Bluezinc,

Interesting topic.
First, I think you should present your arguments / research that led you to believe we’re heading towards a great depression, so we have an opportunity to discount them. If you are following arguments similar to Dr Steven Keen or Mr Harry Dent Jr., there are good news and bad news. But you can enlighten us with your research later.

When you say “Australia is doing what American is doing” – what do you mean?
The make up of our economy is somewhat different from that of the rest of the world – this is one of the reason why Australia has managed to escape a technical recession. Some differences are: the integrity of our banking system, the net immigration and population, level of export for our industrial resources, etc.

But for argument sake- lets say we are in a depression:
1, Yes – dollar will lose value domestically
2, When you say “depression will drive the price down” – I am assuming you are talking about Australian Residential property
Yes – property price will go down. Not only will there be mortgage default, there will be less demand and higher supply of properties. Given Australian properties are typically overpriced (when compared to household disposable income, and rental return), this means a correction will be substantial.
3, Your idea of debt maybe flawed.
So you are saying, if 1 banana costs $10 bucks, debt of $1000 is really equivalent to 100 bananas
if in a depression, 1 banana costs $100 bucks, debt of $1000 is only 10 bananas, hence cheaps to finance?

During a depression, people lose their jobs, and if they are lucky enough to have a job – income goes down, a lot of the essential commodities will be expensive, they do not have the money to repay debt.
I don’t know if it is going to be “cheaper” to “service” debt. In relativity, that maybe true, but in reality, probably not. You still have the same amount of debt to finance, just because the same $ value cannot get you the same basket of food, does not make it cheaper?
And you will need to take into account of the interest rate at that point to determine servicibility.

All and all, Economics is a social science, no one can accurately predict the future to 100% certainty. There are too many interacting variables and economic theories cannot deal with that.

Cheers,
Kenny

Pully,

Do you mind sharing your scenario and the ATO judgement? (or just point us to your PR in the register). Thanks

Matt,
The ATO has strictly forbidden people in the same immediate family (including spouse and dependent kids) to own multiple PPORs even with different name on the property. For example, imagine a family of 5 owning 2 main residents and 3 holiday houses? So I don’t accept ATO’s argument “assets are in different names so they don’t affect the other one”.
The only difference about that scenario with you, is that your wife got the PPOR before you guys got hitched.
But this changed as soon as your marriage status legally changed.
Unless there is any exemption that I’m not aware of.

Your best option is to apply for a Private Ruling (see Dan42’s link)
Private rulings are binding to ATO, so if ATO has granted you permission to sell without incurring CGT, they cannot ask for it later down the track. Depending on how quickly you provide information to the ATO, it takes up to 28-60 days.
Note, you cannot rely on other people’s Private Rulings.

Sorry to burst your bubble, but better safe than sorry
Good luck
Kenny

Thanks for that Matt.

Again, make sure you get that in writing.

I shall point you to the following sites:

CGT implication if you own more than 1 property:
http://www.ato.gov.au/individuals/content.asp?doc=/content/63517.htm&pc=001/002/026/016/003&mnu=&mfp=&st=&cy=1

When your spouse or children live in a different home to you:
http://www.ato.gov.au/individuals/content.asp?doc=/content/36893.htm

Hope it helps,
Kenny

Crownofgold,

This is more a legal matter, so I am not qualified to respond.
However, I have been in the similar situation where the REA will not take any offer until the sec 32 is ready. This is general practise in Melbourne. But a heads of agreement written up by a solicitor or even yourself (ie your offer to buy the house subject to sec 32) is a binding contract between you and the vendor. Once accepted by both parties (signed and witnessed) , I doubt anyone will be able to “walk away”. Of course the vendor does not necessarily need to enter in this agreement with you, but that is for the Vendor to decide, and not the Real estate agent. Real estate agents are not legally trained to deal with complex matters, so it’s easier for them not to deviate from common practice.

I would recommend you obtain legal advice on this matter.
Good luck
Kenny

Hi Crownofgold,

Congratulations on the find! It’s hard to find something you absolutely love, and still be able to afford it these days!
The issues with loving the house, is the emotional attachment when you get into auction, but I’m sure you are aware of that.

Personally, I find auction only benefits the vendor in this current climate (undersupply of quality houses). For a property I am interested, I always try to secure it before too many people gets a chance to view the property. Especially if you are in a position to do so (ie, got finance sorted)

I’m not sure if you are aware of the recent raid on real estate agent offices in relation to an investigation of underquoting allegation. Essentially, the consumers affairs Victoria considers underquoting an unacceptable practice and a waste of consumer’s time when the RE low balls property price range. Although it is sometimes difficult to prove in an auction environment, but you are offering 20% over the quoted price, I think that is a pretty decent offer. This is just me, but I would probably offer ~1.085M
Reason being:
1, which is just over 20% over the quoted,
2, it’s not a rounded figure, so it gives the illusion that you are giving them everything you can
3, have more room to move to in terms of negotiate

And if it doesn’t get accepted, you probably have grounds for consumer affairs to investigate the RE (if that is the type of things you wanna pursue)
For more info: http://www.news.com.au/business/money/story/0,,25851463-5013951,00.html

Before you make the offer, I would recommend that:
1, understand the current interested parties and their price range. (REA will always be vauge, but still good to understand your competitors)
2, understand the reason why the vendor is selling. (Negotiation theory suggests you should offer something that worth little to you, but worth a great deal to the vendor, you can’t offer them anything meaningful unless you know what they want. Eg. if they need to move country, then offer quick settlement. If they are looking for a house to buy after the sale, then offer long settlement or for them to rent back until they find a house. If they are scared of risk, maybe waive the pending finance clause….etc)
3, research for reasons why your offer is reasonable. (eg recent area sales – If you search through the forum, you will find some kind offers from generous veterans to generate a report for free:
https://www.propertyinvesting.com/forums/property-investing/value-adding/4327810
)

Regarding your hesitation:
Waiting for vendor statement is always a pain, but any decent vendor real estate agent will delay this to ensure the property has as much exposure as possible. I haven’t made a header of agreement that you suggested without legal advise. So i’m not sure. But it is vital that vendor statement (sec32) is satisfactory.
Agreed- that it’s a risk that your offer will set the baseline for other bidders. That is why the 48hr clause comes in handy, or maybe throw in reasons why you cannot turn up to auction. I think it’s risk that’s worth taking?

Even if 1.1m is not enough to convince the owner to stop the auction, it’s a great starting point for negotiation! (don’t give the REA the idea that it’s only a starting point though, only being negotiation if it gets rejected – by asking why. Keep in mind that any genuine bid will need to be taken to the vendor, so you will have opportunities to make subsequent offers )

Final recmmendation – which is a toughy if you love the property. Be prepared to walk away when it becomes too expensive. There is no point getting yourself into financial difficulty, only to find that you can’t afford it, and have to sell it.

Best of luck – let us know how you go!
Kenny

Great Tips David!

Thank you!
Kenny

j900,

I agree, Shane should be in a position to purchase multiple properties and still be able to get them cash neutral (or even cash positive) with good capital growth and rental. Seeing that he is a middle income earner, he can look for cash positive to supplement his income. His equity and lump sum can be better used.

As Matt (mxd) suggested, Shane should speak to a financial advisor / accountant to determine the best approach to maximise his return.

As for you – sounds like you know exactly what you want and you are well on your way! Well done!

Kenny

Les Paul,

This will depend on your circumstance and your objectives.
If you are looking for income tax deduction because you are a high income earner, then you would seek many negative gearing properties, where the income is lower than expenses. Buying multiple properties will give you more opportunities to do that.
Question is, should tax minimisation be your main motivation for property investment?

From a financial planning perspective, buying multiple properties will diversify your risk.

Cheers,
Kenny

StumpCam,

It sounds like the ATO has made an allowance for investors to refinance their mixed purpose account to separate income producing portion and private portion. (note that this only applies if you refinance the entire subaccount) If I were you, I would show the Tax Ruling to your accountant and get him to investigate further (and possibly obtain a Private Ruling from the ATO). Note also, the link shown is a Tax Ruling, so you will not be penalised by the ATO for relying on the judgement if your situation is similar.
As Michael suggested, it’s best that you get it from the horse’s mouth. (though I have to say, ATO is not known for their timely service when it comes to complex issues)

I guess the title speaks for itself! They are common mistakes for a reason!
There is no doubt that sometimes it’s an onerous task to keep track of all the expenses that are tax deductible or otherwise. However, in the case you mentioned, the Body Corporate is responsible for producing monthly statements as well as the backing documents (tax invoices etc):
http://www.justice.qld.gov.au/files/CourtsAndTribunals/3.4_-_Administrative_fund_and_sinking_fund.pdf
“Reconciliation statements (SM s149)
If a body corporate manager is authorised to administer the body corporate’s administrative or sinking fund or if the body corporate decides by ordinary resolution that reconciliation statements must be prepared, a statement must be prepared within 21 days after the last day of each month for each account kept for the fund showing the reconciliation of:
? the financial institution statement showing amounts paid into and from the account during the month;
? invoices and other documents showing payments into and from the account during the month.
The reconciliation statement must be prepared by a body corporate manager who is authorised to administer the fund or otherwise the treasurer.”

Note the document maybe Qld specific.

No pain no gain eh?
Kenny