Forum Replies Created
OOps, that should read "I'm not giving advice"
KYHi, I think what it means is that if there's no change of ownership & you refinance to buy a house to live in, the additional money you get $140000, is NOT TAX DEDUCTIBLE because the reason for the refinance is to purchase PPOR.
On the other hand, if you 'sell' the IP to your husband, then the entire proceeds of the transfer of ownership becomes totally tax deductible as your husband would be deemed to have borrowed the entire amount to fund the IP.
This works out to about $3000 pa assuming around 8% interest & 30% tax. That's on an additional $140000 loan. You will need > 100% funding to get $140000 extra.
For a small amount of savings, the effort & paperwork doesn't seem very worthwhile, ditto the idea about the trust. The costs of adminstering the trust is probably higher than any returns.
Why not simply put the IP loan on interest only repayment? Then use ALL available monies to pay down the new PPOR loan. Based on the numbers you provided, that appears to me the simplest method.
No one can tell you what to do so I'll take care to add that I'm giving advice, just explaining what I think the situation means.
Good luck,
KYHi, Adelaide definitely!
The suburbs mentioned by Bardon are what one'd call economically challenged but what do I know? I'm now living in one such area North of Pt Adelaide.
Peter Koulizos has Exeter high on his hotspots. Largs North went up quietly but significantly in the last 3 years, after Semaphore. Beyond that, Osborne & Taperoo are very very near to the billions of govt spending. Osborne where they're building the submarines. I went to an auction of an old AV Jennings home right opposite the gulf at North Haven with a view to die for. It was passed in at $420000. If I weren't involved with 6 houses, I'd dearly have loved to do that one up & live in it myself! This was 2 months ago.
Taperoo scares people off because it was so poor before. There're pockets where you'd … But on the other hand, nearer the beach, it's a different story. Even some ugly streets have spruced up. There's hardly anything for sale either.
I myself would not think of buying an apt in Newport Quays. I think that the density & large numbers of resale apts will drag down the yield & growth but then again I could be wrong. They say 'Build them & they'll come'.
We wait & see.
Good luck,
Kum YinPs Incidentally, I just sold 1 house $70000 above bank valuation – told them their valuation was rubbish
Hi, obviously people who say timing isn't important need to evaluate more carefully. You can buy well when things are depressed. Even a hole in the ground will repay handsomely.
Small tenants are not necessarily bad. I have 7 of them. They can be troublesome but you can also get rid of them. I bought small shops in a suburban strip where I lived. Yield was 10.5% when I bought. Rose to 14% when we put in another tenant. I didn't put up the rent for 3 years. Just increased the rent 20%. Neither of the tenants said anything! One of them tried strongarm tactics [said he might vacate]. I told my manager to let him go. Guess what? He signed the lease the next day.
I like small tenants. Big tenants can out-negotiate me. My hairdresser doesn't want to pay the increased rent, what did she do? She sold out to another hairdresser. There's been a hairdresser in that block of shops since my manager was a schoolboy.
Anyway, to cut the story short. I have 4 small shops with stable tenants. I have priced each one at $200000. Someone with +ve equity can buy any of these shops in a DIY superfund and have 7% indexed to CPI investment accummulating steadily till they reap it at retirement tax free. It's just a variation of salary sacrifice. What we must make sure of is that the rents are real, not jumped up.
Good luck,
Kum YinP/s check the history of the property before you even consider a price.
Hi, on $700000, you have some good choices. North Adelaide is very hip & yuppy. There're a mixture of old big houses with views [>$1M] & townhouses [2BR] small blocks, little yard space. My niece owns a townhouse with an artist's studio on Barton Tce opp the golf course. Value is $425000 plus or minus a bit more. Someone's comment? "No room to swing a dead cat". She's recently moved to a villa at Dulwich. $500000 settled last month.
Rose Park is good & near city but may cost in the region of $900K to $1M+
Millswood is near city. Price depends on the house itself. Generally above $600000. Mitcham is attracting more young families now as are Clapham, Pasadena & Panorama. This little cluster attracts some new English migrants. I just moved from Clapham. It's a most appealing suburb to live in but the houses are old & many need to be rebuilt. Lynton has good houses but costs $600-700K These suburbs are all a little over 5km from CBD south east.
For those new to Adelaide, the Eastern suburbs [Rosslyn Pk,. Linden Pk, Wattle Pk, Kensington[Pk & Gds], Tusmore, Heathpool, Springfield are the PRIZED suburbs. Then you have Medindie, St Georges, St Morris etc etc
Adelaide has many 'good' suburbs. They are very small & not many houses are for sale now.
I hope this email has been of help rather than confuse you. Since you have a toddler, you might want to consider a house with a decent backyard. That's the yardstick for most Adelaide residents with children.
Good luck,
Kum YinHi, I'm having one put up tomorrow, not having much luck with the newspaper ads.
My last house attracted 30+ people on the 1st day with no signboard. 3 weeks later, it sold at auction. Everybody knew it was for sale even though there was no signboard. The house across the road only had a quite small sign just www. something & the telephone number. There was a large crowd at the opens & sold at auction above reserve price. Mine sold above reserve too.
So there you go,
Kum YinHi, I attended Martin's workshop last year. Email me if you live in Adelaide.
Kum Yin
Hi, you seem to be doing the reverse of what most people do i.e. draw down excess equity in PPOR to fund IPs which are tax deductible.
Your target PPOR is high priced compared to IPs so you'd need a sizable income to pay for your cost of living.
Can you live in House 2 and use the equity to buy target PPOR for rental for 5 years or so & then when you have paid off more of the loan, then switch to your dream home?
There's also some merit in buying the worst house in your target suburb, knock it down & rebuild preferable 2, then live in one & sell the other or keep the other as IP.
Unless you have very high net worth, your $750K target PPOR is going to severely drain your cashflow.
Hope this helps & good luck,
Kum YinHi, I feel for you & pray that your health recovers quickly.
I'm about to refinance my properties for cashflow & am thinking of capitalising the interest on a million dollar loan for 5 years. Needless to say, the worry is making me sick.
The point of difference I note is that your PPOR forms the bulk of your assets. You might want to think about this. I have roughly the same equity as you with the difference that my house is $320000 [value], current loan $225000
Apart from that, I can't think of anything else to say except to wish you well.
Kum Yin
Hi, can any of you help me out with lease options? I own 4 new houses, have moved into 1 of them out of desperation & can sell 3 of them. The problem is the GST & tax on profit take out half the total profit.
If I hold them for rental for 5 years, the -ve gearing wipes out a lot of the gain, though we don't know how much growth we can get in 5 years. my guess is another $30000 per house.
My major concern is the maintenance bill in 5 years.
The rent to own option will take care of 2 problems, the cashflow & maintenance.
I'm prepared to pay the fee to someone who can organise the deals for me. I'm in Adelaide.
Btw, there's no problem letting the properties.
Thanks,
Kum YinHi, interesting range of fees.
I summarise my income/expenses & clip together all statements from managers. One year, the manager left midway through & I had to sieve through the bank statements as well. I highlighted what I thought should be included in the income/expense. I also make notes on the properties in question.
At various times, I had 3 houses and 7 shops with around 8 tenants in total. Every year almost, I had conveyancing and refinancing fees as well.
I pay about $600 for the tax return and $350 to $500 for the GST returns. About $1000 to $1500 per year in total.
Kum Yin
Hi again, sorry, MISREAD! $115000 loan is probably 45% LVR on improved property valuation. I misread it as $215000 loan.
You have about $85000 excess equity. Congratulations.
FYI, my currently -ve gearing property was undervalued when I bought, I asked for revaluation ten months later, the bank put it at $250000. Currently, the price of similar houses is around $275 to $300 thousand. i have submitted plans for a sub-division with a renovation to the existing house. That was the original reason in buying this property.
I didn't mean to shake or annoy you, it was my mistake in not reading carefully.
Good luck with your next purchase,
Kum Yin
Hi, I've had an email reply from Michael when I asked about property devt. Unfortunately for me, he operates in Melbourne & can't help me but I was really impressed by him. I have looked at his web site & followed his views on this forum.
I like his authencity. I also like Steve Mcknight's down to earth approaches. They have the validity of being correct.
I'll buy Michael's book if I find it on the shelves. I just finished reading "Pay back time"
Cheers,
Kum YinHi, what kind of yield are you after? I may be able to offer long settlement in Adelaide
Kum YinHi, the position as you describe is a bit wobbly. For comparison, most people [me included] have IPs like this.
Purchase price = $223000
Loan = $174000
Rent = $220 pwNote that this is still -ve geared.
We then proceed to save like a mad dog to pay off the home loan on PPOR that was used to fund this IP.
Then the mortgage payments lessen & we have more cash flow while still maintaining a fully tax deductible IP.
I'd employ more patience in your case lest you fall into the zone of 'margin for terror' as described by Steve.
Of course you may have your own way of coping in which case, I wish you all the best,
Kum YinHi, like everyone else, I was concerned about the impact & meaning of such news. Here in SA, we have 'No deposit', 'No interest loans', & I've out some details.
Such schemes are offered by some councils to 'help' people build new homes.
THE BASE PRICE IS $265000.
The median price in Adelaide recently flew up to $360000 [according to API] & $340000+ according to valuer general last quarter.
Wudina is the location for $1 blocks, Smithfield Plains is where there's a scheme for home buyers to put in 300 hours to build the house. The Wudina project is the $265000 houses. These houses are likely to be brick boxes similar to the housing trust 50s & 60s homes. those who don't know Adelaide, thes suburbs are "out in the sticks" according to my manager]
Everwhere else, even in outer suburbs like Seaford [recently caught up in pricing] Noarlunga & Christies Beach, new houses 3BR 1 or 2 bathroom are priced around $340000. blair Athol is around $320000 now, the last one I know of was auctioned for $291000 just after last Christmas [the price in Blair Athol is now around $330000 for old houses]
New houses will cost less only if it costs less to build.
Anyone knows a builder who can build a house for $50000? I will pay you $5000 if you can bring him to me.
Cheers,
Kum YinHi, don't forget the holding costs. If you're 'struggling' now, selling to buy again triples your cost base. Selling costs, assuming you get $520K, will be in the $10000 category. Then buying costs of 2 properties, that's $20000 more.
Your $520000 house will struggle to make $500 pw rental. Every house I've ever owned costs a minimum of $2000 a year in rates, etc without considering management fees & maintenance.
Your potential new IP in Adelaide is likely to earn 3% yield, your Mawson Lakes house will probably be under 3% yield, hence selling to release cash, is not bad.
kum yin
Hi, interesting. I bought my sub-division in June 2005 and the demolition was in Dec 2006 so round about the same time as yours.
building began with the slab in Jan and the frames went up in March. They were supposed to finish in May but handover was not until Sept!
The paperwork part dragged ON and ON and ON
We're now finishing the paving, 18 months behind what was first run estimate, $50000 more than originally forecast!
Thank God end value went up $60000 so I'm still OK
The higher cost is actually because we're in the middle of a boom otherwise we'd have finished on time & within budget. As house prices go up, tradesmen demand more & work in fits & starts so delay costs more in interest & so on and so on.
I have vowed that I won't do this again, it's so stressful but only AFTER I finish the next one due to start building in April.
Good luck,
Kum YinHi, some areas of concern here. Before you tumble headlong into alligator waters, CHECK CAREFULLY.
1) You should not have to borrow to pay off personal debt. This is not tax deductible. The bank will also NOT lend you for that purpose.
2) Your Adelaide PPOR now when it becomes a rental should be used to finance your next property which should have a yield of around 4 % A house in Adelaide @ $400000 should rent for around $320 per week. Don't bank on higher rental as it might not
be realistic. Your shortfall would only be about $300 per week to pay for the 2nd house. The 1st house already pays for itself.3) What you'd be doing is to make the 1st house help pay for the 2nd. Say you buy House 2 for $400000. That puts you -ve geared for $20000 a year [a round figure to take in management, vacancy & other costs]
a) this will give you a tax break of about $7000 while you rent interstate
b) if you buy House 2 new, you get another $10000 depreciation in Year 1 That is another $3000 worth of tax refund.If I were you, I'd buy House 2 with the view of making it my PPOR a few years down the track. Then when you sell House 1, it's
still your primary residence & you keep all the capital gains. You can then pay off House 2 [a free house to live in] or gear House
2 to fund the next investment property.This strategy works – i stumbled upon it by accident when I had to work overseas to fund my houses!
Note that it works best when you are paying tax.
Be aware though that although you can still get "bargains" in Adelaide, we're coming off 6 months of red hot property sales. The price you pay for House 2 will be today's price, at the top. We don't know where the exact peak will be.
Whatever it is, your outcome will be good only if your purchase is sensible. so the due diligence is still what will win you something.
My post is very long because it concerns me that you're a fairly new investor. I hope it goes well for you.
Kum Yin
Thanks, I might drive to Normanville/Carrickalinga area to check out how it's changed from when I was there 6 years ago.
Have a good week,
kum Yin
