Forum Replies Created
Checked out the link, FireCeasar.
Did not understand how it worked, the explanation was not exactly that clear.
I saw nothing that compelled me to give it a second thought. Can you give us some more detail as to how it works?
neo25x5,
Are you able to pass on contact details for your broker? Have spoken to 3 or 4 brokers, and while all have been professional & competent, none have really impressed. Would like to find one that really understands what you are trying to achieve and actively supports it.
Regards,
eeshole
Stuart,
Lender 1 has no exit fees after the 1 yr intro period.
Lender 2 has $1800 in the first year, $1200 in the second year, $800 in the third year, then nil after the end of the third year.
I think Terryw made a good point. Things change. Lender 2 may not always have a lower variable rate than Lender 1. After the 1st year, I may be able to negotiate the monthly fees down. It’s probably not wise to make decisions based on long term assumptions that you have no control over. I suppose the pressures of competition will ensure that the two lenders’ variable rates will always be close to each other.
Better to take the $1500 saving in year 1 rather than hang out to slowly recover it over 3-4 years.
Thanks for all the replies.
eeshole
Given that you don’t have a lease it appears that legally speaking you won’t have a leg to stand on. Having said that, a verbal contract is still legally binding, but you would have to prove somehow what the original agreement was, and the intentions of the parties when making the agreement. If there’s nothing in writing, and no independent witnesses, then that would be pretty hard.
If it were me, I’d fence off and lock up the yard. Then send him a letter stating that he can regain access to his goods by making good the arrears and then paying in advance thereafter. Also inform him that if this doesn’t happen by a certain deadline, his goods will be sold off to pay the outstanding amount.
Remember that at $300p.w. and 7% management fee the PM is only making $21 a week from managing your property. Hardly an incentive to leap out of bed each morning and shout the praises of your IP from the rooftops.
You could perhaps give them a deadline to get a tenant (and also set a minimum rent) then move on to a different PM if they can’t do it. Or advertise it yourself. You can even engage the PM just to manage it and take care of the day to day issues after you have secured the tenant. You shouldn’t have to pay letting fee in this case.
Would be a good idea to do some research on current rental rates in the area. Not sure where it is but realestate.com.au has rental listings, and you can always try the local paper.
Regards,
eeshole
Agree in principle, woodsman, but in this case mum is doing it tough and the 16 y.o. is old enough to take some responsibility and help the family out. It’ll be character building too. A couple of shifts a week at Coles or McDonalds would certainly give them that taste of working life without impacting too much on studies. At award rates that would easily be enough to fund a reasonable social life and help mum out with $20 a week board. I’m sure a 16 y.o. would consume far more than $20 worth of food, electricity, phone, mortgage payments, mum’s labour etc etc in any case.
I am a white collar professional with 3 kids under 7 and on my income we barely make ends meet. My heart goes out to any single mum trying to make it on 30odd grand.
Hi guys, can I have people’s opinion on which is the better deal?
Lender 1: $1750 up front fees, variable rate 7.7%, no ongoing fees, will lend 70% LVR
Lender 2: $820 up front fees, 1yr intro rate 6.99%, thereafter std variable 7.8%, $35/mth a/c keeping fee, will lend 66.67% LVR.
Given a lend of 66.67% in both cases, I figure you will get an advantage of about $1500 with Lender 2 at the end of year 1. Thereafter Lender 1 cathes up about $550 a year until the end of year 4 at which both will be lineball. Thereafter you will continue to be ahead with Lender 1 each year.
This assumes current interest rates will stay as they are, for the purposes of the calcualtion.
Which looks better to you?
Thanks, eeshole
I went to a Henry Kaye seminar a few years back. Not the $15,000 one, just the intro where you paid $49 and got to bring another person free. There was a money back guarantee.
At the seminar there was nothing groundbreaking, just very general strategy to buy off the plan on long settlement with deposit bond, then revalue just before settlement, borrow 80% of valuation (which hopefully given capital growth in the past year or so should be enough to borrow the entire original purchase price), then revalue again every year, then build your portfolio and draw out the rising equity to fund your lifestyle.
I didn’t feel that I learned anything particularly useful, so I decided to take them up on the money back guarantee. When the session finished, I looked around for a staff member to speak to. All I saw was an empty desk at the doorway. No one in sight. The next morning they could proudly say no one wanted their money back, so everyone got value from the seminar.
I have been to other seminars from time to time, and I must say that the only value I have got from them was just a prompt to think about investing. I have not met anyone who has gone to a seminar and gone on to make a lot of money from it.
If the seminar presenter was to work with me personally to source and arrange appropriate investments, and only got paid out of the profits if I made money out of it, I would be the first to sign up. But if they want my money up front, and offer nothing but promises that they can’t be held accountable to, then forget it.
Having said that, I believe seminars CAN be very worthwhile. It’s just that I haven’t come across any that I have been impressed with. Apologies to the seminar presenters on this forum. This is not directed towards you guys.
Most lenders won’t touch anything under 50sq.m. Difficulty in getting finance leads to a lack of potential market of buyers should you wish to sell at any time. Lack of buyers means less price growth.
Having said that, the market will determine the price, and even a bad property can be undervalued.
The other thing to consider is that at the end of the day, how much cashflow will you be getting for it? After interest, management fees, rates, body corporate fees, maintenance, insurance etc etc even if it’s positive how much cash flow will there be? A couple of hundred dollars? A grand? $3k?
If it costs 180k, and you need to put in a deposit of 20% + costs, that’s $45k to get in, with not much prospect of capital growth. If you’re getting less than $1000 positive cash flow a year, there are probably other investments that will get you a better return.
For example, if you put your $45k into an ING direct account @ 5.25%, your “positive cash flow” would be around $2,362 with no risk of vacancy, large repairs, bad tenants, loan defaults. And equal opportunity for capital gain (ie. none). This is not an endorsement of ING. Just an example to illustrate the point.
Will you get $2,362 clear from the studio apt every year?
Of course if you DO get capital growth from it, then the whole scenario changes dramatically. For a $180k unit even 1% capital growth is $1,800. I can’t believe that a studio will never grow. Otherwise you would be able to buy them for $2,500 like they were 40 years ago. Personally I think they will generally rise in line with the market. They are only 1 step below a 1 br unit, so at some stage if the 1 bedders are going up, the gap down to a studio can’t keep widening forever.
Hi JoeBorg,
Here is a link to the ATO website which explains how it all works. http://www.ato.gov.au/individuals/content.asp?doc=/content/17023.htm
Here is a link to download the form itself.
http://www.ato.gov.au/corporate/content.asp?doc=/content/43572.htmBasically I think you fill it in, lodge it with the ATO, they send you back a document confirming your new PAYG withholding instalments, you give that document to your Payroll dept, then Payroll applies the new tax instalments to your pay.
I believe this is how it works. I don’t actually use it myself. Anyone else have this in place and can add some advice?
eeshole
It should also be noted that while the official line from the RBA is that the interest rate rise is due to potential inflationary pressures in the broader economy, Ian McFarlane (RBA Governer) did make comments in a Herald article a couple of weeks back that we have erperienced a wealth effect from passive increase in preoperty values, and it has not come about from productivity increases.
Therefore although the property market was not the official “cause” of the interest rate hike you can be sure that it is very much on the RBA’s radar.
JasonBourne,
How do you go about getting to speak directly to the vendors? Do you ask the agent to pass on their contact details? Just wondering how easy it is to get to the vendor, I would think the agent would try and control the whole sales process.
Regards,
eeshole
I concur with the recommendations for Hunter House Hunters. I have personally met with the proprietors and the impression I got from them was that they were sensible, down to earth, and very experienced property investors themselves. They go all over the country researching not just property, but towns, regions, infrastructure development plans, population trends etc etc.
I am currently deciding whether to join up with them. I haven’t yet, the reason is that I only have enough equity for 1 IP at this stage and I am limited to a price which would make the buyer’s agent fee quite a large slice out of the property value.
If I had enough resources to finance 2 or more properties at an average price > $200k each, I would definitely use them as their fees would be a small enough percentage of the property price to be swallowed up by the gains made on the property (they charge a flat fee regardless of property value).
Hi there learningtoinvest,
The question you have asked opens many cans of worms and cannot be adequately answered in a forum such as this. You need to speek to an accountant/lawyer to get some advice as to how the different structures will affect your particular situation.
Having said that, I and the others on this forum can provide some general information which may be relevant or at least give you a starting point from which you base your enquiries.
Keep in mind that this is not intended as financial advice and please seek professional advice from a qualified and licensed tax/accounting advisor.
If you invest in your own name you will pay tax on any net income from your investments. You will also pay capital gains tax when you sell, although you get 50% CGT discount if you hold for more than a year. If you make a net loss each year, you get to claim a tax deduction for it. If you default on the loan and it gets repo’d and sold off by the bank, and you owe more than the selling price, the bank (or their mortgage insurer) will sue you to recover the balance. This may put your other personal assets at risk. But you can get mortgage repayment insurance to mitigate this. Also, you are exposed legally if anyone wants to sue you in relation to the property (eg. the house is structurally deficient and a tenant falls through the floor and injures themselves). Again, you can insure against this risk.
A sole trader is basically you personally operating a business. It is not a separate legal entity to yourself. It is just a term meaning you, carrying on a business. The legal liabilities would therefore be the same. The tax liabilities would mostly be the same, although there might be more deductions available if they were business expenses. It also depends if your are carrying on a business doing something else, and also investing in property, or if you are carrying on a business of property trading or property management. If you are carrying on a business of property trading, all your profits on selling would be taxed as business profits, not capital gains, therefore you would not get 50% CGT concession. As a sole proprietor if your turnover (gross revenues) is >$50K you will need to register for GST and lodge BAS’s etc.
The difference with operating ta company is that a company is a separate legal entity to its owners (ie. you) and therefore if it owns the property, it will be legally liable. People would sue the company, not you, for any legal claims. Also, the revenues (rent) and expenses (interest, rates, management fees, maintenance) etc would be earned and incurred by the company. The company tax rate is 30%, which may be higher or lower than YOUR marginal rate. Also, no 50% CGT concession on selling the property. If you wanted to pull money out of the company, it would usually be treated as a dividend (therefore assessed to your PERSONAL taxable income) or a salary (again personally taxable to you). It takes about $1000 to set up a company, and you need to lodge a separate tax return and ASIC return each year. The you also have to consider GST and lodging a BAS (business activity statement) every quarter.
Another structure to consider is a trust. A trust will provide legal protection as well as potential tax considerations. That is another story altogether and a little complicated for me to explain in a few lines.
I have talked over a trust with my accountant. It’s not cheap as you need to involve accountants and lawyers, and at the end of the day what really is the risk of everything going pear shaped and you getting the pants sued off you? If you have the correct insurances in place, he suggested you should be OK to invest as an individual.
Hope this helps. Any other forumites wish to add to this, or correct me if I have said something incorrect?
Regards,
eeshole
Dazzling,
Can you tell me who your lender is? I’ve shopped around a bit and can’t find any fixed rates below 7.7%+. I’ve tried ING, IMB, Suncorp, Westpac, Citibank, Public Trustee NSW, and spoken to 4 different brokers. Are you getting a special deal or is that what your lender is offering to the general public?
Zippys, have you made any progress in your enquiries since you started the thread?
Regards,
eeshole
Or you could leave it as is – I think you can still rent it out as 2 dwellings – you’ll just need to find a way to apportion the electricity & water between the 2 tenants. Perhaps charge a set monthly fee for these from each of the tenants and pay the bills yourself.
A good property manager should be able to advise you on this.
I believe to do this you might have to strata title the property, or subdivide it.
I’m not an expert on this subject, though.
Monopoly, I honestly don’t remember ever saying I was 16 (well at least not in the last 19 years or so). I think you might have mistaken a post from someone else.
Never mind. Sorry if I did suggest it inadvertently. My wife would agree with the mental age bit.
Back to the subject, it seems Westpac has reasonable commercial fixed rates, and they don’t mind the smaller amounts (they are probably friendlier to existing customers). A broker suggested Suncorp as well.
It looks like all lenders are increasing rates in line with the RBA’s .25% increase. Many of them still quote the old rates on their websites, but from what I can gather the rate rise will definitely apply for any loans currently going through the application process.
Would like to get people’s opinions on where rates are heading from here. Fix for 5 years at slightly higher rate? Or stick with variable and take the gamble?
Regards,
eeshole
Hi Calvin, thanks for your post. I take your point about child care costs taking a big bite out of the second income. In fact my wife stopped working after the birth of our second child for precisely that reason.
When I made that comment I was more thinking of families where all the kids were at least at school and therefore childcare costs wouldn’t be an issue.
It’s great to hear about your plan. I am in a similar situation to you familywise, although not quite as advanced down the track of the long term plan. Hang in there, and let us know how you go. It’s very inspiring to a fellow battler like myself!
eeshole
Qlds007, thanks for the reply. I’ll try Orix.
A broker told me apparently Suncorp will do smaller loans too. Rates are quite high though.
Monopoly, why do you think I’m only 16? That’s probably my mental age, but I can tell you it’s been a looooooong time since I was remotely close to 16.
Sometimes I wish I was 16 again.
For anyone else looking for commercial loans, you can try the Public Trustee – http://www.pt.nsw.gov.au. I spoke to the guy that runs the commercial mortgages division, he’s quite a nice guy, helpful too. The good thing about their product is you pay quarterly in arrears.
Regards,
eeshole
