Forum Replies Created
Hi David,
Congratulations on wanting to create your own destiny – the challenge is for you to move from the ‘wanting’ to the ‘doing’ phase of your journey.
Asking questions is a good step and I would also recommend you do some additional reading to develop a more ’rounded’ picture of property investment as there are other ways to invest that may also prove to be as beneficial to you in the short and long term.
Wraps and other less ‘standard’ forms of investing do take additional learning to get your head around all of the requirements. As such it may be necessary to pursue some other additional avenues for completing your education.
Your next step (along the lines of the questions you have asked) is entirely for you to decide. I would recommend you both sit down separately and write down your short and long goals and then compare what you both want to achieve. If you have different goals then your chances of success are somewhat reduced.
You goals should explore what it is you want from your existing property – given it is 50 acres I am sure there are some ‘lifestyle’ considerations to be had that will really determine what you can/want/need to do. How much have you ‘outgrown’ your existing property? Is there further ‘outgrowth’ to be had? manage in the future? How long before you become ‘too old’ to manage 50 acres? Is this an issue?
If the decision is to remain where you are you will then need to explore how you can make it work for you. A bigger house may be in fact necessary for you to live with a degree of comfort – I subscribe to the theory that while investing and wealth creation is fine – you need to enjoy the day too – no point being the richest ‘scrooge’.
Do some research to determine what effect building a larger house will have on the value of your property. Consult local REA/valuers to get an idea before you committ to anything. Over capitalisation may hold you back for an inordinate amount of time.
Leveraging available equity off your existing property appeals most to me – this way you can (to a certain degree) have your cake and can eat it too. Be aware that most lenders will not lend to 80% of the value of your rural property so the ‘gold mine’ may not be as big as you think.
Hope this helps.
Derek
derekjones1@bigpond.comHi Karan’s Friend,
“i have a really annoying problem which i’m sure a lot of you face!!! ok, i have no investment properties, only my PPoR. I have just started a new job in the highest tax bracket!!!
is there any way i can avoid soooooo much TAX???
This tax man is killing me, so please help me before I am buried!!!”“what i forgot to mention was that the expenses are also phenominal…such as private schools for 2 children….”
I wonder if your friend is blaming the ‘taxman’ for some of his problems as a means of covering for excess largesses in his/her personal life. It is often said that our spending habits increase in line with any salary increases we may have.
I suspect that your friend needs to take a couple of steps backwards and really analyse what is happening in his/her life. They may well find that with some careful anaylsis of their spending behaviours that it isn’t the taxman that is actually conducting the bloodletting.
My advice, analyse spending habits, check expenditure and income, adjust where necessary, identify surplus cash and/or assets and if able to start an investment program to suit.
Hope this help.
Derek
derekjones1@bigpond.comHi Penguin,
My recommend is;
1. Learn as much as you can about investing but set yourself a timeline to do something.
2. While learning start to clarify your goals and preferred style of investing.
3. Ask lots of questions to further clarify what you want to do and how.
4. Determine borrowing potential and buying capacity. (You may not be comfortable spending all you can borrow)
5. Identify areas you can afford to invest in then go and do it!
6. Put your offer in subject to the regular clauses.
7. When your offer is accepted get the solicitor and broker onto the job and at the same time get those inspections organised.
8. Ensure all finance documents (pay slips etc) are current and give these to your broker.
9. Closer to settlement carry out your pre-settlement inspection to ensure property is as offered.
10.Select property manager – who does not have to be with the selling agent.
11. Notify property manager of impending settlement date so they can start looking for a tenant.
12. Ensure solicitor and broker are on target to meet deadlines.
13. Collect keys and give to PM upon settlement.
14. Celebrate the occasion.
15. Set up and maintain record keeping books.
16. File all documents for possible CGT liability later.
17. Start looking again.Note some of these actions are a little interchangeable and will also on occasions happen very close together.
Derek
derekjones1@bigpond.comHi Fixit,
Some thoughts for you to consider.
1. How long have Harvard been in business?
2. How many investment properties does your ‘consultant’ own?
3. How long has your consultant been investing?
4. How does your ‘consultant’ earn their money?
5. What will they get out of each and every purchase?
6. What service do they offer?
7. How much does it cost to use each aspect of their operations?
8. Can you use your own mortgage lender? property manager? valuer? If not – why not (it is a free world)?
9. What sort of after sales support do you get?
10. Does their approach fit comfortably with you?
11. How much pressure is bought to bear?
12. Are all decisions made in Harvard’s presence?
13. Are there rent guarantees? (Run away fast if there are!)
14. How does the price compare to similar properties on the open market?
15. ASIC/ Ministry of Fair TRading Issues?
16. Where have HArvard’s past sales been? What were they? How much is the open market paying for them now? What are they rented for now?
17. What are similar properties (to the one being considered) renting for? Check with a couple of REA in tthe area?
18. What is the vacancy rate in the area like?
19. What infrastructure is planned for the area?
20. Are brochures high on ‘gloss’ and ‘glitz’ and low on facts?Just a few to get you started.
Derek
derekjones@bigpond.comHi Itsamoorey,
Your investment team need not be located in the local area.
Sure you may find an ‘expert’ in your local area but with modern technology and communication infrastructure it isn’t essential to do a face to face all of the time.
Don’t restrict yourself unnecessarily.
Derek
derekjones@bigpond.comYou will be of use to someone in the future and even by asking questions you add to someone’s learning experiences.
The silliest questions are those not asked.
Derek
Hi all,
Bear in mind that many (all?) QS had made common interpretations based on a previous ruling TR 2000/18 and used this ruling to guide their depreciation claims contained iwthin their reports.
It was a tribunal decision that overruled the previous ruling (Woodward Case) relating to the classification of switchboards, kitchen cupboards security screens, pool and spa equipment etc. and the definition of various clauses and words in the relevant tax act.
We need to understand that taxation rules are primarily guidelines until they are challenged (by the ATO or a Taxpayer) and a ruling made (sometimes after appeal). It is this process that finalises what can and cannot be claimed.
API editions (Feb/MAr & Apr/May 2003) discuss the rulings and debate some of the issues surrounding the ruling. Worth a read.
On a related matter I would recommend people do use their depreciation reports to improve their cashflow by reducing regular pay period tax. It all combines to make for a healthier cashflow. Just don’t go spending the extra money in your pay packet on ‘trinkets’
Derek
derekjones1@bigpond.comHi all,
Having some knowledge of Norseman – I wouldn’t recommend this particular property as it defies the most basic investment property rule “never buy the best house in the street”
But seriously Norseman is a single industry town and relies very heavily on the mine there, the Aboriginal support ‘industry’, has a number of tensions in the town and limited capacity for growth (read none)
Its best thing is it is only 200 kms from some of Australia’s best beaches at Esperance.
Derek
Hi Tracey,
Mini has made a number of good points.
Ultimately whether, or not, you use a ‘Company’ is your choice.
The difficulty you have is that investing is a very individual thing and while some people would gladly use ‘Company X’ there would be an equal number of people who would not touch ‘Company X’ with a barge pole. Some of the posts in ‘Guru’ are an example of the divergent opinions around.
At the end of the day you do need to undertake your own learning process, undertake your own checks and balances to ensure what you buy (or consider buying) suits you and your individual preferences, style, budget etc.
Derek
Peninsula,
PIA – Property Investment Analysis. A downloadable trial version of PIA is avalable at http://www.somersoft.com.au – as can be appreciated the trail version has key figures like purchase price fixed but it does enable you to play with some of the other key numbers so you get an idea of what it can do.
There is a comprehensive manual that goes with it. If you want to go down this line then I recommend you purchase PIA – Personal Professional package (I think that is what it is called from memory)
The age of the property determines the amoound of depreciation available to you. Anything that commenced construction after September 16 1987 attracts a building depreciation allowance of 2.5%/annum for 40 years of the building cost – not purchase price.
On top of this there are plant and equipment allowances that are depreciable at varying rates and lifetimes depending upon the various ATO rules.
Hope this helps
DerekHi PeninsulaInvestor,
Another possibility is to purchase an investment property analysis software package like PIA.
Derek
derekjones1@bigpond.comOriginally posted by MortgageHunter:I even fixed myself!
Oil change only? Full service? Total reconstruction?
Derek
Its a balancing act for mine.
Neither growth only or income only are the ‘be all and end all’ of investing as one without the other (in general terms) will, sooner or later, restrict your borrowing and buying capacity.
My question is how much of your time and effort is required to earn that $600/annum. Equate this to an hourly wage and that will detertmine whether or not it is worth it.
Derek
derekjones1@bigpond.comWith respect to accountant doing your depreciation claims.
Below is a transcript of the tax ruling TD94/D67 . . .
. A deduction is allowable under section 124ZH in respect of qualifying capital expenditure incurred on the construction of, or an extension, alteration or improvement to certain income-producing buildings. Section 124ZG defines qualifying expenditure to be the actual capital expenditure incurred in constructing, extending, altering or improving an eligible building.
2. In circumstances where a taxpayer is genuinely unable to precisely determine the actual cost of the building, it is accepted that an estimate of the cost of construction by a quantity» «surveyor or ‘other independent qualified person’ may be used: see paragraph 19 of Taxation Ruling IT 2640. However, some doubt has arisen as to who will be accepted as a ‘qualified person’.
3. It is considered that a qualified person is someone who has expertise in the calculation of the original cost of construction and who would be likely to be accepted by a court or tribunal as an expert witness on the issue of calculating the cost of construction. That expertise may have been acquired through a course of study or relevant experience in providing building cost estimates over a significant period of time.
4. The attainment of relevant professional qualifications or recognition by an appropriate professional association or organisation would be indicative of expertise in this field.
5. Unless they are otherwise qualified, valuers, real estate agents, accountants and solicitors generally have neither the relevant qualifications nor experience to make such an estimate.
6. Appropriately qualified people might include:
· a clerk of works, such as a project organiser for major building projects;
· a supervising architect who approves payments at each stage in major projects and who may approve individual payments to subcontractors in smaller projects;
· a builder who is experienced in estimating construction costs of similar building projects; or
· another person who is suitably qualified or has experience in providing estimates or costings in similar building projects.7. The onus of proving that a person has the required expertise rests with the taxpayer. That will be an issue of fact in each case.
Derek
Just a few points to help the discussion.
Deppro charge $440 (GST inc – without travel) for their QS reports and they will give you a detailed 40 year report. Be aware that Deppro are a little limited in their capacity to travel and as such there may be a travel cost included depending upon where your property is.
Having a report compiled as soon as possible after settlement enables you to apply an accurate adjustment to your wage and salary taxation rates immediately under section 15.15 of the tax act rather than waiting for the end of financial year. This is certainly more relevant for those investors who buy negative geared property or to those who want/need to maximise their cashflow through taxation deductions.
By way of an example we bought a 13 year old property for $109K last year and a Deppro report realised total depreciation claims (plant and equipment and capital allowance) of $42600 over the remaining 27 depreciable life years of the property.
As a comparison a new $148 property we bought realised $126000 of depreciable claims over the 40 year depreciable life of the property.
Renovations can add to the amount of depreciation available to you – and if you are contemplating undertaking major renovations then it is wise to get a depreciation report done so that you can maximise your claims when you through out those items of some value.
Derek
derekjones1@bigpond.com
