Forum Replies Created
Hi Igino,
I understand a lot of marketing companies sold a lot of properties to investors in the Point Cook and surrounding areas. The sales were so out of proportion the mortgage insurers would not provide LMI to loans over 80% in the area as recently as 15 months or so ago as they felt over-exposed.
I do know rents in the general area have flat lined over the last couple of years and there can be extended periods of vacancy between tenants.
Your initial comments seem to suggest you already have a property in the general area.
Time to diversify I think.
Hi WS,
It really does depend on your 'bank' and what their policy is.
One of our banks has just rolled our I/O period out beyond year 10 without batting an eyelid. Mind you they did say they wouldn't extend the I/O period for five years beyond Yr 15. Mind you they did say that after year 10 too.
Another one of our banks has also said they will extend I/O period out to 10 yrs as they have changed their I/O offerings since we initially took out the loan. On top of this we have been classified as 'good customers'
Another one of our lenders will not extend I/O beyond 5 yrs so we are currently looking at refinancing out of them into a more favourable lender.
In not so recent past ANZ would do a full real assessment of your situation if you wanted to extent I/O period beyond the initial loan term.
The banks do have slightly different positions on these matters. I suggest find a good broker (if you are not using one) and have a chat.
website?
She keeps a MYOB record of all the ins and outs for each of our properties + other investments I have + business accounts. At the end of the financial year she produces a hard & electronic copy of each 'job' (I think that is what they are called in MYOB)
She also balances the books for me as each bank statement comes in – there are a 'few' and slaps me if pieces of paper are AWOL.
She does also does a similar job for someone else I know. Additionally she also pays their invoices and files paperwork on their behalf.
We use lever arch file for each property similar to house call including depreciation report but excluding all other tax papers.
These are filed in a separate combined file as are related bank statements.
I employ a MYOB proficient book keeper for electronic records of property transactions. The electronic file is provided to my accountant at tax time.
Copies of correspondence with property managers, strata managers etc are all filed in a property specific folder on my hard drive. I also have a outlook folder for email communications for each property.
After tax returns are submitted I then bundle all papers into annual batches and store the annual tax papers in a large plastic storage crate in my shed. When the statute of limitations with respect to tax have expired I dispose of the papers.
One other comment I would make is stay on top of it. Nothing is more daunting than a pile of papers on the floor, desk, cupboard, filing cabinet etc.
After all it is a business and requires good business habits.
Off the plan has a number of potential issues you will need to consider before proceeding.
1. Get a reputable and independent solicitor to check contract documents.
2. Off the plan plans often allow some developers leeway to adjust plans slightly. This can see some adjustment to sizes etc.
3. Long term off the plan properties can be problematic from a financial perspective. Banks and mortgage insurers may have limits on the number of units they are prepared to lend funds on.
4. Many contracts will want you to go unconditional with 3 weeks or thereabouts. If building is long term project bank will need to refresh finance application – banks can change their minds and you may be left having trying to (have to) settle on property your bank no longer wants to provide finance for.
5. Lending market is very fluid at the moment – make sure you have sufficient leeway in your borrowing cap for such things as lower valuation upon completion which will require bigger deposit, increases in interest rates reducing borrowing cap and so on.
6 Related to 5 you may want to restrict buying cars, buying furniture on nothing down deals, increasing credit card limits, changing jobs etc while the project is in construction.Tread warily.
Too many small and very old units in Glendalough for my liking.
Still money being poured into Midland albeit slower than 8 years ago. The Midland redevelopment project must be getting close to completion by now.
Don't neglect some southern Perth suburbs – rent returns in these areas can be better than those achieved in the northern suburbs. (Obviously this is a property by property issue). There are some southern suburbs with 'potential' written all over them. Mind you potential is an overused word too.
Not only is it an issue of size but also an issue of 'banks security'.
Investing in property is often about borrowing money – no point trying to invest somewhere if the major banks/mortgage insurers are uncomfortable lending you money to buy there.
If you have somewhere in mind make sure you ask the broker about lending suitability of your chosen postcode.
You are the one who signs your tax return and the onus is on you to declare things properly.
I am sure there are individuals out there who do not fully disclose matters in their tax returns. Doing this puts you at risk of gettign offside with the ATO.
In my humble opinion – not worth waving a red flag under the ATOs nose as there is more to be lost than gained by cribbing numbers and figures.
But keep all purchase and sale records to prove CGT exemption.
An audit by ATO may show rental income earned by the property but no CGT exemption. This may lead to ATO wanting to know why there is no CG declared.
As with all matters tax – speak to an accountant before doing anything.
Property Passion wrote:OK well i waalked into the bank "
Therein lies the problem – don't walk into a bank, see a broker. They have access to a range of products and lending institutions and should be able to help. Banks are limited by their products brokers are not.
Hi Kidja,
Just doing a bit of browsing when I cam across your questions.
Given your home is purchased pre 1985 then you have significant capital gains advantages that I would preserve under all circumstances – that is do not sell.
Questions 1 and 3 are, to me somewhat similar with the only difference being whether or not you retain your existing home as a home or whether in fact it becomes your first investment property.
Ultimately there are also some 'emotional' factors to consider. Is the home still serving it's purpose, can it be subdivided, is it too big/small, is it too far from your place/s of work/lifestyle/family etc All of this 'emotional' factors come into play when determining whether to retain and live in, or rent out, your existing home.
In many respects the use of equity from this point on becomes somewhat secondary as in both cases the equity can be accessed to start your investing.
For me it would be worth you going back a step and work out what you want to achieve in the short, medium and long term – this will then help you determine the correct course of action for you.
As an aside think carefully about what your accountant says – while they may be good at tax minimisation etc are they well qualified to help you achieve wealth?
For example I was talking to someone who had an accountant recommend she sell her property (very valuable and paid off) because, wait for it…………………….. she was paying too much tax. There was little apparent recognition of the possibility of purchasing other property, or continue paying tax (after all she must have been making money), leveraging off the property into other things and so on.
Sometimes a narrow focus can be our undoing.
Good luck
Interest rate fluctuations do play on some investors and home buyers minds largely as a result of changing affordability (real and/or perceived).
To me the bigger issue is maintaining focus on the bigger picture and accept, and work with, interest rate variations along the way.
As interest rate changes (and costs commensurately increase) it may be time to change tactics somewhat, as distinct from someone who throws the hands in the air claiming it is all too hard.
Hi Emma,
If you analyse the Perth market at the moment it is apparent that the market has slowed significantly since last year.
Simple maths tells us the growth of last year ~37% (ABS) is not sustainable and anyone who entered the Perth market in the last half of 2006 with a view to making money in the short term is taking a risk (sure some may have – but I believe quite a few will soon sit on negative or minimal equity). As always the herd that arrives towards the end of a boom carries the greatest risk, whereas those that adopt a longer term point of view seem to achieve greater success.
The number of listings has grown significantly and days to sell increased – signs the market has turned. Some vendors are starting to seek buyers as distinct from buyers seeking vendors.
In effect look elsewhere at the moment.
HI Sanjiv,
If I read this correctly you are recommending transfering part of the non-deductible PPOR loan across to the investments. The ATO will still consider the purpose of these additional borrowings as being for PPOR and thus the interest remains non-deductible.
Hi Holo,
Without knowing the ins and outs of your situation (age, income, date of purchase, goals, asset base etc) it is difficult to provide comprehensive comment.
In brief I believe you need to ask yourselves why do we need/want a house with a bigger mortgage – and then weigh this matter up with the original intention for which you purchased the investment properties.
As matters currently stand you already have a large non-deductible mortgage and even if you sell the IPs and direct the profits towards the new PPOR you will still end up with a similar sized non-deductible debt and equity position. (This is VERY ROUGH maths) so you will need to check – in your calculations consider your CGT liabilities.
Sometimes delayed gratification is the answer.
Hi Col,
There is more to renovations than tax savings. Renovations should be considered as a means of creating 'instant' growth, increased rental returns and/or as a means of staying on top of your properties needs. To me taxation is a supplementary benefit.
From a purely tax saving perspective while the costs of the renovations are not 'deductible' they are 'depreciable' at 2.5%/annum over 40 years. Deductions are only permissible for repairs – that is making good as distinct from upgrading.
Originally posted by chris67:Same tenant for 4 years with no rent rises.
Increase the rent – you’re $1800 ‘down’ here.
We own outright our PPOR, valued at $350,000.
Our accountant suggested we look at Investors Direct Cash Flow Loan and I’ll be contacting them to see what they’re about.
I must admit I do not now the full details of Investor Direct Package but it will certainly help you address your cashflow issues.
I want to say we have a fair amount of cash.
Put the cash into an offset account linked to one of the investment loans. This way you will reduce your monthyl interest bill by an amount with the interest charged on the amount held in the offset account. For example every $10K in the offset account will reduce your monthly interest bill by ~$60/month.
I will also suggest you look at using the equity you have available and look into investing the funds into Navra’s http://www.navra.com.au managed fund. Has returned around 18% for the last two years.
Derek
derekjones1@bigpond.com
The Investors Club http://www.monopoly.tic.com.au
0409 882 958
Skype – derekjones2113I’ll preface all my following comments with this – there is limited information provided here so what I have to say may be off track.
Originally posted by fivetalents:We have about 450K of equity in our home at the moment, which we are renting out because we have moved interstate. We want to buy a property and develop-which we can except that we have a cash flow problem.
Given you have moved interestate I am assuming your existing property is your former home and as such it is highly likely that the loan is still on P & I basis.
First step convert your loan to interest only. You may be surprised at how much cashflow this frees up.
If your dream development is going to create a potential cashflow problem have you considered borrowing a little extra to cover your payements during construction? See Terry’s comment.
Have you had previous experience developing?
Developing can be very lucrative. Equally it can be very draining (financially and emotionally) and you need to determine whether you are both up for it.
At the end of the boom (when that is/was, or will be is open to conjecture) is often a time when mum and dad developers get themselves burnt. You will need to ensure your feasibility is comprehensive and spot on.
Cashflow is often a ’emotinal’ thing. Often we get used to living on what we earn that we find it difficult to imagine scaling back on some of our excesses. I can think back to times in our life (new bub X2, new house, new car loan) etc that we have wondered how it will all work out.
So, is it fear off cashflow, or fear of debt. I suspect that you may well be looking at a ‘smallish’ home debt and are in the process of taking out a ‘bigger’ loan. Maybe it is this that you are finding daunting.
If this is close to the mark then the key point to remember is that this borrowing is for a growth asset.
We can borrow some money but not enough for what we want to do.We have three small kids under five and I want to stay home with them. I do some work but my husband is the primary income earner and he is a teacher.
Has a broker/bank told you what you can borrow? If it is a bank I would suggest that you consult a broker. They have access to greater number of loan products and as such may come up with a different number.
If the amount stated is your ‘real limit’ then you will need to modify your development plans. Maybe something smaller, something in stages and so on.
So we have all this equity but can’t unlock it!! Our home in Perth is paying for itself so we don’t need to sell , I feel.
Unlocking equity is easy – I suspect you need to see a broker and not your bank. Sure you may need to go to another lending institution but one step backwards to make many forwards is sometimes a good strategic move.
I know if I went back to work this would solve the problem but there must be another way-?
Any suggestions on creative ways to get finance or equity partners?
If you have a bucket load of equity then a no-doc lend may be the best solution for you.
If I were to consider being an equity partner with someone else (I am not by the way) I would expect to see a detailed feasibility study, some runs on the board to prove your capacity and a track record. Can you provide these to would be suitors?
Derek
derekjones1@bigpond.com
The Investors Club http://www.monopoly.tic.com.au
0409 882 958
Skype – derekjones2113Originally posted by rgranger:Life is whizzing by and I have just come to realize that I am in a pretty bad way! The only “investment” that I have is equity in my home (about $300,000). That is literally it. I live in Tasmania, and would be interested in exploring commercial (or residential) properties. Was anyone in a similar situation and has a wonderful success story to tell me?
Hi rgranger,
As stated in a previous post you are not in as bad a state as you think. $300K of equity in your home is a wonderful starting point – the challenge for you is to learn how to release that.
In many ways our mindset and the message we have had ‘forced’ into us over many years about debt being a bad thing have added to the perception that borrowing for investment is an evil. The key is to differentiate between what is borrowing for an appreciating asset as distinct to borrowing to guy gadgets and widgets which depreciate in value.
In many ways your situation is not dissimilar to where we were about five years ago.
Now I can comfortably say that we have been able to leverage off the equity we had to hold a multiple investment property portfolio, nearly $250K in managed share funds, $200K in developments and are looking at the possibly of no longer ‘working’ a 9 – 5 job, rather having the opportunity to pursue something I like.
This didn’t happen overnight and it did take some courage. The key for us was to spend some time researching what it is we wanted to achieve and which route to that end point was going to suit us from a financial, emotional, risk tolerance and timeline perspective.
Don’t loose hope.
Derek
derekjones1@bigpond.com
The Investors Club http://www.monopoly.tic.com.au
0409 882 958
Skype – derekjones2113
