Forum Replies Created
[
]Congragulations on making 100 [
] lets hope next time it equates to properties []quote:
i thought this topic stream was the perfect place for me to bring up my century of replies.quite long winded with very little useful information
but ive anjoyed the ride anyway
see you on the otherside
[
][][]Dear Tamara,
I’m seriously thinking of investing in NZand the mortgage broker that was recommended to me by the real estate agent was useless. Could you please recommend any mortgage brokers.
quote:
To save contacting a variety of nz banks why not try a mortgage broker. There are some that have plenty of experience dealing with non resident buyers. I will post a couple if you are interested.Tamara
Maybe your asking in the wrong forums? Try an alternative forum which can be found on an australian search engine. Or yellow pages?
Cheers
quote:
Someone please???Maybe your asking in the wrong forums? Try an alternative forum which can be found on an australian search engine.
Cheers
quote:
Someone please???Hi Mini,
Can you please recommend to me a good lawyer to use for PI in NZ. Should I be using the services of an accountant etc. in NZ or AUST? Also are your loans / bank accounts situated in NZ or AUST? Thanks I’m just about to buy my first IP but need to find the right people to deal with.
Cheers
Christian
quote:
Hi all,>If I read you right, you’ll give them a 4-5% deposit when >contracts are exchanged after doing your due dilligence, you >may borrow the 80% from a lender and you may have the >other 15% cash or invested ready to pay at settlement.
>Is that a plausible senarioHi there, the actual time-frame is 1) contracts are exchanged and signed for the negotiated price subject to due diligence
2) due diligence, for which I allow ten days. I did it five for my first property, and was stressing when I didn’t have the builder’s report back at 7pm the night before it went unconditional….I got it by 8pm, however i learned that it’s better to have twice that time!! 3) i decide if i want to pull out or go ahead, and contract goes unconditional on the 10th day, which is when the 4-5 percent deposit is due.
4) settlement where the other 95 percent is due. Either the banks will lend you the rest , or you have to put some cash or equity loan in, or get vendor finance>Interesting statement you make saying you present your offer >THEN do you due diligence. How do you structure your >special condidtions to give you an out if you DD doesn’t come >up to scratch and you want out?
Under ‘conditions’ I have 1) subject to satisfactory LIM report (name in NZ for local council dossier info on land, i.e. claims, caveats, does it have mines? Is it earmarked for road widening? was there a building permit for that garage? that alteration? was there a permit for the free standing multi-fuel burner and is it code-compliant? (otherwise insurance won’t pay out if there’s fire cause by the illegal fireplace!! doh!! and you have to make it code-compliant after the fact, or rip it out!)
2) subject to satisfactory builder’s report (costs 300-400 bucks and you really know what you’re up for then!! Right down to age of hot water cylinder, and which taps are dripping, how many years roof will last…) especially especially important to me as I have been buying in another country – and haven’t seen the properties in person, apart from that the agent has sent me a bunch of pictures of every room inside and out. On that note once upon a time I looked in person at a zillion houses, and found one, had a builder’s report, and it came up a lemon. that’s when I realised i don’t need to look in person as I can’t tell anyway – and all that happened when I looked in person was got emotionally attached and ‘i really want this house!!!” and my negotiation skills went out the window. I feel a lot stronger negotiating on the phone at a distance – and then the RE agents don’t get to see that I look like bob marley’s white hippie cousin- cause I don’t LOOK like someone a RE agent would take seriously -but I sure can turn on Ms Serious and Professional Adding-this-to-her-portfolio Mature and Experience Investor Mogul voice. That’s just my little reasons as to why, and stuff.
3) subject to solicitor’s satisfaction with all terms and conditions (blah blah some legal thing that the lawyer puts in)
4) more clauses if there is an existing tenant (we want to get all the rental docs, etc etc etc evidence of bond lodgement, credit check,)
5) a clause if the land is leasehold, subject to solicitor viewing the land lease to his satisfaction
Never bought leasehold land yet, but have looked at it.
so I get many chances to pull out.
BTW the exact wording of the clauses is very important so don’t write your own, get your lawyer to do it.I have heard of people doing due diligence before they sign the contract, but I can’t imagine them getting a very good deal then – the vendor knows you want it!! I haggle the price first, sign, then do the due diligence. “I prefer to buy something with an existing tenant cause then you know it’s liveable, even before the builder’s report”. That was me six months ago, but that rule has been tossed out since, as funnily enough the two I bought empty were more liveable than the one with the tenant (who left the day after settlement anyway -doh!!) it was a dump! but I knew that though (throught the BR) which is why i got it for 16. And it’s come up amaaazing after the reno.
One more thing is that I find it much easier to not get emotionally attached if I haven’t seen the property. ‘fall in love with the numbers, not the house’ Kiyosaki says, and that’s been working for me. Also if i had to physically find time to look, I just couldn’t have bought three this year, as I also have a full-time life.!If the maintenance/fixing up costs are going to be high after you get your builder’s report you can then say ‘ill go unconditional on this if you drop the price 5K, as you can see from the builder’s report it’s gonna cost me ten to make it liveable’…..
Sometimes it works and sometimes it doesn’t, but you get to decide if you want to buy that property at that price in that condition, and if you don’t you can pull out (all without any deposit being paid.
cheers-
MiniThanks Nessie, The property was a brand new brick veneer on a slab, from a major builder. It was attacked after 2 years, and I’m having trouble keeping the little blighters out, even after forking out for another chemical barrier ($2300). Any property should require the barrier to be replaced every 5 years, but I never hear or read about this major expense in any forums, so I’m curious to know how everyone else deals with it.
JPrincipal payments are essentially just a 3% after tax investment, no matter how you look at them. It doesn’t really matter how much is left owing, you are still investing your money at 3%. The bank probably views cash and equity as equal when assessing us, so If we pay off principal, or keep it aside in an offset account, then it probably carries equal weight provided the cash is going towards the next property.
The essential difference is probably psychological: It feels much better to pay off principal, and the cash sitting in your offset account is just too easy to squander on a new Monaro (eg)!Derynaka, a loan is only deductible if the purpose of that loan was for the purchase of income producing property. harrymak has taken out an equity loan for personal reasons.
I agree with you about keeping the property. Pre CGT property is a valuable resource. Hmmm, I wonder if the banks take your CGT liability into account when evaluating your equity. I’m sure the ATO would have first dibbs on your estate if there were a problem, before the bank gets what’s left, so theoretically a pre-CGT property should be worth more as collateral.And just one more thing: Claimng for depreciation may be essential in keeping your head just bobbing above water, so that hopefully when it finishes after 6 to 8 years, your rent and personal income has inflated / been promoted to the point where it can compensate for loss of deduction allowance. So if the CGT is greater as a result, so what, at least I managed to keep the property long enough to get a substantial CG and not go backwards in my cashflow.
I don’t think anyone has mentioned the time value of money in this post. You may be comparing well and truely depreciated dollars against todays dollars. F/P = 2.7 after 25 years at just 4% inflation.
You certainly have plenty of equity, and you could borrow a lot more than 80% of that equity, because the 80% will be of the total valuation of your existing property and all others you acquire.
Your limiting factor will probably be your ability to service the loan repayments with available cashflow, not your equity, especially if you go for negatively geared properties. Remember that banks typically only consider about 80% of your rental income when evaluating the servicing ratio. You are only getting about 2.7%Gross Rental Return at the moment, so if you really want to push your portfilio to the limit, then you should sell that property, and invest in a suite of properties with better GRR eg 10.4% if you can find Steve’s type of property. You have to weigh this up, of course, against the posibility of further tax free capital gain in your little gold mine.Hi PeterP, I can see a lot of members have read your post and nobody has replied to it yet, so I’ll have a go.
Steve was saying that net cashflow is simply the difference between casflow received, ie rent and cashflow paid, which includes principal loan component as well as interst. He doesn’t include “cashless” deductions like depreciation (although it does result in cash in your hand from the taxman!) Clearly you need to show different figures (between expenses and cashflow paid) on your tax return although casflow received and income are probably similar.Expenses include depreciation and exclude principal repayment which are the main two differences I believe.
I agree with you about the deferred tax aspect. Depreciation allowance is in todays dollars, tax you have to pay on the resulting increase in your capital gain may be in 25+ year’s time dollars, plus you only pay tax on half of that gain.
As I’ve posted elsewhere, however, the bank doesn’t take the depreciation in to account when they assess your loan servicing ratio, plus it starts to peter out after a few years. If your rent has gone up, and your interest component has decreased then hopefully all will be fine.
The big bugbear with reliance on depreciation is of course, that it gets pushed down progressively into lower tax brackets as you own more properties (or the government brings in gst and lifts all the lower brackets into your deduction level!). It makes that novated lease on your car a bit less attractive as well!
In regard to principal payment, a lot of investors consider that P&I loans drastically limit the quantity of properties you can acquire. They advocate interest only loans. Obiously it is nice to reduce the principal in case of interst rate hikes etc, but from a purely mathematical point of view, the investment you make in paying off the principal is only equivalent to a return equal to your interest you would have paid on that part of the principal, less the tax deduction benefit. eg you make a $1000 principal payment on a loan at 6%, you will save $60 in interest after a year, but that was tax deductible anyway, and you would only save $30.90 pa if you are in the 48.5% bracket. ie its only a 3% (after tax) investment. I prefer to leave any surplus cash in my 100% offset account. Its basically the same maths, but its more readily available if I need it. If its just there for future equity then there’s not much differenece between the two of course.On first sight of Steve’s famous 130 properties in 3.5 years I though “boy he must be hypersensitive to interest rates” I could see that $300,000 pa turning equally negative with just a few percent hike in interest rates. Having read Steve’s book I now assume that the majority of his properties are Wraps, in which I gather the client is locked into your prevailing interest rate plus say 2%. Perhaps this is why Steve so favours Wraps, apart from the obvious deposit & cashflow advantages. Is this how Wraps work? I guess it would still come crashing down if the clients couldn’t afford the interest rate hike either.
(My very first post so here goes) I have 1 PPoR, 4 IPs in Goodna & Brisbane + a 10% share of commercial property (shopping centre) in Beaudesert.
Hi Fester, I believe that banks usually have two main criteria: 1 is equity/cash typically 20% for no mortgage insurance (perhaps accepting mortgage insurance is normal for investors though in order to qualify with a lower deposit) and 2 is the loan servicing ratio ie income vs interest. It doesn’t matter how much excess equity I may have if I can’t service the loan with available wage & other income. The banks typically will only count 80% of the rent money, and they don’t count the depreciation tax benefit you get from negatively geared props.
This is another bummer of negative gearing, ie although I am cash flow positive, the bank doesn’t think so. I thought it would be fine if my depreciation effect lasted until my rent went up proportionally (I’m about 5 years into my basically 8 year long depreciation life on 4 IPs (2 houses in Goodna & two units closer to Brisbane CBD) Interestingly the houses are going to go close to achieving this but the rent I’m getting for the units hasn’t moved in 5 years.
Back to your question, I believe that multiple properties aren’t possible with negative gearing (as well stressed in Steve’s book) despite the depreciation “cashless” deductions. If you have positively geared IPs then banks will still only accept 80% of your rent, but this should still (hopefully) cover your interest payments and keep your servicing ratio up. The equity aspect has to rely on capital gain plus income (increased by positive gearing of course!)
Steve has obviously relied on Wrap Mortgages to obtain so many properties, because the “tenant” is effectively sharing the deposit and paying a higher “rent”.
Hope this makes sense Its just my two cents worth as a would be multi property investor who has “plateaued” some time ago. I’ll write about why in another post.Is $480 per week the median price for similiar properties in your area? Based on the market value today I’d of thought it’d fetch more than what’s paid.
Where abouts are you located?
I’m sure it would make it a lot easier if you posted your location and perhaps an email address.
Cheers
Tasinvestor,
I’ve been reading a few of your posts with great interest. I’m also a Sydneysider, I’ve just signed the contract on my first Tasmanian property (Business/Studio on Bruny island). I’m a ex-tassie myself, and I’ve got some really good connections in the state. Perhaps we should exchange a few emails, see if we can work out where the market is going.
Hi All,
Steve has an EXCELLENT example in his new book regarding claiming for Depreciation. It goes along the lines that when it comes to selling the property, the amount of Capital Gains you’ll be taxed on will take into account the depreciation you have claimed.
Eg. Buy a place for $190K sell 5 yrs later for $240K = CG of $50K. However, if you’re claiming $7K in depreciation each year you’ll be taxed CG of $50K PLUS (5yrs x $7K) = $85K.
The difference after the 50% discount is applied for not claiming is a tax of $12,500 compared to a tax of $21,250. At the end of the day $50K-$12,500(=$37,500) appears so much nicer than $50K-$21,250(=$28,750).Moral of the outcome? Claiming depreciation isn’t a tax SAVING – it’s tax DEFERRING!!
Recommendation? BUY STEVE’S BOOK! It’s a wealth of information.
Cheers,
Shell.
]
] lets hope next time it equates to properties [
]
