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Hi, you might also want to look at your PAYG. You're in a high % tax area.
Ideally, one of you should be in the low income category [lots of freebies if your taxable income <30K]
Deductible interest is one way of lowering the taxable income, depreciation is another & super is another. Paying to dependents eg minors is yet another way of lowering taxable income.
of course, your serviceability may be impacted. So lots of factors to look at. Bottom line is they all increase your net worth which is what will give you your financial independence.
KY
Hi Ed, & who said Aussies don't save???
You're alright, man!
The numbers you posted should put you somewhere in the neutral gearing position, with depreciation & -ve gearing.
Please pay attention to the comments about the deposit. The savings should pay off the house asap while the loan on the IP keep increasing.
You do this by 'borrowing' to pay for expenses: rates, water, insurance, weedkiller, insect repellent etc etc
Good luck with it,
KY
hI, just wondering what are the ongoing costs?
KY
Hi, the calculations go like this:
Contributions = $18000 [9K x2] x 25% [40% tax bracket – 15% tax] = $4500
That alone is enough to pay ongoing costs
Add employer contributions of $18000 [don't know how this part works out later]
The rest of it is accrued through normal compound interest.
Sure, 700K is not comparable to your Woodcroft home but look at the yield. Your Woodcroft home I would hazard a guess rents for max $450 a week? Take away costs & you end up with $360 pw = $18720
$700000 @5% interest = $35000 per year [in today's envt, you can get close to 7% p.a. on the daily rest calculations]
And bear in mind, to get there, the couple would have contributed in real terms probably about 35-40% of the actual accrued monies. I'm not exactly sure, didn't do precise numbers.
I'll buy property only if I'm very sure that the yield >5% every year. I've been lucky, mine yield around 10% nett all in.
Remember the Manhattan Indians who sold Manhattan for how many dollars was it back then? Someone did tha calculations & proved that reinvested, the amount today would be the same as if they didn't sell.
Our problem is not we can't make money or buy houses, it's that we can't keep them. Super works precisely because we can't get at it!
KY
Hi losty, your case made me really look at the numbers.
It's so simple it's almost idiotproof.
$9000 p.a. = $750 p.m. x 2 = $1500 p.m.
Accrued interest tax saved
$1500 $6.25 $31.25$3006.25 $12.53 $31.25
At the end of 15 years, the total accumulated is $744430.50
That doesn't include the tax savings.
Essentially, by each partner paying $130 – $150 per week into an smsf & not doing anything more except ensure it's in a high interest [daily rest internet acct will do it], by the time you're 50, you'll both have close to a million in cash.
Is that so difficult if you're earning $100K each?
KY
Hi.how about this super scenario?
Husband: $100K income – contribute 9% = 9K same as employer contributions
Wife dittoSmsf costs = $6000 establishment, thereafter $3500 [this is very costly; can be much less]
Consider Year 1 a wash. [Standard 40% tax bracket every year for 5 years, interest earned @5%]
Year 2 : Tax savings = $$36000 x 25% = 9000 less $3500 costs = $5500
Capital accrued = $36000 interest earned = $36000 x 5% = $1800 x 90% = $1692Year 3: capital accrued = $79192 x 5% x90% [assume 10% tax within superfund] = $3563
Year 4: capital accrued = $124255 x 5% x 90% = $5591
Year 5: capital accrued = $171346 x 5% x90% =$7710
End of Year 5 : total balance in smsf = $184556
How much cash have the both of you actually contributed in 5 years? $18000 – $5500 = $12500 x 5 = $62500
ROI = 195.28% = 39% p.a.
I 've not even considered the daily interest or the savings that can be eked out by shopping for cheaper ways of accounting etc.
Why would anyone NOT do it?
KY
Hi, I was interested enough to play with the numbers for Singapore. I came in at 16x my salary for the kind of apt I'd qualify to buy.
My godson on less than half my salary came in at 8x.
For Malaysia, I came in at 12.6x, my nephew to buy at crap cement box low cost flat would be only 2.5x
Incidentally, Singapore has a lot of restrictions on housing. I know people who camped overnight to sign up for apts. and people who sold their queue numbers for thousands of dollars. My ex colleague's brother in law was a professional queuer and made a lot of money selling his queue number for apts and also for country club membership.
And I'm not joking, it's all true.
KY
Hi, I'll wager the average price of houses in Crafers won't be 2M in 10 years. We lived in the hills [near Blackwood] and between 1990 and 2000, prices went backwards. There are also all kinds of cheap cottages albeit on big land.
I'll not say Crafers is the hills suburb to go into the 2M average. It's more likely to be Auldana. I saw some $300K ish houses 2 years ago & I'll think they're in the 400K range now.
The other point about buying land is this: what LVR will the banks lend on land?
A friend bought a block of land in Glen Osmond, long long ago for around 25 thousand. Today, the block is worth maybe 300 K?
The same 25K would have bought a modest house which today would still be worth no less than 300K but the rent would be 300 per week.
So $300 x 52 x 15 years [the 1st 10 yrs rent would be less]
Can you afford to live in a 500K house?
Your parents look like they know a thing or two.
KY
HI, since you're in Melbourne, why not talk to |Michael Yardney?
KY
Hi, is this Australia you're talking about? Property prices have been flat for 3 years? Where oh where? Can you name some suburbs please? I'm under the impression that even a hole in the ground has gone up in price. My PM actually said that someone might need it for a rubbish tip. And he's right. The holes in Wingfield have gone crazy in price.
KY
Hi, $400000 to build a house? The builder is probably making 200000 from building it.
KY
Hi, consider the cost of trusts. If audit is necessary, you'll find that what you save just goes to pay the accountant, sometimes maybe even -ve.
From what I know, trusts apply only if the value of the portfolio is sufficiently large.
Re having enough to live on from properties, I'd suggest you leave out PPOR. It's not an investment, it's a liability.
You'll find that your portfolio is not enough. I discovered that years ago when I had 4 houses & I don't have dependents.
1M invested will just about do it i.e. you need 4 IPs paid off. Then you can live off the rents.
KY
Hi Linar, I agree with you that the Adelaide mkt will stagnate for a long while. That's why I sold asap in early 08.
aj, just for comparison. There was a vacant block that I offered 380 thousand and lost out. Asking price mid 400, my agent thought 425K.
We thought we could build 7 houses & I played safe & based my offer on 6 'in case we can't do 7'
They actually managed to fit in 8 and some with double garages. Very nice looking almost like a gated community.
It took 3 years & I reckon with holding costs etc, that project would have made 1M+ The houses sold quite easily, they appeal to empty nesters who sold their rambling houses to buy neat smaller ones to retire to. Each house sold for $369-389K
I went to 2 auctions today, both no bids. Price was too high. Mid 500K.
I also saw a derelict one going to auction next week for 270-280K according to the agent. That might have some profit margin if it's possible to build 2 or failing that, a dual occupancy. Land is only 500+m2
Just occured to me, at that price, a total reno from top to bottom may actually be worthwhile. A hundred thousand will do quite a lot & the refurbished house will be worth at least mid 400K.
Interesting.
KY
Hi PQ, don't berate yourself & don't fix what's not broke. Of course, you could have done better, so could I & so too could everyone else.
Congratulations on being in the big M category. You've done what most of us did, jumped the deep end & then flailed around adn swam from necessity.
I did exactly the same, didn't even know that I was a 'property investor'.
If I may be so bold as to make a suggestion, you yourself are probably your own best advisor. Though of course, in the area of tax and further acquisition & holding, you might want to look at more sophisticated ways. The forums have a lot of info that you can get for free.
Good luck,
KYHi Anthony, another poster, I think it's RumpledElf, said that she now looks at established homes rather than subdividable brokendown houses & I agree with her. I've seen houses show steady yield without the hassle of building. Building is much higher risk.
If you can get 45K for 9 months work, by all means but I know someone [my brother in law's sister] who was aggrieved to make 5 thousand from a building project. Build to own rather than build to sell seems to be the better way.
If there's not enough in it, just ignore. I'm actually in the present slowing, paying down & getting more & more cf+ through the properties paying themselves off.
But I now buy shares too.
KY
Hi aj. yes, the sums were so compelling my agent said it was a bargain even without the subdivision.
I sold in April 08 amidst all the GFC jitters. If I'd hung on I'd easily have made more with the FHB new house bonus. When I sold, that wasn't in the equation.
The bank valued it $5K higher than what I paid originally & 6 months later, the valuation went up another 10%
Should have bought a stack more of them. There were lots of them in 06 in Blair Athol. 25 The Grove asking price $250000 probably sold for under that would be worth $350000 today.
KY
Hi, doesn't matter as i'm on high commercial rates anyway. It's the term that I want. My current loan is short term 12 months. I will be happy with 2-5 years.
i can even provide BAS, etc etc except that my taxable income is very low. That's the reason why the std bank loans are difficult for me.
KY
Hi Richard, would I be able to get one of these no docs?
I have a $170000 loan matures in Feb 2010. It's a private loan @9.5% against a shop [3 tenants] council valuation around $340000 or a bit more.
I have 3 other separate titles [commercial, unfortunately] that are unenc umbered. Value by council $360000 approx in all 3.
KY
HI ajsc, my subdivisions were in Adelaide.
The 3 year was because the builders were very slow to submit the final paperwork, at one stage I decided to let it slide because I saw the house prices shooting up. Didn't improve my profit margin cos interest rates rose as well. Just meant that my end value calculations were very good.
The other one was a subdivision + reno. I'm not good at reno. The council didn't approve our plan, again my agent was very slow to submit & the planner we spoke to originally went to US & another planner didn't like what we proposed.
My backup plan was to knock down the back add-on to give us the width & I presented council with a regular lot that they couldn't reject. So it took nearly 2 years + $4000 more.
If I built, I'd have to hold for 5 years & I'd probably make 120 thousand more. I sold for cash cos the 90 thousand that I put into the stock mkt has given me 30% in 4 months + 8.5% interest in the 12 months that I had it in FD
I've come to the stage where I want a very high rate of return for my cash [40%]
The 4-house subdivision was all on borrowed funds. 300 thousand in 3 years before tax is a very good return for little funds of my own. What I had was unencumbered property to offer as collateral.
The reno + subdivision is on 80% LVR so we put in about $90 thousand all in. We made roughly 90+ thousand. So 45% p.a.
The lesson I've learnt is this: without cap gain, whatever I did would have very ordinary. It was the capital gain that made those investments above the ordinary.
And to intending developers, do be careful. I've seen numerous people compete like hell for 'subdividable' property & overpay. As many lost money as those who made money.
Good luck,
KYHi, your 8 mth timeframe is very efficient work. 45K profit is not bad.
I did one similar to yours. It was supposed to take 1 year & profit would be 90-110 thousand.
It took 2 years, I sold for approx 100 thousand profit, the buyer built and will make 100 thousand +
Another one [4 houses] took 3 years and 75 thousand nett before tax so 300 thousand off a 1M project.
Therefore nett profit of 30%
KY
