Forum Replies Created
Agree with all the above. I would definitely get two books to read, Steve McKnight's "From 0 to 130 properties in 3.5 years." (Picture of it on the right hand side of this website's homepage) and Margaret Lomas book "20 must ask questions for every property investor".
The 2 give quite different but equally logical arguments that certainly opened my eyes in this area, as well as generated enthusiasm to invest, but in a logical way reducing or minimising risks as much as possible, and how to analyse properties more critically. (ie keep emotion out of it-look at the numbers and end result).
Problem with paying too much up front and then neg gearing is you are losing a lot of dosh in the increased hope of good capital gain.
Dan42 wrote:Malcolm Turnbull has stated that the govt have taken up 2.5 of the 138 recommendations. (Although, I'm not sure how you can take up half of a recommendation)I think you take the bit that says "My recommendation is that the government should……." (That's the first half. Then you fill in the rest with whatever first pops into your flitty little spendthrift pea-brain).
new2invest wrote:We owe about 330k and are on a combined income say 130-160k.Other thing is on this sort of income you could support way more than $330K anyway. Not sure how they actually calculate it. Have a look at a loan calculator and it will probably give you a rough idea. (Type in loan calculator into google)
I'd be talking to a finance broker to nut it all out for you. You'd have to be on a good wicket with that much income.
Terryw wrote:If you want to know the legal aspects of a trust then talk to a lawyer, tax aspects then to your tax advisor.OK I get it. Thankyou. Think I'll see both before we spend too much more. I just want us to set it up correctly now so we don't regret doing things in a certain way in 5 or 10 years time when kids start leaving home, wife restarts work etc etc variable, variables, variables.
new2invest wrote:Line of Credit – what is it ? And what r the advantages n disadvantages if having such account as an investor? 30k in Equity! Is that enough? If it is where will it be used: land or house? How would the loan structuring works? Cheers New2investline of credit (LOC) loan is where bank gives you a loan with a maximum limit (using home equity as security) then you can draw on it for whatever you want (incl world trip or car etc). Advantage is it is very flexible because effectively it gives you that money "at call" once bank has approved and set it up. For an investment property you use it to cover 20% deposit plus costs. (Then borrow the other 80% against the IP.
Type in "line of credit" into google and you will find every bank offers it in some form or another. Interest rate is usually a little bit more than standard variable rate. (eg 0.2% more)
Where will it be used? Up to you, you're the spender!
PS I am not an expert, but I do have a few LOC loans on the go for different things.
If your PPOR is worth $450K you could borrow up to 80%=$360K. Less $330K owing, you would have $30K available equity, which you could take out as a line of credit (and then you only pay interest on what you actually use). That is assuming the bank values your PPOR at $450K. I have found the bank often seems to undervalue houses, so you might not have that much after all.
Plan sounds good though.
Thanks for response Terryw
How can you know if you have reached your guarantor limit? In that I have gone guarantor for my wife's IP and we have some more $ available to use for further deposits (which until now we were planning to just buy in her name again with me going guarantor for every new loan). But does it make it more difficult for us getting a loan for a trust if we already have loans in individual name?
Who is best to talk to-solicitor or accountant or financial planner? Or all?
kong71286 wrote:From my understanding you have a 'company' that acts as trustee on behalf of your 'family trust' to purchase a 'property', whereby you act as the 'guarantor' and also lend the company the 20% deposit costs.Hi I want to gatecrash this thread with my own related question. In the first entry Kong wrote the above. We have a family trust, which does not own any assets itself. My wife is director of the company with her and our kids as benficiaries.
How do we go about loaning the deposit 20% to the trust and then obtaining a loan for the other 80%? For our other IP (in my wife's name) I have acted as guarantor as she was not working. How would this work for a trust? Would it be me acting as guarantor for the trust? Or should I make myself a director of the Co. to make borrowing easier?
My understanding is that the ATO looks at the purpose of the loan. In this case it was to buy a IP for person A. Therefore person A can deduct all the interest on the loan and person B can deduct none.
PS I am not an expert, just have asked the same Q of my own accountant lately.
Not an expert but my understanding when I recently asked our accountant the same question is that loan in both names helps you get the loan (rather than one acting as guarantor for the other). But interest is only deductible to the person in whose name the IP is bought. Rent also goes all to the owner.
So you example person A gets all the rent and all the interest deduction. Person B just helps get the loan in the first place (eg ifthey are the one with the big income)
I think only benefit doing it your way is you avoid paying the guarantor fee ($300 or so) to the bank.
Ally11 wrote:I have just read rich dad poor dad …….Just thinking about your situation again. In that book Robert Kiyosaki lists your own home as a liability. (because it traps you into paying mortgage year after year ). But then people get hooked or fall in love with where they live and choose to stay trapped. Which is where you seem to be.
On the other hand, it is the #2 Great Australian Dream to own your own home, so you're not alone.
Another thing is, if I was an investor (which I am trying to be) would be the benefit to me in tangling myself up in someone elses' house with $200K (for which I would not be able to get a loan for as no bank will accept half a house as security). I would much rather spend it on a house I own fully. Only way you could sell half would be to sign away the other half as guarantee for the investor's loan, which you can't do as your own bank holds it as security. Plus as an investor I would only see potential Issues with a capital "I" with this whole arrangement.
Not to be a wet rag….
thanks guys. Only problem I have is that these charge $795 to join up and then 2.5% of purchase price (Less your upfront $795 if you buy, then 2.5% thereafter) . Isn't there an incentive for them to NOT get the lowest possible price for you then? They get more if purchase price is more, even though officially they are trying to get it for you for less.
Have either of you had good experiences with using them?
Hey Blackhotel,
give us an update. Have you found something to swoop on? And what bank did you use?I am interested in pos geared places. send me a PM (personal messge) if you want to send details. (To do that click on my icon, then click on send PM)
If you have a house worth $400K why can't you get 80% of its value ($320K) less the $225 you owe, ie $95K from the bank? Assuming you could get an IP borrowing at 80% again to avoid mortgage insurance, and assuming the true cost of a house is 105% (purchase price plus 5% buying costs) then your $95K would go towards the extra 25% (over the 80% you are getting from the bank secured against the IP).
Using this logic, then $95K represents 25% of maximum investment property value you can get with current equity. Therefore you could buy house worth $380K absolute maximum.
Main issue for you of couse is the continuing $225K that is not tax deductable.
however I'm not a financial adviser, just doing exactly what I described above myself.
I suggest read Margaret Lomas' book called
20 Must Ask Questions™ For Every Property Investor
It covers most of it. You can get it from any bookshop or online
Thanks for your comments Snoopy II and Matt. I will definitely ask our accountant re the trust side of things.
Snoopy the CF+ that you talk about, where you basically negatively gear but then use on paper depreciation deductions to create a CF+ situation. You sound like you have essentially decided that it is better to invest in higher income earner's name to get the tax benefits. That would only work with newish places, wouldn't it? I like that concept though, but you would not want to pay off too much loan or you would end up positive gearing in the high income earners name and pay more tax. (whereas if you bought in the lower earner's name you would not get such good tax breaks early on but as you paid off more you would pay less tax on the income it generated as you became more positively geared)
The original question was what exactly is positive gearing, and consensus seems to be that it is when total income exceeds total outlay on the whole 100% cost price of the IP (+ purchase costs)
Those 2 IPs we already have. One is a business premises that we were kind of forced to buy a few years back when a business partner left, but so much is paid off now that it is very CF+ due to rent of other occupants. (all sort of accidentally started us on a good investment track) The other one we recently bought in a QLD mining town with rental yield of over 10%. But since that one we haven't found anything even close to as high as that yield and we are not really willing to put lots of eggs in the mining town baskets.
Woops that last entry didn't come out right. I was quoting this:
Investor888 wrote:House Call, that is the dumbest thing I have every heard. So as a property "invester", haha, you would be prepared to loose money rather than make money. The ultimate goal of the majority of property investors to find positively geared properties, and eventually turn negatively geared property into positive (rent increase, etc).House Call, that is the dumbest thing I have every heard. So as a property "invester", haha, you would be prepared to loose money rather than make money. The ultimate goal of the majority of property investors to find positively geared properties, and eventually turn negatively geared property into positive (rent increase, etc).
[/quote]That's a bit strong, investor888. I mean the "dumbest" bit. I don't think you read what I wrote. (The rest of what you wrote was excellent).
I am very keen to positive gear and totally agree with you about the pointless nature of negative gearing. ( which came out very strongly in both those books I mentioned at the start of this thread.
My dilemna was more in whose name to put a new (positively geared) IP, my wife's (low income) or mine (high income in the light of depreciation and tax considerations. (And it is a dilemna because I don't want to lose money to save tax. )
Snoopy II wrote:Positive Cash Flow or CF+ as it is referred to sometimes, is when your rental income plus your tax breaks(maximising your depreciation) is greater than all your outgoings. A high tax bracket and a relatively new, or renovated property may help to make this feasible. does this help?This touches on my problem. We have 2 IP's in my wife's name, both very CF+ as per you guys definitions above, but she has no other income due to staying at home woith kids, so deductions are not very effective if you hardly pay any tax anyway. We don't want to buy further CF+ IPs in my name (already in upper tax bracket) as it will just bump up my income further and any income will just disappear in tax.
So do we bite the bullet and go for positive geared in my name and pay heaps of tax or in my wife's name and lose a lot of the depreciation benefits?
Or just go negative geared in my name like everybody else and keep our fingers crossed there's capital gain? (I really like the fact with positive gearing that you can know the figures beforehand and not have to rely of speculative capital growth.)
Thoughts anybody?
