Forum Replies Created
So how would the rent be deductible if you had a family trust???
Aportion of the rent could be tax deductible if you had set up a home office to manage your IP’s howver not sure you could claim all the rent.
Sunshine
I think you’ve got some great points and its always imporatnt to consider the long term view.
Although the population is aging th population is also increasing. So although a greater portion of the population will be over 50 there will still be just as many people who need to rent.
Also when you couple this with the large increases in property prices in the last few years there are fewer and fewer people who can afford to buy; so they move into the long term rental market.
I think there will be an increased need to properties at the lower end of the rental market due to exactly the reasons you outlined. Increased number of older people on limited incomes, increased unemployment and increasing house prices.
You need to consider what your return is on the cash invested. If you take out P&I loans then you are steadily increasing your cash investment in the property.
Interesting thing when you play around with the numbers is that the more equity you have the lower your return.
Probably best explained by an example:
Property $175,000
Int rate 7%
Rent $300 per weekSceanrio 1: $10,000 equity. Positive CF (ignoring expenses) is $4050 so a return of 40.5%.
Sceanrio 2: $20,000 equity. Positive CF is $4750 but return is 23.8%.
As you can see you obtain higher returns from having a lower equity.
And as melbear point out the more properties the more chance of capital growth.Thanks for all the reponses.
Agree that the bast way to ensure good returns is to get the best tennant and then keep them for as long as possible.
I’ve actually seen a couple of IP in Newcastle been turned into student accommodation. These were large homes converted into 8 or 9 bedrooms with a large kitchen and communal area. Then the room are rented out at $60 – $80 per week. Not bad when the original rent would have been $250pw max.
Another idea is to increase returns by allowing tennants to rent items like fridges, washing machine, lawn mower, TV, etc. manty tenants may not have a full range of appliance and will gladly rent them off you for $5 pw. I know its extra work and you do need to take into account maintenance and repairs but I think it can work. Especially when you look at how much whitegood rental companies charge.
When I’m looking at properties I also look at what other usesses the property could be put to and what opportunities there are to gain more income.
My suggestion would be to get Steve’s book read through the example and then try it for yourself. Basically your look at how much cash you get back from the cash you invest.
As for finding the properties that’s the next step. The internet is good way to find a few properties and work through the number so have a look at domain.com.au, realestate.com.au, regionalproperties.com.au
As you can see from the many threads here the only way to find the properties is to get out there. First step would be to look at anywhere in a 1hr radius from where you live (if in Sydney I would suggest 2hrs). Select a prospective town, do your research on employment, housing, schools, etc and then get out there, walk around and find out. The deals are there you just need to find them.
Although I would not suggest this deal to a novice investor but as an example of positive cash flow properties have a look at todays AFR page 51 commercial shop Rent $29.5k pa, $567 per week plus outgoings. Price $420,000…….doesn’t meet Steve’s 11 second rule but on a 20% deposit that would be a +cf of around 6k per year or 7.2%pa.
And that was just from browsing the paper!!
And no I’m not the RE or the owner..this was just an example that properties are there!!!
Agree with Investron – keep you investment plan to yourself.
A few suggestions
– go to a few RE’s asking what they have to rent, then go and have a look at them. That will give you the best idea of what actual rents are in the area.
– try to look like you are a local or at best that your moving into the area soon. Most RE’s eyes light up a soon as they know your from the big smoke.
– drive your own car when looking at properties. RE’s will often take you the long way around past all the best homes, carefully avoiding the housing commission areas.
– Dress down
– Talk to the locals. Find out what they think are the good and bad areas.Most of this is in Steve’s book so use these basics and develop your own techniques.
Oh and make sure you keep a checlist of the properties you’ve seen – otherwise you’ll never remeber what you’ve seen.
Good luck!!!!
Anytime there is a need there is money to be made. I’m in Sydney and close to the city its quite common for people to rent garages and parking spaces. As a kicker to your rent why not think about renting the house/unit and the garage/parking space separately.
Alomg with the jist of this thread I would stay away from anything that is too packaged (if its too glossy theres probably someone else making the profits).
With leasehold you are leasing the property of a third party.
Most property in NSW and QLD is freehold – you can do what you want with it.
The overrider is that the government has the legal power to take possession of any property it sees fit. Although in practice this is rarely the case. If the government decides to build a major freeway and your house is in the way then in most cases you will receive compensation equal to the market value of your home.
Also freehold doesn’t give you the right to anything under your land such as coal, oil, gold, etc.
For region properties have a look at
http://www.propertyguide.com.au
I agree with Steve don’t rely on the internet, get on the ground and get dirty. This might involve some detailed research. Not sure where you are situated but a good start is to get a map and draw a circle of all the areas 1hr from where you are. Then start looking. Do one town per week. Go there, look around, talk to the council, look at employment levels, etc
steveod
Your spot on with your analysis. If interest rates rise many people are going to be in a lot of trouble. When problems happen thats where the opportunity are for smart investors.
With interest rates currently around 6%, a 1% rise is a 17% increase in mortgage repayments. To some people they won’t be able to afford that kind of increase.
As for interest rates rising 1% in a year, well they fell around 1% in a year so there’s no reason they couldn’t go up as well.
They key is to ensure you are in a position to take adavantage of these opportunities when they arise. I think you’ll find there will be a lag between people selling as interest rates rise and rents increasing as supply decreases.
Insurance seems to be the key. You have building insurance, income protection insurance if your working, you should also ensure against interest rate rises (cash reserves/portion fixed rate), and ensure against vacancies (cash reserves, long leases, happy tenants).
Lizzy1
My advice would be to apply the same performance criteria of a 10.4% return. The clients your looking at for the wrap would be similar to the tenants you would be considering in a buy/hold strategy. Therefore you want to make sure that the wrap clients can afford the mortgage/wrap payments.
You can effectively wrap any property but you need to consider you reason for doing it. Usually if you have higher valued properties the clients who could afford to buy can obtain standard finance from one of the banks.
Casey
Great idea as this can really increase your rental returns dramatically. Basically you need to look at the capital gains/increased rate you gain against the cost of the renovations.
Is the house in a main street (thought maybe because of the mixed uses zoning). If it what about converting to commercial premises (doctor,lawyer, etc). Rental returns are ususally higher than residential.
The other thing to look at would be strata titleing; so that you could sell off one or both halves in the future. You would need to check with your local council.
Neill
Thanks, I think its important everyone is aware of all the risks/rewards of property investing overseas before they take the plunge. Most of this discussion so far had concentrated on finding the right property but no one had yet discussed the appropriate structures.
The right investing structure is just as importatnt as the right property.
I’d be intersted to know who’s name you bought the IP’s in; the company, yourself/spouse, family trust or another company?
Wouldn’t you want to protect any capital gains you may make from these properties from your business in case profits fall in the future.
As the IPs are after tax cash flow positive it would be benficial to have them in your name (highest tax bracket of 49.5% compared with 30% for the company). I would also suggest keeping the loans as int only to again maximise the tax deduction. Any excess cash from the properties you could then put in a separate account and used as necessary.
Also have a look at the possibility of increasing your rental return through things like:
– review the rental market in the area. A $5per week increase can really help.
– give new tenants one weeks rent fee but make the rent $5 higher (extra $310 per year).
– review the property managemnt fees. With 3 properties you can probably get your prop manager to reduce his fee by 1 or 2%.
– look at ways of increasing the rent eg put in a new airconditioner but raise the rent by $10 per week. If the property has a garage could this be rented seperately? Could any of the properties benefit from minor improvements (painting) which could allow you to increase the rent?Andrew
Again I would stay away from shares as they can go up as easily as down.
I’m an accountant as well and have been for more years than I care to remember. Don’t be afraid of being in cash just because everyone is in shares and is boasting about great returns. You have your goal just stick to it.
Yes you can set up to make regular deposits from your CBA account into ING. There are no increased rates for leaving your money there for 3 years. That the best thing; good rate of interest and access when you need it.
Been following this thread with interest.
A few questions for you to all think about:
– Australian CGT and income tax still applies eventhough the IP is in NZ.
– as far as I’m aware there is no CGT in NZ.
– what about setting up an investment company in NZ to buy the IP. That way the income and cap gain would be taxed under NZ law (lower tax rates than here than in Oz).
– exchange rate risk. By holding an investment in NZD you are exposed to any increases or decreases in the exchange to the AUD. Over the last 5 years the exchange rate has fluctuated from a low of 0.7450 (9/00) to a high of 0.9300 (3/03).So if you had bought an IP in NZ in 9/00 it would have appreciated around 25% in AUD terms before taking into account any NZ cap gains. However this can also go the other way very quickly. In the ’80’s a lot of people got caught out taking out Swiss franc loans. At that stage interest rates in Oz were 17% but only 3% in Switzerland. And then the echange rate moved and people ended up owing more than they had initially borrowed.
The NZ economy seems reasonably stable so I wouldn’t expect any volatile movements in the short term but definitely something to consider in your overall investment plan.
This link has some good info on NZ economy:
http://msi-network.com/content/doing_business_in_newzealand_page2.asp
Andrew
I’d stay away from shares as the returns are too volatile for your needs. You have a specific goal and you need to be sure of what the outcome will be.
Looking back at your numbers; you said you need to save $8000 in 3 years. This equates to only $222 per month or $50 per week or $8 per day. Now I have no idea of your circumstances but I’m sure you could save more and get that deposit sooner.
As a start have a look at Anita Bell’s book “Paying off your home loan in 3 years”. She has some great ideas for getting that deposit quickly and then paying off the loan as soon as possible.
Bear
Don’t get me wrong, I don’t agree with the way people can rip off the system. The point is that there are always going to be inequalities and loopholes; the winners are the people that can use these loopholes to their advantage.
We all try and reduce our tax bill using what we would percieve as legal methods. If the government says you can do it why wouldn’t you do it.
Why not turn a positive into a negative? Would you rent your property to tenants who were in that situation. Just look at it; guaranteed income and if they have a good credit history; why not?? Possibly even an opportunity for a wrap??
I know of a certain bank (which bank) that has in the past gladly lent money to people in this situation (one on the dole and one on supporting mothers pension). Banks will also take child support payments into account when assessing someone’s income.
Jay
I think your reasoning for Steve suggesting that people use only cash savings as the deposit is spot on. Why risk the family home if you don’t need to. But you need to be aware that if you default on your IP then the bank has every right to come after your other assets.
The structure you’ve outlined is definitely the most tax effective. You should always maximise the borrowings for your IPs and minimise your borrowing for you home.
What about being a little more creative and put the positive cashflow from you IP into paying off your home loan. If you put this in a redraw facility you can always draw against it when the next opportunity arises.
