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I spoke with the accountant, and was advised to not bother about a trust.
The factors leading to that decision were:
1 – Many lenders do not understand the various types of trust available and are very wary of lending to anyone in this current climate. We would only find one lender willing to deal with a HDT, and even they limit LVR to 80%;
2 – Our strategy of using the negative gearing and depreciation to make it easier to hold onto a property, and repeating that strategy every 2-3 yrs means the overall portfolio will be at best neutral geared; hence a trust is not feasible, unless we are happy to roll over thousands in interest deductions / depreciation for years to come;
3 – The running cost of a trust at the moment for us would be the equivalent of us having bought 6 IPs over the next 10-12 yrs. Our circumstance may change by that time and we can explore that option once again;
4 – As much as everyone talks about how important it is for a property investor to start out with a trust, the majority of investors invest in their own name.5 – Getting the adequate insurance and not running our own business significantly lowers the risk of being sued; as much as everyone talks about Australia going down the US litigation route, the reality is that not many landlords do get sued;
6 – As our incomes are almost equal, and we plan to cut down working hours as and when investment income starts to flow in, using a DT to distribute income become less relevant to us for tax purpose.
That is all I can remember. She gave me details of some mortgage brokers, spoke about the economy at large, interest rates, her own property experience. Told her that we are not looking to purchase till Feb / Mar 09, so we have time to set our house in order.
Regards
Daniel Lee
Hi, Lalibella
Our combined net monthly income is $6300.
Factoring in the negative gear for my rough calculation above, we will be left with around $1700-1800 per month.
Other factors to consider would be:
We are planning to start a family at around next yr, so am looking to purchase one IP before stopping for a couple of years (2-3 yrs). So, we are looking at the possibility of pushing purselves for one last stretch
I have heard that lenders are generally less inclined to lend money if they find out that you have recently changed jobs, am pregnant or am looking to start a family. The lenders does not need to know that we are looking to start a family anytime soon.
My calculations show that it can work. I have not factored in depreciation benefits as it is icing on the cake. Furthermore, I generally over-estimate expenses and underestimated income to show a more extreme scenario. The loan amount is roughly the maximum we intend on taking.
It does look like it is somewhat tight but do-able, and I am all for taking calculated risks.
I hope fellow investors can give me some insights into what they think about:
1 – My calculations as a rough guide;
2 – How feasible is it?
3 – Would they do it?Thanks to TerryW for telling me about how banks include future rental income and negative gearing in their calculations. I do not recall reading that in API magazine.
Already, we have identified a number of suburbs to concentrate our research on.
Regards
Daniel LeeHi
I have to agree with LA Aussie. We need a serious dose of financial literacy for as many people as posslbe. Not to such a level that there would be more RE investors around to compete against us, but the basic money management such as spend less, save more mentality. Often, it is the poor that really need such financial understanding, as they are dealing with such small amounts of money that basic needs take up a greater proportion of their income.
As for the higher income earners, they need it too so that they do not get into a bigger mess.
I remember back in late 2006 a senior manager back in my last work place earning over $100K annually and hearing about him having financial trouble. I was simply amazed at such a high income earner could have such problems… considering at that time my partner and I were working casual jobs and saving about $2K a month for a deposit for our first property which we finally bought a few months back.
Like Paul Clitheroe, Chairperson of the Federal Government's Financial Literacy Foundation, said: "It is how much of your income that you save that matters, not how much you earn."
I seriously hope we do not get the RE crash that might be coming.
All the best
Daniel LeeHi, Petersemail
A conveyancer does a lot of Sec 32 and have the experience and knowledge to deal with them, especially if it is a pretty straight forward contract. My partner and I bought our first property a few months back and we used a conveyancers who are members of the Australian Institute of Conveyancers. Do a search and check out the website. They have charters in all states.
A solicitor is useful if you know you are going to use some fancier terms and conditions in your offer.
A third approach is to use a conveyancing firm that ties with a property law firm.
You will have to put a time limit on your offers. There are no laws or regulations that state an automatic time limit.
All the best
Daniel LeeHi
If Salacious is right about the period after high interest rates where it stagnates for a while, would that not allow for rental yields to come back up to a more reasonable level than the 4-5% in some capital cities?
I say, hold on to the ones in good location (public transportation, amentities, work…) If jittery less experienced investors panick and start to sell, then it will present good buying opportunities to those who are ready to pounce.
My aunt, who has been casually buying property for many years and has a few under her belt, asked me the other day if I had fixed my interest rates. I explained that the rates here are ending the end of its run after 11 raises, and would be pointless to do so. Would have been better off fixing it 3-4 yrs ago when rates were lower, but I was not in the property game yet.
She looked at me with a 'Aren't you silly for not fixing your rates?' look.
So, is that a sign of jittery?
Cheers
Daniel LeeHi, madproperty
My experience when buying my PPOR was that agents want to know if you are am owner-occupier or investor, so that they can take a different approach for each type. As an investor, they will promote price, rental returns, location, all the things that an investor would want in a 'perfect' property. As an owner-occupier, RE agents tend to focus on the emotional side, like how you and your family would love the place, etc.
Best to know the type of housing you are buying in the suburb, the median price, the latest sales price for similar units, etc. That was how I approach it with my PPOR purchase.
All the best.
Daniel LeeHi
There has been an in-depth discussion on this topic before. Just do a search in the forum and you should be able to find it.
Conveyancers have experience in doing the routine paperwork and are cheaper than solicitors. However, if you require legal advise, solicitors are the ones who are legally permitted and qualified to give them to you. Of course, they cost a lot more too.
Regards
Daniel LeeAgreed. An interesting article.
The start is to always get that initially deposit and get into the property market. As long as the whole economy keeps on humming along fine, national migration keeps demand for housing and rentals up, increasing population in the cities will result in rising density, so buying in places with good transportation features could be beneficial.
Even apartments are likely to make a good choice, as the the increasing number of single, double with no kids, retirees and households with kids decide they do not want to be bothered with mowing the lawn anymore. You can get 3 or 4 bedroom apartments near the city fringes, with access to the amenities one would need.
While there are still a good number looking to live in the suburbs, there is a rising number in the population who would not mind living like a European; apartments with good public transportation, only one family car, whole family living one on top of the other.
Cheers
Daniel Lee Hi, Shanshan
Some things to consider for the agency
Brand name (Perspection by renters about that agency);
Number of property managers versus number of rental properties managed;
Full disclosure of fees involved (higher management fees covering misc expenses versus lower management fees with additional misc expenses).Some things to consider about the individual Property manager, as there are both capable and not-so-capable PMs in all agencies, franchised or independent.
Work ethic (follows up on phonecalls and emails, no problems with hand-holding new landlords, accountable);
Interpersonal approach towards landlords and tenants
Work load
Reactive versus proactive property management style (If you are overseas and unable / unwilling to be hand-ons, you want someone who will proactively manage your property);
Rental payments (Some PMs really press for regular rental payments from the tenants, while others might be more slack)I am sure there are more factor to look at, but this is all I can come up with off the top of my head. Just bought an apartment and am ending the lease towith the view of moving in. Being a new home owner and new landlord (only for the remaining month fo the lease), I naturally had a good number of questions to satisfy. The PM who managed the apartment was not into answering hand-holding newbie landlords, return phonecalls, responding to emails, and only contacted me when he needed something from me.
So, choose your PM carefully and ask lots of questions till you are satisfied and ready to give the agency and PM your business. I know I will.
Regards
Daniel LeeHi
Looks like Redwing had said a paper value of over $1m back in 2006. Still, that is an amazing achievement. Even better now with over $2.1m. I hope to get there someday. Give myself a good 10 yrs should do it.
It seems like an interesting idea to use income-producing managed funds to pay for the negative cashflow. Could someone explain how that works, tax and cashflow wise.
Cheers
Daniel LeeHi, Voigtstr
As I was reading through this thread, I thought it was a recent one until I noticed the submission date, going back to July 2005.
Have a similar plan to yours. Just got an apartment for $330.25K and am getting married at the end of the year. Putting most of the salary into the loan and using a shared credit card as much as possible. Minimal debt except for the apartment. Looking at building up another deposit over the next 3 yrs and making a move again in 2010 / 2011. Kids will come into the picture around this time. Hopefully, rising equity can be used to help with the deposit for the next bigger place and the rent rises will make the current apartment netural (or positively) gear in 3 yrs time when we rent it out and refinance to an IO loan.
All the best.
Daniel LeeHi, JL
I think being labelled a 'capitalist' can be a good thing; it shows that you are an enterprising person who is not afraid to seek an improvement of your own life and that of your family. Many people complain about what they do not have materially, lack the mental / emotional / psychological resolve to obtain the knowledge and skills to achieve them, are thus taken aback when certain people they know well get their act together and start moving ahead in life.
Save your advise for those who are ready to accept them. Keep forging ahead with what you are doing.
All the best.
Daniel Lee Hi, Zayne
Regardless of an inner suburb apartment or outer suburb house, you should really be consider the following
Overall economy
Demographics
Your preferred target market – Retirees, DINKS, Singles, Young families, Maturing families
Your investment goals – Capital / Cashflow / Mixed
Amenities – Shops, Schools, Transportation, Parks, etc
Plus many more macro and micro factor..Both apartments and houses can help you to achieve your personal goals. Now, what are your reasons for investing? Answer them and you will have your answer to this question that you have posted.
All the best.
Daniel Lee
