Forum Replies Created
Hi JJAUS,
I tried to check out your website at the bottom of your post but it appears to have a problem and doesn’t open.
Regards,
eeshole
Damn! The best my broker could do was a 70% lend with Citibank. If only I had known where to get 80% LVR on a commercial deal. Now I have chewed up all my equity and don’t know how to keep investing.
Hi grossrealisation,
In your post you stated “you can get 100% lending organised without mortgage insurance and normal lending it just takes a little creative pen work.”
Could you elaborate on this? I didn’t think this could be done. But you seem to know what you’re talking about so I’d be very interested to find out how this would work.
Thanks,
eeshole
Also try Westan and MiniMogul from this forum for NZ properties.
DD on this forum does this. PM him and I’m sure he can explain the details to you.
I haven’t bought through him yet, although I have spoken on the phone to him about a property and exchanged several emails. I have found him to be a nice guy to deal with and very knowledgeable.
eeshole
Simon, can you point us to some Aussie resources on the subject?
Oshen, can you give us a run down of how you did it? Being able to ditch the job after one deal is something that most of us only dream about. Can you inspire us with your story?
Regards,
eeshole
Can I add my 2 cents worth?
Most replies tended to be about what Bonnie should or shoudn’t do, but I think the question that she’s really asking is whether or not landlords can change clauses in a lease contract after making verbal representations about the agreement.
Theoretically a verbal contract is legally binding, but practically speaking it can’t really be enforced unless you have some proof of what was said verbally.
ANother question then arises – does the conversation about the air con constitute a contract at all, verbal or otherwise? Remembering back to contract law at uni, two essential elements of a contract are offer and acceptance. From what you have described, I’m not sure that you can establish whether you have an offer and an acceptance.
So in answer to your question “Is this allowed”, the answer is yes. Or rather it’s not disallowed. Basically the landlord can go ahead and prepare a contract with anything they like in it, regardless of whether it’s what they said before or not. It’s not moral, and it’s not ethical, but the bottom line is they can, and there’s nothing to stop them from doing so. The lease agreement which both parties sign is the document which really governs the terms and conditions of the arrangement.
You as the other party to the agreement have the power to refuse to sign the agreement unless your requirements are put in there. Otherwise you could appeal to the other party’s conscience or sense of integrity (if they have any).
It’s a jungle out there.
Hi Mini,
I noted your previous reply to Torachan, where you offered to help him (her) find a CF+ IP within 3 months, just because. And because you like a challenge.
Well if Torachan didn’t take you up on it, or you would like another challenge, can you help me?
Regards,
eeshole
How about Baaa-ckpackers then?
And so it comes down to a question of semantics. I guess if you stick to positive cashflow you can’t go wrong. Anything else… isn’t positive cashflow.
Egg City Backpackers?
Actually, sometimes I question whether depreciation should really be taken into account when calculating whether a property is cash flow positive or not.
That’s because it’s not a permanent gain, it’s only a deferral of tax.
Example:
You buy an IP for $100,000. You sell it for $150,000. You pay capital gains tax on the gain of $50,000.
Say during the time you owned it you had claimed $10,000 of depreciation. Now when you sell it the depreciation claimed will be deducted from the cost base, so your taxable capital gain will be $150,000 – (100,000 – 10,000) = $60,000. Therefore you still end up paying tax on it. You just get to defer it earlier on by claiming depreciation deduction, in return for paying it via CGT when you sell (note, I have ignored the 50% CGT discount for the purposes of simplifying the illustration).
In a similar way, if you could capitalise the interest on your investment loan, that would make the IP look extremely cash flow positive, but it could well be negative overall.
I’m with Debtdogg on this.
How about an example:
Say you buy an IP at $100k, which returns $200 a week, that’s $10,400 a year in rental revenue.
Say you financed the whole lot with an 80% investment loan, and funded the deposit of 20% and the closing costs of $5k with a redraw from your PPOR line of credit, effectively paying 7% on $105k. That’s $7,350 interest a year.
Now let’s explore the following 3 scenarios.
1. Rent $10,400 less interest $7,350 less other costs (mgt fee, rates, insurance, maintenance) $1,500 = $1,550 annual profit. Say there is a $3000 depreciation deduction. Thus, for tax purposes, you have $1450 tax deduction ($1550 – $3000). You are therefore entitled to a tax refund of $703.25 from your property investment activities (assuming tax rate of 48.5%). Cash flow for the year is $1,550 profit + $703.25 tax refund = $2,253.25. You are CASH FLOW POSITIVE
2. Assume the same rent and interest. This time, your other costs are $5,000. Therefore rent less interest less other costs = -$1950 (a loss). Add your depreciation and your total tax loss is $4,950. From this, your tax refund is $2,400.75. Total cash flow for the year is -1,950 cash loss +
2,400.75 tax refund = $450.75. You started with a cash flow loss, but your tax refund turned you positive at the end of the day. You are POSITIVELY GEARED.3. Same rent and interest again. This time your other costs are $5,000 again, but your depreciation is only say $2,000. Your cash flow is -1,950 again, and your tax loss is 1,950 + 2,000 = 3,950. Therefore your tax refund is $1,915.75. You started with a cash loss of 1,950, you got a refund back of 1,915.75, leaving you with a net loss after tax of $34.25. You are NEGATIVELY GEARED.
So in summary:
Positive Cash Flow = Cash profit, you pay some in tax
Positively Geared = Cash loss, but tax refund more than makes up for it and you are still ahead after tax.
Negatively Geared = Cash loss, tax refund not as much as the loss. You are still in a loss position after tax.
How does that sound to everyone?
Hi Jaffasoft,
First of all thanks for a great tool, and especially for distributing it free to all interested investors. Good on you for giving us all a helping hand!
Can I make a suggestion for something to add to it? Perhaps I should submit and SDR or SCR or something like that.
Many investors would be funding the deposit for their IP via a redraw from the equity in their PPOR or other property, which may well be at a different rate to their IP loan. Or else they might have split their loan between fixed and variable rates.
Therefore they might be borrowing 80% of the property in one loan at one rate, and the remaining 20% + closing costs out of their line of credit at another rate. Can a section be added to the calculator to take into account the effect this second source of finance? This may also affect the calculation of COCR. What is the return when you have funded the entire price + closing costs with debt and committed none of your own capital? Or is the redraw from line of credit considered a cash investment for the purposes of calculating COCR.
If you need further input from me regarding this I would be happy to collaborate with you, or supply any further info you might require.
I have done this on an Excel spreadsheet but it’s nothing near as slick as Lap Pack. Would be happy to shoot you a copy via email if you’re interested in having a look, although the calcs are very simple so I imagine that if you’ve come up with Lap Pack you would find this additional stuff a breeze.
Regards,
eeshole
How about Hangi Hotel?
Personally, I would steer clear. The jail is not that much of a worry for safety, I would think most escapees would be trying to get as far away as possible, not hanging around the area to hassle the locals. It would be more a matter of the thought of a nearby jail dampening demand and therefore future capital growth.
Just did a google search on the book and you can get it from amazon for about $10 something US.
http://www.amazon.com/exec/obidos/ASIN/0743272935/103-5202972-3403010
Haven’t read it myself. This is not an endorsement. Just the result of a curiosity search late one night.
eeshole
Andy,
It’s probably a good idea to get a valuation, and also to check what similar apartments in the area are selling for. Then you have a definite idea of how much the unit is worth, and whether it’s worthwhile ditching it and losing the deposit.
How long would it take you to save the deposit again if you had to back out and lose it? In that time, could the unit have regained some value such that you are not too far behind?
If you lived in it, can you afford to service the mortgage repayments? Given that you are getting FHOG, I’m assuming you don’t already own a property you are living in? Are you currently renting or living with parents etc
My brother got stung by a QLD apartment several years ago, bought off the plan and found that on completion it was way below the purchase price. Luckily he could afford to service the payments. He hung in there, and now he’s made his losses back and the property is now cashflow neutral.
Don’t give up yet. Get the valuation, see a solicitor, do the numbers.
eeshole
I am not on the Jenman payroll. I have had no previous dealings with him.
I have been to his website and read with interest the articles on it. I think he does a good job of educating the public about the corruption and dishonesty of those in the real estate industry.
I have emailed him twice about the content of his articles and both times he has sent a personal reply with a good explanation.
In my books, he’s OK. Those who don’t like him, do you have any facts to support what he’s doing wrong? I am keeping an open mind.
eeshole
