Forum Replies Created
Hi Kristin,
Just came back from overseas trip 2 weeks ago so appology for lateness.
I think I should define precisely what is definition of profit and profitable and if it is short and long term and why I think this is all it counts. How many people asked question why people are not rich when in actual fact vaste of people should inherit properties from their previous generations. At least land. So why it is not happening? Many reasons come to mind but one of them is because people want to make quick bug overnight. Long term they loose. I mean 100-200 years long term. Would you build your house out of soft wood sticks if you want to keep it for generations? My father always thought me and told me: "You are never rich enough to buy cheap/low quality stuff my son". I am glad he followed this rule and his father too. I am trying to pass it onto my kids.
So what is better. 2 story house with 10 bedrooms build to last 30 years max or 4 bedroom very high quality place that can last for 200 years (structuraly). Same cost. I would take the second. I went to a coffee shop last week and the owner had T-shirt that said: "Life is too short for a bad coffee". I loved it and convinced him to sell me one.I have just done a deal. I have purchased cheap property for $307k. The house is very old and it was listed at $347k. Owner paid $270k in 2005. 695m2 (Brisbane). It is very old and neglected but it is rented at $340/week but most importantly it sits on top of the hill at corner between 2 streets that are culdesac. Low set. The view is stunning alredy from the car and from 2 story house properly designed house it will be fantastic. So yes. I am now going to keep renting while custom design takes place and valuation and clever choices comes to play. Once happy I will say good buy to the house, demolish it and build new instead. Double story 6 bed + 2-3 bathrooms + 2 cars + lap pool + 5kW solar and full of data comunication gadgets etc. When finished cost close to $800k.
And the figures? I will Email you 2 calculators each for each property. Cash out of pocket is not of much different to $307k house only.
That was not the intention. That would be too simple. I was suggesting that as far as banker would pay off the PPoR I would not care how and what ways he/she would apply to recover $170k as far as it would be inside IP's. You have however good point in there that it would probably have to be $170k + Tax on income so the $170k would be after tax. Than the $170k + tax money would be legitimate for IP's tax deductibility/depreciation on IP's. To minimize the Tax on income portion the $170k + tax could be paid by banker over longer than 2 years to party with zero income – wife for example? Alternatively as second best accept the reminder loan of $170k but zero interest for as long as IP's are in place…? etc. etc.
All I am saying is that if only bankers would be more creative the smart offers would start coming onto the market. Since they have plenty main stream demand the choices are somewhat limited…Another one…
If someone would have $170k outstanding balance on PPoR house valued at 400k and no other commitments and say $180k gross income what options bank manager could have on smart offer to engage such person as long term IP's client (investor) but only under one condition. The banker would have to find a way how to fully pay PPoR (scrap or hide the $170k in IP's) so the person would fully own the PPoR while taking on 1 or 2 or 3 IP's…
Surely there must be a way how a smart bank manager can do that because person wants to own the PPoR outright instantly on one hand while banker is only interested to get 6 – 7% return on IP's + $170k he pays the PPoR off.
Since this is a creative investing:) I guess the message is that thinking outside of box is good, manage risk well and ALWAYS negotiate with lenders because at the beginning the balance of power is on borrowers side… (well in most cases).
It is interesting that you consider biggest bottleneck in getting the creditcards. 4 x $50k should be ok. in my mind the difficulty was around definition of purchase transaction that qualified for 0 interest. Isn't that interesting that on one hand property loans are set at 7% and at the same time banks are happy to make "lousy" 1% utilising spare cash… It is only a little cherry on top of the cake.
Similar to wiriting options getting a small fee (1%) for almost nothing because if other party decides to exercise their right to sell shares than you buy share cheaper. That's all… I do it often on blue chip companies I would not mind to own anyway. Not a big income but helps.
1% of $200k = $2k
If bad debth people have called PPor is say $200k on house with value of $400k say. The interest is say 6.5%. Anyway people would pay $1k each month on interest before they start paying principal.Everyone knows that one strategy is to leave 100% salary income (any income) in offset account while purchases are done by creditcard with 55 days interest free period.
But what if people do find a way on spending $200k each month (purchases by banks definition) and pay it back before due dates?
Even with 1% charge wouldn't people save 5.5% if their loan is 6.5%? Simply because loan balance would be close to zero hence no interest and fee is 1% so eventualy loan costing 1% ?
Plus on the second issue whouldn't be a new bank interested in locking investment deal with potential client canceling interest on PPoR loan with competition lender? In some way it already exists in form of banks saying 0% or 2% on balance tranfers but for some reason only for 6 or 12 months maximum.
Josh,
I had a look your website. Obviously I was trying to read it from an investor point of view trying to put myself into shoes of investor, mediator (yourself) and the buyer. The way website is presenting (to me anyway) is that you almost get this impresion that the investor and the mediator are the winners and the buyer is the looser. To improve this I would change words SYSTEM into something more positive (opportunity,..???) and also where you write about discussion between 2 people you say: "Can you get a home loan? and the answer is NO". This is also promoting impression (to me anyway) that this is rather for people who can not get homeloan and so by engaging in vendor finance they may get into bigger trouble and/or high risk venture.
I would like to read (and perhaps this can than be transfered onto website in graphical way) specific story description that is clearly showing that ALL 3 parties are winners and that Vendor Finance could be good and why. I would suggest to add calculator as well with initial figures showing the scenario of all 3 parties winning.
Wolksvagen is currently selling Tiguan for 2.8% finance. The way it works is that the seller is selling the car at higher price than they would otherwise sell (plus they also lower little bit price to a level the brand reputation can not afford to make public) it for and while bank is getting 2.8% the bank is also cashing difference between higher price and what the car seller needs to make wanted profit. They selling them in huge quantities. I would be suprised if after all the bank would not get the usual 8% at least. 2.8% in interest on higher price and 5.2% from car price difference.
Ozlat,
Money is consequence of actions not the other way around. So investing is also consequential outcome of actions and the outcome of investing can be positive (money grows) or negative (money go).
My advise. Do not concentrate on money concentrate on your actions. If you change your actions money comes as a result.
Actions and ultimately decisions leading to $$ or loss are driven by many hings (determination, focus, education, knowhow, vison but also in negative sense lazyness, choice of riends, wanting things too early before we can afford, credit cards etc.)
So how much money do you need? Zero. In some cases it is negative (debth) so in this case if you debth today is minus X and tomorrow your depth is less by even $1 than you are in business of investing. How quickly you reduce your depth or by how much you increase your savings (even is it is $4) is a matter of actions. Money in sense of profits are consequential.
Many peple say you need money to make money. No that is not a correct statement. Money is only junk of paper, plastic or set of binary codes or 1 and 0 in computer systems of banks. Nothing else.
Only actions and decisions are influential. So even in case where people invest "money" to make money people do not realise that someone else you give money to decides on actions that makes profit and these people than pass small portion back to you or in many instances they simply tell you "Bad luck mate the fund, venture, … did not perfom this year you made and "investment" loss..marlet is flat,… while they make money as consequence of their actions you make loss…
Find your own wind and focus on actions, win more often loose less often and be carefull who you decide to accept as a mentor.
Pick a mentor based on his/hers actions not based on how rich they are. . . Evaluate risk and learn how to calculate and judge risk correctly…make habit to make risk register when acting (indirectly investing).Sorry if I sound like a father giving advise to his son but this is it. Money do not exist only actions behind the money producing consequence do exist.
I picked up on the fact that you liked crusty's responce. There was a hell of an example of determination in what he did after he refused to accept situation he was in. Followed by consistency.Do not measure success of your investments by $$$ always measure it in %%. It is far more encouraging and is far better and more accurate measure of your success. Crusty's initial decisions were by the way producing 200% results or more when you realise that deciding to share rent for instance would straight away produce extremly hoigh % "investment" results. Because decision of sharing rent with other or accepting temporarily very low comfort is drasticaly reducing costs. Provided that you know what to do with consequential savings.
I can not help but join this convesation. In Australia you realy "need" master dagree or at least licence even for brooming. If builder like Ashley has a problem to keep building houses for himself one after another and improve quality of his/family life by living in better and better home than there is something fundamentaly wrong. There is nothing wrong with being a owner builder. My friend has a beautiful house at Raby Bay ($2.5mil worth took him 5 years to build it). He has built house himself. Before than (owner builder also) he has done house in Voctoria Point than he sold for $800k. Not bad for only 2 houses. Sorry 3 he had also one IP at West End (very old) that he sold as well.
Lets say Ashley's current house is worth $400k and it is fully paid off. Than I would buy IP and use Ashley as builder. I pay $550k for it. Say the cost to build is $500k. He makes $50K profit. Than I sell the property to Ashley for $650k (making $100k) who buys it as PPoR. He can sell old house if he likes or rent it but he would live now in better house. So if the house is worth $800k (costing $500k to build) the result is. He lives in better place each time making profit twice. Once as a builder ($50k), than as a buyer buying house that is valued $800k for $650k making $150k). I make $100k. It follows the rules. Everybody happy.
The only negative is Ashley makes less and has to share profit with me and also goverment gets money over each transaction.
So it is better to be owner builder.
Anybody knows how many properties owner builder can keep building on ongoing bases?
If Government would allow builders to do PPoR's on ongoing bases without limitations (with some smart rules like 6 months to live in min…or so on) the houses we would start see in the market would look better because they would have to live in them. Instead of them building basic quality because they never live in their own product…
* Knowing what is the split between no tax deductions portion of property cost, 2.5% depreciation cosnrtuction cost of property and plant depreciation cost (higher depreciation cost 5% or more). It is often hard to get this information from real estate sellers but I never buy unless they tell me in writing.
I have brushed up my property calculator I have made many years ago. Since I am trying to get some ideas on website design I have attached link to a picture on my test website. You can download it. I have inserted comments in excel cells so it is easier to follow.
When you open it you will see that there is only around $300 difference extra from your pocket between buying $1mil property versa $420k. Depreciation and rent and lower maintenance fees makes a big difference. Figures in calculator are for $1mil but it is easy to change to any. Building new also gives you control of how much you spend on high depreciation costs. So what realy counts is:
* How much money you make instantly – buying under market or wanted property etc.
* Once market starts rising again strongly it is than better to buy multiple properties to take a ride on more than just one. Otherwise waiting for another rise may take some time again.
* Is market currently rising and what is prediction (this is for choosing entry point/timing)
We are all competing against term deposit performance (currently it is 6%). If your propety is not able to make same amount of $$ as if you would have your savings ($7k in term deposits monthly) than it is questionable if timing is correct or property/price is good.Please do not take the calculator for granted. It is approx. but good tool for quick checks.
Here it is:
http://www.aac-eurohouse.com (just click on the picture to download – hope it works)
P.S. Not to also forget offcourse that your accountant calculates depreciations etc. for applying tax exemption and so your salary will be increased by that amount every month so you can pay more. Good for cashflow and no need to wait till end of June…
I could not figure any other way on how to share excel file
Ashley,
I forgot to also ask. What kind of builder are you? Timber/steel frame carpenter builder or concrete or other types of blocks builder?
Ashley,
If it is not too much to ask do you intend to sell to investors and stay to rent your own house after sell each time or you sell with intention to move to rent elsewhere? Or any of the two depending on circumstances of PPoR sell?
Kong,
You are not wrong. If maximising your profits is the main objective than you are not wrong. What I am doing is not advisable for borrowed money investments and investments where maximising profits is the main objective. It is still an objective but not the main one and over period of time of say 20 years…
My appology by yield I meant capital gain – market value of property.Dachoper,
We have had very similar discussion in next forum link below. But roll toward end because discussion more or less ended with topic of yours. Also from tax point of view.
https://www.propertyinvesting.com/forums/property-investing/help-needed/4344082Hi Kong,
In a main stream definition of investment understanding yes. Cost = rent/yield. However some (much smaller groups) would also say:
Cost = yield (high quality). Similar to as some groups would say also Cost = Rent (low quality) without any yield.It is similar to high end groups buying expensive art or wine and sticking it into basement where no one can seen it.
Some however decide (very occasionaly) to lend the art to galleries (for a fee – rent) so people can see it from time to time.In property similar could apply. Building and investing for capital gain only no rent.
There are many opinions on as where is the balance between property like that and tax implications because as Jamie pointed out biggest benefit to society of investment property is within rent portion not as much yield portion. The word investment has also 2 meanings. So when I said investment initialy what I meant was yield related investment.
Saying that I was interested to see where the legal clarity on that issue is and as Terryw pointed out the clarity is defined by law and indirectly by accountants we use that shall comply with the law and give investors legaly correct advise.
Goverment and society mostly benefits from rent half of property investments. That is why it offers 2.5% Tax benefits on depreciation and 5%or higher on independent plant depreciations as well. And if you invest using borrowed money than also deductions on bank interest.
And as it can be seen from above discussions the initial question might seem to be trivial at first but it is a complex issue because
the law seem to allow 100% deductions if property is available for rent (this however is case by case issue and needs to be as Terryw pointed out consulted well with axperts on that matter).Availability of a property to be rented (no matter at what price) seem to be the major requirement in order to recieve legaly 100% deductions. I think that setting rent so high that property would not rent out despite property being available for rent would definitely rise questions with ATO and rightfully because benefit to society (when it comes to rent) is minimal.
Setting rent too low on the other hand could lead to property damage, speedy deteriation (I am talking high end properties here not the main stream), 12 months occupancy. I think the high end market (similar to the Bali example house above renting at $900/w) investors set their rent at level where property is occupied long only as long as to ensure that property is in good shape and deteriates at slower or same rate as depreciation speed. That way they get 100% tax benefits and the property is rented out.
P.S. Above comments would rather apply on high end properties that seek yield rise as main objective while rent portion is secondary. Typicaly properties in Whitsundays, Mooloolaba, holiday leetings etc… That is the way I see it at the moment.
P.S. As far as benefits to society of property that is not rented. Well if it is not available for rent the tax benefits are not there. If it is available rent (ignoring for how long for a moment) than the benefits could apply. But there are benefits to siciety even if building is not rented. Once again it is a high end property not main stream property. The benefits are around potential future of the building to be bought and sold, around the fact that property market has got addition of high quality property (it is going to be sitting there for at least 100 years), it does help economy by investor deciding to spend money on it, and also it is pushig main stream property quality up instead of down etc……
Arguably because of recognition of these no-rent related social/economical benefits I think Government supports the full deduction to some degree and they do not fully relate this to rent income or duration of income only. Strictly speaking.
Yes. That is how it works. Hence Whitsunday property looks more promising now…
This property is typical example of someone in Sydney or so having this Bali property at Soverin Islands in QLD using it as tourist/holiday rental property charging $900 per night + $450 cleaning exit fee per stay.
I am sure this property is not occupied fully and could well be the case where rental income may well be say 6months max (On and Off) and the owner would pop in whenever they visit QLD. and property is not rented.
Somehow I feel the owner is getting 100% tax deductions on bank interest (if any) and 2.5% deduction on construction costs…
Very good point Freckle,
Thanks for sharing. I have had a look the Candy Candy. Interestigly it is not my personal taste but from my personal experience it is somewhat interesting to see that people with plenty (I mean realy plenty) of money often do not have a taste in beauty and you end up with weard creations that lacks what I call practical quality. But this is only my personal feeling and therefore creating "luxury" for others often goes against your personal wish/views. High end market is less dependant of ups and downs. Rich buy in flat market, downside markets and even up markets for sligtly different reasons. It is the other side that sells that is making more or less.
There is a lot of truth in your statement that average aussie would struggle to grasp quality. But I see 2 main dimensions in here. One is the culture driven and in my opinion there is nothing that you can do with it. It is impossible to sell quality to those. This group is typicaly going to shop and buy cheapest no matter what thinking it is a good bargain. The second goup are those who do desire quality, they admire it and wish they could afford it but they are limited with funds. That said this group goes shoping seeking value for money. They do not buy cheapest or most expensive but they think twice what they buy. If you produce product of quality that resonates to them and you laydown precise logic as why it is better for them to buy more expensive property (it must be honest and true however) than you can sell to them as well. But yes. Not in current flat market though. Good time to prepare and research.
Possibly. Anyway thanks for your time in replying. Appreciated.
Terryw,
It seems you have some quick references to law and I wonder what is applicable to foreign investors buying investment properties in Australia. My property broker is in Kuala Lumpur and Europe trying to sell $5mil property… Are we making it too easy to invest in our shores? Just curious in this case.
