Forum Replies Created
The argument about what is better – shares or property, rages every day and has been covered here already, but I don't mind putting in my 2c worth.
Historically when you look at average returns the share market wins. But not every factor is considered when the numbers are crunched.
Leverage is the big difference between the two, and when this is applied you would have to say that property is better in my opinion.
$20k cash can be leveraged more through property than it can be with shares, with more side benefits such as depreciation and the fact that you control the investment. You can add value to property where you can't with a share.
Having said that, you need to settle on an investment vehicle that you feel comfortable with, and can understand. Both vehicles are good and will make you wealthy if you commit to educating yourself and taking action with safety.
Find a niche and a system and become very good at it;
I know 2 brothers who bought a house in Torquay, Vic. They did it up, subdivided the block and sold the whole lot at 100% profit. Then they did it again with 2 houses, then 4 and so on.
They only deal in Torquay and have done very well.
If you keep comparing the opportunities or the opportunities lost, you will go mad.
I'm hearin' ya vyaw2003!
I've no doubt you'll be happier than most down by those waves.
I got off the "try to impress" roundabout a while ago and became happy. Now it's all about going places, seeing the sites and drinking a good wine by the sunset.
Sometimes I see the BMW's leaving the carpark at 7.00am and I know they're heading off to work to pay for it, while I am heading down to the pool for a swim before school with my 5 year old son. That's priceless.
It is nice to have a bit in reserve though just in case you need a new board.
The problem with answering this one is what is your lifestyle going to be like? Some people are quite happy on %30k per year, some can't get by on $100k.
Why the hell would you want to know about Centrlink and Pensions and means testing???
Set your sights on the clouds my friend, and you may just hit the tree tops!
As for pensions and govt assistance; I don't want any help from the govt at all. If I have to get help from the govt to live in retirement, then I have failed in my book, and I am headed for a limited life of less – not more. I plan to not even be close to qualifying for their miserable existence hand-out.
I have 2 sets of parents and step parents; all retired, all on the pension; all doing nothing and going nowhere.
On the flip side, I know some guys who are well past retirement age and are very wealthy but are still having fun working and making money. They never seem to get old and they sure as hell aren't going to retire anytime soon.
Don't entertain any thoughts of using the govt to help you live. Make your own wealth and live great.
Just keep buying as many income producing, capital growth investments as you can, and when you are ready to retire, retire the debt by selling a few, and you will have a debt free income from investments that continue to keep on growing.
A very basic, but very do-able equation is 1 property every year for 10 years. Wait another 5 or so years after that and then retire some debt.
I don't know how old you are now vyaw2003, but if you've got a couple of I.P's on the go (or more) you are well on the way.
There is no doubt that the correction in Melb has been shorter and shallower than many thought it would be. It turns out that Melb is outperforming most of the other Cap Cities right now.
Keep in mind though, that the Age and the Herald Sun are city/suburban papers and will concentrate on the "postcode" suburbs mostly – always have. it's more glamourous to talk about Camberwell and Brighton than Dingley or Airport West.
If you want the real stats, look in the Investment Magazines and places like Residex. You know; the places that only investors and not 90% of the public look.
Let's first look at AUCTIONS from the AGENTS' point of view:
Be careful about the auction results listed in papers. These stats are supplied by agents to the reporters.
A true stat is when the property sells at auction on the day of the auction.Anything else is not an auction sale. It is a private treaty sale. Look at how many sold before auction, after auction and how many were passed in on the day to get the real stat.
Why do agents misrepresent the figures like this?
MONEY – They always get a result with an auction – good or bad for the seller; quite often bad. The agents get their commission when the property SELLS. Many times in private treaty campaigns the agent doesn't sell the property before their sale period contract runs out.
Of course, there are always a few properties that go above the listed price. The listed price is the one advertised by the agent to attract buyers. They want a grand show; lots of people, lots of bidding. A lower advertised price attracts more people because there are more people with less money than there are with lots.
Agents don't particularly care if the advertised price is too low either; if there isn't much interest at the advertised price, they "condition" the Vendor to drop the price over a few weeks leading up to the auction because "that is what the market is telling us".
They still get the sale, but the paper will report a good result, while the Vendor has lost thousands.Look at it this way; if you can spend $500k, and the next nearest bidder only bids $450k, are you going to put up your hand and say $455k or $500k to get the property?
Now let's look at AUCTIONS from the NEWSPAPERS' point of view:
Newspapers make MILLIONS of dollars every year from real estate advertising' and agents make many hundreds of thousands out of their Vendors from the ads that they place in papers.
If the market is bad, there is not much money to be made by either party. So why hype up the figures and the state of the market?
They need people to be confident, to feel good about buying and/or selling. No one wants to be the dummy who sold in the slump, or the buyer who bought in the boom and found out the prices dropped. The agents need sellers to provide the ads, the papers need the ads.
The newspapers can't afford to have a prolonged period of no sellers to give them those lovely advertising dollars. There will always be buyers; people have to live somewhere, but buyers don't place ads.
If the market is bad sellers disappear along with their chequebooks.
If you use the redraw funds for investment purposes then yes the interest and fees will be tax deductible.
There are a few ways to finance it;
The basic way would be to use your redraw funds to cover the 20% deposit and purchase costs, and organise a separate loan for the 80% balance.
Some loans will allow you to extend your existing loan and use both properties as security, and you fund the whole amount out of the same loan. This is called "cross-collateralisation". A lot of experts don't like this method as they believe your lending can be restricted and trap you with one lender.
There are other more creative ways, but this is usually only required if you are struggling for finance. I don't think you would be so a safer option would be better in my opinion.
Talk to a good property knowledgeable mortgage broker about the options. There are a few good ones on this site.
The only problem with buying land is there is no income, and therefore you cannot claim any of the holding costs as a tax deduction.
When you say "motivated" do you mean someone who will accept a low offer? You don't know until you ask.
To find a motivated seller, offer them a fair bit less than they want, but with a short settlement, and write a cheque with your offer for the full deposit. The agent has to present any offer to the Vendor – by law.
There are a few no agent websites you can look at to find sellers who don't want to use an agent;
noagentproperty.com.au is one I know of.
You would need to restructure your loan so you can access the equity in it.
There are several different products on the market that allow you to do this; you probably need to meet with a good mortgage broker to discuss your options. There are a few good ones on this forum if you don't know any.
There is nothing wrong with pouring every available cent into your mortgage by the way; the interest you pay on your PPoR is not tax deductible, so the less of it you have to pay the better.
This will add to your equity and get you on the investing track sooner.
The normal way the equity scenario works is that the banks will let you use up to 80% of your property's value, less any outstanding loans. The remainder is your usable equity for the deposits and purchase costs of the next property.
There are some lenders who will allow you to use higher amounts of your property value than 80%, but in my opinion this is becoming too exposed.
Remember; they will lend you the money, but it is you who is taking any risks.
It's the old cliche of buying the worst house in the best street and doing it up, which does work.
Many people do this and end up with a very nice PPoR, but not necessarily any I.P's or other investments.
Nothing wrong with that, but you can do far better by using the increased equity for deposits on I.P's than you can by doing up the PPoR, then selling it , buying another and doing it again. A lot of the cap gain is eaten away in buying and selling costs.
Maybe, but to me this is yet another of those useless stats they dream up to over-psycho-babble-analyse everything.
If you are looking to a rent versus property price stat to help you decide whether to buy or not, you will go mad.
There are so many variations on rental returns it is impossible to categorise every micro market into one category. A more accurate guide would be affordability. It doesn't matter what the rent return is, if people can't afford to buy it, the property is over-valued. Rent returns may be relevent to investors, but as a group they don't influence prices very much, if at all except in a micro market like, say, Mildura.
The other problem is the prices that properties sell for are often way out of balance with the rents due to the ever changing and unrelated cycles of sales and rental returns.
For example; if an area has an average rent return of 10%, does this mean the property is undervalued? not necessarily. If the average rent return for an area is 4.5% does this mean it is over valued? Not in my book. It is what it is. It simply means the prices have boomed but the rents haven't caught up in all probability.
The price of the property won't suddenly contract that much to bring the rents in line with some figure the stats freaks have dreamed up. This has been proved in the latest post-boom "correction". The average drop of prices across Sydney, the worst affected area of the correction in the country, was only 5.9%. The rent returns are still crap even now that they are rising, but the house prices haven't plummeted, so on this basis they are not overvalued. What has happened though is the prices have stalled due to affordability.
Real value of property is what people are paying for it NOW. This could be over-heated as is the case during a boom, but that's what people are paying at the time. The prices stop going up when the affordability drops too low.
If you want to know what the real value of a property is, forget the stats and look in the real estate agents' windows for a month, or pay a qualified valuer to tell you.
There is no 10 year rule with this aspect of your investment.
Houses built after 1987 (I can't remember the exact month and day in 1987 when it kicks in; so just call it "after" 1987) are eligible for a "special building write-off", as well as depreciation on the fixtures and fittings.
Depreciation claims are "on paper" deductions, which cost you NO money from your own pocket, but nevertheless are still claimable on your tax return. It is, in effect, free money. The govt allows you to depreciate the structure on the property.
The depreciation on the building is 2.5% per year for 40 years (100%) from the date of construction, while things like carpet, kitchens etc have different depreciable "lives". Carpet for example is 5 years from memory, so you can depreciate it at 20% per year for 5 years, or even 10% for 10 years I think if the "life" is 10 years.
This aspect of an investment can be very financially rewarding and enormously improve your return on your property cashflow. This is the only type of property I buy.
You engage a Quantity Surveyor to prepare a "Depreciation Schedule" at a cost of around $500 (which is tax deductible). It will pay for itself in the first year.
The Depreciation Schedule is forwarded to your accountant, and he/she applies the list of deductions to your tax return.
The end result is you can turn a neg geared property into a pos cashflow property AFTER TAX, so there is no tax to be paid on the profit.
You can even arrange for your tax return to be forwarded to you in your paypacket, so you don't have to wait until the end of the year for the money (which can be considerable). This can really improve your cashflow on a weekly basis, and if re-invested into your investment loan, or personal debt, will accelerate your wealth building and save you heaps of interest.
You would need to speak to your accountant about this.
Yeah; go easy; I'm only a two finger typist and I need to stop for alcohol regularly!
Send me a few Alto55; happy to help if I can.
Thanks kowntafit!
It sounds as though in his book (I haven't read it) that he is referring to a "1031 exchange"? Robert Kiyosaki mentions it in his books as well.
This is a mechanism in the USA whereby you can defer paying CGT indefinitely as long as you keep re-investing the gains from an investment sale into an equivalent or higher value investment – usually property.
We don't have that arrangement in Aus.
It is not advantagous to continually buy and sell properties in Aus because of the CGT rules, plus the costs incurred in buying and selling. Not only that; you lose out on future cap growth if you continually "flip".
You will find that most of the wealthiest people in the world have kept on increasing their wealth through buying or creating good real estate and keeping it.
These sort of companies are all over the place right now.
They are more than likely a development company and you have been approached by the saleman.
They promise you financial security through the wonders of negative gearing, and usually mention the figure of "only $50 per week " out of your pocket or something like that.
You will probably be paying too much for a property that they want to flog to you.Ask them if you can supply your own;
Finance
Legal advice
Valuation.I'm tipping they will be very reluctant.
I would run a mile.
It isn't Harvard Securities is it?
Not a good time to sell there. Can you hold them for a while and wait?
I would have thought that the contractor's agreement was with the builder.
Your contract would have been with the builder to do the project I'm guessing, and he then subcontracts out the work to subcontractors. He employs them – not you.
It sounds as though the subcontractor may be trying his luck with you as he is having no luck with the builder. If you still have your contract for the project with the builder, check it to see what your obligations are/were.
You are not the evil monster; the tenant is. You are providing them with a home, taking all the risks and they are showing you no respect.
Take all the action necessary to bring this person into line, and then kick them out! Just kidding.
Give them a little time to make things right (not too long), and if they continue to cause problems and don't look like toeing the line, then kick them out and sue them as well.
It's a hard one.
If you get rid of the terrific tenants to renovate and put up the rent to market value there are trade-offs.Negs:-
1. You lose a great tenant and may replace them with a not so good one.
2. You pay a few grand to do the renos, and will eventually will recoup the cost through increased rent and tax deductions, but you still have to come up with the cash now to do them, or use equity dollars which increase your loan repayments slightly.
3. In the short term most of the rent increase will be swallowed up by the cost of the extra money spent on the renos.Pos:-
1. You get more rent long term
2. Your tax deductions increase
3. The property will gain a little more value
4. The above points can help with being able to afford another I.P in terms of serviceability and property value.I agree with Terry though; a compromise of some renos and a rent increase. Especially if the market has risen and you know the tenants won't be able to find anywhere else as good for the same rent.
Just because tenants are good payers and keep the place in good condition doesn't mean they shouldn't get an increase. They are supposed to keep it nice and pay on time – it's in their contract.
We had this situation only late last year. I asked the P.M to make the decision on how much (if any) to increase the rent, and she delivered the bad news to the tenants. Of course, they weren't overly happy that the rent went up, but they knew it was coming and they also knew they couldn't go elsewhere and get a better deal. That's life. They stuck it out for another 5 months, moved out, and the rent went up again for the next tenant.
You think you're a mean landlord? How's this; I talked to an ex-property manager of an apartment building over here last week. I asked her why she was an "ex" manager. She told me the owners of the apartment building she managed and lived in for 20 years told her to close the office door on the day the rent was due so no tenants could pay their rent on time.They also asked her to not process the cheques until 4 days had elapsed. This would allow the owners to send the late paying tenants an eviction notice for late payment.
Over here, if you are late by I think 3 days they can evict you (most landlords would never do this of course). This would allow the owners to get rid of the rent controlled tenants (some buildings have rent controls where the rent can't be increased by more than C.P.I until you move out) and get new ones at the current market rent. Here in L.A where the rents have soared in recent years (along with house values), sometimes this can mean an increase in rent of nearly DOUBLE if you can remove the long term tenant.
The manager wouldn't do it as she is a lovely lady with a conscience, so they sacked her on the spot.
To answer the question in the title, I would not put any cash into any savings account, unless I had to park it somewhere temporarily until I wanted to use it for another (better) purpose. In this case it would go into an account similar to the ones you mentioned above. But it is strictly temporary and not my favoured choice.
There never is a savings account with an interest rate as high as, or higher than, any loan interest percentage that you have to pay.
With a savings account, you pay tax on the interest you are paid, at your marginal tax rate, and you are charged bank fees in many cases. Your nett return is appalling.
You cannot leverage your return on your money in a savings account.Any cash I receive will always go towards paying down debt either personal or investment, while there is debt, as debt is more expensive than the savings interest you will accrue. But I will only put the cash into debt reduction of loans only as long as the cash is accessible in the event of an emergency, so the right type of loan is critical.
Once the debt is paid down, and even while some still remains, my cash will always go into income and cap growth producing assets which can be leveraged to do the same again – property, shares, businesses.
Here's a very basic, quick comparison, and there is no re-investing of profits or inflation factored in; $20k invested for 10 years:-
OPTION 1.
$20k in savings account @ 6.8% for 10 years, 30% marginal tax rate (no bank fees factored in).
TOTAL GROSS PROFIT: $13,600
TAX: $4,080.
TOTAL NETT PROFIT: $9,520
CASH ON CASH RETURN: 4.76% per year. OH DEAR!OPTION 2.
$20k as deposit on $150k property. Rent $170 per week, finance @ 7.5% interest only on $139k (80% of property value plus purchase costs @ 6%). Cap growth rate of 5% per year average. Property is built after 1987, so depreciation claims are high. After tax cashflow is positive $10 per week. House is sold after 10 years. Marginal tax rate of 30%.
TOTAL CAP GROWTH: $75,000
TOTAL AFTER TAX CASHFLOW: $5,200
PROPERTY SOLD FOR: $225,000
CAP GAINS TAX ON 50% OF GAIN, @ 30% MARGINAL TAX RATE, INCLUDING BUYING/SELLING COSTS $15k: $9,000
TOTAL NETT CAP GAIN: $66,000
PLUS TOTAL AFTER TAX CASHFLOW: $5,200
TOTAL NETT PROFIT: $71,200
CASH ON CASH RETURN: 35.6% per year. AHHH!; THAT"S BETTER.NOTE: holding costs, 1 month vacancy per year, loan interest, "on paper deductions" and other expenses are factored into the after tax cashflow. With careful property selection you can magnify your returns much more than the above model.
You're right Alto,
For the majority of folk who are less financially literate this is the only way to go. The govt realises they won't save, and doesn't want to/can't support them in their old age so they encourage them to pound away at the good old super.
For the rest of us who have gotten educated, taken action, and are more in control of our destiny, there are far better options than super.
Absolutely.
