Point number 3 of Steve’s article 3 Dumbest Things Property Owners do in a Hot Market, discusses just this.

And I totally agree. ;)

Cheers,
Cattleya

Hi Zac,

By way of introduction, I am also a participant in this website and am here to learn about Property Investing and wealth creation in general. I am interested in your comment:

zac wrote:

I’m not buying another ppor anytime soon and im also sceptical on investing in more investment propertys at this time but may eventually down the track.

So if not property what are your options? I am not trying to challenge, just wondering what and why. I am also thinking, and below are my thoughts:

1. Equities? It’s currently going downhill and nobody knows whether it’ll be another GFC. The only way, I think, is to analyse each company’s financial statement and predict their futures. Do you (I) have time to do this? The skill required is not just accounting, you see. It is also understanding about the particular industry(ies) and macro economics trend, etc. Once bought, equities also need constant monitoring to decide when to get out.

2. One of the safest buy where you (I) can buy and forget is ETF (Exchange Traded Funds) but there will be no advantage such as ownership of shares, tax franking credit, etc. And it is only tracking the market performance.

3. Our super is predominantly invested in equities and these are managed by professional fund managers. Maybe easier to just top up more super? But then again, no tax credit.

4. Investing in Bonds? Not save, currently volatile market as well. And even government bonds are no longer save heavens. The analysis require even more research and skills. Bonds are also called ‘informal banking’ because investors are essentially lending to companies (or governments) directly and without the due diligence and controls Banks usually apply when lending to corporates. I mean, Banks usually ask for collateral. If you buy Bonds, you are lending them without collateral.

These days, there is not a lot of attractive investment venues. Though Warren Buffet always says buy when the market is scared.

Any thoughts? Or rather, any other ideas on where to invest?

Cattleya
Here to learn the ropes of property investing and hopefully help others along the way.

Hi Steve,

This is a very interesting question, one I still mull over.

Basically all advantages and disadvantages are like jigsaw pieces. You pick and choose the ones relevant to your strategies and hopefully all fit together. Hence you need an accountant / lawyer who understands business / property investing.

Below is the lists of the benefits of both sides as far as my knowledge, and others will chip in. Then you decide for yourself, which ones are the best for you.

The benefits of doing it under personal name
– Tax minimisation through negative gearing, if you are on high tax bracket.
– Land tax threshold $432k (and $2.6mil) of the value of all IPs under your name.
– If you want the cash, you need to sell and pay Capital Gain tax.

The benefits of doing it under company structure (Ltd)
– Income tax rate is 20%, lower than personal income tax rate
– Land tax threshold is nil, meaning you always pay land tax on the full value of the IPs
– Losses can be carried forward to the next tax year (when the income is < expenses, company loss can be carried forward to the next financial year).
– If you want the cash, you can sell the shares in the company, rather than the properties themselves. In Qld there is no stamp duty for transferring shares. You don’t even have to sell the shares you currently have – you can create new shares to sell. Meaning you can get friends or families to inject money into your company in exchange of shares and future earnings.
– As the director of the company, you can pay yourself a salary – you can calculate how much your salary is such that your strategy is met either tax minimisation or cash flow management. Whilst in private name setting, you cannot employ yourself.
– As the share holder you can arrange to be paid dividend, which carry tax credit for you. Because the company already paid the 20% tax, that tax can be compensated against your own personal tax.
– You can also choose whether you want your money as shares or loans to the company. The impact is, you either get dividend or interest payments.
– If the company uses your PPOR for office, then a fraction of all expenses, including mortgage interest, can also become expenses to the company. Again, you can arrange this to suit your strategy, provided that you are reasonable. For example, you cannot just say 50% of car expenses, mortgage interest, electricity, etc. unless you can prove beyond reasonable doubt that the company indeed uses 50% of all these.
– If for some reasons the company is sued, worst case scenario is you only lose your shares. Theoretically, the court cannot go beyond the company assets to get you.
– It is also easier to transfer shares to your kids, compared to IPs. Obviously you can transfer the IPs to them, but you can also sell / give the shares or re-arrange the books and create shares for them. You can also get them to be the director and pay them salary. The salary can be money or shares.

The above is for Ltd structure. There are other structures such as trust and partnership / Joint Ventures.

See, it’s all about your strategies. You pick and choose the correct jigsaw pieces to fit your strategies. And companies get more jigsaw pieces to choose from.

Anybody else has inputs? Always happy to be proven wrong.

Just my to cents

Cattleya
Here to learn the ropes of property investing and hopefully help others along the way.

Hi Vyaw2003,

I agree with Benny, if you are happy with what you have, then just keep doing what you do.

Quick question to Benny, please – before I continue with the ‘thing’ about the Mexican fisherman which I think relevant to us all.
Benny, are you the Moderator of this website? I have a few simple queries re. the 5 yellow stars, etc. If you are, I’ll pm you?

Back to the Mexican and American guys.
In life we, highly social creatures, are driven by how others perceive us and this perception is based on how we measure up against each other. Unfortunately the most universally recognised measure is money because it implies how hard you have worked, strived to get there. With money comes security (food, accommodation, illness, etc) and respect from your fellow humans and, more importantly, from yourself. And as much as we’d like to think that money doesn’t buy love, it definitely does. Try not feeding / giving shelter to your loved ones. Even the wealthy need to be ‘working’ to gain respect, to prove themselves.

This is what the American guy alludes to. Sure, the Mexican guy can just do nothing, but he does not have security when his loved ones are ill, his children would still be fishermen because he cannot give them first class education, etc.

Having said that, it is obviously up to the Mexican guy how he wants to live his life. If he doesn’t want security, self respect, respect from his loved ones, respect from people around him, better future for his children – then he can stay the way he is. For those of us who do want these things and work for them, the reward is a quiet life with friends (like the Mexican has) plus all the trappings money can buy.

To anwer Vyaw’s question – you are the only one who can answer it. But your question seems to indicate you want to do / achieve more than what you have now. Just hesitant because you know the difficulties ahead.

Just my 2 cents
Cattleya
(Here to learn the ropes of property investing. Not selling anything, though also not trying to prevent professionals on here to sell their services. Trying to be impartial, but always happy to discuss further.)

Hi Timbo.

Welcome to the site and hope you find it useful.

Re. your question, you are the only one who can answer that. We have a lot of finance experts around here who’d answer your questions. However the answers will only be as good as information on hand. Given that your question only have limited information, I would answer it from my perspective ie. if I were in your shoes, I will buy her out because of the following considerations:
1. I am confident with my finances, there will be no surprises in the next 1 or 2 years.
2. I have enough money to cover the stamp duty, mortgage refinancing fees and other costs.
3. I have enough reserves, for example if the flat is vacant for 2 months or so, I can cover the total mortgage payments and expenses without too much stress

Please note, the above is specific to me and my finances.

Just my 2 cents

Cattleya
(On this website to learn and exchange ideas with other fellow investors. Not trying to sell anything, though also not preventing any professionals on here from selling their services. Hence I try to be impartial but always welcome any further clarifications / discussions on the topic.)

Hi RP,

I am also in the process of buying. May be it’s a good idea to start a topic on this.

I want to buy in Brissy. I think there is always pros and cons about buying in any part of Oz. It just depends on your circumstances. I also don’t know where to buy, but I think all those arguments – which are usually at high level – are good but overall none of the areas is fool proof / guaranteed not to fail.

For an investment to fail, there are so many uncontrollable factors in play. And if you are in there for long term, your investment is more likely to weather all the storms – but then again there are big ones such as GFC.

Anyway, what I wish to say is: provided you are mindful of location location location, in long term your investment is more likely to pay off rather than not. The bigger threat usually comes from our own financial circumstances such as get sick / lose jobs, etc.

Just my 2 cents

Cattleya
(On this website to learn and exchange ideas with other fellow investors. Not trying to sell anything to anybody, though also not preventing any professionals on here from selling their services. Hence I try to be impartial but always welcome any further clarifications / discussions on the topic.)

Sorry PE, I would like to ask a couple of questions on top of yours. Hope you don’t mind?

So what’s a reasonable fee for a borrower’s agent, please? Do they all provide the same services or do we need to specify what we need?
Rephrasing the questions: is it all you can eat or do we select from a menu? And what’s reasonable?

Thanks,
Cattleya.

Hi Chris,

I understand your eagerness to start again. Everybody who has played snake & ladder board game knows how strong the desire to get on to a ladder when we are dealt a major snake. But by the same token, it is even more important to avoid another snake.

Putting my self in your position, these are the things I would consider:
1. There are factors beyond my controls that can make or brake an opportunities. Given my current financial position, financial help will be very difficult and expensive. Therefore a careful / conservative thinking is needed. For example, does that $150 weekly out of pocket include:
– strata fees,
– emergency maintenance (boiler break down, etc),
– council rates,
– insurance,
– Sydney Water,
– 1 month interest payment without rental income (this is because, if current tenant moves out it takes at least 3 weeks to find another one and the admin involved. Which means there is 75% possibility I need to pay mortgage instalment without the support of rental income).

2. Refinance does not solve the high interest rate and it comes with more fees. I can only get low interest rate if my finances get better. And in 1 years time my bankruptcy records will still be there, in fact it is still on my records years later. Refinancing is going to worsen my situation because of the fees involved.

3. It is also a good idea to hold my horses now, get better financially and wait for a better opportunity. The experts say that the economy is not doing well, and indeed the $ is depreciating against major currencies. If they are right, it might be better to sit this one out, wait for the tide to go as low as I think it would go, and then seize the opportunity.

4. I will use a reputable bank, and not just some small desperate bank somewhere. Reputable banks are legally required to have clear process and procedures to make sure they are doing the right thing by their customers. So if these banks won’t lend me, there is a good chance they are right, I cannot afford the loan. Meaning, I will use these banks as independent counsels on my finances until my finances are back in shape.

That’s me in your shoes. Obviously, only you can decide whether it is worth investing.

Chris, one more thing, the Banks are not allowed to give loans to people who they think cannot afford the loan. Exactly the same way pubs are supposed to turn away intoxicated customers. But then, there are rogue banks who are willing to take on risky loans and hence the high interest rate. Just for comparison, I know somebody whose mortgage is 4.28%… which shows how risky they think you are at 8.3%.

Hope this helps,
Cattleya

Hi Chris,

Interesting question you have there. Ultimately, the only person who can decide is yourself. Seems like your risk appetite is bigger than mine. I personally wouldn’t do it as my stress level threshold is quite low, I cannot bear the thought of a demand for payment letter coming through my door. I keep a close eye on my debts, making sure that after servicing them there is still enough money to live.

But, if I am in your situation, these are what I would be considering:
1. Legal requirements. Whilst I am in my discharge period, would the creditors be entitled to take all or part of my investment to pay off my existing debts.
2. The rent income of the IP must be at least break even or positively geared and tenancy is secured / easy to find. At this stage, cash flow is more important than capital gain because without good cash flow I may have to sell up before time and forfeit the capital gain. So I will only buy if it definitely can look after it self.
3. Good investment opportunity will always be there. It’s not like if I don’t buy now there is not going to be buyers market anymore or people stop selling properties.

Just my 2 cents.

All the best.
Cattleya

Hi Kerky,

Welcome to this site. This is certainly my favourite haunt. So welcome.

I suggest you keep on searching because it gives you more knowledge and confidence of the market. Initially it is confusing, but eventually you get a feel of the market and either your idea of a house in regional areas will firm up or you change idea ie. a flat in a suburb. You’ll know what you likes and dislikes. At the beginning you may even be confused about which suburb / regional areas to look at, but eventually this firms up as well. Just keep on looking and get ideas. IMO it is part and parcel of learning.

Everybody starts out at the same point like you :)

All the best
Catt

• This reply was modified 9 years, 4 months ago by  Cattleya.