Forum Replies Created
- johann22 wrote:lol like what i am going through with my bussiness i have looked at so many options for banking and i cant do anything about it.
Hi Johann,
Sometimes the solution is staring you straight in the face.
Thought of getting another (trusted, experienced) set of eyes to look over things. Might be worth a go.
luke86 wrote:If your accountant has told you it is best to pay off your investment property while still having money owing on your PPOR then it is time to get a new accountant. I don't mean to be rude but getting bad advice like this can cost you lots of money in the long run.Luke
Good pick up Luke.
Sonny, your accountant's recommendations in one of you earlier posts just don't make any sense at all. You really do need to revisit your accountant to get this clarified – and if the position doesn't change you need to know why, or seek another accountant.
Hi Sonny,
Many investors do use the I/O strategy for the reasons mentioned above + it also improves their cashflow situation. In the example above by $200/month. If this suits your situation yes it would be advisable to coonvert your loans, where possible, to interest only loans.
Just be aware that some lenders may need/want to doa full re-assessment. Bear this in mind if your financial situation has changed significantly since the loans were first written.
1. At the end of the 15 yrs you may convert your loan to P & I, sell the property & pay out the loan/s, refinance with another lender to I/O so you can extend the I/O period. All options will be dependent on your situation at the time.
2. The key purpose for the offset account is so you can grab the money and use it towards your 'new home' without there being any effect on the deductibility of the funds in either the offset account (no deductibility at all times) or the core loan on the property. By way of comparison if you had $100K equity in your existing home and wanted to use this as a deposit for the new home the $100K is not deductible becuase you have used the funds to buy your home.
GetRichOrDieTrying wrote:1. Can you tell me why is it more tax effective to put more money into home instead of the commercial property?
2. Yes thank you for asking as I've forgot to include this in my initial post. We plan to buy a bigger house which SHOULD be our then final PPOR which we might also rent out the place we are staying at the moment.
3. I don't think we will live off the two property as the money generated by them will be used for paying of other investment I might have down the track and the income that I have from my own business will be for my family.
Regards Sonny
Hi Sonny
Because the loan on the commercial property is deductible it means you can claim all of the interest you incur on your tax return. Any extra payments you make off the principle are not deductible. Eg monthly interest bill of $800 & you are paying $1000/month you can only claim the $800.
Depending upon your taxable income some of the $800 will be returned to you as a tax deduction.
Given you will be moving into a 'bigger. better home' at some stage in the future you will need to borrow some money for this purchase. All of this will be non-deductible debt.
Non-deductible debt is hardest to pay off as there is no assistance from the tax office.
Under this situation you are better off placing your principle payments ($200 above + principle payments currently made on your home) into an offset account.
When you find the new home you can grab all of the money in your offset account and use these funds as deposit for the new home. If you borrow funds against either your existing home or the commercial property to buy the new home these additional borrowings will not be deductible.
First thing I would do is convert commercial property to I/O and (because you want to pay things off) put the money you save into your own home. This will have a similar net effect but is more tax effective.
Are there any plans to buy a 'bigger, better' home elsewhere? The answer to this also has some bearing on which way you approach things at the moment. If there are plans to buy a 'bigger, better' home somewhere else then I would suggets you consider an offset account structure above paying off either properties.
Do you buy another property now?
Depends upon your overall LVR and cashflow situation.How much will owning two properties outright realise you? While you have a target in terms of number of properties the more important detail is will two properties give you sufficient rental income to live off?
Westpac is currently suggesting a couple need about $54K/annum to be comfortable (assuming their home is paid off)
Henry Adams wrote:1.Does anyone here know how does Interest only loan works ? When should I pay it off ? should I wait until the property price is equal or the same value as the loan value ?2. my scenarios is with my home which is now has become investment property it seems that when I combined the IO loan with Line of Credit (LOC) + Credit card, the debit interest in the IO loan keeps increasing and I've never seen it decreasing.
3.my only understanding is that with the LOC is that it keeps generating interest whenever there is shortfall from its full amount and not generating interest when it is currently full / paid off.
I/O periods are determined by your loan contract. It will stipulate the length of the loan and how much of that time is I/O. At the end of the I/O your repayments will convert to P & I unless you can renegotiate the I/O period.
1. When/if you ever pay the loan off will be determined by your strategy. Some people will do as Michael has explained. Others will attempt to pay down their loan so they own the property outright.
2. Take the cc out of the equation. In most cases the CC is used for non-deductible debt and if you are not clearing the debt on a monthly basis you will be accruing interest at 20% ish. The interest on your I/O loan shouldn't change apart from some variation because of 28/30/31 day calculations. I suspect the accumulating interest bill is due to you possibly capitalising interest in your line of credit rather than making interest payments with your own cash.
3.A LOC incurs interest just like any other loan. If you have an outstanding balance in your LOC then you will incur interest. LOCs often have this interest adding onto the LOC balance providing the limit has not been reached.
bouncecf wrote:My partner and I are building in South Hedland WA with a look to it being an IP in about 2 yrs. I'm not really sure about Newman – from reading the local papers seems to be a good market there too but I'm no expert. In my (limited) experience it seems like mining towns can prove very lucrative but you have to get in at the right time and know when to get out.
All the best
The WA Pilbara area is undergoing a major upswing in mining activity which is also being supported by state government initiatives to build Hedland and Karratha into bigger towns to such an extent they become eventually become cities of 50,000 people by 2035 (same for Karratha).
Late last year the WA Government completed a series of reports surrounding Port Hedland. These are available at http://www.planning.wa.gov.au/publications/1136.asp At the same time the WA Government has also released a supplementary report titled 'Pilbara Cities' which is also worth reading.
Link to Pilbara Cities Report http://www.landcorp.com.au/News-and-Media/Annual-Report/Working-with-Government/Pilbara-Cities/
Add to these reports a company releases by BHP, Rio Tinto, FOrtescue Metals Group and so on and most people can appreciate the enormity of plans for the Pilbara. Only recently there was a newspaper article quoting BHP as saying they require 34,000 employees in the Pilbara next year alone. Note that is BHP's requirements – don't forget Rio also play up in thePilbara and FMG is joining the 'big boys'
House prices in Hedland have risen 18%/annum for the last 10yrs so entry level cost are enormous for the average punter.
Having said that we are looking at some developments returning 16% at the moment.
Hi SImky,
It sounds as if your mother is reasonable 'nick' so it is possible she may be around for a while (hopefully so of course) – this may present some problems for you as some people are really tied to the family home and she may be reluctant to move out ahead of schedule.
Of course it is possible you may be able to come to some arrangement that sees her moving into one of the properties after completion. While this means she isn't in the family home she is still living in her local area. Obviously there may be tax and related issues with this.
If your mother presents a 'stumbling block' to your plans and she hangs around for a while you will need to consider the income/costs of holding the neighbours property prior to development taking place. It is possible you may be able to develop the neighbours property before mums property becomes available. The first development may be part 1 of a master plan.
I would not be overly worried by short term deviations in the median price. There are a number of places in Australia with similar median price fluctuations. The numbers you quote are not abnormal.
In terms of fundamentals;
1, What is the nature of typical housing in the area? Is a development out of the ordinary and would stick out like a sore thumb? Is there demand for that type of property?
2. How are the employment prospects for the area? What sort of median incomes are there? Any plans for private/government development?
3. What are the local shopping facilities, schools, public transport, like?
4. Socio-economic factors?And so on.
Hope this helps.
Hi Simky,
I think you need to step back first.
At the moment your focus seems to be on this block and the possibilities/options it may provide. Now the options in themselves may be quite reasonable BUT what about the bigger picture.
What sort of area is the property in from an investment/property values/economic point of view? You will need to be objective in this evaluation because you are making a business decision. Make sure the decision you make is based on solid, logical fundamentals and not emotional factors because it is the house next door.
How would you feel if your mother hung around for a while and delayed your 'development' plans?
So step back and look at the bigger picture too.
All the best with it.
Hi Dilmah,
This is a windfall which, if used wisely, can kick start the rest of your life. Its about 6 months or so before the inheritance is due so I would advise you spend time working out what you want to do.
Key question is – what do you want to achieve? Once the destination is known the pathway becomes more evident.
In determining the destination you will need to consider a whole range of matters including (and not limited to); your age, family situation and plans, home ownership plans, travel plans, career options and so on. All of these answers may have some bearing on what you should do.
Option A (above) – no gain. You are using the inheritance to pay off deductible debt and then using the equity gained as security for new borrowings.
Jenzze wrote:Postcodes – 4717, 4474 and alike – probably no surpises there.The google meter just went off the scale for postcodes 4717 etc
Not a broker so I cannot contribute anything meaningful. Just my poort attempt at Saturday morning humour.
Kevin makes a really good point about the need for the property to still be a fundamentally solid investment.
Twin growth and cashflow drivers are required for long term success and simply buying a property because it is cashflow positive without also having capacity for increases in value through economic, planning or fundamental reasons is not, in my opinion, a wise move. Clearly capacity to add value through renovation, subdivisions, developments are points worthy of consideration.
Being in WA we have access to a number of NW towns which are fundamentally solid and recent government, mining and supporting industry announcements mean we can achieve very attractive cashflow. Redevelopment opportuities mean we can well and truly add immediate value for clients.
The key is not to be one diminesional in any investment decisions. You need to consider the all of underlying fundamentals and cashflow. Not cashflow at the expense of the other.
I clearly remember the cashflow positive interest Steve's first book created.
While Steve identified his 11sec rule his first book also stressed the need for solid fundamentals. In their haste to pursue cf+ property many people failed to heed the second, less sexy, message about fundamentals.
johann22 wrote:The bank said your not going down you just need to manage the cash flow better.Hi Johann,
This comment, along with your following comments, caught my eye.
It seems as the bank believes what you have is sound and sustainable. I wonder if you woudln't also benefit by an appointment with small business advisory service, banks finance office, accountant, business coach etc.
I would also assume anyone buying the business will want to see your books so any tidying up you do to increase profit margins will also increase potential sale price.
Pruning of expenses along the lines of what you are doing will be advantageous to you on both counts; cashflow now & sale price later.
Which state?
In WA contract (offer and acceptance) requires breakdown of ownership to be shown at time offer is submitted.
Just extracted some more pertinent points for further discussion.
ALF1 wrote:Investing without fear
The most common factor from both novice and experienced property investors is that most investors experience fear at some point or another.
2) Risk. Fear: supporting an investment property if you lose your job
You need a ‘rainy day’ reserve fund, and there are a couple of options:
at most your risk will be limited to the shortfall needed from your income, not the entire mortgage and expenses repayment.
5) Risk/Fear: interest rate increases
We have no control over changes to interest rates, including if and when the Reserve Bank of Australia (RBA) increases or decreases them.
Exit or Parachute StrategyAn exit strategy is your ‘pull the pin’ plan.
Hi Alf,
A number of good points in your article. I would add the following to what you have written.
Fearlessness = foolishness.
Every investor should have a sense of trepidation (rather than fear) about their investment decisions. If there is no fear or trepidation then it is highly likely silly decisions are being made.Nest Egg – this is critcal for every investor. We can debate ad infinitum the lost opportuity incurred by keeping funds in reserve. But my reponse has always 'maintain and look after what you've already got' rather than trying to stretch too far.
I would also add decisions should be made based on realistic outomces and possibilities. For example I was a participant in a webinar recently and a large chunk of the audience, in repsonse to a survey question, used 7 years as a doubling rate (I use 12 & anything else is a bonus) when doing their calculations. Clearly these people were overly ambitious.
I am constrantly amzed by the number of people who use today's interest rates as the norm, and with expectations of this low (& lower) rate continuing.
Without being over the top people need to bullet proof what they have before adding extra cards to the house.
Parachute plan – always have it packed and pull the chord in sufficient time.
Hi SC,
Not a broker but it would appear as if you are in position to start investing.
Rather than rushing in I suggest you do some more research and try and work out what you want to achieve in the long term. I recommend reading a few books. A good start would be Jan Somers "Building Wealth Through Property" and Steve McKnights two books. These books are really at the opposite end of the investment spectrum and you may well find one style of investing mroe suited to you. Margaret Lomas also has a 'middle of the road' book which will also provide you with some clarity.
Once you have worked out which style of investing is more suited to yourself then you do have a lot of questions to develop 'answers' for; how long are you going to rent for? are there plans to start a family? grand plans for ttravel? career change? career security? and so on. To a certain extent the answers to these questions will also help you develop a suitable strategy.
Set your self a timeline (6 months ?) to address these, and other issues, and then begin.
Remember education and knowledge are the keys to success.
Hi,
Sorry to hear of your frustrations with the Tambrey project.
There are similar issues up the road in Hedland with water and building costs. The state government and/or water corporation are working as hard as a government department can to provide additional water to Hedland.
We are currently working with small development sites in Hedland for investors and have been advised by water corporation that getting water to greenfield sites is somewhat problematic at the moment. Getting water to sites which are being redeveloped is much easier – in part the major issue is piping – and this is what we are currently doing, finding sites for small scale redevelopments for investors.
Building & labour costs and availability are also issue in the Pilbara. Such is the magnitude of the problem we are having cyclone rated, engineered, precast concrete, modular units poured and fitted out in Perth and transported up. This process has been approved by Hedland council and means we can units into Hedland at costs well below replacement/market value.
Recent announcements by BHP et al and the State Goverment mean the Pilbara region of WA will do very well over the next 2- yrs or so.
Once the Tambrey project is over its current hurdles you guys should do pretty well – it is just a shame you are experiencing delays at the moment. IK reckon hangin there unless you can put your money to better use.
Hi Matt,
Under the circumstances outlined I wouldn't touch it irrespective of potential for a good buy.
1. By your own admission you 'have no idea' about developing.
2. Picking up someone else's half built project is problematic. Theonly saving grace would be if the first builder was prepared to finish the job – without this definately don't touch.
3. Finance would be challenging at best.
4. Are there any debts remaining on the property? Bills outstanding with caveat in place.
5. Start small and work upwards.No single 'right' answer as everyone is different.
Initially we endorsed the concept of paying off our own home before starting to invest but had grappled for many years about what to do. Eventually we decided to commence our investment journey before we had completely paid off our home.
One day we sat down and really looked at the pros and cons of each option. The clincher was when we realised that we were due to pay off our home about the same time I was due to retire.
We started investign and fast forward a 'few' years and we now have a sizable portfolio. On top of this we have also laregly paid off our home at the same time.
We got the best of both worlds.
Some things you may want to consider are; you age; your goals; yoru other investment and superannuation resources; other financial commitments; your risk aversion; family situation; work plans and security and so on.
Good luck with the decision.
Hi Henry,
Walk away – you don't know enough about the deal.
At various times you thought this was a 2 X 1 X 1, then a completed property, your last post tends to suggest it is a house and land deal (construction loan), ………….etc etc etc.
No available address suggests to me the property is in a brand new estate. There are lots of brand new estates in Coomera.
I can assure you from the bottom of my heart Coomera is NOT a mining town. It is suburb in the process of being developed about 30km (not looking at an atlas) north of Surfers Paradise and on the western side of teh Gold Coast Highway/Motorway. Commera would be slightly north of the Gold Coast theme parks.
Hell – if you want real mining town property we've got them in spades. But they're in WA.
