Forum Replies Created
I would advise against option 2. Now is definately not the time to be taking on a lot of added debt.
Consider whether the new property is an asset or a liability. Also keep in mind that there is a good chance that property in Australia is set to follow the large downward corrections seen in the USA and the UK.
High immigration rates and housing shortages wont save us from the correction. The property prices reached in the last 5 to 8 years were grossly overinflated through unsustainable debt levels. This could not and will not be sustained by the job market. Unemployment rates of up to 15% are on the cards and there will be many many more owners forced to sell!
I agree with much presented in the underlying article…
The property market in Brisbane will face the same challenges which all the other major centres in Australia will.
http://www.brisbanetimes.com.au/articles/2009/04/27/1240684397986.html?page=fullpage
SteveMcKnight wrote:Happy Easter!I am about to sign off for some family time, but will be sure to answer this post on the other side of Easter.
Regards,
– Steve McKnight
Same to you and your family Steve!
Hope you all have a relaxing break and return refreshed…
Be well
regards
NeilAnybody seen Steve around the forums lately?
I'm interested to see his reply/comments on the questions posed in this thread.Also, does anybody know whether Steve ever did get around to writing a "lengthy answer" on the topic of how he financed his properties? He mentioned he may write a report/newsletter in the thread "how did Steve McNight finance his properties?"
https://www.propertyinvesting.com/forums/getting-technical/finance/4323334Qlds007 wrote:The mortgage rate and the Fed Rate are 2 totally different indices.I see last week Fannie Mac dropped their rate to 4.84%.
This is true, but they are linked. The question is why the gap between the two rates are so large. Historically they have been far closer.
I would guess that its related to the perceived risk which the banks attach to property in the current climate.
In 'bullish' real estate markets where there is little percieved risk the two rates are far closer.
Just my opion… feel free to shoot me down! ;p
Qlds007 wrote:One issue if they cant get finance these days.hi Richard
Do you know of any way of obtaining finance on US homes? I noted in one of your prior posts that u know of a lender who will do 65% loans… is that the only one you know of?
Also, I'm curious about all these "cheapies" – houses for under $5000 – some even for under $1000 and some for $1.
What's the catch with buying these cash? is it perhaps because there are thousands of dollars outstanding on council rates?Even so, it may still be a good buy.
Assuming a house costs $5000 and has a further $5000 in outstanding taxes, and say another $5000 in repairs required.
I'm assuming then that the 65% finance would only be for the $5000 purchase price (which would be presumably from a bank) and that the remaining $10 000 in tax and repairs would have to be forked out in cash??jcso99 wrote:Can somebody explain something to me? If the Central bank's interest rate is close to 0% and the cashflow from the property is +ve (assuming that the gross yield is around 20%). Why would the bank still provide a lend at 70% with interest rate near the 7%, rather than at 3%? Is it because:1) they don't like the tenant?
2) they don't like the area that the property is in?
3) something wrong with the bank's appraisal system
4) all of the above?
5) none of the above?Thanks for your feedback
Yeh I'm also interested in opinions regarding this phenomenon! Doesnt seem as if there were any up to now.
I dont have the slightest clue, but i'm sure other do – so let's hear 'em!Don. wrote:Mr Shannon said he had more than 100 lower-quality homes listed in the Detroit metro area for sale for just $US1.It is interesting that a journalist with make a comment like that without explaining the complex issues behind these properties. Is it unusual to place a hyperlink to the businesses site in the articile for online newspapers or is that just common practice.
hi Don
Could you explain what you believe these complex issues are?
elkam wrote:Hello neilvs
You seem to forget that not all the rent is availible to service a mortgage.
Generally 20% is already earmarked for expenses, excluding interest payments.
Council rates, water rates, insurance, repairs, agents commission/letting expenses, vacancy periods and possibly land tax also neeed to be paid.I guess the banks realise this.
Cheers
Elkahi Erika
I see your point. I did not really express myself 100% clearly. All these expenses you've mentioned I would have factored in already, so when i say a property is cashflow (+) I mean that ALL these expenses are already factored in, eg vacancies, taxes, repairs, mortgage interest, etc etc..
Therefore the property is pretty much self-sufficient . What i may find (and this would probably vary from property to property) for example is that for Property A, 25% of the rental covers all expenses except for interest, whereas in property B only 15% of the rental is taken up by all expenses other than rental, so obviously with property B i'm not going to finance it through a bank which is going to recognise less than 85% of the rental income, whereas with property A it would be ok to use a bank which only recognises 75% of the rental as this would reflect the true situation for that property.In the end I guess that if the bank can see that i've done due diligence and have a detailed breakdown of ALL expenses, and if the property is truly self sufficient, i.e. the rental income covers all expenses (including vacancies) then they should be happy to lend me the money…
I've asked my tax consultant about the allowability of interest deductions from a home loan and she has confirmed that this is indeed allowed, but that it would be better cost wise to split the loan and use one portion entirely for share purchase purposes. This isolation of the part of the loan used exclusively for share purposes will lower my accounting fee as it will simplify calculations of the allowable portion as opposed to the portion applicable to the home repayment/interest.
Thanks Dan42 and Scott No Mates – your comments seem to match what my tax consultant believes.
If course she may not understand all the facts pertaining to my situation as it was a quick and dirty email query, so I'm not saying she is correct – i just wanted to add this to the 'debate'…
Thanks to all of you who have made comments here (and elsewhere on the forum) – my education on investment is growing by the day thanks in part to all of you!
duckster wrote:neilvs wrote:To all you financial/tax experts out there:I know that i can go to the bank and take out a loan specifically for the purposes of purchasing shares as an investment.
Say i borrow $100 000 through some type of bank loan.
Let's assume that in under 12 months (during a certain tax year) i have made $10 000 profit through the sale of these shares.
Let's assume furthermore that the interest on the loan was 8% and therefore worked out to $8000.
I would then be up for capital gains tax on only $2000, since i can write the interest off against the capital gain.
Is this the case?This would seem fair and logical but as an individual taxpayer
you cannot compare interest expenses against capital gain income.
You can only offset interest expense against dividends income.
Capital Loss can only be offset against future Capital Gain
see point 4 & 5 under if you are a straight forward investor
http://www.minettpartners.com.au/bulletin/i2006n.html#2http://www.ato.gov.au/individuals/content.asp?doc=/content/18851.htm
unless you are Centrelink
hi Duckster
Thanks for the above very useful links! I had a look at these and my interpretation is that interest is deductable if there was a dividend payed or at least a reasonable expectation of a dividend to be payed on said shares.
I wonder if anybody is wondering why Steve himself hasnt commented on this topic?
I did wonder but then i thought to myself: if i was Steve, i wouldnt be letting on to any material secrets of the trade such as exactly how i did my financing on a free forum like this one…
I'd keep that kind of nitty gritty detail to advanced courses and let people pay for that knowledge.
Nothing wrong with that… Just keep it in mind, else you may get a tad frustrated that nobody ever gives any REAL answers here on these kind of questions.Those who seek shall find, and i intend to continue seeking…
Terryw wrote:There is nothing hard about financing properties. If you can keep coming up with the deposits, you can keep getting finance.Hi Terry
So let's say I want to buy a $200K investment property. I have $40K deposit, but that's pretty much all i have.
I can also show (the bank) that the property pays for itself in that it is cashflow positive, after taking ALL expenses into account.Let's also assume that i don't have much spare cashflow left over from my fulltime job – I'm living hand to mouth – much like most Australians are these days… so i CANNOT use any of my salary to cover the mortgage.
Are you telling me that any of the banks would give me a loan?
After all, the problem here is that the banks only recognise somewhere between 65% and 80% of the rental income of the property…Let's be positive and assume the bank recognises 80% of the rental income. That still leaves a shortfall of the other 20% – which they're going to come looking for in one's personal income.
But like i said – if you're cash poor as far as your monthly income is concerned – HOW can one still get the loan?Note – i've got the 20% deposit – it's the MONTHLY premium thats the problem – since the banks wont recognise a big portion of the monthly income i'd be getting from the property (and yes – 20 to 35% is a big proportion)
SteveMcKnight wrote:Hi,I'm struggling at the moment on a personal level. My wife is quite ill and in hospital, and I have needed to drop everything to look after the children (and mother-in-law). I have very limited time and am trying to help with what little time I have.
The best I can do is to write a lengthy answer to this question and offer it in a future newsletter or free report.
It's not 'no soup for you', it's 'no soup at the moment.'
Regards,
Hi Steve
It's been nearly 3 months since your post on this topic- I sincerely hope that your wife is well now?
I am also very interested in HOW you went about the financing of so many properties. You mentioned that you'd do a newsletter on this topic sometime. Hope i didn't miss that?
I have a current post where i questioned how it is possible to finance large cashflow (+) portolios given the very difficult lending criteria the banks have (i.e. not recognising all the rental income from the property and large deposits).
I am hoping I will find the answers to my questions sometime in the not too distant future.Thanks for the reply Richard. This has given me some 'hope'. However, i'd very much like to hear from other brokers and/or investors too who can comment on the points i've raised.
Recognising 75% to 80% of rental income is still not great news – the average hard working person who is still heavily dependant on his (very finite) salary will very quickly run into a brick wall and be able to get only one or maybe two positive cashflow properties because of this limitation.
Steve McNight made the point over and over in his books (at least the two i've read) that the main reason why positive cashflow properties are superior to negatively geared properties is being able to build a very large portfolio of positive cashflow properties – each property contributing a small passive income, but the combined effect of the large portfolio is a large passive income.
There are perhaps relatively many (+) cashflow properties around to be 'discovered' by the prudent investor nowdays, but whats the use if the banks are making it impossible to own more than one or two because of their lending criteria?
I still don't see how it's possible – with our banks' lending criteria – to build a substantial property portfolio of (+) cashflow properties if the investor has relatively little capital to spare and a limited salary.I am willing to put heaps of effort and study into ways of FINDING good deals (positive cashflow properties – but the other half of the equation seems to be missing … the half that both Robert Kiyosaki and Steve McNight always emphaise – USING THE BANK's MONEY for leverage…
Our banks are not making it possible
What's a PPoR??
I'd also like to know the answer to this. Give us a tip at least
I find that interesting when banks are nowdays insisting on massive deposits for investment properties – between 30 to 40%…
So you may find a property that's cashflow positive with only a 10% deposit, but the banks wont lend you the money – even though your income from the renting of the property is more than the mortgage (and other expenses).
That's really lame – kinda as if the banks are out to stop investors becoming wealthy through cashflow + properties.hi Dan
Thanks for the reply.
What you say makes sense. I guess the only disadvantage of the dedicated investment loan account would be the interest rate charged (i currently am on a variable mortgage rate of 5.04% – expected to drop soon if the RBA does the right thing next tuesday)
ASX currently at 3683.3 according to official website.
Can anybody explain the graph , or to be more specific, the x axis. I assumed it was the date, however it currently has the following values: 10, 11, 12, 1, 2, 4 which clearly cant be the date.
please HELP
hi Richard
Thanks for the reply.
I had always heard that the deciding factor on whether interest is tax deductable was the PURPOSE to which the money was put and not the SOURCE of the money, i.e. what type of loan account.
I'm guessing that loans for the express purpose of purchasing shares will attract far higher interest rates than what a mortgage would…
But if that's how it works, I'll have to work with the system, however stupid and wasteful it may be.
