Hi Misty,

Agreeing with Bill on the proviso that there is not an inordinate amount of time between land purchase and commencement of ‘work’ towards the construction of a rental property.

If questioned by the ATO you would have to demonstrate that there was intent to construct an income earning asset – for your own peace of mind I wouldn’t leave it too long. Maybe recorded conversations and meetings with relevant people, building contracts, letters seeking building approval etc. would suffice.

As with all matters tax and legal seek professional advice.

Derek
derekjones1@bigpond.com

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Hi Elves,

I still don’t believe that under normal circumstances capital gains in property can be deferred by your ‘Joe Average’ property investor.

Typically property is not normally considered a business and any business advantages with CGT deferral do not apply to property.

I assume – if property is your business – there may be some grounds.

But as I said at the outset – no accountancy degree – the closest being a year 12 leaving pass in economics, but still having troubles balancing the cheque book.

Derek
derekjones1@bigpond.com

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Hi Gazaa,

I am not an accountant so certainly take what I have to say with a grain of salt – hopefully some pointers I can give will provide some discussion starters with your accountant.

I am assuming you are buying a new PPOR and as such your CGT clock will start ticking soon after you move into your new home. If you are not buying a new PPOR then the clock can be delayed for up to six years under most circumstances.

If you were to sell (which would seem a waste of an asset with a debt ratio of 49%) your capital gain at time of sale would be apportioned over the length of time you owned the property.

Other deductions available to you are depreciation, but have a chat to a quantity surveyor first as they will tell you whether or not it is worth getting a depreciation report done.

You could also have the house revalued by a valuer so you could establish equity levels to further your investment portfolio should you want to pursue this path.

Derek
derekjones1@bigpond.com

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Gee Russ – some very sweeping statements there. You must have been burnt by a large number of companies to make this statement with such confidence.

By all means be wary of groups and companies who put their interests before yours but not every group/company does this.

Disclaimer applies.

Derek
derekjones1@bigpond.com

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Hi Cautious,

I assume you are contemplating a purchase in the resort.

As such you will find there are a number of issues you need to carefully consider; are the occupancy rates real or projected? – I am assuming they are projected given that the resort is currently under construction or recently finished. How achieveable are these figures? What research has been done on the area as far as tourism goes to ensure the occupancy rates canbe obtained?

How is the income distributed? Is it pooled and distributed according to ownership ratios? Or is it your unit = your income? What happens if your unit is one of the less desirable one under these circumstances?

I am also aware that some complexes developers still holding a share of the units always seem to have their units occupied – whereas Joe Public seems to miss out.

Resort costs can be a little on the high side and being a resort you will be up for a regular clean irrespective of whether it is clean or not.

Be also aware that the size of the unit will determine how much security the bank will recognise in the unit you own. You will need to check this out with your lender.

One of the things you will have to be awre of is the cashflow projections – being classified as traveller accommodation you will be eligible for higher capital depreciation claims and these will positively distort your final cashflow figures. This, along with, the high depreciation claims available to you due to the furnishings can give a little distorted point of view.

As always do your research and go with your research findings.

What attracted you to this development? Was it a recent holiday? If so bad time to buy property – for some reason holidays seem to cause our guards to drop.

Derek
derekjones1@bigpond.com

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Hi Marisa,

I am sorry but I really disagree with Lucifer and Geo on this one.

Assuming weekly rent is $180 (current Perth median rent) and he is four weeks behind – that is $720 of your money – and that is without the two weeks in advance he should be.

On re-reading your post – I am amazed the tenant rings you directly – what on earth is your PM getting paid for? How did the tenant get your number?

I like to keep an arms length from my tenants – treat them with respect, both of you fulfil your obligations and there is no issue. This guy is taking you for a ride.

The time has come for a line to be drawn in the sand – primarily with the PM and through them the tenant.

Derek
derekjones1@bigpond.com

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Hi Cheata,

Banks will look at two issues when determining your borrowing capacity – income and assets.

Based on the lower of your property value figures you have total assets of $360K. The bank will typically recognise 80% of the value of these ($288K) less the existing debt ($245K) which realises $43K which you can use for deposits and purchasing costs.

The bank will also consider your income $65K + approximately 70%-80% of your rental income (around $15K) when determining serviceability.

A discussion with a good broker will firm these figures up and will provide you with a clear direction of what you can, and can’t, do financially.

For me I would do interest only loans as you improve your cashflow – however given you do not appear to have a debt on your own home – you may like to consider tackling the smaller loan on a P & I basis. It is a matter of personal choice.

Finally I would suggest there is no need to hastily rush forward – spend a little time getting everything in place so you can build a sustainable structure – too much rush and it may all collapse on you.

Editted a couple of typos.

Derek
derekjones1@bigpond.com

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Hi Rebecca,

Really you are the only one that can answer the question but there are some issues you will need to consider.

Any sale of an asset within 12 months of purchase will realise full CGT – you make $50K you will have $50K added to your gross taxable income – if you can hold on for a year and a day (at least) you’ll have $25K added to your gross taxable income.

Notwithstanding the ealrier comments you may be able to sell the property to your trust (I assume this is the ‘structure’ you are referring too), incur stamp duty and CGT but still retain the asset.

A bit hazy here about the process (and legalities and technicalities here)so additional advice and information should be sought.

While the property may be cashflow negative at the moment you may find that there may be some thinking differently strategies you can apply that will give better cashflow. Possibly the addition of an airconditioner etc – the options are really only limited by your mind.

While it may be cashflow negative this could be offset by some cashflow positive properties to assist with cashflow. This way you can retain a growing asset – that even at 5%/annum and based on your figures is going to compound from $17500 annum based on the figures provided.

My advice is to consider what you are trying to achieve in the long and short term and have an exit strategy in mind, then determine whether or not this property fits your needs.

If it does – hang on – if not, then sell – but (as a broad brushed statement)- successful property investors are long term players because of the largish entry and exit costs for traders of property.

Derek
derekjones1@bigpond.com

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Hi Jo,

For information on City of Brisbane try http://www.ourbrisbane.com.au
For rental details in SEQ try
http://www.seqrents.com.au
For details on proeprty available in the respective area try
http://www.domain.com.au or
http://www.realestate.com.au

For details on respective cities/shires etc try google search by locality/town/city name.

For information about large centres try
http://www.quartile.com.au who have reports on major centres.

For rental statitiscs by quarter try
http://www.rta.qld.gov.au/median_weekly_rents1.cfm

For general statistics try the australian bureau of statistics and for school sizes the Depy of Ed in Qld may have a link to some statitistics.

Domain (or is that realestate.com) also have links to sales statistics in the area for a fee and also a suburb snapshot (cheap or free) that may be of use.

Derek
derekjones1@bigpond.com

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Hi Karenne,

I have personal concerns along the lines of your real estate agents friend’s namely their resale value.

Additionally there are potential problems with finance as some banks get a little nervous lending to niche markets and will not go to a normal 80% lend. Then there are potential difficulties further down the track when banks may not recognise said property as being suitable security for further leveraging. Obviously individual lender’s policies may vary but worth having a good talk to a mortgage broker about this side of the deal too.

On the rental side of things retirement villages can only be let to tenants who meet the age qualification. In one move you have removed a large part of the would be tenants population out of the equation – ie anyone less than ~55.

Ongoing costs and management fees are generally on the highish side so when you are doing your figures make sure you take these into consideration too. Sure the rent is tied to pension increases and is generally 85% of the total pension but for me the risks are too great.

One plus side of the deal is that some settlements will only occur when a tenant is found which initially could take some time.

Derek
derekjones1@bigpond.com

Property Investment Support Available. Ongoing and never stopping. PM welcome.