I would focus my attention on ways of generating income before looking to buy property while on a disability pension. There are numerous opportunities to make money through the interent for example. You would definately need to at least secure a deposit of 20% plus any fees unless you are entitle to the first home owner benefits and you are going to live in the property for 6 months.
It is very important to be able to service any debt on a property you buy with other than rental income for some time as tenants are not a certainty and you may find yourself in trouble very quickly if the property sits vacant.
I have set up my own structures like this in the past using a company. It worked well for me but I believe using a trust is better when considering deductibility and asset protection.
I was leaning towards the trust setup but have since decided to pull out of nearly all direct property investment and invest indirectly.
Terry, instead of continually directing people to do what is potentially incorrect or illegal and may result in great expense down the track, why don’t you ring your ‘tax adviser’ and get some more formal information about this.
If the cost is a problem, tell me his details and I will arrange it. My advisers tell me deducting capitalised interest in this manner is not permitted which is supported by nearly every article I have read about the subject since Hart’s Case.
I hope more than anything that I am wrong as it would be nice to be able to do this without getting into trouble.
Richard, the reason behind the creation of the site was for that exact reason. I was amazed that a central point for downloads did not exist. I put one in my other website’s secure area but thought everyone else could use it as well. The trick is now to keep it up to date so it always remains useful. This should not be too much of a problem.
There is another much more simple way. You buy the property in the name of a different entity – eg: company or trust – and rent the property from the entity at market rent.
This is fully deductible!
Funds raised from yourself can be lent to the structure you use and you could possibly charge a higher interest adding further to the deductions.
I am not an accountant so please run this by your own accountant.
You should check out if you can do the covered calls on the US Stock Market with Aussie super funds. It is much easier and the blocks are smaller. There is also a wider diversity of stocks to select from and more movement. You can always do the covered puts as well!
That is right Terry. You started the other one didn’t you?
I posted my lengthy response here to Michael’s comments after being asked in your thread by John why I didn’t respond to Micahel in the same manner that I did to you. I had not read Michael’s earlier comments about living off equity so I went back, read them and responded.
I hope you, and everyone else, realise that I have no problem with you or Michael on a personal level whatsoever. I am merely trying to debate the issue – and maybe convince people as to my point of view on the subject of living off equity.
* Buy Writes (cover calls) but only on the following stocks. OST, LHG, SRP, QAN (reason being, is that they are under $3.50)…
I don’t understand why you would restrict yourself to a low ‘dollar value per share’ stock group. It is all relative to company performance regardless of stock price.
For example:
10 shares at $100 each gorwing at 10% per annum and paying 5% annual dividends is the same as 1000 shares at $1 each growing at 10% per annum and paying 5% annual dividends.
I personally preferred the more established corporations for super investments and these tend to have much higher ‘dollar value per share’ prices.
I also find a negative market correction impacts less on the higher valued stocks.
SIS, when I say property, I do include property-related investments like MBS.
If you are referring to self-managed super, I think you will find it difficult to invest in the higher return – higher risk type investments. It is very restrictive what you can and cannot invest in.
I am very interested in hearing what people think of Rick Otton and his reputation in general. I have heard that he presents much of the same material and in much the same way as Steve McKnight.
So a couple could get up to $2mil in No Doc loans fairly easiy – if they had the equity and proper structure.
So if they wanted $100,000 a year each to live well, are you suggesting they can only live for 10 years?
People also have the option of increasing or obtaining LOCs while they are still working.
This would be the wisest thing to do as it will be very difficult continually obtaining finance when no longer working.
And don’t forget, these people would not be retired. They would usually be classed as self employed. They may even find themselves able to qualify for full docs for a while.
But I thought the idea behind ‘living’ off equity was because you did not have enough positive cashflow to supplement your lifestyle. With low rental yields as you suggested for high capital growth, this would mean they were in a negative position each year and have no other income to deduct any expenses. The situation would get worse as time went on.
BTW, in another post you asked when stamp duty on mortgages was abolished. Michael was referring to Vic where it was abolished in July last year (I think).
This is interesting. Is that just on upstamping or on all mortgages? I have not done a loan for a property in Victoria for well over a year.
There is no simple answer. You would invest the funds in assets which produce income and capital growth. I thought it was obvious.
I would look at property and/or shares/managed funds. They tend to be the most consistent and should continue to do so. You would definately need to use dividend reinvestment and dollar cost averaging when looking at shares though.
It is great to see someone actually living off equity.
Who is living off equity? I saw a person who used it for one year and used most of the funds to invest in additional income producing assets. I do not consider this ‘living’ off equity.
Rob, you say someone big enough for this should be able to live on their rents. But someone going for a high growth strategy will usually have low yielding properties, so they may have a lot of equity, but the rents would not necessarily be enough to live on.
I totally agree with this.
I agree that compounding interest on the money lived off each year will be freightening, but the compoudning growth on a large asset base should be more than enough to cover this.
I also agree with this.
I still can’t see a problem with living off equity if done sensibly (ie only taking a portion of each year’s growth).
Looking at the finance side of things Terry, with low rental yields and no income from employment, how do you expect to get the loans required to live on?
Please note that if rental yields were not enough to live on, it can be safely assumed that the LVR regarding exist debts would be out of the No Doc range. Also, the lenders will use less than the actual rental income and load the rates further compounding the serviceability problem. If you can answer this for me, you have my support for ‘living’ off equity.
Please note, I define ‘living’ off equity to be using equity for non-deductible and non income or asset producing expenditure – ie: living the high life!
I would most likely buy a smaller property and keep my debt levels low. It sounds like you would be in mortgage insurance territory if you only have $60k in cash and are looking to buy something for $420k. I am not a fan of blowing thousands of dollars on mortgage insurance.
Also, buying something smaller may leave you with the funds you need to renovate and add value. I would then try and use this to diverify my property portfolio or diversify into shares depending what suited you.