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Very interesting, just don't understand how it works just yet …
We don't have a PPOR yet as we're overseas investors but this could be an interesting way for us to finance a PPOR and keep the interest tax deductible…??
Apparently these guys still offer pre-1999 Trevisan Trust, but not sure how much they cost
http://www.a4companies.com.au/trevisansupertrust.htm
http://www.a4companies.com.au/trevisan.pdfRodtrac, I'm with Banjo on this one. Assuming you're investing for the long term, hold on to property number 1 and use the positive cashflow to pay off your PPOR faster. In fact, look at ways you can increase the weekly rent of both properties by minor investments to the property (e.g. aircon or just simple painting, recarpeting).
If you want to get rid of the non deductible mortgage on your PPOR, maybe consider an Equity Finance Mortgage – see http://www.efm.info. This way you could borrow 20% or 30% of your PPOR value, but you don't make any interest payments until the loan comes to an end or you sell. At that point you owe them the original loan amount plus 40% or 60% of the capital growth (ouch!!) from the date you took out the loan. If you have a cashflow problem this might be a solution, but you lose potentially a lot of the capital growth. If that reduction in future capital growth allows you to keep IP number 1 it might be worthwhile…
Talk it through with a good financial planner or accountant before making a decision and do some simple calcs, but to me selling IP1 to pay off your PPOR and then later on buying another IP makes little sense as the transaction costs are simply too high.
We have several off-the-plan investments in our portfolio and they seem to be doing well, I paid 10% down and the properties have grown nicely in estimated value and sales prices so with a bit of luck I won't need to put in much more money at settlement (as overseas investors we pretty much limited to 80% LVR). If you can use a bank guarantee or deposit bond it can be even more attractive.
Risks: you buy sight unseen so you need good plans and sketches and be able to translate that to and end product in your mind, you need a reliable builder who's going to deliver quality, on time, wihout major defects at settlement and doesn't go belly up before settlement. Suggest you visit previous project sites. Be careful with pricing as most off-the-plan I've seen is priced closer to the expected value in 2 years rather than the current market in which case you won't make any gains before settlement. Pay close attention to floor plans and differences in prices per unit to select the best value for money option.
And remember, this is a contract of sale, so if you buy off-the-plan and the values go down that's your bad luck but you have to settle, although you could walk away and lose your deposit, but I have been told that there have been cases where builders/developpers sue clients who walked away from thier deposit – if that's true I don't know.
Plenty of risk, but potential for good upside if you select carefully… good luck!
try typing this into google "mortgage sale site:www.realestate.com.au" and if you want just add in a suburb name or any other details you want before the site reference.
Just now in google:
"mortgagee sale" in realestate.com.au gives about 672 listings
"motivated seller" in realestate.com.au gives about 404 listingsIF…. we are investors and not traders then we are in it for the long haul i.e. at least 1 if not multiple cycles. So assuming you can afford to hold your existing portfolio through the tough times, as investors we should be happy with a correction in the market as it provides good buying opportunities. I have two keen interests as a result:
1 – finding some great value deals between now and say the next 12 – 24 months. I believe there is a correction starting right now, but I don't know how deep it will be so I will buy when I believe I have found good value deals. And I will spread my purchases over those 12-24 months so if the correction goes deeper (or not) I will have averaged my buying cost. Once everybody has declared that Aussie property is doomed, will self destruct and never receover again it will be time to get greedy!
2- the robustness of the australian housing market in the long term i.e. 5-10-15 yrs from now and that is where long term trends like migration, demographics, economy, growth in China do play a meaningful role. I believe longer term the Australian housing market will be robust and will show healthy upward trend.
Duckster, Terry, 25North and Banjo thanks for your comments and insights, much appreciated.
For now the plan will be to hold the properties and develop an optimal financing structure.Badgers_R_Us wrote:It's like paying Jamie Oliver a days wage to teach you how to cook an omelette!Badger, this is a great example of you don't know what you don't know until someone tells you (maybe in a seminar!)… making an omelette is considered one of the hardest-to-do basic skills in cooking! Some top chefs have been known to use it as a selection mechanism to weed out average chefs from those with real talent /skill …
Dfitz,
I've got USD loans in place and very happy with less than 4% interest… but you have to either be a non resident and/or earn in a foreign currency to qualify:
As a non resident you can often borrow in many of the major currencies (USD/JPY/GBP/EUR/HKD/SGD/CHF) but it varies by bank on whether you have to earn in that currency or not and some banks exclude AU citizens, some don't. In most cases you won't get an LVR > 75% unless you put additional security in place and for some currencies like JPY the LVRs can be lower (e.g. 65%).
If you are AU resident you'd have to earn in a foreign curency and I guess theye won't be many people who are resident in AU but get paid in USD or whatever – maybe those on a rotation?
There are various brokers and banks (St George, HSBC) out there who can help you if you fit one of the above profiles.
As for currency risk, don't under estimate this! On a $400k loan you would save something like $20k-$25k per annum on interest if you went with USD, but your currency exposure is over the full $400k and currencies can and do fluctuate by up to 10% or more per month. These are often just spikes, but you've got to chose your timing right and be able to ride out those spikes without the bank calling on additional funds to keep your LVR below the agreed level (often 75%), but the exchange rate can work in your favour and then suddenly you've knocked off 5-10% you home loan… but only if you switch to another currency or terminate the loan…
As I said, I've done it (two properties) but I track all exchange rates on a weekly basis and based on the trends and professional currency analysis (for which I pay!) I determine whether to switch to other currencies.
Bottom line is, use foreign currency when the interest differential is significant (like it is now) and when you're confident (or maybe should I say comfortable) with the idea that the currency is like to weaken against the AUD. Don't over extend.
Not necessarily a problem, just a major shift in technologies and economies… and that could be an opportunity for those who see it coming. Indeed, cheap and easy crude is gone and is being replaced by LNG, oil sands, oil shale, gas to liquids, coal to liquids, 2nd generation biofuels and other renewables. There are huge amounts of oil sands, oil shale and especially coal out there and there are still large oil & gas deposits out which we are only now developping due to lack of technology and economic incentive until now.
Don't support any doomsday peak oil scenarios, a big change? Yes… will it change our society? Sure just like the changing demographics do and the growth of emerging markets and everything else.
Rudi,
The market may well go down or crash… so the key question is, if you buy now can you and will you hold on to the property for 1 to 2 cycles. If so an intermitent stagnation or even a "crash" by 10% will do you no real harm as long as you can afford to hold the properties and you've bought properties with solid growth potential. Can you afford to hold them if interest goes up to 12%?
I think your strategy of renting yourself and buying 1 or 2 well placed investment properties is right on, just don't rush it – as you say this is becoming a buyers market so take your time to find the right opportunity. Once you've found it and you can easily afford it and can hold on to it – do it! procrastination gets you no where and there are very, very few people out there who made their money by timing the market !
As Warren Buffet said: "be fearful when others are greedy and greedy only when others are fearful"
Most of these services appartments seem to have a high yield but once to take into account your actual costs in terms of body corporates, management fees etc. the yield is usually not too impressive. Also many of these properties have limited capital growth potential and are often single purpose which limits your exit options in the future.
1. Stay (or move!) overseas and refinance any AUD loans to foreign currency (interest on USD loan now around 3% – 4%)
2. Buy
3. Call some of the other banks I use
4. Get another job, or maybe finally start for myself
5. Sell & LearnIS,
I can't disagree with previous entries that current imes are uncertain, but to say the market is flat is in my view too simplistic. There are niches in the market that have performed well and are bound to continue to perform well even in the next 12-24 months.
The best comment I remember ever reading when I just got started was "It's not timing the market, but time in the market" – I believe that, all the research supports it and therefore the best approach for most of us is to invest when it suits you financially. Some people might be good at timing the market but most of us who have a day job also, are not and are better served by "time in the market" and that means at least 1 cycle (7-10yrs), but 2 is better.
Don't rush out to buy your first IP, read about promising markets (look at demographics, infrastructure developments etc) and source a good value for money property that you can afford to hold on to even if things get worse (interest up to say 12%). If you can add value by a minor (i.e. cosmetic) renovation even better but don't overcapitalize. I would suggest that instead of going for something around the $300k mark I would in your situation have a look at 2/3 bedroom units or townshouses in some of QLD growth corridors (asking prices around $200k-$230k).
Erik
