to go and chase money at the mines in Mackay so left him without a ‘friendly’ tenant. He spoke to his next door neighbours, whose son was looking for a somewhere to live. They came to an agreement where the property was rented below market rent for a house of that size, but he has 24 hour access to the exterior of the building and yard, and can enter the house in reasonably daylight hours.
Tenants are happy as they have moved into a bigger property than they had before, owner is happy as he is getting more rent than he was from his son.
Just remember there is no such thing as a standard lease agreement – you can put it whatever you want providing the tenant agrees to it before signing up.
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We all need somewhere to live – but do we all need a CBD apartment?You can pay 100% of a purchase price for a house if you want, that way you’ll get very positive gearing.
The important thing to remember is that building wealth can occur through many different ways, but they all have something in common: leverage/gearing and the power of compounding interest.
If a house has a net rental yield of 4%, and you pay 100% of the purchase price for it, you are going to get 4% return on investment. Hopefully there will be a capital gain as well, so if the house goes up by 4% a year as well you are getting effectively 8%. But 8% is pretty ordinary in the overall investment world, particularly when coupled with the risk and management that owning property involves.
If you borrow 50% of the money, your leverage goes up because you can effectively have two houses for the same investment, so your return on investment will go up. If the house goes up by 8% you are really getting 16% return on investment.
If you can find a positive geared property even with a 10% deposit then you will find that the return on investment will be up into the 20% and higher area.
The higher your return on investment (usually caused by higher leverage, but not always), the faster you will get your $1 million of property.
The amount of deposit you use is up to you, but it will have an effect on how fast you build your portfolio.
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We all need somewhere to live – but do we all need a CBD apartment?Just reading this again, you’re getting a lot of advice about doing IP for tax purposes. But this guy (sorry if girl) has two dependant kids and is the single earner in the household. He’s only got enough income to qualify for $250k loan. I’m thinking tax deductions are the least of his problems.
IMO tax minimisation strategies only start to really be worth the financial engineering when you are deep into the top marginal rate of 47.5%. And you can bet on a change in the threshold level of this rate come next years budget anyway (or at least before the next election). Remember, you can only defer tax, not avoid paying it altogether. If you claim deductions on interest cost you pay CGT. If you live in the place you get CGT free. You can’t avoid tax, just move around the time when you pay it.
A property is an investment whether you live in it or not. As long as you are paying about the equivalent of your $370 a week in interest payments instead of rent you are about even but have an upside in being able to do improvements to the house and increase teh value. Sometimes a bit of gardening and painting can make a big difference.
If I were you I’d be planning to get that $20k and $7k FHOG while the money is on the table. Things change so make a plan to access the cash NOW. If someone was going to give me $20k but said I had to live in a pink house, I’d be down at the hardware stores picking out the particular colour shade. If they want to give you the money and say its for a PPOR, then that’s what you should get. You can moan about having conditions attached to the cash, but it is their money so take it or leave it, but it would be rude to try and negotiate with them.
Find yourself a good house with good rental potential, something a bit untidy that needs some minor work. Something that has been a renter and is now ‘tenant worn’ might do the trick. Buy it, move in, and do some touching up and fixing up. Stay there for 12-24 months, then either:
– rent it out and buy another PPOR
– rent it out and go to germany
– stay there, revalue it and use the equity and buy an IP.Either way you have got the money from the in-laws, you’ve got into the property market, you are building experience and most importantly YOU HAVE TAKEN ACTION. Nothing happens until you start.
Forget tax manouverings until you are bringing in the cash in big lumps. Even then do it as the icing on the cake, not the cake itself.
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We all need somewhere to live – but do we all need a CBD apartment?I’d just like to add that the ‘breadcrumbs’ which track how deep you are into the forums don’t seem to be working.
ie home >> forums >> help needed
The old format had clear and easy to use breadcrumbs and I found them useful. Many forums omit this important feature and leave you ‘stranded’ after posting or reading.
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We all need somewhere to live – but do we all need a CBD apartment?I meant to add… I have my own way of mentally checking the yield.
Which is, for every 100,000 of purchase price you need $200 dollars a week in rent. A $300,000 house needs $600 a week to be positive cashflow (now, there’s not to many of those around!).
A $150,000 house needs $300 a week and so on.
Underneath it is almost identical to Steve’s solution but my head works better my way.
The point is you need to understand and adapt tools to suit your needs.
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We all need somewhere to live – but do we all need a CBD apartment?It is just simple mathematics – like any formula you can jig the operators around and still get the same result.
To work out gross yield, you multiply the weekly rent * 52 weeks in a year. This gives you the total rent for the year. Now divide that figure (yearly rent) by the purchase price. There’s your yield.
ie $100 week rent on a property that cost $100,000.
So, as an equation, we have
yield = (rent * 52) / price100 (rent) * 52 (weeks) = 5,200
5,200 / 100,000 = 0.052 or 5.2%, gross rental yield.Solving another way, we swap around the known (price) for the unknown (yield), because we know the yield we want (about 10%) but don’t know the price.
so – looking at our formula again :
yield = (rent * 52) / price
we switch it around
yield * price = (rent * 52)
price = (rent * 52) / yieldNow, because we want a yield of 10%, which is 0.10, we can simplify further:
price = (rent * 52) / 0.1To get rid of the division by 0.1, we multiply the RHS of the equation by 10, which gives us:
price = rent * 52 * 10
which is the same as:
price = rent * 520
which is close enough to:
price = rent * 500.
Which is hard to work out in a hurry in your head because we all like to work in 10’s and 100’s.
So we get
price = rent * 1000 / 2
Which is Steve’s formula.
(I think that is right, going back to high school maths there)
But the others who wrote make good points : don’t analyse it to death. You wouldn’t use garden shears to carve a chicken, so don’t think it is some sort of delicate analytical tool – it is a rough way to circle the ‘positive cashflow potentials’ when scanning real estate listings.
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We all need somewhere to live – but do we all need a CBD apartment?No, I haven’t spoken to other lenders as it is not a full refinance, merely an adjustment of limits with the current line of credit I have on the place, but I might look at fixing part of it into a fixed rate mortgage, and leaving a certain amount as a line of credit.
I want to stick with this bank for the moment as they seem to understand me well. I’ve recently started working for myself and my immediate cashflow looks pretty dire. I’ve spoken to other banks about getting a new residential loan for a PPOR recently and they basically told me ‘hah, after you start making some money again’. The one I am with seems comfortable with my history.
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We all need somewhere to live – but do we all need a CBD apartment?This is probably a boundary realignment and not a subdivision so approval would be faster. My friend just cut a corner off his block, 1/20th of his land size, but the escalating land prices meant that this corner paid off his outstanding debt on the whole block by selling a corner. Another one I know of bought a 5m strip from the neighbour for small change (they needed the money), increased the size of the block by 30% and definitely the value as the house now has rear access.
Just sort out who is going to pay the fees and work out a price based on that. Go into your local council and see the planning desk. They’ll soon tell you whether you can do it or not. Takes 10 minutes and you’ll know for sure whether to approach them.
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We all need somewhere to live – but do we all need a CBD apartment?
