Ok another dumb question. I’m trying to find info about how one classifies their place as their PPOR but it’s still a touch unclear to me? The ATO states the following criteria:
* the length of time you live there – there is no minimum time a person has to live in a home before it is considered to be their main residence
* whether your family lives there
* whether you have moved your personal belongings into the home
* the address to which your mail is delivered
* your address on the electoral roll
* the connection of services (for example, phone, gas or electricity)
* your intention in occupying the dwelling.
How does the ATO know whether I’ve done these things? Do I have to be able to show and keep proof of the above before I am able to rent the property out?
My 2 cents worth, though keep in mind I’m relatively new to all this and still yet to pick up my first IP but I have done a fair bit of reading.
To put simply, there are two places where you’ll be making your money, through positive cashflow (if the rent covers loan + other costs) and through capital growth (how much your property is worth in the future).
Positive Cashflow – Nice to have. Allows you to hold a property without forking out each week. Banks love it and will be more inclined to lend you more money for more property purchases provided you have the deposits. However, you won’t be making money from this until you have a good portfolio of these behind you.
Capital Growth – This is where you’ll make real money which will allow you to grow your portfolio. It’s important not to solely focus on positive cashflow, as they might not grow very much. What is important is picking a good property. Also depends on what kind of strategy you have as well, are you investing for the short term or long term?
Identifying whats positive / negative, there are tools out there that can help you do property valuation. What you essentially want to figure out is how much rent you’ll get vs the outgoing costs. You have to factor in costs such Strata, Council rates, Water rates, Insurance, Real estate rental fees and maintenance of the place.
A good way to start might be to just browse a few properties online and see how much they are worth? Figure out how much would it cost you each month? Then see what other similar properties are renting for. You’ll start to get a better idea that way.
Like I said, I’m still learning every day but hope this helps.
As you and several others have mentioned above, why is it better to buy an unit in an apartment with less units (less than 8 units)? Are you able to explain this further?
The place that I was eye-ing was listed at offers above $360K. I was considering trying my luck at around $360Kish if all checked out, but I couldn’t even get through to the agent after numerous calls and messages. Checked again this morning, and it was under contract. It was probably already under contract when I was enquiring about it last week and chances are it probably went for closer to $400K as you mentioned. I’d like to find out how much it sold for though. This is the place http://www.realestate.com.au/property-house-nsw-bradbury-118625943.
Thanks for your input knightm. It’s a yes to both, it will be for a long term investment and I’m desperate to buy in Sydney with around $350K. I did briefly consider outside of Sydney and interstate, but dropped the idea as I’m just not comfortable with it.
And like you said, I have missed the ripple in Sydney and am buying at the top of the market. A bit of a sucker but I try not to dwell over that fact too much since I haven’t been in a position to buy up until now anyway. I’m going by the philosophy of ‘It’s About Time in the Market, Not Market Timing’ :)
Main thing early on is to discuss your whole financial situation with an adviser who can then tell/show you where your limits might be, and even how to overcome them. Know where your ship is heading before leaving port…. ;)
What kind of adviser are you referring to? A Financial Adviser? Property Accountant? I’m keen to speak to someone who can run through my financial situation and give me advice on what kind of investment strategy I should be looking at.
No I won’t be self managing but letting a real estate agent do it. The spreadsheet has 5.5% as agent fees and commissions in the calculations. Are you supposed to factor in projected growth when calculating cashflow?
Anyways seems that I might pass up on this place as it doesn’t sound like that great an investment anymore. I know the general consensus in Sydney is that you won’t find any CF+ properties unless you’re willing to add value but I can’t seem to find anything that comes even remotely close to fitting the bill.
Is it a sound strategy to find the right property and negative gear it for 2-5 years before it becomes a CF+ property?
Thanks for offering your assistance. At this stage I’m still going through and learning the ropes and reading lots of things, speaking to friends, family. Maybe at a later stage if I’m still struggling to catch on then I might turn to some professional help like yourself.
But in the mean time, if you’re not too busy, I’d love to hear some of your thoughts and comments about the topics discussed in this thread :)
Whether it is financially better to buy a PPOR or an IP depends on where you want to live. If you want to live in an expensive suburb it is often better to buy an IP in a suburb that has better yields and rent where you want to live (as it’s cheaper to rent than buy there.
I live in Carramar with the folks and intend on staying here for a while, so PPOR is not really a strategy I’m considering. It is definitely an IP that I want to get.
Negative VS Positive. Do you want to lose money to save tax or make money? Lots of debates on this. You can only buy so many negatively geared properties before you hit a wall.
This I am open to. I haven’t spoken to an accountant yet to understand what benefits I can gain from negative gearing. As mentioned you can only hold so many negatively geared properties before you can’t get anymore. Based on this, I’m leaning towards finding a positively geared one, or as close to one as I can get.
I’ve been tossing and turning over different ideas over the past couple of days and here are my thoughts and I hope you guys are able to poke a million holes and tell me where I went wrong (or right if you want to be nice). I’ve got two options below and I guess I’d have to lean towards Option 2, considering my strategy profile is a safe to moderate one. Maybe there are third and fourth options that I don’t know of.
Option 1
Buy a brand new unit in the $500K-$600K range. This will definitely be a negatively geared property but I will do my best to find a good one. My broker has assured me he can get me a 97% LVR loan through ANZ. At the very least, 95% LVR. Quite a scary amount of debt but I’m going to make sure there’s an offset account to allow me to theoretically leave the remainder of my savings there effectively reducing interest as though I’m 85% LVR.
Savings left following purchase: ~$70,000.
Pros:
* Portfolio worth $550K.
* First Home Owners Grant and Stamp Duty waived.
* Plenty of cash left in the bank.
* Potential for good growth.
* Tax benefits.
Cons:
* Negatively geared so losing money.
* Not risk adversed strategy
* Plenty of cash in the bank in the offset account. If funds are withdrawn for any reason, repayments will go up significantly?
* Very limited to the amount of value you can add to the place.
Option 2
Buy a property in and around $350K range. With a 97% LVR loan through ANZ.
Savings left following purchase: ~$70,000.
Pros:
* Portfolio worth $350K. Less than $550K but risk is also less.
* Plenty of cash in the bank. If thrown in an offset, should bring the repayments down significantly turning the property into a potential CF+ one? Would that work?
* Plenty of opportunity to add value by way of reno’s etc.
* Allows me to purchase a second property without affecting repayments too drastically.
* Risk adverse.
Cons:
* Lose the First Home Owners privileges.
* Growth is much more limited vs option 1.
Thanks for the reassurance Benny. I’m definitely thinking more along the lines of buying and adding value now.
What are some of the simple renovations that people do to add value? Actually I think that in itself my be worth it’s own thread so I might just do that.
In doing further reading via Benny’s wonderful thread, I stumbled on this piece about negative gearing, highlighting the pitfalls and misconceptions and will approach this with much more caution.
Having said that, the sentiment I get is that it is almost impossible now to find a CF+ property in Sydney. It seems the only way to get this is to find a property for a good price in a good location that has potential to add value to in doing renos etc.
If that is the case, would it be true to say that most CF+ properties are actually houses instead of units due to the fact you can only do so much to a unit?
And what would be some of the stock standard things you would look for that would be enough to add value to a place. Things like kitchen cabinets, bathroom, carpet?
Take care not to fall into the trap of listening to people who tell you to get yourself some negative gearing “for the growth”.
Ok that makes sense. So should negative gearing only ever be considered for tax break purposes then?
In my current situation where I’m currently earning circa $150K a year, would getting a negatively geared property be more advantageous than a postively geared one?
PPOR – as safe as this strategy sounds, I don’t think I’ll be heading down this path. More due to lifestyle choices.
I do however, really like the idea of starting out with 1 and then maybe 2 lower priced IP’s as it feels that I’m spreading my risk and not putting all my eggs in the one basket.
But on CF+, since the goal is to ideally find a place where the rent covers the mortgage, what if it is actually a slight negative cashflow property. And assuming that the growth is very slow due to the area, would you consider this to be a ‘bad buy’?
I had a read through of some of the threads prior to posting this and really like how this forum is so forthcoming with advice and help, so thank you guys! Doing a wonderful job in helping us newbies out :)
I’m definitely looking at getting an IP and that link, thanks very informative btw, cements my decision. Right now I’m facing a few the following questions.
1) I don’t know if I should exclusively look at new units / houses because of the FHOG conditions. Doing this will save me a lot of money but by the same token, restricting my purchasing options. From an investing point of view, would you forfeit FHOG for a good opportunity?
2) I’m trying to manage a safe-moderate risk profile and looking long term instead of short term and wondering if I should favour yield over growth (hopefully both). Which would allow me to grow my portfolio at a steady rate.
3) Considering I’m trying to keep it safe for now, what are your thoughts on either buying 1 place in the $500K-$600K range in a better area (e.g, inner west Syd)? Or should get 1 or 2 places in the $300K-$350K in a more remote area (e.g, west/south-west Syd)?
4) What are the cons of getting a 95% loan considering that I will be able to make repayments easily. i.e, Put down 5% cash even though I have enough for 10%-20%. Is it silly to do this?
Also the FHOG only seems to be very restrictive as it only applies to new homes. This would rule out a big majority of the property market. Would you forgo the FHOG and buy something else or would you try and take advantage of the FHOG?