Forum Replies Created
I’m not an accountant but my understanding is that there would be no problem distributing the capital gain now.
Timboo,
I think there are two separate issues here:
1) the mortgage
2) onwership of the propertyIn terms of the mortgage, the Bank doesn’t care whose name is on the mortgage docs, as long as you make the repayents. As I understand it, the bank will only give 1 mortgage over the property. They will leave it to you and your wife to sort out who owns what percentage of the property and who makes what percentage of the repayments.
I don’t know the process or costs involved in getting your wife’s name added to the mortgage docs. But if your wife’s name is not added, my understanding is that, in the Bank’s eyes, you would be solely responsible for repaying the mortgage. If her name is added, you would both be responsible for the mortgage. So I think the bigger issue is around the ownership of the property.
So, if you are both agreed that you want to keep the property, you could make and agreement between yourselves outlining that you will both make 50% of the repayments and will both receive 50% of rental income (if you leave it in your name, your wife can still live there and rent it off you – eg, rent is $250/week. you each get $125 rent, so your wife would just pay you $125 per week). this makes repayemtns tax deductible but you may incur higher CGT down the track based on the proportion of time the property was an investment property).
you also need to outline that you would each pay 50% of maintenance costs or any other renovations you may wish to do in the future. you may also need to adjust you wills to ensure your wills reflect what you want to happen to your 50% of the property in the event of your death (especially if either of you want to re-marry).
I have recently entered into an arrangement like this with business partners. So, if you like, send me a PM and I’ll ask my business partner if it’s ok to email you a de-identified copy of the documents we drew up and the Excel spreadsheet we use to keep track of the finances (they are very basic but do the job for us). You could show these to your legal reps & see if you think it is workable for your situation.
Cheers
Jason.I agree with Sharon. If you want to retire via property, you should speak to someone who can tell you how much you can borrow. Once you know this, you can start to make realistic plans for your retirement.
Try this on…perhaps others can comment on this strategy and if it could work for you (or at least tell me i’m full of it & then you can at least eliminate this as a way to fund your early reitrement)….
if you wanted to retire in 7-10years, you would need around $700K (unencumbered) in 7-10years time. This $700K (earning an ave. of 7%p.a) could give you an income around $45K per year for around 40 years.
To get the $700K (unencumbered) you would need to buy around $950K of cash flow property in the next 12-24 months. this would take some doing I imagine. in theory, property doubles in value every 7-10 years, so in 7-10years time, you portfolio would be worth $1.9M or there abouts. You could then sell all properties (except 1 to live in – but for the purposes of the exercise, let’s say you sell them all). You would have around $950K capital gain, after paying out all mortgages. You would get 50% CGT discount. So, at highest tax bracket, you would pay around $230K in CGT, leaving you around $720K unencumbered.
This example actually assumes properties are cash flow neutral, so cash flow positive would improve the numbers.
If you like, you can run through some different scenarios yourself using the calculator on the link below (it’s free).
http://www.moneychimp.com/articles/volatility/montecarlo.htm
What do others think…
[thumbsup2] OR [thumbsdown2] …?????more info please…
At what age would you like to retire? and how much income per year do you want from your investments during your retirement?
cheers
JasonI wouldn’t bother taking advice on your investment strategy from an accountant. You can set your goals yourself and learn as much as you can so that you are confident and capable of finding and purchasing cashflow positive properties (or any other investments you like).
Never invest in anything just for the tax breaks. you will never get rich off tax deductions. Always make sure you are buying a good investment. I just go to accountants to make sure I am investing in the most tax effective way….just for “fine tuning” and to check the specifics of various taxation laws that are difficult to keep track of, eg, GST, family trusts, etc.
Go for it….you can do it!!!
Unannounced,
I agree with Jo’s comments (but unlike Jo, I’m still trying to claw my way above the poverty line).[tired]
It makes it even more dicey that his finances are bound to that of his brothers which is passed off as a good thing in the article. Many people learn the hard way not to mix business and family/friends.I have recently done a business deal with long time friends (a couple). We discussed the deal in principle for many months beforehand. We also discussed the specifics in great detail. And we took time to write down agreements regarding how property costs & maintenance etc would be paid, how rental income would be distributed etc, and we also talked about how we would need to re-word our wills in order to provide security for the other party. It has been an excellent decision for all of us (so far!) in that it has allowed us to add a $750K+ property to our portfolio that neither of us could have afforded alone.
The major reasons that both parties were comfortable with the deal were: we had known each other for a long time and trusted each other, we had legal measures in place to protect the asset and ourselves & families, we have similar investment philosophies and tolerances for risk, we are all equally disciplined about making repayments etc.
But I take your point….I would never have done this same deal with any of my family members!!![stunned]
i hate to break it to you but there are no better results than property . How many shares can you leverage? why is it the banks give a higher lvr against any piece of crap property than against their own shares? not because they like risk!Banks will lend less against shares because the data avaiable on share valuations is far more transparent & accessibe than property valuations (this has as much to do with volume of sales, as other things). ie, you can’t get an accurate valuation for your property every day at the close of business, but you can with shares or managed funds. So banks actually make one of the typical investment erros we all make – being over confident that we actually know what we are talking about. Also, generally people feel more comfortable with property and see shares and some ‘mysterious’ investment. In reality, for all the main assest classes (property, shares, cash) the principles of researching and investing are the same. Also the banks lend more against property because they know people are more indoctrinated into repaying interest for 25-30yrs on property. Combine this with the fact that banks can only semi-accurately value a property every 12 months, and i guess it makes sense to me why they lend more for property. Share prices are much more fluid and you can easily value them each day – too much work for a bank when they can make same profit out of doing less work lending against property.
i do have them and i have never come close to my property returns, because you cant beat a no money down deal . they are infinite returns.I love the no money down argument…I have a mate who trades contracts for difference (CFDs) – they are like deposit bonds for property. The CFDs allow him to put $1000 down and ‘own’ $10K worth of shares. So when the value goes up by $500, he tells me he made a 50% return ($500/$1,000*100= 50%). I can barely stop laughing long enough to explain to him that he was ‘risking’ $10K regradless of what he ‘put down’. So his return to me was on 5% ($500/$10,000*100= 5%).
My point is that you can get great returns from all assest classes but you really have to understand what you invest in, whether it is property, shares, cash (or alternative assest classes). So, in response to mortifs oringinal post, I would argue that if mortifs understands shares, then borrowing against the property to invest in them would be a good investment decision (but I would go international shares at the moment rather than the ASX).[biggrin]
Thank you all for your replies. It looks like I have to do a bit more thinking on this one. The business partner was goig to invest with was projecting the holiday rental being occupied 40/52 weeks of the year (approx. 75% occupancy). From the sounds of it though, the more conservative (realistic ??) figure might be only about 40%-50% occupancy. I’ll get my partner to factor in the lower occupancy and see if what the numbers look like.
You are definitely not too young to invest. I wish I had started at your age. There are lots of different types of investments but the main game consists of property, shares, and cash. Save and put some money into cash and some into a fund (or an internally geared fund) at this stage – just as much as you can afford. You have time on your side. In a few years, when you are working full time, you will be able to get into property full on.
Check out this compound interest calculator (it’s free). If you put away $5,000 and add $20/wk to it, in 40 years time, it will be approx. $188,000.
http://www.moneychimp.com/calculator/compound_interest_calculator.htm%5Burl%5D%5B/url%5DAlso, property doubles every 7-10 years (in theory, so the earlier you get into property, the more ‘cylces’ you will go through and the more money you will make.
And I agree with an earlier post…let your mates buy the BWM, latest mobile phone etc, you put your money into income producing assets & see who is livin’ it up in 20 years time!
You can avoid CGT altogether (if your living situation allows) by calling one of the houses your PPOR & selling it – quickly I imagine. Then you can move into the other house and call that your PPOR and sell it with no CGT either. But you may have to do this over a period of time & you should definitely talk to your tax adviser before doing it.
Also, if you build a house to sell but then rent it instead, it does have GST implications. If you have already claimed GST on building costs, the tax office could ask for these back and while you can still claim this down the track, it will be delayed by at least 12-18months. (A lot of people have been caught out recently with this one because they claimed the GST for building cost etc and then spent that money on extra renovations – so they didnt have it when the tax office asked for it back).
With all my IPs, I only manage the tenancy myself if I know the person involved (but this is probably asking for trouble). If you were going to acquire property in order to replace income, I would definitely use a Property Manager. This may reduce your profits, but if you select a good PM, then your can let them do all the hard work and the income you get will be passive.
AMP have increased substantially (to about $7.90 at th moment) since relisting after the demerger (at $4.30), as have the HHG shares you would have been issued if you held AMP prior to the demerger (risen from $0.88 to $1.55). But i do have to concede that the days of having a ‘set and forget’ porfolio are over.
Don’t be put off by people who have made poor investment decisions in the past. The idea of the borrowing money against your property to invest in shares is a sound one and if researched and managed correctly, you will make big $$$ and it will be very tax effective as well.
From search of ASIC website, looks as though stop order issued as recently as 21/10/2004. (ORDER – NO SECURITIES BE OFFERED, ISSUED, SOLD, OR TRANSFD). Don’t know the details of this but Fincorp seems to have had a lot of ‘queries’ from ASIC since 2002.
The Feb 2005 article is about lack of disclosure in PDS. Generally ASICs concerns (in regard to seveal companies, not just Fincorp) were: doubtful debt provision, a lack of disclosure on porperty development, and misleading advertising. Article also says that Fincorp is one of the companies to have stop orders imposed in the last 6 months (although, if they have addressed ASICs concerns, it may have been revoked by now??)
Article suggest people read a report to be posted to fido.asic.gov.au website by late January. [drummer]
TeacherK6…
the first 3 posts were talking about rates for cash. you are talking about rates for debentures (and other fixed term products). the return on debentures is higher because there is higher risk associated (ie, your capital is at risk, which is not the case with at call accounts or term deposits). Read article in Feb 2005 Personal Investor which reveals that Fincorp is one of the several companies which had a stop order placed on its products by ASIC. Report on fido.asic.gov.au. [biggrin]
twinpeaks…thank you for so clearly illustrating the main weakness with the 0-130 properties concept – great if everything goes to plan, but when it tanks, it tanks big time!
Based on the number you have provided, you would have to be a lunatic not to sell it.
Hi Mangoeater,
they say “your best loss is you first one”, so given that’s it’s only $440 I’d just let it go and take on board the comments of other posts for next time.[glum2]
Just to explain my reasoning – your friend currently has $350K equity. If she sells IP2 and uses the $220K to pay down PPOR, she will still have $350K. So it seems that IP2 ad no equity, only adds risk. In the current market and with possibility of rising rates, I would err on the side of reducing the risk. Better to sell now under your own terms that when you are fuly stretched and desperate. [thumbsupanim]
PPOR – valued 350K owes 200K
IP 1 – valued 250K owes 170K
IP 2 – valued 250K owes 130K
Salary – 15-20K part time
Dependants = 1 childI think your friend should sell the IP that she has the most equity in and use the profits to pay down the PPOR. At present, she only has $350K nett worth inthese properties. She would do better to pay off the PPOR sooner and buy another IP down the track.
The main reason is that cash flow is king and spare cash allows you the luxury of being able to hold onto assests (even in down times). your friend’s $15K-$20K doesn’t allow her this luxury. unless she has other income,eg., child support.
I had a friend do this kind of thing. he hooked up with a mate who was a licenced builder. They pooled their money, borrowed some more and completed the larger scale project. It is worth exploring, it could be very lucrative.
Also, if you don’t have the money yourself, you can always form a company that would do the project and get private finance from investors (maybe even from this forum) to chip in money for a % of the shares in the company. Then you can give them their profits when the project is finished by buying their share of the company back from them.
Think BIG!!! [medieval]
