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@ Daniel
Just been reading through this thread. My heart sank when, back in December last year, you wrote:
daniellee wrote:FYI: The accountant I will be meeting is Nancy Keep. Noticed that she was recommended by some Melbourne-based forumites in the past.Keep everyone updated.
Cheers
DanielMy girlfriend and I had a really bad experience with Nancy Keep when we set out on our investing journey last year. She is not someone you want to have anything to do with, in our opinion. She is greedy and expensive. She charged us for an introductory meeting where she tried to sell us properties that a developer she knew was selling, she gave us no advice at all, instead keeping silent whilst we filled the awkward gaps of silence!
To quote her “I prefer to go with what the client wants to talk about and tend to let them lead the conversations. It’s part of our holistic approach, actually listening and working with where you are at and what is foremost for you, not me.”
Fortunately, this waste of time only cost $220! When asked about her fees, she went on to explain that she normally charged $250 per hour for her time and her most junior members charged $180 per hour for their time. What a pleasure it must be to work in that office!
Seriously though, I’m glad you found someone else.
I’m not sure about selling your PPOR to a trust, although it sounds like a brilliant idea! Let me know if you find out. With regard to negative gearing, I can answer that one. There are three kinds of trusts: unit, discretionary and hybrid (broadly speaking). My understanding is that the unit trusts offer negative gearing benefits but no asset protection; discretionary trusts offer good asset protection but no negative gearing benefits; hybrid trusts offer asset protection and negative gearing benefits but many lenders will not lend to them. I guess the answer is therefore dependent on which trust you go for.
As for paying down your PPOR, all the rental income and tax deductions on interest losses and depreciation is paid into your home loan. If you have a split loan against 95% of the value of your home (part home mortgage and part investment loan), and your bank allows you to rebalance credit between them, then as you pay down your home mortgage, you can rebalance the credit into your invesment loan. It stands to reason that the more properties you buy, the more rent and tax benefits you get so the faster you pay off your non-deductible home loan and gain credit for your investment loan to buy more properties. This strategy spirals your portfolio size; the more you buy, the more you can buy.
Hope this helps…
Much quicker. With the interest rates at 8.67% last year, it was going to take at least 5 years to pay down our PPOR mortgage. With our new strategy and rates at around 6%, it’ll take well under 2 years.
Of course. The renovations company is actually a subsidiary of the buyers agency, as far as I know. At least they occupy the same offices in Melbourne. The buyers agency is called “Metropole” and the renovations company is called “Central Renovations”. I know for a fact that Metropole has an office in Sydney too so you could give them a try. They offer free property briefings on the weekends.
Michael Yardney, the founder of Metropole, also runs seminars. Although there is valuable information to be found in these seminars, I have found they have a fair amount of marketing in them and I object to paying for advertising! In particular, the one I went to last year had Ed Chan (of Chan & Naylor, a big accounting firm) trying to sell his Property Investment Trusts which are hybrid trusts by another name. My belief is that these are the last things you want to have anything to do with. There are very few lenders who will lend to hybrid trusts at the moment and I can’t see that improving. If you are intending to grow as big as we are, then I would consider getting your first couple of properties in your own name(s) as the flexibility from this is great. You can get the best LVRs and the widest number of lenders interested in you as an individual whilst maintaining the negative gearing benefits but these advantages deteriorate or disappear with trusts.
Make sure that you get a really good strategist to sort out all your finance first though. I don’t know anyone in Sydney who’ll do this for you but I can give you our Melbourne guy.
What we did was get finance for our house and the 3 IPs at 95% LVR and took the hit of LMI on all of them. The advantage of this was that we kept as much of our equity as we could. We split our home loan into the existing residual mortgage and also into an investment loan and they helped us set up a structure that rapidly transfers the equity from our house into our investment account. The more we buy, the quicker we get access to our equity. We actually paid for what they call their “Platinum Membership” and get unlimited advice and access to all their seminars/meetings with various expert speakers. To my knowledge, Andrew takes no commission from anyone, so his advice is as unbiased as it gets.
This is our strategy…
First: realise the equity in your home (if you own one) by refinancing as much as the bank will let you and take the hit of lender’s insurance. Split your loan into two – one for your home repayments and the other for your investments. Use the investment portion to pay for deposits, stamp duty, repayment shortfalls etc. As you pay off your home mortgage, you can rebalance the credit over to your investment mortgage. You can pay the rent and tax credits into your home mortgage to achieve this faster than by just paying your income into your own mortgage.
Second: use your available funds to purchase structurally sound but internally outdated/rundown properties as close to the CBD as you can with the largest loan the banks will give you (currently about 95% with lender’s insurance). Depending on your budget, you may have to buy apartments which, in general, don’t get as much capital growth as houses but this is not always the case as you get in towards the CBD. After all, there are more people who can afford apartments in the city than can afford houses and it is the demand for your property that creates its capital growth.
Then renovate/refurbish them. It depends on what you’ve bought as to how much you need to spend on renovations. It might just be a lick of paint and a new set of carpets or it might be a new kitchen and bathroom. We use a buyer’s agent to find and purchase our properties and we use a renovations company to do the renovations. That way, we spend next to no effort on building our portfolio.
We have only just started investing but, with this strategy, we have managed to buy 3 properties in the last 3 months that have rental yields 4.9%, 5.2% and 5.2%, respectively. They all have long-term capital growth of 10%+ pa.
If you get 5% from rent and, after costs, keep 4% then the shortfall is 1% against the current rates of about 5%. In terms of tax credit, you can add about 1% as depreciation costs making your theoretical shortfall 2%. If you’re in the 40% tax bracket, you’ll get a rebate of 0.8%. If your actual (rather than theoretical) shortfall is 1% and your rebate is 0.8% then your post-rebate shortfall is 0.2%. On $1,000,000 loan, that represents a shortfall of $2,000! In an average year (which it is certainly not this year!), you’ll make 10% capital growth on your portfolio. On $1,000,000 of property the capital growth would therefore be $100,000! Not a bad return!
As you pay your income, rent and tax credits into your home mortgage and rebalance the credit into your investment fund, you’ll quickly be able to purchase more and more properties. Eventually, you’ll have to refinance your portfolio and then you can use this to purchase more. The more properties you have, the more capital growth you get and the more you can buy!
A 10 year plan will easily earn you financial freedom if you get your strategy right.
NEVER be afraid to pay for good advice. Mine is free though! Good luck.
I agree with all of those saying YES!
We’ve bought our first three investment properties, all in the last 3 months and all within 7 km of Melbourne CBD. Our strategy is to buy the worst “median” property in the best street/suburb, renovate it quickly and rent it out. The first one we bought was already renovated by an over-capitalised developer. We got it for nearly 20% less than the original asking price and it rented out 2 weeks before we settled, and for more than what we thought it would. The second property will be renovated by next week and the third is just about to be renovated. After all costs are accounted for, we are almost neutrally cash flowed.
There WILL be another rate drop, probably before June this year, and we will be locking all our mortgages in then. I don’t care whether there is another rate drop after that (although I doubt there will be) because we will then be negatively geared and positively cash flowed (after tax rebate on interest and depreciation from the renovations). We are getting a rental yield of 4.9% from our first and 5.2% from our second and third post renovations.
I frankly don’t care if our portfolio goes down in value in the short term; we intend to buy and hold. Just make sure you can afford the shortfall or use a strategy like renovating CBD properties which will get you very close to neutral or even positive cash flow, after tax deductions are taken into account, whilst protecting you from big drops in capital value.
With the right strategy, there will be some very wealthy individuals, come boom time. With the wrong strategy, there will be the opposite outcome.
Bottom line: get lots of advice from strategists who are active investors themselves. If your financial strategist doesn’t drive a Ferrari, (or equivalent) then find another strategist! Stay away from the outer suburbs, they are the mortgage belt and the most losses will be seen out there.
We do and, whilst I can’t comment on his competition, I can absolutely recommend Andrew and his team. With their help, we have catapulted ourselves forward and have managed to buy 3 properties in under 3 months, all within 10 km of the CBD. What’s more, with the next interest rate drop, they will be negatively geared and positively cash flowed! Not all of this is down to Investors Edge Finance but it wouldn’t have been possible without them.
