Forum Replies Created
Thanks Jamie,
When you make an offer on a property and provide the seller with a 10% deposit, do you "borrow" the entire property value (i.e. 400K) from the bank. Have it sitting in your account, then you make a withdrawal of 40K and give it to the seller for deposit?
Then in 6 weeks or so after settlement you transfer the remaining amount?
Hi Jamie.
Thanks for your reply. But it wasn't the figure amount that I was questioning.
Why 90% finance? Would you not give the seller a lump sum of the full amount?
If you are referring to a 10% deposit. Would you give this out of your own pocket? and then give the bank another 20% deposit on the remaining amount?
Seems like a lot of deposits going around. Best to keep a chunk of cash handy!
Hi JacM,
I am at the stage where I am looking to buy my first IP.
I find it interesting that you mention 90% finance.
Can you please elaborate?
Newman is a very active area for mining, with all three of the major iron ore players running some form of operations there.
BHP is by far the largest player there. BHP have several big camps in Newman for their FIFO staff to live in. I believe the permanent/residential(non-FIFO) staff would reside in properties just like yours.
I have also heard of sub contractor companies (sparkies, etc) renting houses from you and putting up 2 guys in there.
I would do a bit of research into BHP's operation there. But I think you will probably be good for at least a few years.
Of course there is major risk. Your house value might bomb out if the demand for this type of housing dries up. I would not do it for my first investment. I would have it a part of a property portfolio mixed with capital growth properties. However, where there is risk.. There is also great reward!
Hi Matt, you would be wise to consider the 1/3/5 year growth figures as well. They might paint a different picture!
When you look at the 10 year growth figures, please keep in mind there was a freak 100% growth between 2002-2006 in the WA real estate market. Do you believe this could happen again? Unlikely!
http://reiwa.com.au/_Layouts/reiwa/images/research/medianprice_chartv2012.jpg
Hi not_so_lucky,
I will be using a builder who will sub-contract the tradies.
Thanks guys, this is all very good info to fill in the gaps of my knowledge. Much appreciated!
Maybe I'm going on a tangent here..
I've been following the Perth vacant land market (<500K) for a few months and it seems like a sellers market right now. Demand seems greater than supply – buyers are getting a bit anxious and paying inflated prices for land. I worry about buying into an inflated market at the peak of the property cycle.
I am agreeing with a lot of people here who say something is going to crash in the next 5-7 years. – not everyone has a mining job and I hear people feeling the financial struggle. What happens when the buyers dry up and refuse to pay the inflated prices which we see today?
I feel like there is enough artificial momentum to keep the prices going for a few years, but I fear what happens when investors get spooked and a whole bunch of supply opens up to the market.. prices will tumble (along with my first investment).
That being said, I'm too new to understand the differences between house and land markets.
<end rant>
Thanks Terry. That makes sense.
This would differ if i lived in the property first as my main residence?
In that case, would a special valuation take place when i began leasing the property?
i.e. "home first used to produce income" rules by the ATO
http://www.ato.gov.au/individuals/content.aspx?menuid=0&doc=/content/36910.htm&page=3&H3
This is scary.. All of the evidence points to certain doom!
I've just got pre-approval for 600K to build my first property and I'm starting to have some major doubts!
Hi Terry,
In that case – If i sell my initial "Main residence" property and I then sell my second property (which I have been living in) two years later – Would it be true that I can never really claim my second property as a main residence for CGT exemption purposes?
Perhaps I would need to apportion the capital gain on my second property based on the following formula:
e.g. If i owned the property for 5 years, but another property was my Main residence for 3 years. I would be liable to pay tax on:
(5 – 3) / 5 = 60% of the total CG
Thanks for the feedback guys.
I think I will be moving into the property first so I can take advantage of the "Main residence" CGT exemptions later down the track.
My next question would be – can I still treat this property as my "Main residence" if I rent it out and purchase another property to live in?
YouKnow – I may be wrong here, those one-off repair costs can be claimed as a tax deduction for that FY, however if you move into the property during that FY your deduction may need to apportioned.. i.e. if you lived in the property for 6 months out of the year you could only claim 50% of the deduction. I imagine you could time it so that if you pay for all of your repairs close to the end of FY where the tenant has been living for most of the year – you could claim most of the deduction. Then kick them out after.
Rather than listen to me.. Here is a link from the ATO website which goes into further detail – scroll down to the Repairs and maintenance section for an example very similar to yours.
http://www.ato.gov.au/corporate/content.aspx?menuid=0&doc=/content/00313554.htm&page=9&H9
Excellent link Nigel – Thanks!
Hi Terry, thank you very much for your response.
Why not move in first so the whole period can be considered as your main residence?
Hi Terry, I was thinking that I would rent the property out initially in order to claim approximately $5k worth of deductions during the construction phase. My understanding is that if I move in initially, I will be unable to claim this deduction, even though my intention may be for the property to eventually become an IP. Is this correct?
What are the advantages of having this considered my main residence during the initial time?
If you rent it first any capital gain will be apportioned over time.
I think i understand what you are getting at here. We can take into account the time I was living there when calculating CG? So if I live in the property for 1/10th of the total time of ownership, I can reduce the CG by 1/10th?
In any case, if this is still considered my PPOR for CGT purposes. I wonder if I can avoid paying CGT on this entirely? I'm still confused about the caveats around the 6 year rule. I've read that you need a good reason with evidence to claim the 6 year rule. Can anyone confirm how people have used this in the past?
Will you pay stamp duty? if not you cannot claim it.
Yes. the land will be worth approx. 350k so as a FHOG i will end up paying a concession rate of approx. $6k in stamp duty (effectively saving $4k from the normal residential rate)
Hi, newbie question here. I've just learnt about the benefits of Interest only + Offset account just yesterday.
Is it fair to say that If i had a P+I loan repayment of 850 per week (500interest,350principal) would it be effectively exactly the same as paying 500 on IO and putting 350 into the offset account?
To me, it seems like a no brainer to use IO because you have a great deal more flexibility + cash liquidity.
What is the catch here? It is harder to secure an IO loan? Do banks prefer you to have P+I ?
