Forum Replies Created
Hi Dino,
You give some good points, i spose i will just have to do my sums and see. The main difference in putting in a term deposit is that there is no chance for capital gains, with a $170,000 house, you would expect it to have doubled in value over a ten year period to $340,000. Also rents will increase but the initial outlay will remain the same, therefore giving higher and higher annual returns as years go by, so really 5% over 10 years is probably not the actual return you would get.
Fudge111[8D][
][][^][]Sorry Steve, I have just seen Terryw who is a gold member 4 stars, must be 500+, i spose that’s as high as it goes?
Fudge111[
]Thanks Sue, I’m so glad you are always willing to answer questions, it really doesn’t matter how much knowledge you have, every little bit still helps.
Anyway I pretty much understand all that about depreciation, i just don’t think it is a big thing to do with the differences between my plan 1 and plan 2 which was in an earlier post in this topic, anyway, if anyone wants to add anything, feel free
Thanks heaps
Fudge111[]Hello again everyone!
In many of the replies to this post people have mentioned how i left depreciation out of my calculations, oz had this in his post Cash Flow = (-$989+$14280+Depreciation?)-($9520+$800+$400+$1285+$170)= $1116 PA or $21 PW
What would the depreciation be, and i don’t understand how it is a cash flow, you can only claim dep’n on your tax i thought?
Please could someone give me some answers, I am slowly understanding more and more about property investing and very soon i will not sound like such an idiot anymore,
Thanks guys and gals
Fudge111[][][][][]Hi Ozpatin,
My loan repayments are not based on interest only loans, it is a P&I loan of 25 years, the yearly repayment on such a loan is $11,535, i used the calculator on http://www.loan.echoice.com.au/pages/h_propinvest_basics.html to get this solution.Also wouldn’t depreciation be the same no matter what plan i used? Also isn’t it only houses built after 1985 that are applicable for depreciation?
Regards
Fudge111[]Hi Jim, I take on your points, however i understand alot better when i am shown a practical example.
In my plan 2 when I do not include any of the loan repayment as a tax deduction, i include it in initial outlay 40,860+151,174=$191,854
There will be around 16,000 of this that is tax deductable.
Then there is the 11,625 profit per year, i am just assuming that rents, rates and tax increase by inflation for simplicity. Well this 11,625 would be taxable income which may decrease to $6,500 in your pocket, i acknowledge that.
However there is also 16,000 of taxable deductions in the first 3 years which means taxable income in first years is not 11,625, but closer to 6,290.
I’ve probably just confused everyone again, but I am trying to understand things more clearly
Fudge111[][]mmm, thanks diclem,
I must say I didn’t get that opinion from Steve’s book, but you could well be right, i’ll ask him that i think.While I’m at it I did a few sums on 2 different ways to go about investing in the same house, as i am only young, if I make errors anywhere then please point them out
Property 170k
Weekly Rent $280Deposit (20%) 34,000
Stamp Duty 5,860
Closing Costs 1,000
Initial Outlay =40,860Plan 1: loan 7% 25 years $136,000
Annual Rent 280*51= $14,280
less
Annual Repayment= $11,535
Rates= 800
Insurance= 400
Management Fees 9% 1,285
Land Tax (unimproved) 170
Total Costs $14,190
+ve cash flow $90p.a
After 25 yearsInitial Outlay (40,860)
+ $90*25 yrs 2,250
Total Loss (38,610)Plan 2: Loan 7% 3 years $136,000
Repayment p.a = $50,391
total rep over 3 years $151,174Annual Profit
Rent 14,280
less rates, ins, man fees etc 2,655
Profit per year $11,625
After 25 yearsOutlays Initial: (40,680)
Loan Rep (151,174)
=(191,854)Profits $11,625*25 yrs
=$290,625Total Profit $98,771
There you go, hope my sums are correct, i know however using plan 2 you will not own as many properties and therefore have less capital gains, but anyway, just something to think about.
Fudge111[]Sorry Guys,
The last point I want to reiterate was one i made in my 2nd post in this thread, is the one of *time*.
Sure, i may not get the returns doing it this way compared to buying many more properties, however I really don’t look forward too much to spending every second of my free time (which we are trying to achieve more by investing) trying to find more and more investments, if I see a deal sure I’ll follow it up but this way just paying off loans takes hardly any time at all, and i will be able to relax more to things i love to do for leisure,
I need to find a good balance between the 2 i think
Regards
Fudge111[][^]Thanks Jim.
Yeah, I think I would have to be put in the bracket of people who are a little more cautious and take a few less risks.
And you are correct that we can change our tack whenever we like. I mean, I’m sure I’ll find a few great +ve cf properties which if already earning passive income from day one i will just leave them to prosper.
Obviously though we most likely will have a few neg geared properties that we could pay off a bit quicker so that we have less risk and essentially then make our 8%-10% return on the purchase price for many years to come once we fully pay the loans off.
This approach will take a few years of living a little poor and pouring most of our incomes into it, however, we are both only 20 and it won’t hurt us for a few years, especially if I stay living at home and pay a little less rent than i would out in the real world, (when you take out bills i will not have to pay, nor food)
We still have plenty of time to change our minds but i know i will do all the sums and see which strategy best suits the kind of people we are and what we want out of our investments. Maybe it could be shares, who knows?
Thanks everyone for all this input, it’s been a real eye opener!
If anyone else wants to have their say then I would love to hear from you.Thankyou, Fudge111[
][8D][][]Also Jim, I think my post was misleading, i meant to say that we would acquire all the properties perhaps within 5 years, definately not pay them all off, sorry about my inaccurate post,
Fudge111[
]Thanks for your advice Jim,
Well we will have 2 incomes to source our investments, i say will due to the fact that both broz and 1 are still at uni and are yet to have full time jobs, I will become an accountant and she is planning to be a midwife.
Another fact is that when you pay off your loan quicker all the loan repayments will be tax deductable too so you will not need as much money to pay them off as you really think, especially if you are in the top tax bracket, this is different to the deposits that you have to save up for which will be 100% out of pocket, where as a loan repayment could only be 52.5% out of your pocket.
Sorry if this confuses everybody, tried my best,Fudge111[
]Thanks again Melbear!
It’s amazing how much I’ve learnt in the short time i have been a member of propertyinvesting.com, this forum is such a great source of information!
Fudge111 [
]Hi Melbear,
Point taken, I spose the main reasons i hope to invest is to keep the properties as rental properties for as long as possible, i know it could be harder to refnance with say less equity, but however with all the extra passive income it shouldn’t be needed.
I also see many of the posts about *Time* and I think it sure takes alot of time to research areas for property investments, so i suppose my rationale is that it will also free up alot of time if you are simply paying off investments you already have then putting alot of your free time into finding new deals, plus as I mentioned earlier, huge savings in interest will occur too!
Any other opinions?
Fudge111[
]Hi Everyone,
You have mentioned in the post about taking out an interest only loan, while i understand the workings for this, how many years will you have to keep paying the annual interest, is it forever?
I am relatively new to all this stuff, my more i learn now the less of an idiot i’ll look like later, lol[]Thanks, Fudge111
One time a real estate agent from Bendigo told me that what they do is they take the value the vendor wants to sell the property for, and then goes 1/3 upwards and 2/3 downwards to get the price range, or was it the other way around?[
]Anybody know?
Fudge111[8D]
We both also use ING Direct, it is excellent, it is linked to your everyday streamline account which means you do not need to change banks either[
]Fudge111 and Broz00
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