Forum Replies Created
Hi Marc1,
My experiences have been all good. A $50 (now $70) per week rent increase with no problems with tenants whatsoever.
Mind you I have targetted a niche market – overseas students in a property close to a reputable university in Perth.
Derek
Hi Boysie,
I recommend you speak to a property savvy broker before you do anything and discuss with them what you want to achieve.
This discussion will allow you, with the assistance and guidance of your broker, to set your finances in order at the beginning, thereby reducing costs (and hassles) further along the way.
As an example our preinvestment days bank had one of the worse lending policies for my situation. As a result we transfered our accounts to another bank at a cheaper cost then than we woould have incurred later on our investment journey.
At the same time we set up line of credit accounts and use the line of credit for deposits and costs which allows us to go wherever we can/want for funds and ensures all our properties are not cross collateralised.
As such our property loans are spread across three institutions and if necessary we can touch base with more lenders as we progress further along our investment journey.
Derek
Hi Leonor,
Hold your horses! Before embarking on such a journey you need to analyse the whole picture.
Yes, you get short term gains associated with making your PPOR an investment property but your PPOR is exempt from CGT – and as such your long term aims and aspirations will really determine what is the best course of action.
I could well be that converting your PPOR to an investment property is the best option but then again…….maybe it isn’t.
The message really is work out what you want to do in the long term first – and then take the actions that will enable you to achieve your goals.
Derek
Originally posted by Davidlud:Is the mine still doing well? How about teachers?
D & L [
]Hi David,
Teachers, as a rental population, are a follower, rather than leader, of demographic changes in a given area.
In otherwords increases in teacher numbers would already have been reflected by a previous general increase in families. At the same time teachers are generally only transferred out after the families have already left.
Derek
Hi Alexander2,
Some people (two very savvy accountants) have explained to me that buying property in a company was the worst structure of all.
But for the life of me – I cannot remember the reasons[
]Derek
Hi Bennie,
Tenants in common is a perfectly legal way to apportion ownership on a property. The reasons for apportioning ownership are many and varied (including disproportionate income levels) and can include more than two parties.
Be aware that in the instance joint ownership the surviving partner automatically inherits the property upon the death of the other partner.
In the case of TIC this isn’t the case – when one party dies – their spouse inherits their share rather than the partner. Obviously if the TIC arrangment is for a husband and wife team then the spouse would inherit the property anyway – but if the TIC comprises unmarried people there can be ramifications later.
Derek
Hi Georgisj,
Hmmmmm – interesting.
In my mind I had thought we may have had another rise – that will definitely happen the moment the USA bank lifts their rates – we will follow at the next available moment.
Derek
Hi all,
The Club’s primary focus is ‘growth’ but researchers are required to get the property at a price giving a better than market rent for comparable properties in the immediate area.
A focus on new (not everyone’s preference) or near new ensures depreciation claims are maximised and maintenance issues minimised. These proeprties are also more attractive to tenants, with all of these factors (and others) combined the cashflow situation is maximised too. Albeit at the moment with the rent and growth and cost of money cycles being out of kilter means there are additional out of pocket expenses than compared to even 12 months ago.
In terms of expensive properties – you should see some we reject. But bear in mind the median price of property in Perth is around $236K and Brisbane $280 ish (? – rubbery memory here). Given we target property closer to the cities and ‘cheaper’ properties tend to go quicker than the more expensive property the nightly stocklist can give a distorted view.
Ultimately Chan$ comment is of utmost importance –
“I guess if the property that one view or inspect and found it’s not worth buying then the best way is not to buy it. Simple as that.
There are so many property on the market and you just can’t put your hand on everyone of them.
But do you best and hope for the best which every you do because at the end of the day you do as much as due diligence and market research to your best of your ability.”
I still encourage individuals to do their own research and conduct their own checks and balances – if they are in any way uncomfortable or nervous – don’t do it.
Derek
Hi Leswon,
Notwithstanding the slight deterioration in home affordability I suspect your comments were made equally vehemently 10 years, 20 years and 50 years ago and they will again in 20 years time when people discuss both buying and renting property.
It’s all a matter of relativities.
Interestingly enough first home owners face a similar predicament we did when we started out, as did our grandparents and so on. Sure current mortgage payments may seem large but they are still proportionately less (as a percentage of average wages) than they were in 1988 peak – albeit marginally so.
Derek
Hi Dreamergirl,
Unfortunately there is no easy, legal way to transfer the debt from your new PPOR over to your current property as the deductibility determiner is the purpose of the loan.
Do not combine use your LOC for PPOR deposit and IP loans as the accountancy trail can become very difficult at tax time. You are better off having split accounts – one for PPOR and the other for investment purposes.
Compounding the difficulties with combined investment and personal loans is that any principle payments are apportioned over the whole loan in accordance with the initial drawings – you cannot say “that $10k goes towards the PPOR loan”
As Mel has indicated you can only ever have one PPOR at any one time.
Derek
Hi all,
From the outset – I am not a cashflow investor but I get the impression that a number of readers of Steve’s book have only heard the cashflow mantra – he also says the fundamentals need to be there too (using other words) for a long term view and as a risk minimisation process.
Insurance companies do not have to take on your risk. They have the option of rejecting your application for insurance even in cases where you may have been a long term customer. insurance risk profile too high and they will not look after you.
Flood zones – hmmmmmm – too big a risk for me.
Derek
Hi Yack,
I can assure you that valuers are not as consistent as we sometimes think. Remember the real estate market is largely based on human judgements, for example how many people only get one market appraisal for a property they are selling – in my case our house was market appraised at $500K, $560K and $740K – with a valuation for finance at $590K by a valuer who also is principal of a local REA.
But valuations for finance are different, you say – yes they are, but the purpose of the above figures was to demonstrate that ‘valuing’ (market or for finance) real estate is not necessarily based on scientific methods. Some valuers use older sales data and cannot/do not/will not capture the mood of the market at that moment in time.
Don’t think for a minute that all values stand the test. Here is a link to a discussion about valuers you may find of interest.
http://www.somersoft.com/forums/showthread.php?t=11945&page=1&highlight=valuers
As a support member we get a list of valuations for property and the discrepancy for the same property can be signficant, in some cases, amazing – and that is why research is required to ensure you are paying fair market price (or better).
For the sake of conversation I would recommend those people so fixated with buying at, or under value, read pages 162 and 179 of Jan Somers book’Building Wealth in Changing Times’ which demonstrates that property is very forgiving if held for the long haul.
Hope this helps.
Derek
Hi WAF,
Katanning has a declining population with one of the schools recently classified down due to lower student numbers. There used to be a largish muslim community there employed in a Halal abbatoir (?) – not sure of the state of play otherwsie but many WA country towns are suffering from a rural decline.
Derek
Hi Konmanos,
Long weekend over here hence the delay.
“Line of credit secured against your home”
When banks consider lending someone money they apply two main checks – a serviceability check (your ability to meet payents) and a security check (can their money be reclaimed should you be in default)
Typically banks will lend you 80% (with Lender mortgage insurance higher than this) secured against a suitable asset – houses.
By way of example assume your house is valued at $200K – a bank will lend you $160K. This could be set up as an line of credit or equity loan whereby you only pay interest on the amounts drawn.
These funds can then be used to provide the ‘deposit and purchasing costs’ for other investment properties.
Further extending the example. You want to buy an investment property for $150K. You write a cheque for $30K deposit (and borrow the remaining $120K) and other cheques totalling $7500 to cover stamp duties, solicitors fees etc.
Hope the explanation is clear enough.
Derek
Hi Helpme,
I recommend you spend some time with a good broker and a property savvy accountant before you do anything.
Making such drastic moves as those you are considering
is most successfully accomplished when all factors are considered.While you may be hurting financially at the moment – does the rest of the family know (and understand) the depth of hurt, or would they see the sale of the dream home so money could be poured into investments as a cost they do not want to bear.
Derek
Hi Kylie,
I suspect you are on the tail end of the stampede into Ballarat with large numbers of would be investors already in Ballarat and wanting to follow Steve’s lead.
As more and more investors are lured into cashflow dollar they are having to look further and further afield. Some investors have established relationships with real estate agents in their chosen localities and the only solution is hard work and application. Unfortunately there is no substitute for hard work and extensive research.
Good luck on the chase.
Derek
derekjones1@bigpond.comHi Komanos,
In your situation it is not an ‘either or’ situation. You can do both.
Set up a line of credit secured against your home and use these funds to pay for the deposit plus purchasing costs. You will need total loan of around 105% of the property – 25% comes from your line of credit and the balance from separate loan.
You can also put your current savings in an offset account – linked to either of the above loans and then in 2 years time take the money and pay the school fees. As an alternative these funds could be placed in a redraw loan account to do a similar job and then used to pay the school fees at the appropriate time.
A stamp duty calculator is available at http://www.realestate.com.au/cgi-bin/rsearch?a=loan&t=res
Hope this helps.
Derek
Hi Aussies,
Check out http://www.navra.com.au
Steve Navra ran two day weekender courses which cost $286/person (basically a cost recovery charge)- seems they have become one day courses at ~$180 since last year.
Steve advocates property as the core asset in an investment portfolio because of the advantages of gearing. Be aware he is a ‘growth’ investor rather than an ‘income’ based income and uses equity to leverage into shares – he also has a unique share fund for those people who want to invest via a fund rather than getting their hands dirty directly.
Steve also uses a cashbond approach to overcome the serviceability issues encountered by growth focussed investors.
Ultimately Steve’s message is to use your money (including equity) to maximise your growth and income opportunities.
Disclaimer – I attended his course and own some units in his fund.
Derek
derekjones1@bigpond.comHi Sis,
Assuming the following (numbers rounded for ease of explanation).
Bought $100K
Buying costs $5K
Depreciation claimed over period of ownership $10KSold $200K
Selling Costs $5KNet Capital Gain = (200-5)-(100+5-10) = $100K gain
Depreciation is a subtracted under the claw back process under section 40/43 of the tax act.
As the property has been held for more than 12 months the net taxable gain is $50K. This $50K is added to other income sources earned during the financial year.
Assume $40K is earned from other taxable sources then total declarable income is $90K.
From the $90K all allowable deductions (work, investing etc assume $20K) are subtracted to give a taxable income of $70K – this figure determines what the CGT rate is – in this scenario this taxpayer would be liable for total tax of ~$20K.
If on the otherhand the taxpayer had a gross income of $10K (and the same expenses) their total taxable income would be $10K + $50K – $20K = $40K. Tax payable on this would be ~$8K.
That is why any property sales should be done in low (or no) income years as the capital gain tax collected is much less than it otherwise would be in a high income year.
But hey I am not an accountant – and I stand to be corrected.
Derek
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