Forum Replies Created
I have a unit in Cairns at the moment – purchased in July.
I am avoiding units now and focussing on houses and generous land sizes. There are a lot of new units to come onto the market in the near future and i believe this will have a negative impact on prices for units. Yields over the last 24 months have dropped from 9% to low 6% – very low. Unit Prices have increased dramatically over this time.
But this is only my opinion.
OSS
Much appreciated Scott for your detailed reply. Appreciate your input. This will help with my rough figures come prepurchase analysis.
OSS
Nickleben,
Thanks for your reply.
I understand the need to engage a QS but was wondering what results other investors have with them. ie how much write off.
Ball park figures will do. I understand the numbers will vary according to age, cost and quality of townhouses.
Any numbers people can throw at me would be appreciated.
OSS
Nice work inez.
I use the same lender. I explain to the lender what my plans are, provide them with figures and sales figures on other properties in the area for renovated homes. Bank gives me finance and line of credit and when the work is done, i apply back to the bank and ask for a variation on the loan limit. Bank then commissions valuer to revalue, bank then makes available 80% of whatever increase in value is there. No need to supply bank with all that info as per original application as they have it on hand. Usual costs for the valuation are about $300. I initially went through a mortgage broker to seek a list of lenders firstly.
After reno work done, rent usually goes up, this supports new valuation – additional funds are placed into redraw facility. I redraw for another deposit on investment property.
OSS
I contacted Steve Navra’s office about this any seminars in Brisbane to which they said probably but have yet to confirm dates – i am pretty sure they said probably middle August sometime. Their announcement should be made soon check online at http://www.navra.com.au
OSS
That is one way.
You could look to make some improvements to your home that will add value. Ideally you do not want to spend a dollar that will make a dollar – rather spend a dollar that will make $3. you will need to research this as to what will add the most value (will the work you do add value?)
Eg Buy house worth $180K. you could paint it, replace floor coverings, work on garden, relaminate kitchen cupboards (rather than replace) etc. you do some of these and spend $8000 on this. A bank valuer may come around and revalue house at $220K – which means your home has increased by $40K and if you refinance you could draw down $32K (80% of increase) and boom there is your next deposit. (now consider how quickly you could get this work done – you may even be able to get it done before the settlement date)
Be warned tho – you spend time and effort on things which will increase value in a valuer’s eyes – not your own.
But this strategy is very heavy geared towards the old saying YOU MAKE MONEY WHEN YOU BUY, NOT WHEN YOU SELL. Bottom line – pick up a property from a desperate seller.
Compare this to saving money and putting it into your loan. At an extra $1000 per month it will take you up to 2.5 years to achieve the same value increase in a flat market. And that is 2.5 years you may lose in other opportunities.
Buy, add value, refinance, redraw and use as deposit for next place, buy add value, refinance, redraw etc etc etc
Works for me
OSS
Funny how people think shares are through the roof. Y -because the market is at an all time high? how does the current ‘market’P/E ration, div yields, eps growth compare to the historic figures.
Anyway back to property trusts. I have holdings in a few listed property trusts. I have gone for the larger capitalised trusts as long as price to net tangible assets (value of underlying buildings etc) is close and not over valued. Size matters in this game. Most listed property trusts are returning 6.5% – 9% yield at present. My preference is to diverify in my holdings – eg select trusts that have retail, commercial, industrial, etc or a combination of all
Just my opinions
OSS
what is the problem with paying for mortgage insurance? For the price of mortgage insurance (approximately 1% of the property based on a 10% deposit of a house $150K) you have $15000 plus all your legals and other costs to enter a property, why wouldn’t you pay approx $1500 to save you time in saving the remaining $15000 for a 20% deposit.) You could buy a place with $22000 – $24000 including all costs with a 10% deposit instead of neededing $36000 – $38000 with a 20% deposit.
Ok it is not ideal but if there is a property you have found and your due diligence shows you can make money from it why wait another 10, 15, 24 months to save the rest? That deal would be gone, sure you will probably find another but it could be up to 2 years of investing you will never get back.
If my serviceability lets me, I get loans for a property in my price range with a 10% deposit. otherwise it would take me forever to get serious in this game. Sure at some point you will hit a will and need a 20% deposit – but until then you may have 2/3/4/5 properties with potential growth and cashflow to help you get that 20% deposit.
OSS….which is why you should ad onto subject finance as arranged by myself as purchaser to my satsifaction – i love the interpretation of “satisfaction”…can be very open…don’t like the letter the bank wrote me, i am not happy with 6.78% i was after 6.77% …
i have just signed a contract for a place (finance approved) but the agent made mention of a 5 day cooling off period from the date of signing if i change my mind for whatever reason. I am pretty sure a fee was charged on this being 0.47% (QLD).
Speak to your local Real Estate Insitute office – REIQ here in qld
I have been following posts in relation to the LOE with interest as i believe there is potential in this strategy.
Most of the examples people have listed here show that growth is x% and you drawdown a certain percentage of that, Interest is at x% so your net position is …….
Um if you still own the properties, don’t you have other expenses you still have to pay for rates, insurances, management fees, repairs etc?
These expenses seem to be forgotten and from my workings in excel these can be pretty substantial especially when you index some of these for inflation (Show me a council that constantly indexes its rates with inflation [blink])
Do these magically disappear when you choose to LOE?you can’t negative gear directly if you personally loan funds (ie if you borrow from a bank) to the trust to purchase in income producing property as the property is held for the benefit of the beneficiaries (even tho this may be you as well). However, i believe if the Trustee decides to pay you interest for the use of these borrowed funds, then you may be able to claim your personal interest costs.
eg. John Smith Borrows $200,000 from the Chargelikeawoundedbull Bank, Interest costs are 7%. John Smith loans these funds to Smithy’s Trust, which the Trustee agrees to pay you 5% interest. Costs to John Smith $14K pa, Income to John Smith $10K pa.
BUT LIKE I SAID I AM NOT SURE ON THIS – BUT I WOULD PUT THIS SCENARIO TO MY ACCOUNTANT/SOLICITOR AND SEE WHAT THEY SAY.
OSS
Terry
Thank you – this was probably the topic i enjoyed the most so i guess the results showed.
I am 3/4 of the way through it – Currently enrolled in Investment Planning 2 (distance ed) and have yet to do Financial Plan & Construction (last topic). My plan is when i have finished my current project in Weipa i will probably return to Financial Planning – probably 12 months time, maybe less.
OSS
Just a follow up here
Completed the Estate Planning Course the other week.
Received 100% for assignment
and 99% for exam……and do you think i was pleased….[biggrin]
OSS
Lee,
In regards to the public liability on your properties, i believe each policy will only cover events occurred on that particular property.
Scenario 1 Eg tenant in house 1 trips over steps and goes through a plate glass window which makes a hell of a mess of tenant. In this instance you may be covered by that policy. However if someone else sues you personally (eg slander, misappropriating funds, killing the neighbours movie star dog with stones when you were mowing whatever) then your assets on up for grabs and it depends on how good your solicitor is compared to theirs. Despite have these public liability policies – they are not going to cover you if an incident occurs that has nothing to do with your properties. A trust may offer some protection here.
Scenario 2 Consider this. Hubby is laid off and can’t find new job…not enough income coming in, negatively geared properties are eating into your savings. You decide to sell one of the Neg geared properties as value has gone up lots and you’ve had it for years. You sell, make 200,000 capital gain. But hang on, property is in hubby’s name so he is liable for the tax – up to 48500 of gain is lost to tax man. Outcome still ok – as you have $151500 left over…. But if you use a trust, the trust can spread this capital gain to beneficiaries to minimise the tax. so you distribute to your children, aunties, uncles, yourself, hubby, private company. This way you will have a more control over your tax situation than if held personally. Heck it is even possible to spread this capital gain around so no tax is payable. The only control you have in paying tax if held personally is when you sell it (in next financial year or a year with little income earnt by the hubby) – but if you need money fast, then this timing issue cant be controlled.
Different strokes for different folks. At the very least you should discuss it with qualified individuals.
As for finding these qualified individuals – try asking these questions
“I would like some advice in using company or trusts to hold our investments in? Do you Mr/Mrs Accountant/Solicitor own investments? Do you use a trust/company to invest through? why/why not? If they don’t use one – find one who does and discuss it with them. Best to talk to someone who practices what they preach. Usually your first interview is a freebie so you may need to interview a few professionals. Try to see some professionals who invest in their own name and in other structures. Get a balance and not a skewed view.
OSS
APerry,
I have engaged the use of a professional (Building Services Firm with Architects, Engineers, Town Planners).
Ok here is the info to date
Upon speaking to Council Town Planning, i was informed i could build buildings with a roof over it on up to 50% of land content. This was fine as existing buildings total approx 225m. Council informed me of a few requirements and i asked for some architects who know these rules and would prepare plans accordingly. A group of firms was given to me – i made touch with them all and appointed one.Building Services firm prepared some initial plans to run by Council Town Planner…turns out that Architect prepared some plans without knowing some details or requirements or neglected to research these. Original plans were for 4 units but due to parking requiremens, a wider driveway required (as carports are out the back) to a min of 5.4m instead of the 3m at present.
There is no room for this 5.4m as existing building is 3.3m from boundary and contains existing 3m wide driveway. No room at other end of block for a U shaped driveway as it is only 2.6m from building to fence.
Anyway there are a few other things as well and after seeking advice and speaking direct to Council, this is not going to happen, not even for less units (1 is not feasible, 2 not allowed due to requirement for driveway que bay which will not fit)
So not focussing on the negative, i am still open to suggestions on what additional value can be added by using this land.
Has anyone run into the problem before?
Hope someone can offer some advice or ideas to help
Thanks OSS
Plffrrrp!!
Hey look, i admire you for asking this question, but honestly… do you think people are going to handover their months of research for other people to go and steal their deals?
If you want info like this, subscribe to a stockbrokers newsletter
How about you tell us about the deals you are looking at, give us the street address, agents phone number and listed price and we’ll tell you after we buy it how good a deal it was that you shoud have taken
OSS
Terry,
I used to work for one of the 4 pillars as a Financial Adviser from 1998-99 and started studying the old Diploma of Financial Planning, but resigned when the job remained at that time a ‘sales job’ – you know sell product – managed funds and poor ones at that, super, insurance etc and not so focussed on providing workable solutions for customers. So i resigned disillusioned and have been working in a totally different industry now (sport and recreation for very large mining company).
I recently restarted studying the equivalent DFP (Advanced Diploma of Financial Services or whatever it is called now) and almost finished it (doing Estate Planning now through Tribeca). Believe me it certainly is not a 1 day course like some other providers.
i know Financial Planners and advisers have copped a lot of stick over the past 4 years and my initial experience certainly did not help my confidence in the industry, but i enjoy finance and miss it tremendously.
The course is very interesting and certainly a lot harder than my first uni degree (anatomy and phyisology). People can bag financial planners saying they are overpaid salesman but i see independant planners as the ones to give you advice on who to go see when it is appropriate (accountant, solicitor, stockbrokers, mortagage brokers, RE Agents, Insurance agents) – kinda like a project manager
Man that was a long answer!!!
Why do you ask?
one more thing…
I forgot to highlight if you pass your PPOR to a Testamentary Trust or natural person – there should not be any CGT payable by your estate.
Before we start it is important to recognise that death does not always constitute a disposal of an asset for capital gains tax, but it does constitute an acquisition for beneficiaries.
Testamentary trusts are established by someone’s Will when probate (when the proof of the Will is obtained) is granted. It may be of benefit in your example of protecting your PPOR and other assets from ‘gold diggers’ and the children themselves.
When a minor is listed as a beneficiary of the Testamentary Trust, the income they are entitled to is excepted trust income (will not be subject to penal rates of tax imposed on minors). They will be taxed as an adult ($6000 tax free threshold, then at marginal rates of tax on excess excepted income). This income does not have to be paid to them – it can be used to establish a debt loan account if required.
Stamp Duty – Testamentary Trust is not subject to ad valorem (in proportion to the value – percentage rate) stamp duty. Under the Duties Act 97, a stamp duty of $10 is charged on the transfer of assets through an estate.
Now CGT…
If you pass your house to your children through a Will they will have the option to sell the house within 24 months of the date of death and the sale proceeds are tax free whether or not your children use the PPOR as their PPOR. (NB this is the SETTLEMENT DATE not the date contracts are exchanged) However the beneficiary of the estate must be a natural person – and not a Testamentary Trust.
So in the case of a Testamentary Trust…
PPOR bought after 19 Sept 85, the Testamentary Trust will acquire your PPOR as at the date of death and inherit your cost base of the house at that time. If the Trustee then decides to sell the asset some point later, the capital gains can be distributed to the beneficiaries (children) and possibly receive the 50% discount if held longer than 12 months. This is the same as if for an Investment Property, shares etc..
PPOR bought pre 20 Sept 85 – will be deemed to be acquired by the beneficiary at current market value on the date of death (find yourself a generous valuer in this instance)
Forget about trying to pass the PPOR to a natural person to sell within the 24 months then add the funds from sale to the Testamentary Trust – i think you may be talking to the ATO about Anti-avoidance issues.
Hope this helps. At least now you will have some more facts to talk to your solicitor and accountant about for your advice.
