Forum Replies Created
My brother has a mix of commercial and residential IP’s. His commercial stuff gives him great yield but at the cost of capital appreciation. Over the last few years his residential properties have almost doubled but his commercial properties have lagged way behind.
He has also suffered the classic nightmare scenario with his commercial stuff too. A 6-month vacancy where the new tenants would only take a lease if he fitted out the floor for them (A $42k outlay that they are supposed to pay for themselves!). He spent many a sleepless night with this vacancy on his mind and if you have a low SANF think twice about commercial IP’s.
He told me if he had his time again he would stick to residential IP’s.
[biggrin]
Hi Dan,
Just for anothers answers.
1) Correct. Unless it has been reno’d lately, then you can depreciate that.
2) Yes
3) Yellow pages / google it etc
4) I prefer brick, tile and aluminium windows. If you are a true buy and hold this set-up requires the least maintenance. Also, in say an area predominated by fibro a brick home might let quicker because its cheaper to heat / cool and possibly seen as more prestigious to some.I think a lot of people are going to say they should’ve started investing earlier.
On your deathbed I bet you’re not going to remember the time you entered the market and reminisce about the money you made! More than likely you’ll recall the worthwhile people in your life and the positive (hopefully!) legacy you left behind.
Balance is what its all about and “Do what you can whilst you can†is my motto.
C’mon guys most business thrives on the stupid / uniformed!
If everybody was brilliant where would most of the business be?
Cut your teeth on residential tracy. Maybe venture into commercial after you’ve held and understand residential for some time.
Example
Brother thinks he’s a bit of a guru with residential so ventures into commercial. Gets hit with a 6 month vacancy and looses tons of sleep trying to solve his dilemma. Finally gets a tenant with the lure of a $50k fitout (free to the tenant!) and a rent reduction. Because the value is based on the yield the premises is technically worth less!!
He’s latest purchase is back to residential because he understands it a whole lot better than commercial.Hi Domo,
Don’t deal directly with the banks anymore. Get yourself a good Mortgage Broker!![biggrin]
Example:
Boss at work is with one of the big banks. He deals with them directly on a regular basis because he’s building, releasing equity etc, etc. He feels he’s not getting a good deal so he sees my MB. MB instantaneously gets him the 0.7% professional discount on his current loans that had been running for over a year!!!!!! When my boss asked why he didn’t get this discount automatically they said that he never asked for it!!!!!!!A GOOD MB IS WORTH HIS WEIGHT IN GOLD (and they’re free!!)
Hi Domo,
Be careful. Say you pay it into your IP loan and want to draw on that $100k for a new car. There goes your tax deductibility.
If you put that money in an offset account against your IP loan you could draw out the money for a new car and that would be tax deductible.Excellent information there Henry!
Thanx mate[biggrin]
My father self managed all his own IP’s. What a nightmare! I must admit he probably didn’t go about it the smartest possible way but it was truly a pain for the whole family.
Also a solicitor I did business with a few years ago warned about self-managing down at Sydney’s northern beaches. He said that some tenants who have trouble renting through the normal channels target self-managers. He also went on to say that these people would move into a not so ideal property and drive the landlord nuts with requests to fix everything. In the meantime they don’t pay rent and threaten tribunal action to get things fixed. Meanwhile the poor old landlord spends forever trying to evict them!
As collector j says it’s smooth sailing collecting rent but what would YOU do with situations such as rent arrears, midnight flips, damage, tribunal hearings etc, etc, etc.
If you have trouble getting on with your fellow man and / or a nervous, stressful disposition leave the property management to someone else.
My accountant did this and made a fantastic profit. BUT, the deal was struck in the lead up to the boom so his CG’s were dramatically improved because of this.
Today, with flat growth etc, it might not end up the performer you think it will be.I know many people, (friends, family members etc), who invest in Sydney, north, south, east and west (be it PPOR’s or IP’s) and in the long run they’ve ALL done really well.
If you buy into a typically high capital gain area your purchase price leaves you very –ve geared and not able to purchase too often. In other less desirable areas the –ve geared component is less which leaves more in your pocket and the ability to buy much faster.
Where are these people in 20 years? Roughly the same net worth !!
As we lemmings all gather around our putas typing to each other…….[blink]
Hey Mono,
Now I know you’re just trying to get your post count up!!!
But guys (here I go contradicting myself again).
Putting in a 20% deposit (other equity etc) would result in a –ve geared situation. If the property is reasonably well positioned you would hope its value would double in the 9 year period wouldn’t you?
Considering the –ve geared component, depreciation etc would you show a reasonable profit after 9 years? I bet you would.
Maybe a good opportunity for those of us who want to be really hands off with their investments
How longs a piece of string xon?
Some people are passionate about owning their very own place and some people forgo ownership and sign up for multiple Ips and rent the place they live in. It all works in the end.
I personally like the idea of buying my PPOR first then invest second therefore your option 1 appeals to me.
I would purchase a PPOR using the first homeowners grant and the stamp duty exemption. I would then live in it long enough to be classified as your PPOR.
You could continue to pay down as much of the mortgage as possible and later on draw on the equity to fund IP purchases.
Or move out and rent it out. You would be entitled to CGT exception for 6 years. In the meantime if it goes up in value you can sell it without CGT (in the 6 year period).If it was the lead up to a boom I’d forgo a PPOR and buy as many IP’s as possible but we are on the other side of the boom and personally wouldn’t buy IP’s at this time because further price corrections and / or weak CG’s might follow.
I had looked into these investments a few years ago and this is what I found.
1) Their properties are at least 15% more that a comparable property in the area.
2) Their management fees are quite substantial compared to local REA’s.
3) If rents for the area go down (general oversupply etc). They can REDUCE their rents to match.
4) After 9 years of tenancy you’ll be needing more than a recarpet and paint I bet.Most new investors go for these because they’re a bit of a no brainer but after a while the landlord soon figures he could do a lot better for his buck himself out on the market.
I like Ausprops thinking a neutrally geared portfolio is the way to go.
If you’re out of work it can look after itself. Also there’s no financial pressure on you so you have nearly your entire wage at your disposal.
Although, negative gearing is beneficial for those of us who earn a huge income only to see it go in tax. In that situation why not sign up for some well-positioned IPs that are –ve geared.
Actually C@34 I don’t think you can loose at all in the long run! (As long as you have asbestos undies!)
Basically Jan USED to say buy when you can afford but check out Building Wealth in Changing Times page 158 paragraph 2. (Have a look in the book)
Buying just before a possible price correction could be dangerous to your equity and further accumulation of IPs!!
I can see it now, in the future, down at the agents. “We’ve also got this fabulous near new house in Ryde for rent affectionately known as the death house……interested? You can make an offer…….please?
Or when you want to offload it…..
“But sir that offer is 35% below market value surely you can offer more !â€.I wouldn’t touch it!!!
