Hi Terry,

How much do trusts cost to set up, and run annually?  I'm generally wondering whether a person should have all their property in trusts, or only bother once they own more than one or two.  I'm also wondering whether there has to be one trust per property, or just put all properties under the one trust?

JacM

Same same, I was more referring to the overall cost.  When it is added wasn't really relevant to my rant

Hi again

I have not researched your area at all, nor areas near mining.  So I couldn't comment on whether either of these buys are a good idea.  You'd be far more qualified to comment than I would.  If you have done your research, then you will already know the answer.  I recently bought into an area which I had tracked for about a year by means of watching the stats in the rear pages of API magazine to watch capital growth, rental yield, and vacancy.  I spoke to council a lot about what was happening in the area, and what was allowed in general in terms of minimum block sizes, development etc etc.  I also watched http://www.realestate.com.au very closely – the for sale and rent sections, to understand prices, and how quickly stock moved.  I also spoke to many local estate agents about demand.  I went to heaps of open for inspections.  Eventually I found I knew how long it would take for a property to rent, and what it would rent for.  I'd paid enough attention to be rock solid in my understanding of the area.  The point of the story is, do your monitoring until you are sufficiently confident in what you are doing.

I myself have a number of "thoughts" that I have about investing.  And one of them is the concern about putting all my eggs in one basket.  Let's say I sunk all my cash into a mining town, and then that business closed.  All of a sudden my entire portfolio would be a little value.  Or something else like let's say a storm rips through town and damages the rooves of all your properties, and insurance either won't pay out, or takes too long to do so and you are forced to find the money to fix them yourself.  Flood.  etc etc.  The point is that if all your stuff is in one area, you are VERY exposed if something unfortunate occurs.  You don't have properties in other towns to pick up the slack when one stumbles.

I really couldn't say whether you should go 100% cash flow positive, or all negative geared.  Some people are in the positive cash flow camp.  Others are in the negative gearing camp.  Others do a mix.  First and foremost though, you need to do SOMETHING.  You can't have a property that grows in value if you don't have a property.  And also you should purchase in a manner that you can afford. No point buying property that doesn't give you room for coping with a quarter of a percent rise in interest rates.  Or an unforseen dental bill.  Or any number of other things.  A mortgage tends to last for about 25 years.  Sure you can tighten your belt for a couple of years.  Be stingy with where you'll go out due to cost etc etc.  But can you live your life this way for 25 years?  Probably not!  Purchase in a manner that you can afford, and that allows you to have a bit of a life at the same time.

The property will have to be considered to be your home for 6 months.  ie You will need to live in it and not use it for income.  After that you could rejig things.

Hiya –

The thing that you must remember about negative gearing is that involves a loss.  You get a bit of a rebate back on your tax return for the loss, but not all of it. 

Your cash flow is good. 

If you were lookig only at numbers, the property at $249k has a better return, and for not much more input from yourself in terms of deposit.  It'll always provide you more rent than the other, which is nice when you reach retirement   However no point having an empty property.  You'd need to look at the demographic of the area (eg % of students vs old people etc living there) and who the target market is likey to be for these properties.  Is there a big demand?  How long do such properties take to rent out?  Real estate agents can give you an idea, but not the selling agent   Be wary about telling a real estate agent the exact property you intend to buy in case they notice it is a good deal and tell their mates to buy it.  Just ask for eg "so a 2 bed unit with a newish kitchen within 500m of the train station, what is the rental range for that sort of thing? and how long would such a thing remain vacant on the market?"

I just re-read your posts.  The most important questions are:

WHEN are you going to move interstate?  Why are you moving, and is there a possibility it might not occur?  To where will you move?

Will you want to own the place you live in, or are you happy to carry on renting indefinitely?

Sounds like your husband earns a tidy sum.  Does he work for himself?  What I'm getting at is, does he work through his own company?  If so, there are ways to buy property through the company and thus reduce company taxes due to the ownership of the property.

Is there a family backup plan if hubby became ill/unable to work?  In other words, are you able to re-enter the workforce and support the family, or is it under consideration to get income protection insurance on hubby?  Don't answer this one – just ponder it.  Even the stash of cash you are currently sitting on would only last a couple of years supporting a family. Less if it was also supporting mortgages.

I'll wait till I see the answer to these questions before I rattle on with a bunch of irrelevant options.

Welcome!

$185k is quite a stash – well done!!  You can definitely afford a deposit or two… so the other question is serviceability.  Have you determined how much "left over cash" you have each month after paying for your living costs?  That will help work out what kind of pricetag you'd be looking at, and as such will help determine suburbs to target.  If you wish to disclose this, happy to add my thoughts and you can use your weekend to get thinking right away!

… and there is of course the alternative of setting up a SMSF (self managed super fund) and buying a property thru that.  a great option if your super fund already has a big pile of money in it.  last i heard lending to SMSFs where 80%, so on a property worth $400k you'd need about $100k in your super; $80k to cover the deposit and $20k for stamp duty, and a few extra dollars for legal fees and any building and pest inspections needed.  if indeed you have this kind of money in your superfund, it might be an option worth looking at. it might help with serviceability since money going into your super fund is taxed at only 15% on any surplus funds (so while your property is making a loss it is taxed at 0% apparently!).  you're allowed to sink an up to an extra
$25k into your super per year if you wish.

Welcome!

First and foremost about the loan type.  Try and think of a Principal and Interest loan as the same thing as an Interest Only Loan with Offset account.  You pump money into the offset instead of against the principal.  In terms of eliminating interest and paying off faster, it's kind of the same thing.  The difference is this: if you then decide to buy a second investment property, you simply pull the money out of the offset account at a moment's notice and without paying fees, and hey presto, you've got an instant deposit.  I've you'd actually paid it onto the principal, you'd have to pay fees to pull the money back out.  Waste of money that would be.

Where are you in Melbourne?

Perhaps you'd feel most comfortable with buying a house and land package?  The reason is that in addition to the "loss" that you make that is deductible (because your costs will exceed the rent) you will also be able to get a depreciation schedule done by a quantity surveyor, that'll be worth about $8k a year in deductions.  Free tax refund.  Yay!

In terms of how much to borrow…. basically you want to figure out what the value of your home is plus the proposed investment property, and that makes a total figure.  We'll call it 1.2million.  You do not want a debt of more than 80% of that figure.  If you got an IP worth $400k you would be fine with that ratio, because you already own two thirds of a $1.2million portfolio (your home – worth $800k). 

But of course it's also about serviceability.  You need to be able to "make up the difference"… pay the bits of the mortgage the rent won't cover, with spare cash in cae of interest rate rises, that sort of thing.  So you'll need to know how much "spare cash" you have per month to put towards an IP mortgage.

If you buy a house and land package you get stamp duty concessions (which is a big cost at approx 5% of the sale price)

Some areas to look at:

A newish or new 2br townhouse (ie not apartment) in Coburg
A house and land package in Craigieburn
Something in Altona, preferably within walking distance of Pier Street and the beach
House and land package in Melton
Something not-so-new in Sunshine
Or if you'd like a lower price tag, take a look at Geelong or Ballarat where the rental demand is high
Or then of course there is the apartment and unit market.  Elwood?  St Kilda?

Bit hard to comment without the actual numbers.  Can you provide the loan amount and interest rate you are working on?

One thing that is obvious is that the calculator told you that you could pay the loan off in 11 years rather than 20.  That saves 9 years worth of payments, not 10.