Forum Replies Created
Hi Sum,
Your friends are correct about only having to pay stamp duty on the land when you buy a block and build a house on it. Stamp duty is levied on the purchase and not the improvements created by adding a house onto the block.
As a bonus the interest on the land will be deductible if you have bought it with intention of building an investment property onto it.
From an overall strategy what you are planning makes reasonable sense. Start small and take a series of small steps, learn the ropes as you go, don't over extend yourself and start building a team of trusted, experienced people around you.
With all due respects to your friends and family seek the advice and guidance of people who have done what you are planning to do. They will be able to keep you one the rails and heading in the right direction and keep your friends and family for 'social events'
If you are committed to house and land type strategies you are better off looking for pockets of infill where the developers are coming through and build mini estates. Wattle Grove would be example of what I mean by pockets. It isn't at the extremities of Perth, has reasonable proximity to infrastructure, service provision is sound and so on. To me these types of areas make more sense from an investment point of view than 'Southern Armadale' or 'North Butler'
Another option worth considering is buying undervalued, sub-dividable blocks in the inner. medium rings from Perth. At the moment banks are wary of most developers so this would be a big step especially early in your journey. Having said that I do know people who have taken this route and succeeded. They do tend to achieve the goals they set for themselves and remain quite focused along the way.
Hi Sum,
Looks like your ideas are all over the place at the moment. So go slowly and one step at a time.
A few comments for your consideration.
Generally speaking most investors only pay interest only rather than P & I. This is mainly because I/O reduces monthly outgoings and, as the principle part of the loan is not deductible it means, expenses on the property are generally confined to those that are classified as tax deductible.
If you do pay your loan down early and want access to your advanced payments you can compromise the tax deductibility of the redrawn component of the loan. For this reason those people who want to reduce their monthly interest bill place surplus funds into an offset account.
You will also need to consider whether or not paying off a loan in 5 or 10 years is feasible. For example P & I repayments on a $350K loan over 25 yrs are approximately $2475/month. If you intend paying off the same loan in 10 yrs your monthly repayments increase to $4060 and in 5 yrs they increase to $6930/month. Note all repayments calculated at 7% interest and are only used to illustrate my point.
Your parents did property in Southern Lakes has performed well – but you also need to consider that in the period of ownership 2004 – 2012 included a period which included one year when Perth median house prices increased by 46%. So while your parents have done well this should not be considered a sign that similar results are achieved with 'any' house and land package.
By their very nature many house and land packages tend to be in areas which are often dominated by first home owners, particularly those areas more distant from the CBD. On this basis you can be extra exposed to neighbours who are interest rate sensitive. They often buy their first homes on minimal deposit and devote every spare cent to paying their mortgage.
Your original post indicated a desire to leave the rat race and 'live a little' – if this is your intention you will need to recognise that any negative gearing benefits you enjoy in the early years of ownership will lapse when you are travelling or off work. For this reason you may need to consider some sort of cashflow positive strategy so you continue to earn an income when travelling.
Hope this helps
Hi Sbhjain,
If you are looking for a broker give one of those who has provided assistance in this thread a bell.
I wouldn't be worried if they are away from where you live – most people are very familiar with working on a phone and email.
Jamie and Richard's track record is here for all to see.
Hi Richard,
Love this bit – I don't seem to recall the banks saying 'no thanks' to the government guarantee 4/5 years ago.
Qlds007 wrote:Australia needs safe, well-run commercial banks that aren’t a burden on taxpayers and that can continue to lend.To me interest rates are only a small part of the picture.
Better off looking for a broker who can structure best, maximise your borrowings and one who truly appreciates what your plans are.
I look at interest rates as 'the cost of doing business' and there are more important issues at stake.
Hi Birt,
Change you solicitor – send Terry a PM.
If handling contracts is not Terry's area of expertise I can recommend a solicitor in NSW. Check with Terry first.
Mining towns always present additional considerations. They are certainly not a set and forget prospect and need ongoing monitoring – look at vacancy rates, prices comparisons, rental changes and then there are announcements by the major players in the relevant community to consider.
HI Sean,
Coincidentally this just arrived in my inbox from Terry Ryder.
"What's a "boom town"? Here are four definitions…
- A town of 1,100 where $3 billion will be spent Hedland – check
- A town of 11,000 where $9 billion will be spent on its port Hedland – check
- A regional centre with a key mining province on one side and a port undergoing a $10 Billion expansion on the other Hedland – check
- A regional city where the port, the airport, the train service and the road system are all undergoing major expansion
These are the towns and regional cities where the real action in the Australian economy is happening."
MY INSERTIONS IN RED
Hi Sean,
Vested interests apply here.
I am more familiar with Port Hedland area than Morandah so I'll restrict my comments to Hedland.
Terry Ryder's recent Hedland Hotspotting Report ($33) is available here http://www.hotspotting.com.au/report/108-port-hedland I am sure he has a similar report for the basin in which Morandah is located.
The report outlines significant capital investment planned for Hedland by BHP, Consolidated Minerals, Atlas, FMG, Hancock et al which includes stated intention of increasing Port capacity significantly.
Houses are expensive and rents enormous. Difference in prices between Port Hedland and South Hedland on a like for like basis is significant.
Offset accounts can only be linked to one loan – it will currently be linked to either IP OT business loan NOT both.
From a tax perspective you are better leaving the $50K as an offset against the higher interest rate of the two loans. This reduces your interest bill and means you have $50K of cash reserves up your sleeve in times of emergency. Using the $50K for a personal emergency from your offset has no adverse effect on tax claims (other than it reduces the interest saved by the commensurate amount)
On a side note it would be nice to get rid of the failed business loan – at the moment it will be holding you back as any future loan applications will register the loan as a liability.
Hi Rob,
I am not 100% sure but I expect any CGT will be determined by the tax laws in the country where the property is.
Hi Property Seeker,
Numbers?
What is your net cashflow position. What is the toal value of your properties?
Not an accountant etc etc
Based on teh information provided there will be no tax payable provided this proeprty has been your PPOR for your whole period of owenrship before moving overseas.
The property was your PPOR and you will sell it within the allowable 6 year window, Whether or not it has a lease extending beyond the 6 year period is irrelevant – CGT is levied based on what has happened and not what will happen.
Be aware that having a tenant in place will restrict/reduce the number of potential buyers when you sell. The lease will need to be honoured by teh new buyer and therefore someone looking for a home will not look at your property as there is a tenant in place with a long term lease.
Not sure that our banks are AAA.
AA maybe – depending upon which ratings agency you refer to.
Be aware a (some) ratings agency/ies also rated the interbank loan packages which included Ninja Loans as AAA.
Speaking with a broker today who had the opinion that banks will raise fixed rates in an effort to offset the rising cost of funds. His thoughts for what they are worth.
RP Data's blog from last week makes some interesting comments about this question. Click here to read
Agree with Jac – not a good investment.
Just cause the selling agent says it is a good investment doesn't make it so.
Finance for something like this could be problematic. Once you have finance issues then you reduce the market size and cpital growth is constrained because the number of buyers is reduced, You would be better off aiming a little higher, waiting a while organising your finances, and entering teh market at a higher level.
Something like this reminds me of my first car – the only one I could purchase at the time. Cost me a lot of money in upkeep, didn't do the job it was supposed to and difficult to get rid of.This property will be teh same.
Geez – I had some typos in that post didn't I.
Given your relatively low deposit savings I would be angling towards a 95% loan.
On this basis you will need the following:
Deposit – $25K
LMI – $10K (estimated)
Solicitors fee – $2K
Miscellaneous – $2KTotal $40K
Clearly you are close.
Note I have assumed you will qualify for stamp duty discount for FHO in NSW – someone more familiar with NSW purchases at the moment can confim whether or not their is such an incentive available to people such as yourself. If there is no such incentive in place you will need the following;
Deposit $25K
LMI $10K
Purchsing Costs $25KTotal $60K
As an aside you may benefit from a move to 'cheaper' rental accommodation. This will speed the saving process up and move you closer to your goal.
Not an accountant but:
Travel is usually claimed on a per km basis for total travel up to 5000km. Once you go over 5000km then you are able to claim travel costs as a percentage of total running costs.
You will need to be careful about this whole situation;. As Luke has stated some 'repairs' will be classified as renovations and will therefore be eligible for depreciation rather than deduction. When I last looked renovations/repairs done very early in ownership may not be allowed as deductions as teh ATO can rule that the property was bought in such a condition, you knew this, and therefore repairs will be classified as capital expenses.
Be careful tagging proeprty work onto the end of a holiday. The old days of apportioning the trip based on time spent on your property investing V holiday times has now been replaced by 'why the trip was truly taken' – for example mum and dad take family to teh GOld Coast for 12 days and spend a day tridying their investment property up. In this situation it is plausible for the ATO to deny any claims because it could be reasonably argued that the true purpose of the trip was 'holiday'
such claims are not straight forward anymore
I recently participated in an online debate discussing this very issue.
If your properties are paying their own way and you have some alternative income sources you can hang onto your properties pending a sale at the relevant time.
A staged sell down is a reasonable option – if you have owned the properties for more than 12 months and you sell down in a low/no income year your exposure to CGT can be extremely low.
Without knowing your exact situation it is hard to be more definitive – be careful of using LOC to fund shortfall. IN a flat market all you are doing is that you are erdoing your asset base.
- A town of 1,100 where $3 billion will be spent Hedland – check
