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If your accountant will prepare your Balance Sheet, he or she will classify the land of your PPOR including its building as an asset. On the Credit side of the Balance Sheet, it will record the liability of your asset (how much you own) under the Bank name (e.g. Creditor). If you have equity (Asset – Liability), it goes into the Equity account of the Balance Sheet as credit entry…hence this is where the DOUBLE ENTRY accounting comes in..DEBIT = ASSET, CREDIT = LIABILITY (How much money you own from the Bank) + Equity (Asset – Liability)…this is the equity you use to fund another IP.
The concept from Rich Dad, Poor Dad only talks about the CREDIT side of accounting (Liability)…because that is the old way of accounting. The new accounting standard is DOUBLE ENTRY accounting…hence it takes into consideration of the Asset side.
To put it simply….if you are new in DOUBLE ENTRY accounting…here it is again
DEBIT (Asset e.g. IP or PPOR) = Liability (How much you own the Bank) + Equity (How much you have paid the loan so far)
or, Equity = Asset – Liability
So if you referring to your House or IP as a Liability, you are only talking about the CREDIT side of the Balance Sheet but failed to discuss the Asset side.
Hope this clears up ANY confusion about Asset which equals to Liability + Owner's Equity…this Equity is what you use to fund your IP.
GameTime wrote:Firstly he goes onto state that your home is not an asset, because it takes money out of your pocket. The thing is although it’s not an investment property, here in Australia housing prices continue to rise, so the large growth factor I feel is an asset.
Secondly he seems to be very biased towards investing for positive cash flow over growth. I know many investors here on this forum have taken the growth approach and have done very well for themselves, so when he says that investing for growth is a sure recipe for disaster and a complete mistake, it really confuses me because it goes against what many people here talk about.
I'm accountant by trade, by definition, an "Asset" can be controlled and provides a future economic benefits. Therefore, is an investment property an asset? Can you control it (e.g., let it), the answer is yes. Does it provide future economic benefit (e.g., capital growth or capital gain or rental income)…the answer is yes. Hence, in accounting term , property investment is an asset therefore it fits in the criteria set by accounting body (e.g. FASB). Once again, property investment is an asset.
source: http://accounting-financial-tax.com/2009/08/definition-of-assets-fasb-concept-statement-6/
When Robert has started investing in the mid 80s, houses in the US are relatively cheap then it collapsed hence he was in the perfect time to take advantage by purchasing bargains. When the market picked up few years latter….almost overnight his value of property skyrocketed due to CG. Hence CG is the catalyst to build wealth but you need cash flow positive to sustain your portfolio just like you cannot continue to keep running your business making regularly losses you need cash injection to sustain it…I think that is his main argument.
Hope this helps.
Hey Krisco84
What is the rush? There is always plenty of fish in the sea mate. It is better to be financial ready rather than leaving on baked beans mate. Not to mentioned, you are applying for high LVR which banks don't like…80% of LVR is good. Above 90% banks start to get worry. Some banks would lend LVR of 95%…if the market is booming banks will lend up to 100% LVR but in this kind of market some banks expect to receive LVR of 95%.
Cheers Leo
Qlds007 wrote:I am sure DHCP 's Mortgage Choice Broker suits his requirements but remember they are a franchise and the level of competance will depend on the experience of the franchisee.
It is a lot to do with the capacity of the applicant to service the loan…Banks won't lent you their money on the basis of your mortgage broker's competence BUT rather the capacity of the applicants to service the loan. But, your mortgage broker play an important part to get your the right loan that suits your requirements.
Therefore, if you are unhappy with your current broker Te, be prepared to change your broker. Usually, broker has 12 or more banks on offer. BTW, your credit file don't get hit when a broker assess your servicesability…unlike you when you apply directly to a bank. Find the broker that is willing to assist you.
Hey W8up,
Call 3 different real estate entities in your local areas and ask for property managers (PM). When you speak PM ask them about how many properties that they are currently in their portfolio. A good property manager (PM) should manage not less than 150 properties…anything above 200 is too much hence making PM stretch too thin hence the PM will not be able to take care of your property well. Also, get 3 references from their current customers who are also real estate investors and ask about the quality of service that they received from their PM. Make sure the PM has been in the property management field for 3 or 4 years. Also, make sure the PM has a backup in case he/or she goes on holiday….you need someone to look after your property while your PM is away.
Look at at this way, hiring PM is just like hiring an employee because as an employer (investor who has property for someone to manage) you need to seek the right employee to help you run your business. Therefore, seeking the right PM is no different as hiring an employee….you need to do a thorough interview.
Good luck
Savvy investors buy block of units, then get a council approval to sell each unit individually then retain few units therefore making the owner richer.
if the building is quite new, I still get a qualified building/pest inspector to assess the structure of the building…you cannot be too careful these days not even for a brand new unit. Make sure the corporate body sinking fund has sufficient fund and there are no structure damage to other units as reported on minutes meeting. You don't want to buy a unit then few months later you are slap with few thousands of dollar on levy which funds to fix building structure of other unit.
Your conveyencor or solicitor will advise you if there is major problem with the building structure and issue with the body corporate sinking fund through building inspection report and strata records.
Get another broker if your current broker is not willing to assist you further. I have the same problem with my previous broker since he we was pretty new to property investing….I when to mortgage choice and they sort me out without a fuss. Be prepared to chance your broker if you are not happy just like if you are unhappy with your accountant etc.
Can you send me one as well to my email below [email protected]. Thanks in advance
karlm63 wrote:Hey all,
So what about the 20 questions that Margaret Lomas uses which is in her book of 20 must ask questions for every property investor !!!!!!
Sorry if I sound blond ??????Those 20 questions that Lomas came up with, were simply research questions regarding the target area. To put is simply, ask those questions before you purchase a top performing IP. If you have not asked enough relevant questions as she prescribed you might end up buying a lemon.
Hope that is clear enough.
See my responses below:
1. Considering this to be my fist-time venture in IP, what budget should I limit myself to (Supposing the banks are approving a loan of 300k).
[DHCP] Is more important on how much you can afford to service the loan rather than what the bank will be willing to lend you maximum amount. Stick to what you can afford.2. What sort of investment options do I have (apartments/units/houses) for a budget of 250k including stamp duty and other costs.
[DHCP] It depends what is being sought after by the tents. ALWAYS look for the needs of the tenant point of view…remember they are the one who will pay for your mortgage mostly if not all (e.g. positive cash flow or negative geared).
3. Do houses generally have a higher capital growth against apartments? Do apartments still qualify for a sound investment option?.
[DHCP] It depends on the area. For instance, if you are investing over looking the beach and the area has historical good capital growth, apartment or townhouse is almost has equal if not good CG compare with a house. It s really depends where the market and the demand of the tenant.
4. Which is better – An apartment in the zone 1 melbourne or a house in a zone 2 suburb.
[DHCP] This comes down to CG vs Positive Cashflow hence which strategy you adopt.
5. What are some of the growth suburbs of the future?.
[DHCP] You need to buy for such info (e.g. http://www.residex.com.au, API magazine etc).
Hope this helps
Cheers Leo
Hey ZADS,
As said, investing in yourself is the greatest investment you make because you will learn how the rules of the game of property investment work that is how multi millionaires played the game. No need to learn from trial and error, not to mention losing big $$$ in the process……. when someone already shown the way by reading a lot of books about real estate investment, going to seminars etc.
To avoid losing your hard earned money, understand what you are investing first, because loosing money is quite EASY but earning it is hard.
Cheers, Leo
Hey ZADS,
You are one brave DUDE!
I couldn't agree more with DEN. You are like a baby, haven't learned how to crawl even walk yet, you already wanted to RUN. It is sure fire formula for disaster.
Investment is not risky rather the INVESTOR is risky particularly knowing little about investing in real estate property.
The best way to loose your money is investing something you don't fully understand. I encourage you to educate yourself first, Investing in yourself is by far the best investment you make.
Remember there is always new buses will come along…don't rush into investing. It is easy to loose money but hard to ear it.
Good luck and all the best…I sincerely hope you make it.
Thanks
Hey karlm63 ,
Due Diligence is just a fancy name for "Research" (e.g. doing your homework to avoid you purchasing a lemon).
Hope that helps.
I couldn't agree more with Bluegrass. There are a lot of townhouses fore sales in the market some are maintain well with their body corporate others their body corporate are no good.
For instance, when your letter of offer is accepted, I assume you have one, part of your "subject to clause" is looking at the 'body corporate sinking fund', minutes meetings, etc. In addition, building / pest inspection will tell you the structure of the building.
So if you do your 'due diligence' properly you'll avoid purchasing a lemon.
Good luck.
Cheers
There are few options: a) Find a mate, family member then do a joint venture to purchase your IP b) save up.
Hello Alex,
Once a mind is exposed to new things, it will never go back to its previous state. The more you ready motivational books the more you want to learn and explore more. Continue on your path to wealth creation because after all the greatest investment you make, in my opinion, is investing in your self.
Motivation is a personal choose hence it comes from within. I fell in love with reading motivation books which I call them "self help development" 20 years ago. Zig Ziglar, Anthony Robbins, Napolean Hill, Kiyozaki etc among host of other premier motivational speakers.
As mentioned, motivation is a personal choose and for me the greatest major in fact in my life is "Brian Tracy". His philosophy is simply but powerful. BTW, I have no affliates or association with him besides the fact that I love his work.
I've used his materials which had helped me to accellarate and achieved my goals. Educating your self is perfectly fine but without action is useless…is like just hoping and dreaming for things you want to achieve in life, but never committed in taking action.
To accelerate your goals that is , to achieve them quickly, the materials below had helped me to acquire my goals rapidly.
http://www.briantracy.com/catalog/product.aspx?pid=962&cid=14
http://www.briantracy.com/catalog/product.aspx?pid=17&cid=14
http://www.briantracy.com/catalog/product.aspx?pid=465&cid=18Action is the key therefore result speaks volume hence perhaps is the only way you can convert your hubby into optimist like your self. Therefore, setting a goal in property investment is a prime example.
I've used the below to achieved my set goals right away:
List 10 things that you want to achieve from 1yr, or 2yr or 3yr from now.
From those 10 things, list the top 3 that will have the GREATEST amount of result in your life.
Place each major goal on each single paper
For instance, major goal number 1, list all the steps that you will take to achieve this goal. Then, order them in priority (i.e., from the highest to the lowest action).T
Then, take action right away using the first priority from your action list.
Don't start on your 2nd major goal until your complete the first major goal else you get distracted or side track.When I understood the POWER of the above goal setting technique, it BLOW my mind away. Even to this date, I continue to use it particular in property investment. It is simply BUT VERY POWERFUL stuff. Often time, simply is quite effective.
I can honest set any goals in my life within reason and achieve them right away and power comes from taking immediate ACTION!
All the best mate.
Because it is negatively geared IP, you minimise your tax payment, and if you bought well in well located area with good CG, its increased in equity help to fund another IP etc… as you see, such benefits available through property investment. This is the game of rich people and glad we have the opportunity to participate.
cappy88 wrote:> Should I have the bank revaluate IP1 to draw on any available equity (purchased 9 months ago)?!If it is not too late, you could do some research around the area similar to the type of property of your IP1 particular previously sold properties that are superior (e.g. good quality) but similar features (e.g. 3 bed rooms). Then, do another research of inferior properties (e.g. same features properties but sold less). In addition, if you've done some reno in your IP1, include this into your research and put everything together into a nice folder, label it with and present it to the valuer. Explain to the valuer the logic behind your research. Spend at least couple of days doing your research then provide him or her lots of research findings.
You see valuers usually have a lot of properties to value on a given day. Often time, they don't have enough time to do a thorough research..hence they provide conservative valuation on properties besides getting sued if they getting wrong incase it foreclosure. The research materials you supplied them helps to paint a clear picture of what are properties sold in your area and it might give you a reasonable value of your IP1 which helps nicely to form a deposit for IP2.
Bring the issue with the Vendor..then try to negotiate with the price agreed to cover to replace the toilet if that is the only concerns you have. Building report only check the structure of the house (e.g., roof leakage etc).
Hope this helps.
Cheers Leo
Kaylah wrote:Do want to make money out of real estate? You also need to consider if one of you lose your job, can you still afford a negitively geared property? Just a thought.That is WHY a knowledgeable investor should have an exit strategy (i.e. Insurance against loss of income). If such event occurs, it will cover you while you are looking for work, temporarily.
