Forum Replies Created
TwoSheds
Simplistically your figures are relatively easy
Purchase Price $79K +
Costs on acquisition +
Costs on selling =
Cost base for CGT
Subtract sale price from cost base. Divide this by 2 as you have owned the property 12 months.
eg Cost base $100K, selling price $250k, capital gain $150K, taxable Capital Gain $75k at 48.5c/$ maximum tax $36375. Don’t worry about the indexation Brenda referred to as in your case that might increase your cost base by a few thousand, to keep things simple say $5000 but your taxable gain would be $145,000 as there is no 50% discount if you use your indexed cost base.Therefore you would have available to invest in your new investment $250k less CGT less selling costs less payout of old debt.
Say this left you with $150k
The interest you would save will depend on the interest rate eg 6% 9000, 8% 12000 over 12 months
Compare this with your current return $140 per week less rates, insurance, interest on existing debt. You’ll obviously have to do your own sums.
Then say the result is $5000, the difference between the interest you’ll be charged on the commercial loan and this $5000 is your saving. Say at interest of 8% you will have saved $7000. This will have cost you the CGT and selling costs. Work out the return that you would expect and how long you are going to hold the commercial property for and compare this with your saving. You should take into account that the money you have paid out in CGT is dearer money than the savings you get in future years.
There are a few other factors:
a. You will have also incurred an opportunity cost by selling some equity you could borrow against if another opportunity arose in the future.
b. Potential for rent increase on house
c. Potential for rent increases/ vacancies on commercial property.Your accountant can help you calculate this.
You also need to look at your comfort level.
You might also consider if you don’t sell the house now, you could in the future ie you’re not burning your bridges once and for all.
Maybe look at refinancing the house, using the increased debt for the commercial property and borrowing the balance needed on the commercioal property so you get the benefit of residential interest rates on more of your debt and avoid cross-collateralisation.
Whatever you do borrow a few extra k to keep in case a rent payment is late so you’ree not under pressure.
I’m in a similar position to you. The decision I made earlier this year was to keep the res property – admittedly an easier decision as that property is still offering a gross yield on current value in excess of 6% so my figures are different to yours.
crj
1. Assuming your mother amy ahve invested for taxation purposes and there were deductions for plantation investment a few decades ago, see if her accountant has any information.
2. Try ASIC, but they will need more information
3. there was an actiongroup that formed re tree investments about 10-15 years ago, maybe that could be a starting point.
4. If your mother has moved maybe mail has not been redirected. If you don’t operate a bank account for x years, thebank needs to notify a gov’t dep’t (possibly ASIC). Ask ASIC what happens when a company loses contact with an investor, maybe there’s a register for that.
The CGT event is signing the contract, so that the profit must be accounted for in the financial year the contract is signed.
See ATO website
Tikki pointed out a relevant factor in finding property – knowledge. Before I bought an investment property I had spent 4 years following prices in that location, getting knowledge on streets in that location, so that when a cheap block of units came up I was able to purchase confident that despite the fact locals say that street has a bad reputation that the area had changed. The property was giving a yield of 16% at the time of purchase, as tenants vacated rents were increased 20% and the property has had substantial capital growth well above that town’s average growth during the same period.
My latest venture is a poorly managed commercial property (borrowed 108% using increased equity in previous investment as security). Yield about 7% on purchase. In the 2 months since purchase increased monthly rental by letting some of the vacant space. Current yield just under 11% on purchase price. Still have extra space to let. Fully let will give a yield of about 18% on purchase price. QS has valued building for depreciation at twice purchase price.
In the past two years I’ve also missed out on a couple of excellent deals that more than met the 11 second rule because I dithered because my local knowledge of a neighbouring town wasn’t good enough.
Tikki, I’m quite agreeable to purchasing in small country towns because there’s always going to be a demand for reasonable rental accommodation but many of these towns might not have +ve pop growth. Hopefully the higher yield that is available in many of these towns covers the risk.
crj
TIO in NT advertise they insure against flooding. Don’t know if TIO insure interstate properties.
If the house is on piers, can it be raised? Some coastal councils permited building in flood areas wuth the requirement that floor level be at least 100mm above 1 in 100 year flood level.
crj
The standard contract in NSW requires permission from the Vendor to carry out improvements. The Vendor is also taking a risk if permission is given if the Purchaser cannot settle, risks of poor quality improvements, incomplete work etc. If the improvements are cosmetic eg painting, tidying up and you can do most of the work yourself the risk to both Vendor and Purchaser is reduced. If you want to borrow from the bank what, if anything, were you proposing to use as security? Until settlement the property is not yours to mortgage.
crj
While you will need to do your due diligence to satisfy yourself of the viability of the communities and of potential risks eg flooding many smaller communities have:
a. locals who only want to sell a house and would not be willing to rent it out under any circumstances
b. demand for rental because many workers eg health, police, teachers are only coming for 2-3 years and don’t want to buyBear in mind that capital growth might be spasmodic if it occurs. Also the potential tenants want reasonable standard of accommodation not poor quality. Some country towns have a good side and a bad side. Also do any of the local agents manage properties. A number of country towns no longer have any agents who do property management
crj
Conveyancing laws are on a state by state basis. Forms and practices are different, so a solicitor in one state might not have a great deal, if any, experience of conveyancing in a second state. Exceptions are border areas where it is common for a solicitor to be admitted in and practise in both states.
It’s worth checking though. I had a valuation done last year on 4 x 2 br flats. The valuation came back as the block having 2 x 2 br and 2 x 1 br. The rental figures were also incorrect. The valuer cliamed he ahd valued another block in the same street and it was word processing error
You will need to lodge an initial return with the Office of State Revenue in NSW. Forms available on http://www.osr.nsw.gov.au
OSR will do the calculations
Does the rent figure include GST?
If you’re borrowing 100% of the price it seems tome the deposit wouldn’t be included in COCR
Seems everyone’s missed the classic which is “someone else has just looked at it and is about to put an offer in”. I was looking at an investment a couple of years ago which I wanted a building inspection on first and told the agent I’m waiting for the inspection report as I’m not going to negotiate a price twice. I also found out what the vendor had paid two years earlier and recognised that there was a psychological barrier where they would not go below that, so I started negotiating a few thousand below that price and what a coincidence we agreed on the same price the vendors had paid two years earlier.
The other thing to consider is that if the asking price is going to give you a good return and the agent says they’ve had offers below but are sticking at the list price, offer the list price. I did this on the last place I bought and when i got the QS in he estimated the cost of construction as almost twice what we paid and the replacement cost as 3 times. Fair enough, a place might only be worth what someone is prepared to pay on the day, but with building up to full occupancy levels we’ve obviously got some capital growth possibilities
crj
You can buy a report on sales in a suburb over one or two years.groups like Australian Property Monitors have these and can be purchased and downloaded over the web.
If it is a specific property you are interested in eg one which is for sale so that you have access to a copy of the contract at the agent’s, the title deed will give a reference next to the registered proprietor of the dealing number of the tarnsfer reg’d in the Land Titles Office. In NSW for a few dollars you can access the LTO online and buy a copy of the transfer.
However, bear in mind a property may have undergone renovation after it was sold to the vendors.
crj
There are a couple of UK forums like singingpig and housemouse which might have information on this company.
As a sceptic I wonder if this investment is so good why they need to advertise it on the other side of the world
Suggest you do some due diligence on the town. Look at employment, industries, are they expanding or decreasing. There are a couple of threads in the last month or so suggesting things to look at.
Who are the owners selling the houses? eg some towns, say mining towns, might have one of the mines owning a lot of housing and deciding to get out of being a landlord. In NSW Housing Dept has been selling a number of older houses in some towns. Or is it investors who bought and couldn’t find tenants. In NSW houses can’t be listed before a contract is prepared. As the contract has a copy of the title it is relatively cheap to get a copy of the transfer to the Vendor online from the Land Titles Office and find out how long they have owned it and how much they paid for it.
crj
I suggest people need to look at what their objective in holding their property is instead of being panicked into a rush disposal because of fear of taxes.
Looking at Dr Phods’ examples:
Land Tax. $360.00. Tax deduction at 48.5c/$ $174.60, net payable $185.40.
Sale at $400,000 of prop purch’d for $300,000. $8,000 selling costs plus $9000 exit duty. Current net gain $92,000 less 24.25% tax = $69,690
With new tax – net gain $81,000 less 24.25% tax = $61,357.50. However, if you sell and reinvest, by the time you’ve paid reinvestment costs you’ll have say $350,000 to reinvest, may be less. However, if you keep the property and don’t sell you can refinance using the increased equity and invest. The property would need to fall by at least 10% (bearing in mind the 2.25% exit duty) before you were better off selling. If the property fell 10%, the cause of the fall isn’t simply going to be exit stamp duty and if NSW property falls that much some money that would have diverted to interstate property will flow back to NSW lessening the demand and therefore having a price effect on interstate property.Tax is like development, we’re all in favour as long as it doesn’t affect us.
I, for one, am looking forward to some good buying opportunities in NSW
crj
Who is they? If they are REA, the likelihood is that the most favourable point of view will be put. I don’t know anything about central equity. Can you find out what they’re renting for to private investors eg can a friend ring up and amke an inquiry, can you look at a website, can you ask people in similar complexes
You need to look at what your objectives are. -ve gearing can have its place for someone on maximum income tax rate, where the property value is expected to grow fast enough to recover your tax losses.
Steve’s +ve cashflow does have the advantage that the sustainability of the investment does not depend on you keeping your job or keeping the tax deductions.
Remember too people like Margaret Lomas consider positive cashflow where the income from the properties plus the tax refund exceeds the cash out.
It’s horses for courses. You need to look at what your objectives are, what the risks of the different approaches are for you, how you can manage the risk.crj
Conveyancing practice is different in each state. I would recommend using a Qld solicitor unless your own solicitor is experienced with Qld conveyancing,
This is the first boom where technology has been an influencing factor. Agents websites are accessible from anywhere in Australia, newspaper classifieds likewise, forums like trhis and somersoft, the ability to buy reports on sales in a suburb over the internet, the ability to deal easily with mortgage brokers in different locations etc etc.
It will be interesting to see whether technology is also a fuelling factor in a downturn for example many people on this forum have been negative about this weeks changes in NSW. Will we talk the market down and become a self-fulfilling prophecy?
Back in 1988 everyone in Sydney seemed to be talking property prices.
