Forum Replies Created
Hi Chan$,
For me earning around $100/year from an asset ‘worth’ $45000 is too little when you have put in equity or cash of up to $12000.
At this rate it is going to take an exceedingly long time to make money out of this investment – and that is without any repairs in excess of $260/annum.
Lending institutions primarily use an equity and serviceability test when lending money this shapes up to be a millstone around Lisa’s neck without a major increase in rental returns, or significant capital growth (which may be unlikely in a small town in a normal property market – whatever that may be)
Given a number of rural communities have had a growth flow on benefit from the property investment boom I am not sure this recent growth of the past two/three years will be sustained in the long or short term in these towns.
Sure, growth is not a sure bet but the basic laws of supply and demand really drives the property market and as such a larger city/town, or growing city/town has less risk involved.
Didn’t want to rain on the parade – sometimes I enjoy being contrarian.
PS How many of these properties would Lisa need to own to earn $50K/annum gross? How much would the total borrowings be?
My brain hurts trying to work those out.
Derek
Hi Neney,
I would recommend you do some extensive reading (if you haven’t already) and ask lots of questions so that you start to understand the various aspects of property investing as there are many ways to invest in property – at the end of the day the decision needs to be yours and you need to be comfortable with what you are doing.
You will also need to work out what you want to achieve so that you have an end point in mind. This will help you determine whether or not you will be a growth or income focussed investor.
Your age, years to retirement, family situation, risk tolerance/aversion levels, borrowing capacity and a myriad of other factors will also come into play when you determine what it is you want to do.
For now my advice would be to set yourself a timeline to complete your knowledge quest, then determine your borrowing capacity, research your chosen area, and then finally get out there and ‘Do It’
Derek
Hi Ricksters,
Based on your first post I would have to say the answer to Chan$ question is you would be subsidising the vacant units.
You can’t have it both ways – you get a subsidy when your unit is empty but you don’t subsidise the other owners when their unit is empty.
Derek
derekjones1@bigpond.comOriginally posted by Pisces:To get a promotion , what counts is seniority, not ability !!
Pisces
Hi Pisces,
Western Australia has been using a full merit based selection process for the past 12 years. Promotion by seniority died a long time ago.
I also believe the other states use a merit based system too.
Derek
Hi Dan,
An offset savings account enables you to link a savings account with a loan. As a result your monthly interest bill is proportionally reduced.
Eg A loan of $100K would attract an annual interest bill of $7K or $583. If you have the same loan with an offset savings account holding $10K then your interest is calculated on $90K. As such your annual interest bill would be $6300 or $525.
Your bank should be able to make the link for you.
Derek
Hi Lisa,
I am with Redwing on this.
PAy P & I so that you are guaranteed of releasing equity and increasing cashflow at the same time.
The difference on a loan the size you are considering is negligible.
Derek
Hi Rachel,
A technique we often use at work when exploring options is to analyse each and everyone in a methodical approach.
Sit down with hubby and do some brainstorming (write down all your options without trying to sift the good and the bad ideas) yet!
After you have completed an extensive brainstorm then pick a few (5 or 6) of the more viable alternatives and analyse these carefully using a plus, minus and interesting ideas (all the good and bad and other points about that particular suggestion).
This way you may well be drawn to the obvious answer.
I suspect in your situation you will need to be quite calculating about your options as there are so many emotions involved at this stage.
If you need more information about this technique then PM me.
Derek
Hi Inna,
1. For a comprehensive answer to your CGT questions I recommend you have a look at the ATO website and read the documents relating to CGT.
http://www.ato.gov.au/individuals/content.asp?doc=/content/31570.htm
2. I suggest you are better off splitting the loan and having two loans.
One for the half you live in – with this loan being P & I and the other (the rental half) being interest only payments to maximise your cashflow.
Such a technique allows you to direct as much as you possibly can towards your ‘home half’ and this overcomes the non-deductible debt attached to your live in half.
At the same time interest only payments will minimise payments being made into your investment property while you focus your attention on the other half.
The advantage of splitting the loans is that it makes tax returns easier, less difficult should you ever be auditted by the ATO and it means you can direct spare cash towards your ‘home’ without having to apportion payments over the whole debt as would be the case if you kept the loans combined.
3.As for not renting out one half.
Seems crazy to me as you have a potential income earning asset sitting idle and, based on question 2, costing you money. If the property is idle it is not earnign an income and as such you will not be able to claim costs normally associated with IPs.
CGT minimisation (if that is your aim) will not be achieved as you are, in the main, only eligible to have one PPOR at any one time.
To give more definitive comments is difficult as there are too many unknowns. Critical to the whole decision making process is what are your long term goals and where do these properties fit into the picture?
As a rule of thumb you are better off hanging onto the properties for the long haul and use equity to leverage into other properties and/or investments.
Derek
Hi Terry,
It must be said from the outset that the cashbond is an option of last resort and yes if you have some money left in a line of credit then use that by all means.
If, on the other hand, you have reached the serviceability wall and have room in your line of credit then Steve has developed a relationship with one of the big four banks which allows the ‘serviceability’ issue to be momentarily overlooked while the cashbond is put in place.
If you know a good broker they may well be able to do something similar [
]Derek
Hi pjconnected,
Be wary – this story may be like those share tips you hear at the family BBQ or from the bloke behind the bar. You will need to check it out yourself and conduct your own reserach – having said that Simon is lurking around here somewhere and may be able to add a local’s perspective.
Derek
Hi TC,
Yep – pretty basic but effective.
We are doing something similar with our PPOR loan – and when that is paid off we will shift the offset facility to one of our IP loans or possibly our equity investment loan (loc).
Derek
Hi Rachel,
Let me first of all say – best of luck with the little tyke.
I am assuming you and your family are ‘youngish’ and you therefore have ‘investment time’ on your side. As such I think all of your energy should be directed to your family’s immediate needs.
Without knowing some crucial details (and you don’t have to answer) like income levels, capacity to borrow some money, existing debt to value ratio of your current PPOR, where you live and likelihood of future growth, the possible future need to move to be closer to a hospital etc it is difficult to give a definitive answer.
However if you can’t ‘jiggle’ things around to release the financial pressure you may well find the overall situation becomes unbearable – I sincerely hope not.
As such, and dependent on some of the answers to the earlier questions, downsizing may well be the answer, on the proviso you put the profits into a redraw account on the new mortgage so they can be accessed for investments when your ship is a little steadier in the water.
This way you will still have the advantages of owning your own home (or part thereof), some equity to access when the time is right, more manageable repayments, and the capacity to focus your attention on the more important things in life.
The ramblings of someone who has never been where you currently are.
Derek
Hi Spider,
The core of the Navra strategy is capital growth and using the available equity for further investments and/or lifestyle expenses. Obviously structuring would need to considered to maximise these avenues without muddying the waters.
Steve Navra advocates using your $$$ in as many ways as possible to create your wealth. This is achieved through the growth in the value of your own home and the rental income saved, leveraging into investment properties to create an income stream and more growth and leveraging again into shares for growth and dividends. It is really about ensuring every dollar works as hard as it possibly can.
Navra recommends property be the core of your overall strategy due to leveraging advantages. As ‘bits of equity become available’ use these funds to buy shares as they have long term provided better returns than property (high return advocates sit down [:p]!). As equity and income levels allow relaunch into more property via a line of credit and so on.
When serviceability limits kick in (and as a last resort)use surplus equity to purchase cashbonds. The cashbonds provide a recognisable income stream which can be used to overcome serviceability issues.
Now the tricky part – a cashbond earns you income but in the main this is less than the cost of borrowings used to buy the cashbond. On the surface this appears to be a backward step – but you need to remember the additional cashbond allows you to borrow more.
With careful selection and comprehensive research the additional growth benefits far outweigh the costs incurred to purchase the cashbond.
Hope that is of some assistance – I am sure Steve will be able to explain the whole process more fully than I.
Derek
Hi Lisa,
If you are paying more tax it also means you are earning more – hey no problem so far.
I wonder if the core of your accountants objections, notwithstanding the above comments, is the apparently relative ‘small’ profit you stand to make.
Just posturing and trying to offer an explanation.
Derek
Hi Mel,
Good pickup and clarification – that’s what I get when I rush something down before I go to work.
Brings to the fore the need for investors (everyone for that matter) to regularly review their wills to ensure assets are distributed according to your wishes.
Derek
Hi Corrine,
Call me a sceptic if you like – but one of the key players found real estate in 2000 and the other became a wealth coach in 2000.
If I was to use a mentor or guide I’d be wanting one who has done a few hard yards over a few years or at least has been involved in some aspects of property investing.
Derek
Originally posted by Chan$:Quote:Originally posted by bluecat:Having a mentor is always a great idea but they person must be in line with what you are thinking as well
Hi Chan$,
A good mentor will not always agree with you – a good mentor should also ‘challenge’ (as distinct from stomping on you) your thinking so that you think carefully and make considered decisions.
Sometimes agreeing to disagree makes a good mentor.
Derek
Hi Deborah,
Without knowing the full details of your situation I would, on the face of it, recommend you hang onto the property.
In about two years you have had significant gain – why be in a hurry to cash in your chips when there will be more growth (certainly in the long term to come).
You may well be in a position to lever off this property into more investments.
Derek
Originally posted by PenguinJr:Hey Derek, do you mind explaining wat ‘savvy’ is? and the concept of line of credit?
If you say someone is savvy you mean they really understand whatever the subject matter happens to be. In this case I was referring to a savvy mortgage broker who knows more about financing than just being able to sell a product. A savvy broker (like a savvy accountant) will help you get the structure right in the beginning – their knowledge and assistance can turn a rough ride into a smooth one.
A line of credit (also referred to as an equity loan)is best explained as follows.
Assume you own a property valued at $400K with a mortgage of $200.
Banks will lend 80% of this property (Ie $320K) less the existing debt of $200K which gives you additional borrowings of $120K.
This $120K can set up in a line of credit and is readily accessible to you as you are ‘approved’ to this amount – no questions asked.
Now assume you find an IP valued at $200K – you can now go to another lender, figuratively write a cheque for $40K + costs and then borrow the remaining $160K.
Derek
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