Forum Replies Created
Hi Amanda and Raddles,
yes, I spoke to him last year after I hadn’t heard from him after 3 months from sending back the figures and that’s when I found out I was ‘down the list’.
He is an Aus based accountant (we have only been in L.A for 18 mths). I went with him again this year for the sake of convenience, but as soon as I get back mid next year I’ll go accountant shopping.Thanks for the input people.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Hi Millions,
I saw a colour in a house we visited here not long ago – ‘siszal’ or sisal or sizal or seisel by Ralph Lauren.Sort of a very light seaweed/green/brown colour. Looked fantastic and goes with nearly everything. Check it out.
The house was generally floorboards with white windows, wooden shutters and this lovely colour.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
This quoting of returns on property comes up a lot, and it is not a relevant figure anyway. Here’s why:
If I put $20k in a Term Deposit and get back 6% return per year (good luck), then my return is $1,200 per year. Over 10 years my total return is $12,000 on my $20,000.
This is as much as I can get for my $20k in the Bank, unless I re-invest the interest and enjoy compounding interest. The problem is I have to pay tax on the interest, so my real return is much less. Not only that, but my capital ($20k) has been eroded by inflation.
But if I buy a property, I introduce the marvel of LEVERAGE.
If I put the same $20k into an I.P worth $100k, borrow 90% finance (including costs), and it goes up by 7% per year the result is:
– capital growth – $7,000 per year.
Over 10 years is $70,000 (most well purchased property will actually double in value every 10 years, so let’s just double it to $200k which is 10% per year).
– I have managed to buy a property that is cashflow positive AFTER tax by $20 per week. This is $1,040 per year – $10,400 after 10 years; tax free.I pay nothing off the principal and don’t re-invest the pos cashflow back into the loan. At the end of 10 years I have:
cap gain: $200k – $90k = $110,000
pos cashflow: $ 10,400
TOTAL: $120,400My return on my original $20k is approx 600%, or 60% per year.
And if you look look at just the cashflow alone, which is tax free, the return is $10,400 after 10 years (5.2%). Not exciting, but it is a NETT return.This is not an unusual circumstance either. The above formula is done by me and many others every day.
By using LEVERAGING in the form of finance, good property selection, depreciation and tax deductions, rent return and capital growth, I can achieve far higher returns than 7%.
Oh, and one last thing; if I buy properties using equity – none of my own cash, and the properties are c.f.p.- the returns are infinity.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Given your building expertise and available equity, I reckon a good strategy would be to –
a) buy houses that need doing up and have enough land for subdivision,
b) do up old house then rent out while applying for subdivision and building permits,
c) subdivide, build and then sell renovated house and keep the new one as a rental with all the great depreciation benefits
d) the profit from the reno sale would make the one you keep cashflow positive.
d) repeat process – buy one, create two, sell one.By following the above, you are increasing your assets, your cashflow and your nett worth will continue to grow. You will become rich.
Simply buying, renovating and selling will give you short term cashflow, but won’t increase your wealth as you are not retaining any assets (other than your PPoR). A lot of builders do this and end up with nothing but a garage full of doodads (boat, jet ski, motor bike, car) and tools.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
you wanna see overpriced? come over here to LaLa Land!
Melb is all right Jack.
To answer the question Hook, I reckon not a lot going on this year unless you are in the top end of the market; seems to be going nicely despite the boom but of course the entry level is a killer, or look for the ugly, cheap areas where no-one used to want to live, but now have no choice due to the price rises over the last 3 years.
Middle range prices won’t do a lot this year – mr & mrs average are strapped.
Bayside is always good near the city, but again; entry level is high.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
The body corporate really only controls all the ‘common areas’ of the complex such as driveways, bin area, front of unit gardens and of course the exterior of the buildings.
There should be a map of the areas it controls somewhere in the body corp minutes – ring the body corp manager and ask for a copy.As for interior and back yard – should be all yours to do what you like, other than change the building structure. But you can do things like remove interior walls (if they are not load bearing) or add them.
Depending on size of unit, carpet might be a couple of grand, don’t know about cost of floorboards. measure the floor areas and ring a few joints for some rough quotes. If you hire them they will remeasure themselves.
Painting can be done by you if you have the time and motivation, for a few hundred dollars worth of paint and equipment. If it’s staying as a rental go with neutral colors and low sheen finish. Use high gloss enamel on door frames and windows. We go for earth tones on walls (very light) and white for door frames and windows, white wooden venetian blinds (Bunnings or Ikea). Looks fantastic. Sugar soap the walls, then fill all the holes, then sand. One coat undercoat, two top coats. Great fun!
One last tip; tile all the wet areas – do it yourself; easy but takes time, and costs a few hundred.
Backyard – lots of paving for low maintenance, drought resistant plants/trees. No swings – public liability.
One more last tip; get Landlord’s insurance and have a Depreciation Schedule done for Tax purposes.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
These sorts of organisations are usually a marketing company for a developer/s.
They will try to get you to buy overpriced properties that they want to sell, by telling you about how you can ‘secure your future’ with neg geared property (theirs).
The cost of the marketing and the commissions for salespeople who will be coming to see you for the 1 on 1 are built into the price of the property – you are paying for that.
They quite often offer rental guarantees for a couple of years (also built into the purchase price).
If you’ve organised an appointment I suggest cancel it, or if you must have the meeting, DO NOT SIGN ANYTHING, and ask the salesperson if they mind if you get INDEPENDANT valuations on the properties, finance and legal advice.
They will probably try to dissuade you from doing this and if they do ask WHY NOT?
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
“That has to weighed up against capital gains tax. If he rents the place out even for 1 day as I under stand it, he waves his right to no capital gains tax when he sells the unit”.
The C.G.T on your PPoR if you rent it out is pro-rated, and you can rent it out for up to 6 years without being liable for C.G.T (there was considerable discussion about this a couple if weeks ago on another thread).
“Say the rent is $250 and his interest at the moment is about $308 per week. So a loss of $68 then he gets tax back so maybe loss of $40 per week. But has to rent somewhere else for $250, so loss of $290. SO now we are comparind $290 loss renting with IP, to $308 loss on PPOR, only about $20 per week difference. Say the place values to $400k and he sell it making $150k profit. capital gains if im not mistaken will then be $25,000, thats ALOT of weeks at $20 per week…. thats like 20 years…….. so he is way better of not getting an investment mainly beacuse the rent he would get is to low.”
You are assuming he will get back a bad rent return/tax return on the I.P. Some of us can get a pos cashflow on our properties after tax (and even before tax).
If you rent a house worth $500k, the rent is normally around $500 per week or even less. The same value property to buy would carry a weekly mortgage in today’s finance costs (7.4%) of $711.53 interest only, plus rates, insurance, water rates, maintenance etc. Let’s call it a grand.“Quite frankly I think alot of people are getting ‘hooked’ into investing when there is no real reason to. INvestors will look at his situation and say “wow he has $50k equity” . I look at it and say he has $200k debt. Remember you need somewhere to live, so until you own a house outright (or are close), I recon you should not consider investing, UNLESS you are moving to a house that is considerably cheaper than your IP. Alot of people get this wrong.If you are going to upgrdae your house, its probably best to sell this and get on withit, because $50k off the loan of a $450k is going to save you buckloads in interest that the IP would take many years to create”.
Sounds like the cup is half empty. I feel sorry for you.
Here’s an EG for you:
– Say I own a PPoR worth $250k, have $150k usable equity in it.
– With $150k I can leverage into another $1mill worth of I.P’s with 100% finance, interest only and pay nothing off the principal. By carefully selecting my purchases they are c.f.p – cost me nothing out of my own pocket.
– Assuming the average of property doubling in value every 10 years (could be less – Rule of 72), in 10 years I will have property worth $2 mill.
– I still owe $1 mill, but have capital gain of $1 mill and will have paid off my PPoR.
You say I have $1 mill of debt, I say I am worth $1 mill. And with this $1 mill I can make another $1mill and so on and so on.And you say DON”T invest? At these returns I can’t afford not to!!
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
The problem with selling all the I.P’s to buy a better/bigger PPoR, and then using the equity in the new PPoR to buy new I.P’s is that you will pay an absolute fortune in C.G.T, buying and selling costs.
Do you NEED an upgrade or do you just WANT an upgrade?
If it’s just a WANT, then I think it is financially unintelligent to go down the path you are contemplating.
If it a NEED, then try to sell as few of the I.P’s as you can to help finance the PPoR upgrade.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
In a word – affordability.
At the moment most areas are at very low affordability rates. Another interest rate rise or two will slow things down even more.
I have heard that the higher end of the market is flying along nicely, so obviously the more well off aren’t as affected by all the property value increases or interest rates.
Mr and Mrs average still keep spending on the never never, which makes properties even harder to obtain.
The Fed has their hands tied to a degree – drop the rates and the average punter buys a few more doodads, which forces up inflation, or the housing market takes off a bit again due to the lower rates, which forces up rates again and then we’re back to no affordability again.
Cheaper areas will have to go up, the top end keeps seems unaffected, so that leaves everything in the middle probably doing nothing for a while.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I.M.H.O,
to buy a PPoR at this stage of life (trying to retire) and having any mortgage on it is going to impact on your lifestyle severely.
You will have to sell the I.P’s, which cuts out the income from the rent, then fork out for non-tax deductible interest every month. Or, if you sell both I.p’s and are able to buy a PPoR outright and debt free, what are you going to use for income? Surely not the pension; that is a pathetic existence.
You have been renting all these years so far, why change?
One scenario;
after you retire, sell the Melb I.P (less C.G.T after you retire), pay out loan on the Syd I.P. You now have maybe $200k of cash, probably more if you sell in 5 years after properties go up in value. You could buy another I.P for cash and have unencumbered rent income to go with the I.P you keep.Or, you could take the $200k down to the casino and whack it all on red (just kidding).
Keep renting where you live, or maybe upgrade a little to a nicer pad.
The rents will have gone up in 5 years as well so you will have a decent income from your I.P’s.
Or, if you want, move into the Syd I.P and have a nice debt free house.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by russell13:Thanks for your reply Marc, you brought up some good points. Over the next two years do you think we should just pump all our money into this loan or try to save 10 or 20 thousand as well?
Russell
I would be blasting away at that loan as hard as you can. The sooner you can pay it off, the more interest you will save, which effectively gives you more cash/equity for investing.
And, you will also have more equity to put into the house you build, thus cutting down the borrowings for that and saving on the interest which is not tax deductible.
Pay money weekly or fortnightly, and pay as much over the required repayment as you can afford. The interest is calculated daily (but charged monthly), so the more often you can pay money in, the less interest you will be charged.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
My preferred option would be Idea no.1.
If you don’t mind renting a place for yourself, this option will accelerate your wealth much faster I believe. It’s just a matter of getting past the mental block of renting. Once you’ve done that you’re on your way.
The interest on you PPoR is not tax deductible, and it is normally much cheaper to rent unless you own your PPoR outright.
As a side point – my view is that having a large sum of money like that in the bank is not good financial sense and here’s why;
Best interest rate you’ll get on savings accounts is currently about 5.5% (haven’t checked recently to be sure).
After you apply inflation, bank fees and pay tax on the accrued interest, you will have almost zero return – maybe even minus.
Meanwhile, the cheapest interest rate you’ll be charged on your home mortgage is about 6.5%, but it’s probably higher (again, haven’t looked recently – I only use I.O L.O.C). So while you are receiving an interest payment on your savings, you are still going backwards financially.
You are better off to slam the whole amount on your home loan (if the loan permits you to pay extra payments). I don’t know the actual saving in interest over the life of the loan, but it would be tens of thousands and several years off the loan (there are loan calculators on the web to help you work it out).
A better scenario would be to have a loan with an offset account with a re-draw and an investment account . The $25k goes in the offset, thus reducing your home loan interest enormously, but it is still accessible in an emergency, which is why you are holding the cash I assume?
Savings accounts are so twentieth century! The banks don’t want your savings; that’s why the rates are so crap.
You need to get hold of one of our fabulous Mortgage Broker/financial advisors on this site to guide you and set up your loan structure before you commence investing.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Welcome to the forum Russell.
If you are able to service a loan on a unit and on the block of land when you return to Aus then this is probably the best long-term scenario as you then have 2 properties increasing in value, but you may find that owning a unit and a block of land might restrict your ability to borrow more for the building on the block.
Assuming you can do all three, after the house is built you can then move into it and rent out the unit. Bingo! your first I.P (Investment Property).
The problem is that the interest on the loan for the PPoR (Principle Place of Residence) is not tax deductible, while the interest on the loan for the I.P is.
So, It will be best if you can minimise your loan on the PPoR as much as possible. In this case, it may be best to come back to Aus, rent somewhere cheap for a year while the PPoR is being built and slam as much money as you can into the loan. After you move in, you can then access some of the equity to buy an I.P if you wish; the interest on the I.P will be tax deductible of course.
Banks by law aren’t allowed to discriminate against you in regards to whether or not you might have children, but they do have an impact on your borrowing capacity after you have them, so the banks will still lend you money – just not as much if you have kids. Your incomes, potential rent and LVR (Loan to Value Ratio) are what the banks look at first and foremost.
If you are looking to continue investing in Property in the future, it may be best to get your structure for borrowing set up correctly before you go much further. It sounds as though you may have the right loan by what you said about the re-draw and the offset, but a chat to one of our very knowledgeable M.B’s (Mortgage Broker) on this forum will set you in the right direction. No doubt they will post a response for you soon enough.
In actual fact, I am surprised I got in first – Terry usually beats everyone!!
One more thing – buy a unit with some land content – a villa unit or townhouse, and built after 1987 so you can claim depreciation on the building and maximise your tax returns when you use it as an I.P. Talk to a good property wise accountant about the depreciation stuff though.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
There was a bit of discussion just the other day about “how do these people buy so many in so little time?”
Those scenarios aren’t happening now I would suspect.
Here’s how it happens:
– during a boom,
– in places where the properties are very cheap – under $100k ,
– the rent returns are up around 10% (or more),
– the people are probably earning a good quid to start with,
– they renovate and add value in a rising market,
– rent increases due to the increased value of the property.
– use rapidly growing equity to fund purchases.Don’t feel bad because you can’t do it right now. You can only do what you can do, but examining your investing system to make sure you are maximising every step of the process will help.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by wilrose:The views expressed thus far seem to cover the spectrum, except to add that perhaps some new cars are really a very good option in certain circumstances: eg, In the range of $17500 to $28000 (which will cover 1.6 litre Hyundai to 4 litre Falcon/Commodore, all ex gst) , should you have self employment status and significant taxation bracket, you can benefit from the tax angle, while also driving in a highly reliable, fully warranted, (including full roadside assist), up-to-the-minute safety specced vehicle, complete with new everything including tyres and rego…..all adding up to very low operating costs save for the depreciation aspect. Often the costs of owing a much older car are severly underestimated (including the safety issues in relation to airbags, ABS etc.) My experience is that a used vehicle ex govt auctions at about 40km, three years old, ex health department is the soundest strategy. The first driver is usually a person of mature attitude (read “careful operator” ), servicing will usually have been done religiously as required, the “on-road” costs and the GST have to a large extent been forfeited by the first owner and the purchase will be keenly priced to wholesale market values. What could be better? At the end of the day, do you want a vehicle to be reliable, safe, economical and able to blend in……….leading to a good long period of trouble free ownership, thereby saving alot of time (money) messing about with repairs, more frequent hassles with changeovers, late and missed appointments, embarrassing breakdowns etc, etc.
Each one must do their own assessment for their own respective situation…one size certainly wont fit all.
warm regards
wilrose[thumbsupanim]
If you are doing heaps of kids sports stuff or carting about reno tools/materials, then certainly a “knockabout” is the go.
I agree with the above about the ex-govt cars etc. If you must lease, then this is probably the best value, but still a significant (and unnecessary and wasteful) business expense.
Buying any new car is a bad idea. As soon as you drive it off the lot you have done around 20% of it’s value. If you don’t believe me, try taking it back to the same dealer the next day and getting either a trade-in or cash for the vehicle.
It is far more (but still not very) financially intelligent to buy a 2 year old version of the same thing. It still has the new car warranty, and the way they make cars these days it will last for at least 200,000 km’s if treated well (or if treated like crap in my case).
I don’t believe that buying something older (5-10 yrs) costs more money in maintenance because of the way cars are made now. Even the el cheapo’s are very reliable and run forever. I should know – it’s all I drive.
Leasing does not give you any tax benefit; it is a false economy – all it allows you to do is spend money on a car you normally wouldn’t be able to afford.
As I said in my previous post; you are still required to find the money for the lease repayment every month. It may be a ‘tool of business’ but is a cost you should absolutely minimise as it affects the cashflow of the business on a monthly basis.
The biggest cause of bankruptcy of businesses is lack of cashflow.
The problem is many people use the leasing perk to justify driving around in a fantastic (and expensive) car. Bottom line; you are hurting your own pocket in the long run.
Read “The Millionaire Next Door” to see what the average percentage of nett worth the millionaires spend on cars. A lot less than the average middle-class wage earner.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Originally posted by dacium:What I mean is that if people have debts already they struggle really badly.
$39k per year is about $576 per week. $200 rent. $125 car payment. $80 other car costs (fuel, insurnace, rego). $40 bills (elec. phone. etc). Food $100. HECS $30. That leaves $0. Maybe $100 if you used share accomidation and paid $100 a week rent. Either way a loan repayment, you can only afford may $200 per week. That only covers interest on about $135k loan.
I was on $39k and I saved over $30k in 2 years so it can be done, but i had no car loan and $50 rent. It can be done sure, but something is wrong with society when kids have to do this out of school, where none of this is taught.
What about the car payment? $125 per week ($541 per month) is one serious car.
You don’t need a car, and if you do, you don’t need an expensive one. Five grand will be more than enough.
And what about the rent? you can get a 1 bed unit for about $140 per week unless you want to live absolutely in the ‘cafe district’ (even less if you board somewhere), or spend about $10-15 more for a 2 bed and rent out one bedroom to a mate or stranger.
No-one holds a gun to your head and says “you must have the best of everything straight out of school and/or rack up thousands of credit card debt”.
It is YOUR choice.
Don’t feel sorry for Peter Hutchy – the guy’s got a Bachelor of Business. He’s earning better than most 24 year olds, and as a bank officer has access to very cheap finance I’m tipping, has a degree in making money and is still whinging.
I do agree with you about not being taught this stuff in school though; it is needed.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
A cheaper interest rate with no flexibility is not as good as a slightly more expensive rate with lots of flexibility. Saving a few grand per year on the interest now could cost 100’s of grand over your life time.
Also, the interest is tax deductible, so by the time you factor in tax claims the difference is 3/5th’s of not much and as Richard said; quite often the cheaper loans usually have high hidden fees.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Any car is a liability – costs you money.
The less you pay out for one the better. The rest is is just “stuff” and will interfere with your ability to create more wealth.
Leasing a car can be a tax deduction, but you still need to come up with the monthly payments first. And, the tax deduction is still on a depreciating liability – it’s worthless in 10 years.
I would rather take my tax deduction on an appreciating asset (house) that will be worth double in 10 years.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Speaking of Dande-thong, I just received this email from my brother-in-law;
DANDENONGSECONDARYCOLLEGE-CITYOFGREATERDANDENONG MATHEMATICSEXAM
C:JD MillsJCDandenong Mathematics Exam.doc Page 1 Of 2
NAME
GANG
Youse Time allowed is 1 hour
1. If Mohamed lowers his WRX 2 inches front and back and puts on stolen
18-inch Auscar slotted wheels, how many inches has he originally lost
from the stock suspension?
2. If Con needs 3 razors a day to stay clean shaved, how many razors will
he need before he goes to the gym at 8.00pm?
3. If Mustaffa runs 10 km from the Police in Noble Park to Springvale South
then steals a car and drives another 5 km to Keysborough , how many
kilometres has he travelled if he ends up hiding in Parkmore Shopping
Centre?
4. Phan has 2 ounces of cocaine and he sells an “8 ball” to Hamil for
$320.00 and 2 grams to Dak Hoang for $85.00 per gram, what is the
street value of the balance of the cocaine if he doesn’t cut it?
5. If Darren receives $200.00 per week disability allowance from Centrelink
and works for his brother as a builder and receives a further $400.00 per
week and then pays $10.00 per week for each of his 11 children for
school, how much money does he have left to buy a smashed Tarago
from the Keysborough Wreckers?
6. If Soula needs 25 mls of wax per day to get rid of her facial hair and
Soula is only 19 years old, how many mls will her mother need if she is
47?
7. Mohamed has an AK-47 with 2 x 30 round clips. If he misses 6 out of 10
shots and shoots 13 times at each drive-by shooting, how many drive-by
shootings can he attend before he has to reload?
8. If Abdo runs a Donor Kebab shop in Dandy Plaza and works as a Taxi
driver on weekends and earns $1,200.00 per week, how much does
Centrelink give him for his job search allowance?
DANDENONGSECONDARYCOLLEGE-CITYOFGREATERDANDENONG MATHEMATICSEXAM
C:JD MillsJCDandenong Mathematics Exam.doc Page 2 Of 2
9. If Dandenong’s ethnic community is increasing at a rate of 3.5% per
month, the overall population increasing at 2.1 % per month, at what rate
are the Aussies leaving?
10. Quang is pimping for three girls. If the price is $75.00 for the trick, how
many tricks will each girl have to turn so that Quang can pay for his
$200 per day crack habit?
11. If Luigi drives his family and cousins all in one car from Dandenong
North to Hampton Park, how many round trips will he need to make if 40
of his relatives need a lift and he can put 12 people in his Valiant at any
one given time?
12. If Mario’s dad has his top 3 buttons of his shirt open and reveals 1 x
golden cross and 2 other golden ornaments, and has approximately 17
sq cm of hair coming from his chest with an average length of 2 cm,
what is the probability that the ornaments will be visible from:
a) 2 feet away …..%
b) 5 feet away …..%
c) 100 feet away …..%
END OF EXAMCheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
