Forum Replies Created
Off the plan (or new) would be one of the worst possible ways to create a property portfolio.
If you are really serious about building a portfolio then you need to look at strategies that allow you to add value otherwise all you are going to do is track the market.
Hi Jess,
Regular renos and move out may see the ATO look at your operations differently and you may miss the 50% CGT discount. Really think you need a terrific accountant for some definitive answers on that one.
Barring the ATO ruling you are a trader then the property will be CGT free while you live in it. You can retain it as your PPOR for a further 6 years and your CGT exemption status will remain provided you don't have another PPOR during this period of time.
Not sure I like the buy land and hope strategy. Seems to me that your existing strategy worked for you once. Is there any reason it won't work a second time for you as I am sure you made some mistakes with the first effort which, through experience, you'll avoid with the second reno. What attracted you to land banking as a strategy? Is it the hands off style of investment?
Nothing wrong with your plan – to achieve this you will probably be looking at high cashflow properties or a value adding and quick sale option as the basis of your investment decisions.
PS – PPOR in five years time.
Are you able to grab something suitable now, keep it as an IP, and use profits from your current strategies to pay it off in your stated timeframe?
In rising market I/O so you can minimse repayments and use the money 'saved' to fund other purchases – the logic being trying to add more assets to your portolio during the growth phase of a property cycle.
In a flat or declining market Chan argues that individuals should switch to P & I as organic equity growth is not going to come from the property market but rather from the practice of paying P & I. Much of the basis of his position centres on the belief that flat/declining property prices are often accompanied by recession and lower interest rates.
By paying P & I an investor maximises their wealth creation by saving interest (circa 6%) rather than having funds in the bank earning negligible interest.
His bottom line argument was that strategies used should vary for different stages of the property cycle.
Just putting it out there.
lsta5487 wrote:After 2 years of procrastinating, i am finally ready to put my goal of being financial independent and free into action! I want to do everything correct from the beginning, so later down the track my mistakes will not bite me in the arse.I wouldn't call spending two years at your age procrastination. It sounds more like you have been setting yourself up and have reached the position you are now in through diligence and hard work rather than procrastination.
Making sure 'everything is correct from the beginning' is admirable but trying to be perfect can be a big hand brake on your plans. That is not to say be foolish and reckless, rather to let you know that you will probably make mistakes along the way. Just try and keep them to a minimum.
I would be interested in what your goal for 'financial independence' really looks like. Later in your post you talk about a passive income. Do you see your whole portfolio being cashflow positive? combined with growth property/ies? some more advanced strategies (renos, subdivisions, developments, and so on).
The question I am asking is what will your portfolio look like when you have finished accumulating property and how will you use your properties to be financially independent?
lsta5487 wrote:I made a plan of steps which i will be following, before going to agents and ask to be on they 'hot list'. Any suggestions for better approach or steps that i missed completely?You may end up having all sorts of rubbish thrown at you. There are a great many agents who would not know a good investment property if it bit them on the proverbial. In my opinion a better approach would be to find agents (even consider a Buyers Agent) who are also property investors and have a lengthy chat with each of them. From these discussions you should be able to identify one you can work with and they can become your preferred agent.
Then tell them what parameters you have for your property and work from there. Mind you a word of caution, by law the agent is required to represent the best interests of the vendor and not you.
lsta5487 wrote:lets assume that my structuring is set up right, my next step is ask mortgage broker how much i can borrow? and shop around for interest rate- (beware of advertised rates vs effective rate)When talking to your broker and talk about step 2. Mortgage rates are only a small part of the bigger picture – it is more important to get loan structuring right from the beginning. Ask you broker how they will set up your loans for property number 2 and then 3 and so on. This will give you a pretty good idea of whether or not they are going to be able to work with you over the long haul.
lsta5487 wrote:i am looking for the outcome- passive income of 300-500 wkly, 2-4 bedroom in Sydney cbd outta suburb preferable south coast, looking for big land 700sq +Is this figure net or gross?
lsta5487 wrote:creating relationship with agents in those area to be on hotlist and tell them my situation etcSee my previous points about hot lists and agents. make sure you know what a 'hot' property looks like – this is where a scaffold or framework of your overall plan is invaluable. .
Hope this helps.
If you are contemplating renting your existing property I would suggest converting your existing loan to interest only and part surplus funds in an offset account linked to your home loan. If the property does become a 'rental' long term then you have maximised your tax position through this simple strategy.
A good accountant will be able to provide assistance on CGT and effective taxation on your now IP. Basically all expenses such as loan interest, rates, insurance, rates, property management, depreciation and repairs are tax deductible. At the same time you will need to declare all rental income.
Up until the time you move into your new home your existing property will be CGT free. Depending upon the numbers you may be able to extend this – talk to y our accountant about this option. While speaking of accountants try and avoid 'franchise' type accountancy operations. Look for someone who knows property tax matters.
The wider general Brisbane market has been somewhat stagnant for a while now so it is not surprising you are disappointed by the price estimation you have received so far.
Can you trust your mortgage broker? Like any organisation there are good and bad and only you will know whether or not you trust him/her. Make sure the broker doesn't try and cross collaterilise your loans if at all possible. The kicker in your grand plan may be you are buying vacant land and a number of banks see vacant land as a greater risk and tend to lend lower percentages on such property.
PS while I understand you are somewhat disappointed with expected sale prices received to date. Consider the benefits of selling anyway and ploughing all of the profits into the new property. Having a large level of non-deductible debt is not a great thing either.
Togs wrote:We are trying to establish our borrowing power but so far everyone seems to either give us different advice or no advice, it is so frustrating.This is the critical aspect of your operations – certainly until you get the ball rolling.
If it is any assistance I would grab yourself a decent broker and try and nail your borrowing capacity down a little.
Once you have a figure to worth within you'll be able to set up some sort of plan that suits your timeframe, skill set and budget.
Togs wrote:We used a business coach a couple of years ago and it really helped to understand the structures and planning that goes into a successful business and we are running a really solid trade business for our own personal income but we do not wish to grow this business as good staff are hard to find and even harder to hold on to.This knowledge is all transferrable so your previous knowledge, skills and attitudes will provide you with a good base from which to launch.
Togs wrote:Our budget at this stage is not huge so we will have to be careful with money but we are happy to pay a fair price for good help, we don't expect to pay less than anything is worth but we cannot afford to pay for the top shelf professionals either.Yup, keeping costs under control is absolutely critical.
Hope it all works out for you both.
Some of the bigger builders (Dale Alcock comes to mind) do this sort of thing.
I haven't used them or know costs etc but at leats you now have a starting point.
Hope this helps.
Marketing companies have been pumping the life out of the town in recent (and not so recent) times.
Watch that you are not entering the market at the tail end.
Hi Mick,
There have been other threads about MA – recommend you do a search of the organisation.
Search facility is located top right corner.
Plenty of reading there.
Hi Beaka,
Thanks for the update.
Do you know what has caused the oversupply issue? Is it too many properties being built or a reduction in employment opportunities or a combination of both?
Are there expansion plans with accompanying increases in employment levels in the pipeline? Without this, you may be seeing the early indicators of a longer term problem – now I'll be the first to admit that I don't know enough about Emerald at the moment to comment with any degree of accuracy so all I am doing is posing questions for you to consider.
But if you see this 'oversupply' as a blip rather than an early indication of a long term trend then a temporary reduction in rent accompanied by an extended lease as per other posters suggestions may be in order.
Have you considered what your new lease will look like if rents head northwards again in 6 months time? Will your tenant ring you and ask for the rent to be increased – probably not. Maybe consider inserting a 'right to increase rent' clause in your updated lease.
Hi Brodavo,
While you may have landed on your feet so far – the landing has the potential to set yourself up quite well from here onwards. The key will be for you to take action.
For mine I would be looking at development options in Perth and keeping things fairly simple. Being so far from the site of your work you will need to consider how you will manage the development process. Buying and developing in a rising market such as the one we are currently seeing in Perth maybe another stroke of good fortune for yourselves.
As the project proceeds you can then look at the numbers to see which strategy (or part thereof) suits you at the time. Maybe a combination of partial sell down to reduce debt levels and/or increase cashflow with a build and hold strategy would position you well moving forward from here.
PS – No doubt the fishing boat gets a work out in Dampier.
Hi Beaka,
A fair bit of information missing at this stage.
Where is the property?
Why is the rental market dropping?
Is this a short or long term matter with current trends an indicator of a bigger issue manifesting itself in a rental oversupply?
What is your property manager saying about the rental market outlook?
Cheers
Forget the small change issues an even bigger issue is getting insurance coverage, with public liability included, for a privately managed rental.
What happens is your tenant injures themselves in/on your property and launches legal action because they injured themselves?
I personally would go I/O and park additional funds in an offset account.
Wile, at this stage, you have plans to return 'home' – this isn't always the case. You may well find that you have outgrown your existing home, want to live somewhere else, or that your career takes you elsewhere. Any/all of these possibilities are very real and paying off your loan (using P & I) reduces all flexibility you may have had with your surplus funds as they have been used to pay off the house.
If, by chance, you do return home in the future a swag of your savings and pay off the loan then.
Stop your complaining Jamie. We allowed you the priviledge of looking after our politicians.
You win.
Hi cc,
Being an expat will provide you with a few challenges – the biggest being getting people you can you can trust who provide you with the necessary support and assistance.
For starters you will need a broker (if you don;t already have one), an accountant who understands the tax issues faced by expats, a lawyer to assist with documentation and last but by no means least someone to find your property (assuming you will be looking for this type of assistance)
We have worked with expats and overseas FIFO employees in much the same situation as you find yourself. Apart from timezone issues we and they seem to manage quite well.
Not sure what sort of strategy you are looking to follow or what your portfolio plans are. Whatever the case resources are around.
As a word of caution I would recommend you steer clear of those marketing groups that promise to do it all for you. Having independent input and counsel along the way will prove invaluable to you and your successful journey.
Hope this helps.
Hi Togs,
By all means speak to an accountant and/or lawyer about business structure and Terry would be a good phone call to make. At the same time it would be advisable to have a comprehensive discussion about your borrowing capacity to see if your plans will work. Terry would also be able to assist with this side of your plans too.
For now you need to get started – our business coach used to hammer us until we made and appreciated the benefit of 90 day plans. Having an outline and timeline meant we had to stick to time and this was invaluable to us as we started out in a new business two years ago. We actually started planning about 2.5 years ago.
Once you have a project out of the way you will then be in a position to make more accurate plans. You will also start to understand what your profits and costs will start to look like.
I wouldn't be overly worried about getting business planning advice from a financial or business planner yet. That can come when you have some runs on the board.
A key ingredient to success is keeping your costs under control. You probably don't need fancy whiz bangs yet.
No worries.
If you are paying your deposit and purchasing costs from a line of credit you will need to move your funds into the solicitors/conveyancers trust account in sufficient time for them to be cleared ready for settlement day.
Once again your solicitor/conveyancer will be able to give you an accurate estimation in time for you to transfer funds across.
Hi Doug,
All costs are payable at time of settlement. This is something your lawyer/conveyancer will advise you on.
If you organise inspections as part of your due diligence these will be payable by you prior to settlement and in accordance with your contractors conditions of sale.
