Hi Damo

I’m getting a little confused here. You want to quit your job and you need to derive enough income to survive.

You want to renovate your PPOR and onsell for a capital gain and then purchase another one.

You will only do it 2 or 3 times so you don’t have to pay CGT.

What’s the difference between paying tax on profits from trading properties and paying tax on your wages. If you are going to make a business of renovating properties then do exactly that, otherwise remain in your job and do it part time only.

Cheers
Jeff

Martin

Try using the Insert/Function properties in your Excel spreadsheet for NPV and IRR formulae.

Cheers
Jeff

Out of curiosity Dazzling, are these additional verrandahs / sheds / partition walls permitted?

Perhaps a bulldozer and a new development might be less hassle and possibly more lucrative.

Cheers
Jeff

It is quite feasible to average over 10% per annum over a period of time however, as property cycles move in waves it cannot be consistently relied upon each year.

Just an example Rob
1 property, value $100k
Equity 80% 80k
Loan 20% 20k
Interest risk at say 7% 1400pa
Growth rate say 10% 10k (100k x 10%)

or
4 properties, value $400k
Equity 20% 80k
Loan 80% 320k
Interest risk at 7% 22400pa
Growth rate 10% 40k (400k x 10%)

In the second example your interest risk is higher but spread over 4 properties. To achieve the same $value of growth as in the first example you would only need quarter the growth rate or 2.5%

Neither strategy is right nor wrong. Is is a numbers game, as with items with lower margins you need to carry a lot more stock.

Many developers use this strategy of capitalising interest. Their projects tend not to produce income especially in the early stages. Funding costs have to be pre-calculated into the price to determine the feasibility.

Regarding redrawing equity to fund lifestyle – while I do not agree with it I am guilty of the process. Doing this allowed me to leave the workforce to become a fulltime property investor. This does require a degree of discipline however.

Everyone has their own comfort zones and what is ludicrous for one may be lucrative for another.

Cheers
Jeff

Coastymike,
I’m not sure if you are aware but in NZ we are not subject to capital gains tax on property (yet) unless you are considered to be “trading” in property or a developer. The key factor here is your “intention” when you buy.

The buy and hold strategy I adopt is more of a “never sell” strategy – hence, even in Australia CGT would not become a problem. The properties I do sell tend to be non-performing properties therefore capital gains are normally at the lower end of the scale.

As for the selling of shares in a company to raise capital – I do this occasionally for specific property investments and a new company is formed. A couple who had invested with me, recently separated and their shareholding was handled by their solicitors with little involvement from me – it may have been different if all three of us were on the title. The tax situation in their case would be the same either way.

Deferring part of your tax liability. In NZ company tax is 33% and the highest personal tax bracket is 39% for earnings over $60k – why pay 39 when you can pay 33% until you personal income is reduced eg retirement. I believe Aust Company tax is 30% to the highest personal tax rate of 48.5% – as you said you can set up a company as a beneficiary of the trust.

Personally I have a much higher goal than a few IP’s therefore the tax advantage of the particular structure is not the top priority. The ease of using the structure as a management tool, avoiding bureaucracy, raising finance, limiting liability from a domino effect etc etc are all factors in achieving my ultimate goal.

I use trusts and companies to protect my assets but as I said, everyone has different needs. You just have to remember not to miss the opportunity because of the requirement to pay tax.

Cheers
Jeff

Thanks for your post Redwing,

I’m in Tauranga, New Zealand – the climate is supposed to be okay for olives but would need to do some major planting to make it commercially viable. The land value here is too expensive to justify it. The big thing at the moment is Avocados but they take a lot more looking after.

We’ll get a crop this year but probably only enough for some boutique production. This will of course depend on the quality.

Cheers
Jeff

Hi Martin,
Part of doing your due diligence is obtaining a copy of the lease and all variations and assignments. A lease needs to be studied and if you are unsure, ask someone who knows eg lawyer.

The lease will tell you what the lessee is responsible for and what the lessor is responsible for, rent, term, reviews if any, guarantees if any, penalty clauses, default rates etc etc.

The space occupied should be one of your interim questions to the agent. You will then need to confirm this, generally via a registered valuation.

This information allows you to determine income capitalisation rates. It also allows you to determine the current rental as a dollar rate per square metre for comparison to market rates per square metre. this way you shouldn’t pay over the top.

Cheers
Jeff

Lee
If you are going to own the furniture and fittings then separate them from the land and buildings. These items depreciate in real terms at a much higher rate than the buildings, while you may achieve a better tax advantage in the short term you will eventually have to replace them.

1. Price for land and buildings – return required
2. Furniture and fittings – return required

You may require 25 to 30 percent return on the furniture depending on the life expectancy of the items.

After deducting the furniture value from the purchase price work out how much you are paying for each room – sound good?

Cheers
Jeff

Duckster
4 percent yield??

When your yield is less than your interest costs you would be relying solely on capital gains to arrive at an X dollar figure – to me that’s specualtive.

Unfortunately a 7 percent increase in property prices is not consistently achievable year in and year out. While I appreciate you did say “average over the longer term”, I for one would hate to be negatively geared for any lengthy period and relying only on capital gain.

Maria
“How many balls of string does it take to reach the moon?”

Cheers
Jeff

A buyers market is when the sellers outnumber the buyers.

In property this is caused by various economic factors, interest rates being one of them. Alternative investments competing for the same dollar, exchange rates in various sectors (eg import/export), industry closures and redundancies, relocations, commodity prices etc etc can all cause discrepancies between the number of buyers and sellers.

Such discrepancies may only affect certain sectors, they may be geographically isolated or across the board. In a buyers market properties will tend to remain on the market for longer periods, you have better negotiating power and more choice but at the end of the day the figures still have to stack up.

Cheers
Jeff