Tommymac wrote:

Hi Corey,
Thanks a lot for the reply.
I guess when I said “flip” property I wasn’t really aware of what I was saying.
I guess the vision I have is buying residential property and renovating to create profit.
The other vision that I have is to buy cheap land, sub-divide, build cheap units and sell at a profit to re-invest.
Which of these strategies do you feel is better?
Tom

What’s the best? kind of like walking into a doctor asking what’s the best medicine when you haven’t given them any of your health information, symptoms etc. ;)

What’s best will depend on your personal knowledge and financial capability. And more importantly, what opportunities the market presents. No point saying you will develop if you do not have the financials behind you to do this, or there’s no properties available which will provide sufficient return. Likewise sticking purely to buying renovation projects but there is nothing available for you to work with.

Parky wrote:

What exact costs do the commercial tenants pay for? i.e. strata, council and water etc?

It’s all open for negotiation – a tight rental market will see tenants paying for a lot more costs, in times where its difficult to get tenants you may not get much at all covered by the tenants.

General items which tenants will often cover:

*Land Tax
*Council Rates
*Maintenance
*Strata costs
*Utilities
*Fitout and make good provisions – right now especially in the office market its becoming very common to provide tenants with fitout for their business and or rent free periods.

Hey Anthony,

Asset protection can be a valueable thing – particularly for those in litigious industries, ie doctors, lawyers, developers.

You will need to look at whats the real chance of you being sued and whether its worth it. In terms of our clients, I would say <10% have their properties within a trust, and of that most only have *some* within a trust structure, generally in relationship to mitigating land tax as their portfolio grows, than asset protection.

Overall I do see a lot of text book educated first time investors bring it up as it’s something they’ve read, but not a whole lot who are advised from their lawyers/accountants etc come out the other end setting up the structures as the cost/benefit isn’t necessarily there.

Keep in mind that having your properties within a trust will reduce your borrowing capacity with a number of lenders so it may be something which will create further drag on your ability to build a portfolio.

Ethan is right – LMI certainly has a place. Looking to just save on LMI without factoring in the opportunity loss and the power of leverage in these scenarios is short sighted. LMI is a tool which can be used to your advantedge – in general sticking to 88%/90% LVR is more preferable as this balances cost vs outcome, but overall it allows investors to build a property portfolio faster and larger than otherwise.

This all goes out the window if you’re starting investing and have 500k of equity available from day 1 you can release, but for the average investor starting out it certainly has its place.

In terms of working out that cost/benefit – I’ve written about LMI and what to look out for when choosing a LVR here: http://www.precisionfunding.com.au/lmi-friend-or-foe/

PropertyGuts wrote:

Thanks Corey. Sounds like a deal breaker for long term hold I reckon.hey Pitty, are you the guy that surfs?

It doesn’t necessarily have to be. By diversified mix of assets by the time you can retire, you could potentially just draw from the liquid assets within your fund (shares, cash etc), whilst holding the property indefinitely. A number of the SMSF lenders now require you to hold a % amount of your assets in liquid funds – ie shares or cash when applying for the loan which would help in this scenario, likewise over time as you grow your total funds.

But definitely you want to factor in how your SMSF will look over the long term – having just the single asset could lead to being forced to sell/other outcomes.

Andrew Pitt wrote:

Scott & Corey – can you please expand on “compulsory drawings”. What would happen if you don’t spend as much as somebody else wants you too?

https://www.superguide.com.au/smsfs/smsf-pensions-if-dont-withdraw-annual-minimum-pension-payment

This article explains it fairly well – there can be major tax implications.

Regardless of all the other figures, 10-20% cg consistently is completely unreasonable in the current environment. Sure you can get this in short spurts, but you’re not going to be able to trend long term with those sorts of growth rates, its not sustainable indefinitely.

6%+ yields certainly possible, generally you will see this in regionals, outer suburbs of Adelaide and Hobart.

Revenue SA actually has a land tax calculator which talks about joint land tax considerations. Also speak with your account about how trusts relate to land tax (SA gives additional thresholds to trusts).

Indeed. Advantedge is following the same – however is at least correcting their absurd living expense issue by removing gross rental income from the multiplier which increases minimum living cost calculations.

Get in quick anyone needing to use them, applications must be in by Friday and conditional approval by December 16.

No – no one cares about who is living 300m away from them. ;)

There’s housing trust properties sprinkled all throughout Adelaide, so this is a common occurance. Where it might be more of an issue is looking at the amount within one suburb/area – but the State government is selling its stock off at an extremely fast rate so even in that case there could still be value in buying in those areas.