The avarage house in Syd is $400K, so the repayments would add an extra $100 p/m. But for most people that isn’t where the majortiy of the interest rates hit. Rather it is personal loans and credit cards, because tha banks increase their margins higer than the rate rise, so cards can go from 16.5% to 17.25% even with a tiny 0.25% rate rise.

Also our high eco. growth has a high correlation with high spending. If interest rates rise people mentally might reduce the amount they are willing to spend. This place a contraction in the economy, and reduce our eco. growth.

Rgds.
Lucifer_au

Tell me about it!!!

O’h and lifeX want to explain how you work your DD’s????

Rgds.
Lucifer_au

Just a quick note, the problem with coins is that to make money you have to sell them, yes they might go up in value, but you have to sell them to realise this new value.

Also if you sell them, you lose an asset and the ability to get more money in the future, it’s tough ‘eh! I went through the same phase. Unless you start trading them… I don’t know enough about that market to comment.

At the moment I’m trying to find out as much about ‘shares’ as I can. Specifically, shorts and technical patterns. Can’t wait for the next share boom and bust.

Rgds.
Lucifer_au

We don’t have a Legal & Accounting forum for nothing!
http://propertyinvesting.com/forum/forum.asp?FORUM_ID=23

Most people use comapnies so they never have to go over the 30% tax rate on income (so they become an employee to their comany until they reach the 30% tax threshold), then they take the rest out as basically dividends. So that way they go for 0% to 17% to 30%.

But the real value of companies is how they are treated in terms of expenses:
Indvidual: Earn->Tax->Spend
Comapny: Earn->Spend->Tax

An employee is taxed before they spend a dime of their own money (automatic payroll deduction), but a company can spend as much as it wants (on business expenses) and then is taxed on what is left over. Now in the course of the business you have to do certain things to make money. Such as fill the car up with petrol, buy a new computer, pay mobile, internet and phone bills (so PM/tenants can contact you), subscription to magazines, buy newspapers and books (furthering your education), buying corporate gifts, taking other investors outto lunch, etc. As you can imagine, your expenses could get quite high and that is where you make the biggest savings of your tax. In fact some people deduct everything they can, so in the end they pay 0% in tax.

Robert Kiyosaki’s books go into this very point.

O’h and before I forget – Big Legal Jargon goes here… This is my opinon only and as such, etc, etc.

Rgds.
Lucifer_au

From memory deprication on NZ property is 5%. But check this with your accountant – do NOT take my word for it (as it’s from memory and I don’t invest in NZ).

Rgds.
Lucifer_au

Fantastic post Dram!

Rgds.
Lucifer_au

It’s hard to say… I would jump the price to $2900 and if they bid further (say where onto $100 bids) $3,500, but I’m not going to seriously change my game plan because there is another bidder and the vendors want the best price (say they are a struggling couple?).

In the end though, it’s not up to me to make housing affordable for people to buy. It’s up to the government. They can release land, rezone, provide more public housing, provide rent assistance, reconfigure tax rates, impose and abolish duties and levies, come up with things like the FHOG to make housing more affordable.

In the end for investors, it comes down to the numbers.

Remember they could spend the time to learn how to invest in property (reading, internet, meeting others), but they chose not too. So in the end it’s not my problem that they have not wanted to better themeselves financially. The knowledge is out there (more so than at any other time in human history) and if they chose not to use it’s their choice.

Saying that I don’t really like auctions, so I don’t really buy from them (no creativity, no fun).

Rgds.
Lucifer_au

You can get public liability insurance to cover personal injury lawsuits. It usually comes under Landlord insurance. Rentcover is a good insurance company to work with.

In terms of companies. A LLC is a limited liability corporation, it used in the US, in Australia, we have companies though, which are basically a similar idea/concept.

We tend to use trusts rather than comapnies, because we can get a 50% discount of any CGT, when we sell an asset. To protect yourself further we usually have a corporate trustee.
(Unless you are doing wraps, trhen a company structure will surfice).

Rgds.
Lucifer_au

I was listening to a tpe set, where a owner agreed to allow a tenant to paint the house for a discount on the rent. Unfortantly she was really short and only painted up to 5 and 1/2 foot. The walls were something like 8 foot….

Can anyone say new paint job????

Wonder about public liabilty issues here…. Any thoughts???

Rgds.
Lucifer_au

Time takes its toll on value of HECS discount

By Ross Gittins
March 13, 2004

This is the time of year when a lot of uni students and their parents demonstrate their ignorance of a key concept in economics and business – the “time value of money”.

Actually, when it’s used in business and finance to evaluate investment proposals – as it is every day – it’s more commonly referred to as “discounted cash flow” analysis, which yields a bottom line called the NPV – net present value. If you’ve ever come across these terms and been puzzled by them, keep reading.

But why would uni students and their parents benefit from knowing about such arcane stuff? Because it’s the key to jumping the right way when you decide whether to pay your HECS (higher education contribution scheme) fees in advance – and get the 25 per cent upfront discount – or let them ride and have the taxman take the repayments out of your pay after you graduate and get a job.

A lot of people take one look at that whopping 25 per cent discount and conclude it’s a no-brainer. If you had the money, you’d be a mug not to take advantage of the discount.

But get this: it’s not at all obvious that the 25 per cent discount is a good deal, and for most students it won’t be. They’ll end up richer if they let their HECS debt pile up.

How could that possibly be? Because of the “time value of money”.

Economists believe that, when it comes to paying or receiving money, it’s not just how much that matters, but also when it happens. The basic proposition is that a dollar today is worth more than a dollar tomorrow (or in a year’s time).

Why? Not just because of inflation. The proposition would still be true if there were no inflation. No, the real reason is because humans are impatient animals. If we had the dollar today, we could spend it today, which would be better than having to wait. (Or we could put the dollar in the bank and earn interest.)

If I could quantify your degree of impatience, I could express it as your personal “discount rate”. And if, for example, your discount rate was 6 per cent a year, this would mean that the promise of receiving a dollar in a year’s time would be worth 94.3c to you today.

That 94.3c is said to be the “present value” of a dollar in a year’s time, at a discount rate of 6 per cent.

Note that this calculation works both ways. If you’re going to be paid a dollar in a year’s time, its value to you today is only 94.3c.

But if you have to pay the dollar in a year’s time, its cost to you today is only 94.3c. If today you were to put that 94.3c into a bank account paying 6 per cent interest, in a year’s time you’d have the dollar needed to pay your debt. (So discounting is compound interest in reverse.)

Most business investments take the form of having to shell out a lot of money now in the hope of getting back a small stream of money over many years into the future. Those distant-future dollars aren’t worth nearly as much as the ones you’ll have to cough up right now.

So, to put all the dollars in the sum on a comparable basis, the distant dollars need to be discounted before they’re set against the present dollars to give the investment project’s “net present value”.

Now, if you’re a financial type who is highly conscious of the need to discount future events, you view the HECS arrangement as remarkably generous. Students owe the Government money, but it allows them to delay repaying until they can afford to.

Normally, a bank would charge you interest on such a deal, but all the Government does is adjust the amount of your HECS debt in line with inflation. In other words, it charges you a real interest rate of zero.

What? Someone’s offering to lend you money at a zero real interest rate? A “rational” person would need a lot of persuading to pay off such a loan before they were obliged to.

The only thing that could induce them to do so would be a really huge discount for repaying upfront. So the key question is: is 25 per cent big enough to outweigh the attraction of a loan with no real interest rate?

Let’s say the amount of HECS involved this year is $4000. With a 25 per cent discount you’d make an upfront payment of $3000. You compare that figure with the present value of all the repayments you’d have to make over the years after you graduate.

If that present value is greater than $3000, make the upfront payment – and the difference (not the $1000 discount) is how much you save. But if the present value is less than $3000, you’d be a mug to pay upfront (assuming you’ve got the money). At a discount of only 25 per cent, it’s just not worth your while.

That’s the theory of it. In practice, however, working out the present value of the stream of future debt repayments is a job for an expert with a computer program. And you have to guess how much income you’ll be earning (because that’s how the size of your repayments is determined).

Don’t forget, however, that the HECS rules are about to change. Students who’ve started their courses before next year won’t be affected by the 25 per cent increase in fees (a fact the vociferous opponents of the changes haven’t bothered to stress).

But from July this year, the income threshold at which you have to start making repayments jumps from $25,348 a year to $35,000 (and goes to $36,184 from July next year). And from January next year, the upfront discount drops from 25 per cent to 20 per cent.

It’s obvious that this cut in the upfront discount makes paying upfront less attractive. But, for many students, so too does the jump in the repayment threshold.

Why? Because it tends to push repayments further off into the future, meaning they’re more heavily discounted to reduce them to their present value. And the lower the present value, the less the likelihood that paying upfront will yield genuine savings.

From what I can gather, it’s only those students whose earnings in their first 10 or 15 years as a graduate are significantly above the average for graduates who are likely to be better off paying upfront.

From: http://www.smh.com.au/articles/2004/03/12/1078594564502.html