[fWordParticipant@fwordJoin Date: 2009Post Count: 471]

March 4, 2010 - 10:20 am

If and when they start to do this, it'd benefit some for sure. Suddenly their property becomes 'close to a small CBD' and values of these sleepy outer suburbs would probably soar.

May the next CBD be Ringwood. Haha!

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March 3, 2010 - 11:24 pm

DWolfe wrote:

 I was about 18-19 when I was at a party and a German exchange student said to me…..why don't Australian's build on all of this land (meaning back yards). In Germany we would build on this. To which I the very young thing said noway why would we? There is plenty of land in Oz. I like the birds on my back verandah and a big backyard.

10 yrs later…….

D

Good point. Having said that I know of plenty of folks who wouldn't want to drive more than 30 mins to their workplace (not necessarily in the city). I agree with you that 1 hr traveling time could be considered the norm here because distances are greater. I was born in Singapore and you could either walk to any place or catch a very reliable, fast and comfortable train or bus there. Even taxis are cheap, but that's not the case here from what I observed.

Sometimes I even worry about the infrastructure here. Last year in the summer heat the brownouts and blackouts were quite numerous in my parents' area, which leads me to believe we just don't really have the infrastructure necessarily to deal with an increased load of households…and when water usage increases, therein lies another problem. But these are issues for the 'big boys' to figure out, not us.

The thing you mentioned about building up in backyards (subdividing, building units etc I assume) is met with some resistance in the inner and middle suburbs. Nobody living in those suburbs wants the gov't to build an apartment building next to them. 'Not in my backyard', so to speak, or the resistance present because people want their quiet, fine suburbs with heritage value to stay that way. We were driving past a part of Balwyn the other day and there were protest billboards all over against the building of some multistorey office structure in the area.

If that's the case then building up in the outer suburbs might be the way to go (assuming the residents there don't complain about the same), but then you have problems with infrastructure, or people who just don't want to travel that far to get into the city (if they work there especially). Having said that, I live in an outer suburb myself, and hell, I don't want a multi-storey apartment building in 'my backyard'.

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March 3, 2010 - 12:19 pm

The gov't needs to build up in the areas closer to the CBD. Personally I think that the release of land on urban fringes won't help the situation much. Nobody will want to live in a hole that's 40kms from their daily workplace, especially when petrol prices start to go up. Some folks will tolerate a drive of an hour and a half daily, to and fro from work, but they're a rarity. And besides, when commuting time starts to eat up 3 hours out of the 16+ hours that you're actually awake, that's pretty poor quality of life, unless you're making a tonne in those waking hours and only need to be in the rat race for less than a decade…

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March 2, 2010 - 7:20 am

Haha, I'm almost hoping prices will come down (even though it appears they won't) so I can buy my second property before the end of the year. It's extremely frustrating to become increasingly priced out of the areas where I'm looking to buy. Certainly the market has gone absolutely nuts.

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February 28, 2010 - 12:39 pm

Surrealist wrote:

The Daily Telegraph is reporting people in Sydney who have bought and sold properties over the five years. Seems like a case of inflating property values and people getting sucked in to buying at those inflated prices . Anyone shed any light on this?

http://www.dailytelegraph.com.au/news/our-real-estate-losers/story-e6freuy9-1225835098402

Read this article with interest this afternoon while having lunch. While I'm not surprised it's possible to lose money in property (or course, where there's money to be made, there's money to be lost), I think it would be strange for prices today to be lower than they were during the past 5 years. Those who lose money might be the ones who bought at the peak of a boom and then sold at the nadir of a bust…just like buying shares pre-GFC crisis and then selling in early 2009. That's just bad luck!

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February 27, 2010 - 12:34 pm

Is it actually possible to make money out of a PPOR? We could draw on the equity but be left with a bigger loan. I've always had the simplistic assumption that to actually get ahead in the property market, an investor needs at least two properties, one being the PPOR, and the other being the investment property to play around with. Otherwise with just the PPOR, effectively all you're doing is riding on the wave, hence the philosophy I might have read somewhere that the PPOR is not an investment, it's just a roof over your head. Unless your area booms and records gains way ahead of other suburbs, you're just stuck. Correct me if I'm wrong.

Therefore, assuming someone bought a $600K property and it doubles in value to $1.2mil in the next 10 years, and another person could only afford a $300K property, doubling in value to $600K…it doesn't take a rocket scientist to figure out that the person who could only afford cheap in the beginning will always be stuck at 'cheap'. They could of course downgrade and move impossibly far from the CBD (or their workplace) and pocket some of the cash as profit, but it wouldn't make sense.

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February 27, 2010 - 4:16 am

Terryw wrote:

its not a matter of just telling your broker. You need to apply and set up another loan on property A in advance (ideally) of starting the loan for property B

Thanks for the advise. Let's say I take a loan of $60K on the equity from Ppty A. Does the $60K then sit in my offset account until ready for use (ie. incurring no interest until I use it as deposit for Ppty ? Are there substantial charges incurred for taking a loan on equity? The plan at the moment is vaguely: revalue Ppty A in the next 12 months, take the loan on equity as you said, then with what I have start looking for the next ppty.

Yes I probably should be speaking to my broker about all these things, but want to get as much knowledge as I can before taking the next step.

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February 27, 2010 - 2:08 am

DWolfe wrote:

Is anyone NOT making money from property?

Yeah, me, for one. That aside, a mortgage is a good thing to have.

Maybe I'm a little simplistic here. But assuming a person owns a number of properties but is not geared up to their eyeballs, a lag in the property market isn't going to hurt them. If the first-home buyers are over-committed and have to release their properties to the market, it's going to be soaked up by investors at reduced prices.

And then these same first home owners need a place, so they need to rent, hence keeping the investors around. Really, unless people start living in tents or on the street, I don't understand how a huge fall in prices is going to occur. Small drops will happen with shares or any other investment I suppose, but a drop in the property market of 40% or so is something I wouldn't expect.

Still, I'm a newbie, so all this discussion is good.

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February 27, 2010 - 1:49 am

Terryw wrote:

Yes, you will have to pay interest on all borrowed money. But what is the alternative?

if you cross collateralise you will be in a worse situation, security wise, and have a messy problem in years to come. You will also be borrowing more (same as my method) so it will cost you the same.

If you use cash, that is cash which could have gone off your PPOR loan which could have saved you non-deductible interest. It will also take time to keep saving for cash deposits.

So if I were to draw equity from Ppty A for Ppty B (when the time comes), should I simply tell my broker to 'draw it out in cash' or 'not cross-collaterise'?

I'm actually lucky because once I start renting out Ppty A, I will be living with parents and hence no PPOR loan. They might charge me rent, but I will have no loan per se.

Thanks again.

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February 26, 2010 - 9:35 pm

Qlds007 wrote:

Point take Dan

To correct  –

F could borrow 90% of his current valuation =  $470,000 x 90% = $423,000 – existing loan of $360,000 gives $63,000.

Thanks for the clarification of this. It's a good ballpark figure that I can work with for now.

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February 26, 2010 - 9:34 pm

Terryw wrote:

When you use the equity in property A just think of it as borrowing from property A to fund property B.

Thanks for the response. However in this case I understand that I have to pay interest as with any other loan. As such, is there any real advantage to drawing out equity instead of just borrowing from the bank? The bank would certainly look at my ability to service the loan while considering how much equity to allow me to draw upon. So, if I didn't have enough deposit for Property B in the first place, can I realistically still rely on Property A to fund part of my deposit?

Again this assumes I don't want to loan any more than 80%.

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February 21, 2010 - 9:04 am

Qlds007 wrote:

If you use your own cash as a deposit remember you wont be able to have it back again and claim the interest as a Tax deduction. Most people want to keep their cash flexible as you never know when you might need it.

That's a good point. Better cash in my hand than somebody else's. I was just a little hopeful that using my own equity would be cheaper than taking out a loan for a similar sum of money.

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February 21, 2010 - 5:22 am

Qlds007 wrote:

…the loans are separate and therefore not cross collateralised.

Sorry, what's the significance of this? Does it mean that the bank can foreclose on Property B and not Property A when I can't make the repayments?

So from this I gather the following:

– instead of using 90K of my savings as a deposit for property B, I can use 88K equity (no LMI) from Property A for the purchase
– I end up with two separate loans, one for 88K on Property A and 360K on Property B
– this results in me having 88K cash in the offset account to offset the loan on Property A
– essentially, the only advantage to using equity is just to have free cash ready for something else.

If this is the case then I don't see a huge advantage to using equity from Property A. I might as well use all my savings as deposit on Property B, have next to nothing in my offset account and be able to negatively gear both properties to the max. Is this the way to work? Why should I use equity from one property to fund another? This is something that seems advocated by some who talk about 'buying property and never selling', instead drawing equity from property each time.

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February 12, 2010 - 10:24 am

Thanks Mike, for the speedy response and the detailed, informative report. It holds useful information for research. This act of kindness would certainly benefit many.

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February 1, 2010 - 11:31 am

propertunity wrote:

It's perfectly legitimate to accept contributions to household expenses and not declare them, provided 1) you're not doing it primarily for profit (eg if this was your primary source of income), and 2) you don't claim the expenses they're helping pay, such as mortgage interest. The contributions are not income; it's just that you pay all the household expenses, and then get your fellow householders to contribute a share to you.

The ATO is not interested in non-commercial private and domestic relationships.This can happen where somebody takes in a lodger to help share "running expenses".

http://www.ato.gov.au/youth/content.asp?doc=/content/66884.htm

Thanks for the advise. The greater concern I had was with whether this move would cause me to lose the FHOG (or at least be liable to be fined). I asked a friend today who did state it would probably be ok to actually rent out part of the house as long as I were still staying there myself for the required amount of time.

While I've yet to contact the SRO to get confirmation of this, I looked up information concerning the FHOG again this morning and saw no mention in it that the house couldn't be rented out. One of the key factors was simply that the applicant had to stay in the house as a PPOR for the required amount of time.

Nevertheless I've been in touch with the prospective tenants today and they may have found another place to rent. That puts the questions to rest I guess.

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January 31, 2010 - 10:12 pm

number 8 wrote:

There is no need to air your dirty laundry here…….. Renting out rooms has CGT consequences as well……   I cannot say what to do here but I know a lot of people that will put there hand up for that free rent…..

Leigh Birch
http://www.birchcorp.com.au

Thanks for your response. Deciding to post questions on this issue was a carefully considered move. I've received helpful and relevant responses at this forum before and thought it'd be no harm asking again. I'm almost doing this as a favour for someone (something which I like to do, fortunately, or unfortunately), but having said that I want to ensure that it isn't to my detriment.

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August 28, 2009 - 11:39 pm

Terryw wrote:

Thats true. No good having an offset account if you are a spender.

This will be a real test of discipline I guess…to put the money there and not spend it except if necessary for daily expenses and emergencies. I'm sure there's lots of people out there who promise to save and subsequently don't, and I might be one of them. Thus far however (even before getting the mortgage) I've been a pretty good saver, with a big purchase only sporadically, rather than an impulse-buy sort of person. Again, only time will tell.

The mortgage broker will be sending me two separate spreadsheets allowing me to calculate repayments if I were to do an IO loan or P&I loan, so at least I have some guidelines as to how much money to leave in the offset account if I were to save as though on a P&I loan. Because of the way I spend there's usually a good amount of savings sitting in my account at any one time, and staying with parents does help a lot too.

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August 28, 2009 - 11:34 pm

StumpCam wrote:

Hi Fword, just a slightly different train of thought. There isn't much difference between an IO loan and a P&I loan in the first few years if you've set it at a 30 year term. If you're going to live in it forever after renting it for a few years, then there's a lot to be said for P&I. It's just too easy to rob the offset account, and with P&I you'll hardly notice the extra payments, and the principal will gradually sneak down after a while.
   Lets look at year one for a 350k loan. The repayments with IO @ 5.07% will be $1478.75/m and with 30 year P&I it will be $1893.88/m. Your principal will be reduced by just $5099 after 12 months, ie about a 1.5% reduction. This is roughly what your interest bill will be reduced by, eg about $260 which isn't much compared to the $17745 you'd be paying per anum if you were to leave it IO. That's about a $108 difference to your tax return if you're in the 41.5% bracket when you've converted it to an IP. It will increase each year of course, but if you're only keeping it as an IP for three years or so, it won't be very significant.
   It all comes down to the discipline you can apply to your offset account balance. It's great in theory, but having witnessed my children, (and to some extent myself) I'm starting to advocate the P&I approach more now.

Thanks for the advice. I guess the key advantage that attracted me to an IO loan is the ability to draw on the cash in the offset account during an emergency, some of which would be sticky to remove if doing a P&I loan. My broker mentioned something along what you've stated: it's too easy to get carried away and make big (unnecessary) purchases when there appears to be cash in the offset account…this is why he didn't recommend me an IO loan in the first place.

I've always considered myself to be a sporadic spender. Usually I don't buy anything for an extended period of time, but when I do, it's usually a big purchase. In the past this would have been cameras or lenses as part of my only hobby. Fortunately for now it seems the buying has come to a standstill with the advent of the mortgage, and I try to convince myself that truly, two cameras and a bundle of lenses is more than enough for me.

Photography doesn't pay me anything as a hobby, but on an unrelated note, I've received more appreciation and gifts doing this than while doing my regular job. It's fun and fufilling, which is why I keep at it, I suppose.

So other than that I'd like to think I'm a pretty good saver. Can't beat my brother, but not bad nevertheless.

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August 26, 2009 - 12:47 pm

Terryw wrote:

Since you are going to move out of the house and rent it, you should not pay PI or any extra into the loan. Best to use a 100% offset account with an IO loan – and use your point generating credit cards as much as possible.

The situation is a bit of a funny one. The house is neither an investment nor a house I'm going to be living in, at least for the first 12 months or so. I'd like very much to stay there permanently, get down to furnishing it and actually having a place I could call 'home'. But since my old mates are prepared to put up with me for a little while longer, I might as well live with them while I still can.

The advise here has been great, and also consistent. The info here has been most useful, and I'd certainly be going for an IO loan with offset account. This has already been finalized with the mortgage broker. The whole experience of buying a first home has been a real eye-opener. Neither of my parents have ever taken a loan here, so these concepts would cause even them to raise an eyebrow, but I think I've understood them sufficiently to decide it'd be the most beneficial thing to do.

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August 26, 2009 - 9:33 am

wisepearl wrote:

*100% offset account, with no monthly fees and unlimited transactions
*have all income paid into my mortgage
*live off my credit card, then pay it off in full each month from mortgage
*every extra $$ over and above minimum interest repayments sat in offset account, available for redraw any time, and reduced interest payable on loan

This is what I've also planned to do with a credit card. Previously I used cash for everything and only started using a credit card a few months ago just for the sake of building up some credit history. However with the advent of a home loan the credit card has become something that I can fully abuse. The loan I'm taking up actually provides me with a free upgrade to a Gold Visa card with NAB with no annual fee and still the other benefits of interest-free days.

I'm very thankful for all the advise from the good folk on this forum and also on this thread. Based on this info I spoke again to my broker today and he encouraged me to loan as much as possible (without incurring mortgage insurance fees) and to go with an IO only loan…but only if I were disciplined enough to actually save as much as possible, he said.

Seems that most of his customers have the habit of making just minimum repayments and not actually saving into an offset account to help reduce their interest. I know myself though…and can certainly cut down the Ebay spending to NIL if I really wanted to, and have done so for a couple of months now ever since realizing what impact a mortgage would have on my life.