Forum Replies Created
My understanding is that after 1985 there isn't anything claimable on the building under deprecaiation (although someone else might corret me here) but if you've made capital works or additions to the fixtures and fittings theses would be. I'd guess little benefit would come from the cost you'd pay for the schedule.
With regard to the tax implications, you will have decutions available based on the interest repayments less the rental income you receive when you move out to make it an investment property and are defintiely worth considering.
Another factor to consider is the returns each asset class would give you, the psychology of investing in a manged fund (or even trading), and whether or not you are comfortable with the more 'stable' growth of property against the volatile movement of the share market (although returns can be amazing in short periods) and managed funds and the more consistent income from property (historically low vacancy rates) against those of the share market. The loans and costs would be a consideration but almost secondary IMO.
Another factor to consider is the returns each asset class would give you, the psychology of investing in a manged fund (or even trading), and whether or not you are comfortable with the more 'stable' growth of property against the volatile movement of the share market (although returns can be amazing in short periods) and managed funds and the more consistent income from property (historically low vacancy rates) against those of the share market. The loans and costs would be a consideration but almost secondary IMO.
hehe probably – perhaps it might eventually give cause for a real third alternative…
Hi Paddy,
Yes, the banks will be interested mainly in you servicing both debts and also in having the equity available for the deposit. You also want to make sure your own cash flow can handle any increases to interest rates for your own peace of mind.
Another point is that if the lender you are currently with doesn't allow a refinance to 95%, your only choice to get that equity would be to refinance to another lender who will allow 95%, and paying the full LMI again (which would be anywhere from $15K on a $500K loan, although some lenders will capitalise this amount on top of your loan) as they wouldn't discount the LMI already paid with your current lender.
Another option might be to have the loan as IO, keeping the deductible debt maximised and putting your excess cash to deductible debt (like a PPOR for some people). This cash would also serve as a buffer if interest rates increase.
…if only every seat was marginal…
Great to get the mindset of investing going and one of the first books I recommend anyone to read is Rich Dad Poor Dad.
Some of his other books (Rich Dad's Guide to Investing for example) I feel are not a balanced view at all.Is the 60k equity you refer to free equity at 80% or is it the total equity availble (ie do you have a $335k loan)? Assuming it's available at 80%…
To avoid LMI you'll need 20% deposit plus costs (approx 5%), so about $87,500 for the investment property.
If property values continue to increase at recent historical levels (say 8-10% in Melbourne), this could give you an additional $31K-$37K in value in the next 12 months, less what you have to spend in repairs. Assuming you release 80% of this (to avoid LMI), you can release anywhere from $25K to $30K in equity. On top of the $60K available you could get somewhere close to the $87,500 you need.
So it then comes down to whether the valuation the bank gives you stacks up so you can release the equity you need and whether you can keep a lid on the $12K repairs. There are also lenders who have alternatives to LMI if you keep the LVR under 90% (and these prices are scalable as LMR increases)
LMI isn't such a dirty word though. If paying a few extra thousand can get you an extra $50K-$100K of purchasing power (and therefore future compounding value), wouldn't paying the LMI be worth it?
Hi Celmel,
Agree with all points above, plus…
Depending on the lender, you might pay a 0.1-0.3% premium over a term loan product.
Different lenders will also allow you to capitalise the interest (i.e. don't pay the loan off) and continue to draw down until it's limit, which can make it an effective cash flow tool.
There are also more elaborate ways of using LOC's (refer to the Hart case) for more "efficient" structures that you might want to consider although I'd suggest specialist tax advice here…If appreciation is the big one for you, then consider that the Melbourne CBD historically hasn't appreciated as well as the inner city ring (2-5 km from CBD) as the land content is much lower in high density than low density. There are duties savings if you buy off plan (but then you don't have to sell right now either, you can conmsdier a deposit bond) which you might see as attractive.
As PC has mentioned, the costs can be prohibitive to sell, so consider trying to release the equity by refinancing or topping up your loan.
We do have obligation free seminars along with commentary that cover these types of strategy in Melbourne that you are welcome to attend, all is on our website.
What a difficult question to answer…
Assuming no costs to acquire the assets and appreciation of proeprty value only, then I'd be looking at a compounding return of 12%p.a, which equates to a $77K return, but in the Melbourne market we've seen properties double in value in 3 years, so it always comes down to good asset selection…
I'd be unhappy with anything that doesn't at least match the average for that city, our Melbourne property radar went from $411K in March 2005 to $702K in March 2010 which is a 11.28% compunding return or $70K.
Intrerestingly the All Ords from March 2005 got to that level in 2 years, but…
Hi Casanovawa,
Based on the $300K loan there is a special discount off the standard variable available, depending on the LVR you are aiming for (90% max) but is only available in the period it states (you can lawyas try for the discount if it's over but there's never a guarantee). Hence why it's alwys a good idea to speak with a broker who can shop the best deal for you if that's what's important.
Remember that you may have no DEF's to leave the loan but also check the discharge fee.
If servicing is really tight I'd suggest the Homeloans Ltd calculator.
Hi Sassy,
If you sell and buy again later you are up for exit costs and then entry costs which can get up around the 10% mark total across both properties and this can take a fair while to earn back, so trying to hold if you can afford it is my suggestion, its all about your cash flows and possible future lending options.
Once you get the income going you will have some options for lending (although they'll fall into the low-doc category and tend to be more expensive) so don't be too discouraged as there are always options (as long as low-doc lending remains).
Then once you get your financials ready over the coming years you can get yourself into the position you want.Best of luck with the new venture.
Hi chiller.
You have a few options available to you and it depends on your long term goals.
Where abouts is the land? I'm taking a stab but I'd guess in the outer western (Tarneit, Truganina) or northern (Sth Morang, Mernda) regions? If so there are a raft of properties you could select to develop.The new house will get you some Stamp Duty savings and depreciation benefits, but will obviously take time to build, and you might find the long term capital appreciation in those areas not as strong as the inner suburban areas where the same amount of money may only be able to purchase an apartment (either brand new or existing although I have a personal preference for existing apartments in small developments – say maximum of 16 in the block).
Do you have your own home? If not then you have the option of living in this for 6 months and claiming the First Home Owners Grant ($7K for established or $20K if you are going to build).A problem with selling and buying again is you will have capital gains tax, or possibly might even sell at a loss, selling costs from the agent and then purchasing costs for the new property and exit fees from your current loan (depending on the lender these fees could be small or very high).
You can also investigate refinancing the loan on the land to buy you time although you will pay the same fess to exit this loan and in the long term may not be the best option.
I'd sugegst that you think about what long term goals you have and whether this property is going to deliver those goals for you.
Weigh up capital appreciation vs yield vs any potential tax savings as this will help deliver you to the right outcome.The fact that it's a 50-50 split just goes to show we should do our own research and get educated to make the best decisions ourselves!
This is best evidenced by Morgan Stanley's US economist stating Australia was a "Ponzi" property market. There's nothing stopping anyone making a comment and if they're wrong, they'll simply never reference it, whereas if they're right, they'll say they "told you so".
So in the future we'll see 50% of the economists saying they were right, whereas the other 50% will probably start making comments about something else (perhaps shares this time?)…
For sure, the land tax is scalable based on the aggregated holdings you have. You'll also find that your structure will affect land taxes in certain states (eg: a company structure will be charged more in NSW so many companies have moved their storage facilities to QLD). Therefore many sophisticated investors share there holdings throughout the country.
If however you are just starting to invest, then local holdings might be more comfortable for you. IMO, with smaller holdings the focus would be more about finding the property that can outperform the average with tax savings secondary.
Definitely, and who know's, you might even get an acceptance on the offer!
No, the stamp duty is based on the purchase price only and isn't affected by you being from Victoria.
The only additional charge is on Commercial property where you might have to pay GST on the duty (although this should be mentioned in any special conditions of the contract).
No doubt there'll be a lot of opinion on this, but my opinion is that it won't be anything like what we had in the recession. You can have a look at the economic outlook pieces available with ANZ to see what they have to say about the matter.
My thoughts are it won'r be as worse because:
- Monetary policy very different now to what is was 20 years ago.
- Government has seen what has happened in the past and will do what it can to avoid this situation again.
- Population growth vs Home construction and there is a massive undersupply in homes, whereas 20 years ago it was almost an oversupply
- Higher rates are slowing the market but rates are still at what we would call long range “normal levels”.
- Even though clearance rates are low, we're seeing investors take up the slack from the drop-off in first time buyers.
- Home “upgraders” are still active and should remain so.
