Forum Replies Created
Couldn’t agree more with the above posts. Bankruptcy might seem like the “easy” option but it has other implications.
Buckle down and get serious about getting yourself out of this predicament. Not only will you do it faster than sitting waiting for your bankruptcy period to pass, you’ll also feel a whole lot better about yourself and put in place some good habits that will allow you to start investing sooner.
Good luck
Megan
You’ll need to get their DCP (Development Control Plan) to find out what you are and aren’t allowed to build. You’ll also need to find out about Floor space ratios (how much land to buildings) you’re allowed, where on the land you can build, how close to boundaries etc and what materials you can use.
Make an appointment to see a Planner at the council and they should be able to help however you will need to go to them with some idea of what you’re trying to do before they can give you any concrete advice.
Megan
Hi Beast,
Good advice above. Make sure you know what you want to achieve from your investing before you go off and buy “any old” property.
Re; the tax variation, you will need to lodge a PAYG Withholding variation (available off the ATO’s website – http://www.ato.gov.au).
You fill this out itemising your income and property (and other) deductions and the ATO calculate your notional refund and advise your employer to reduce your weekly, fortnightly or monthly tax (depends on how you’re paid) to, in theory, give you your refund as you go rather than at the end.
Hope this helps.
regards
Megan
You’ll need to do a fair bit of analysis before you know whether or not this makes a worthwhile development site. You say the land is worth $600K or less. How many units might you be able to get on this site? (Check the zoning to see what the council allows) At first glance, probably around 3.
Then you need to do a feasibility on the development. This involves the following
Calculate costs of acquisition – land cost, stamp duty, legals.Then calculate the following:- cost of getting plans etc, DA costs, council contributions (usually an amount per unit), cost of construction per unit, holding costs (rates and taxes), interest and establishment costs on a development loan (I assume you’d be financing it)
Then work out what you think you’d get for each unit (be conservative).
Take off marketing costs (i.e. agent’s fee on selling the properties) legals on sale, etc. If you’re going to hold them you can leave this off ‘
There’s also the cost of the subdivision if you’re dividing the block up.
You’ll also need to factor in the fact that you will get GST refunds on construction expenses but you’ll have to pay GST on the sale prices if you sell.
After all that (WHEW!) what does your profit look like? If it’s not around 20% most developers wouldn’t touch it.
Obviously, this is really general information and I don’t know whether you’re a builder or whether you’d contract someone so guessing at constructions costs might mean you need to talk to a builder first.
If your idea is to buy, build another house (which you mention) go through the same exercise above and see if it still makes sense.
If not, don’t despair – just keep looking. It can takes ages to find a good site, but when you do the rewards can be very much worth the effort.
Good luck and keep hunting!
Megan
Yep, your calculations are right.
In relation to the loan, it depends on how your bank does it – or how you want them to do it. In some cases you can just increase the current loan (which means you’d be best to have your account divided into sub-accounts.
Alternatively, the bank might just set up one new account for the whole lot and simply secure the $48K part of the loan on the first property. Be careful however because this usually means that the bank will cross-collerateralise your loans (meaning they’ll bundle them up all together across all securities. This means that it’s harder to unlock a property or more equity at a later stage. Avoid cross-collerateralision at all costs if possible.
Hope this helps.
Megan
Great advice on this topic. I’m also a fan of not selling – unless the -c.flow is causing too much pain.
Perth is apparently still growing and a great market according to many.
I have an absolutely awesome accountant. Knows all about property, is an investor and developer himself and a structuring expert. Located near Parramatta. Send me an email and I’ll give you his details.
Megan
Don’t know if I agree with clones. As he/she points out quite rightly initially this will save tax but is only a short term view.
While you might be the larger income earner now (and thus gain the bigger benefit) what happens if you stop working (get sick – heaven forbid, get made redundant or retire).
All of a sudden your wife is the larger income earner and you have no income to claim your deductions against.
There are some trusts that you can set up that allow to you “manipulate” the income to suit situations as they change.
Make sure you get a very good adviser (preferably someone who specialises in this stuff) It can save you a fortune!
Megan
Good advice Giddo! Can I add another thought?
Remember that it’s not only cashflow that’s important – capital growth can provide you with benefits too. Either live off it, use it to fund more properties or realise it by selling.
However, the trade off is usually (not always) cashflow. If you buy only properties that meet the 11 rule, then you will make a little cashflow from each. Let me tell you, it takes a lot of these properties to be able to replace a decent (and even ordinary) income. If you’re getting $20 pw you’ll need around 48 properties to replace a $50K income! Not easy!
If you want $100K you’ll need 96 of these little guys.
However, if you buy in an area with better capital growth that some of these country ones tend to get, you can make good “money” in the growth itself. Of course, you need to be able to fund the negative gearing.
There are other ways of making cashflow – Giddo outlined them – deveoping, renos, etc and there’s wrapping as well if you like that sort of thing.
Just a personal comment – I’m not a fan of selling because when you do you deplete your asset base of the value of the agent’s commission and legals etc plus forego any future capital growth. If you then reinvest in another property, you also deplete your net worth by the stamp duty on the next purchase. In my mind, unless there’s a really good reason to sell, I don’t – I simply “unlock” my profit by refinancing. It’s also tax free!!!! [biggrin]
I know not everyone agrees – but it works gangbusters for me!
But before you do anything, have a look at all the options, decide what you want to achieve and design yourself a strategy that will achieve your personal goals.
Good luck
Megan
I agree. Could be a developer wanting to buy up a chunk (say properties next door) or who knows that zonings will be changed.
Megan
I think the issue with network marketing (or any other kind of business for that matter) is that people join thinking that it will be a “magic pill” – the opportunity to make lots of money for only a little work.
In reality and in my experience in business, people who makes successes of business are those who feel passionately about what they do and jump in enthusiastically to get it going – and keep it going.
If you don’t feel passionately about AMWAY or any other type of business, I hazard a guess that you’re not going to make much out of it.
Yes, people do make fortunes in networking marketing (and in other types of business) but you really need to put in the hard yards up front.
I guess where I leading with all this is ‘are you prepared to do that?” If so, then go for it. If not, don’t look at it as the magic answer.
Finally, you don’t need a business to start investing – just income, regardless of whether it’s from a business, a job or any other source.
I think Kiyosaki uses it as a suggestion, not a golden rule.
Good luck with what you decide.
Megan
Eleven
The most astute accountant I’ve ever come across is Ed Chan from Chan & Naylor. He is as sharp as a tack, an investor himself, a property developer, specialist in structuring and what he doesn’t know about property you could write on the head of a pin!
Ed’s in Sydney (Dundas) and will probably refer you to his in-house guy, Dave Austin – also a guru in this area.
In relation to brokers, we use Kim Burke from Avibe. No. is 1800 284 230. She’s also very sharp and a real lateral thinker.
Haven’t yet found a great lawyer although have a couple of reasonable ones. Let me know if you want any more details.
Megan
nm,
You need to think about it in a bigger way than this. You say that husband and wife’s income is the same now, but will it always be? What if one of you wants to retire? Or needs to stop working because of illness (hopefully not) or other reasons? Or is made redundant?
The last thing you want is to find you have put all or half of the tax liability in the name of the person with the highest income.
There are some trusts around that are flexible enough for you to cover changes in situations as above.
Another reason for the use of a structure is that it can protect your assets from litigation and also minimise tax.
See a good advisor – one who specialises in property, not just your average accountant (even though they will tell you they know about trusts.
Megan
Paula
I basically agree with CATA but don’t think that some of your basic questions have been answered. Firstly, if this is residential property there is no GST to claim back, regardless of which structure you use.
Secondly, I can’t believe you have to wait until October for an appointment. Find another adviser!! I can give you the name of a couple of very good ones.
Thirdly, I support CATA’s advice about buying in structures esp. if you are planning a decent real estate portfolio. Not only that but in our litigious society today a structure will protect your assets.
Fourthly, please make sure you see a good advisor, one who specialises in structures and invests in property themselves. Most accountants say they know and set up trusts with co. trustees only to find that they trust they used doesn’t give any consideration to land tax (which from my experience is usually forgotten about in most transactions.) You’ll also need to know your exit strategy BEFORE you buy because it will hve an impact on what structure you use. By exit strategy I mean will you hold or sell – and when.
Hope this helps. Good luck
Megan
I’m a supporter of HOLD HOLD HOLD. It doesn’t make any sense to me to sell a property and then buy back into the market. For a start you deplete your asset base by at least the cost of the selling agent’s commission and legals.
I support your idea of using the equity to increase your holdings.
Positive cashflow properties are easier to find in country areas – perhaps you need to widen your scope. As well, you’ll get positive cashflow from wrapping, if you’re open to that, buy, of course, won’t be able to “hold” the asset.
Megan
Agree with Dazzling except on point 1. If you and your parents are happy with the status quo and everyone feels content with the situation – they I don’t see why you should move our just to make a statement that you’re all grown up!
In this day and age when it’s getting harder than ever to get into a home, I’m more than happy to help my son with a “leg-up” by keeping his costs low.
As a mum, whatever we can do to help our children we do. Hopefully, you do the right thing by them too. I can only assume that Dazzling doesn’t have children!
Kudos to you on the attitude. Find a cheapy, do it up and move onto no. 2. With your attitude and record so far, you’re doing well and on track for a good investing future.
Best of luck
Megan
Seek advice from someone who specialises in this area. Most accountants will tell you they know how to set up trusts (and they do) but most don’t really know the intricacies and could cost you more than they save you. The biggest issue most accountants forget when advising on Trusts is land tax – which is self assessment.
You also can’t get everything you need from a book – although it’s a great place to start. You will need to seek advice from an expert. You will also need to know your exit strategy with each property before you go in i.e. are you going to hold, sell, etc.
I can give you the names of a couple if you need them.
Good luck
All the best
Megan
Hal
Not sure that Nigel’s comment is correct. It’s my understanding that any transfer (except under administration of an estate or family law orders) incurs stamp duty, regardless of whether it’s a close relative or not.
Even transferring between husband and wife incurs stamp duty (which is why you need to get your structures right from the outset).
Check with your accountant, however, if you have unusual circumstances.
Megan
Ben
What you’re talking about is property “trading” and is very much like share trading. Trading relies on you being able to “pick” the market and I agree with Danny, it’s very speculative.
As well, each time you sell, you deplete your asset base by the cost of the sale. E.g. Assuming all you own at present is your house. You have $250,000 net equity i.e. your net asset base is worth that. If you sell, you will incur agent’s commissions and legal costs, which could be about $10K. Now your asset base is $240K. When you buy again, you will incur stamp duty of say around $20,000. Now your asset base is down to $220,000. You’re going to have to make at least $30,000 on the next deal just to be back in same position you were before, before you even start to make a profit on the next one.
I wholeheartly agree with Ben that you’d be better to use the equity you have to invest in more property rather than speculate on where the market is headed. Even the “experts” can’t agree!
Some say up, some down, some say it will stay flat. I tend to think the correction has happened at it will back to some “normal” growth over the coming years – but, who knows!Good luck
Megan
Hi Voigtstr
The method you mention is the traditional way i.e. save for your deposit, get a house, save for the next etc, but you are limited by the speed at which you can save. There are other alternatives such as using equity in the home you own to fund the next one e.g. if you have a home worth $200,000 with a $100,000 loan you can use the $100,000 (or part thereof – depends on how much the bank will lend you) as a deposit for the next.
When you first buy, you usually don’t have much, if any, equity other than what you saved, assuming you have a traditional 80% loan however as properties increase in price, the equity that you have increases. Of course, this depends on what happens in the market and, at the moment, it does tend to be a bit flat however over time, if history repeats itself, this will happen.
There are other strategies too that can fast track your accumulation of wealth. I recommend you do some reading – Steve McKnight, Dolf De Roos, Robert Kiyosaki, etc will all give you pointers. Then there’s wraps, flips, developing and more. Best to read up as much as you can then design your own strategies to suit your level of comfort, experience and preferences.
Also, grab a copy of Property Investor magazine from the newsagent. They feature people each month who are on the investor track and how they did it.
Good luck
Megan
Hi TFO
Kudos to you for the great attitude! Yes, it is hard getting starting young with little capital however people before you have done it.
Firstly, there are some opportunities in country areas that you can get into for small $$$$$. They still exist but aren’t that easy to find.
What about looking for deals for others? A number of people I know started out that way and found good deals for investors with $$ but no time to look. They then went 50/50 on the profits.
Keep reading up anything you can find and you’ll find a number of well-known investors started this way.
If you can find a cashflow positive investment (again, country is best) you might be able to get a 100% loan (they are available) to get you started. Alternatively, you might be able to find a willing partner to put up a little capital if you find the property.
Good luck.
