Forum Replies Created
Manamgement rights are very common (many in Queensland) with community title properties. These are the ‘complex’ type properties where there may be 20 houses and a single driveway to access a common road that winds around the complex. They usually have a single pool, bbq, etc for everyone to use.
I have found that most of these types of management right contracts require the manager to live on site. This restricts your ability to buy numerous contracts.
However, I had a client who bought management rights in Sydney to blocks of Strata units and the numbers he provided were exceptional. He did not get a property as part of the deal but the purchase price of the rights reflected this. He now has a thriving little business accumulating more and more management agreements. This type of management seems even easier than the community title style properties and can be done from a home office.
By the way, you can also borrow against the value of the management rights. It is a pretty good deal if you are willing to do the hard work.
Robert Bou-Hamdan
Mortgage AdviserFlick me an email at Rob’s Email and I will reply to it. I sent it through this website last time so that is why it must have been caught up in the junk email filters. It might be still sitting in your deleted items folder as I only sent it yesterday.
Please type 24% Return in the subject heading so I know who you are. [blink]
Robert Bou-Hamdan
Mortgage AdviserYou get approval for a maximum margin loan amount, say $20,000. An interest rate will be attached to amounts drawn down – say around 8%.
Lenders will allocate a gearing percentage to a range of stocks according to their risk weightings. For example, CBA might be 80%.
Let’s say you decide to buy 500 CBA shares at $35 each, the total purchase price excluding fees would be $17,500. You don’t have this much or don’t want to put this much into the purchase so you decide to use your margin loan to the maximum allowed.
CBA is weighted at 80% so you need to put in $3,500 of your own money (and pay the fees). The balance, $14,000, will be drawn from your margin loan and will cost you 8% per annum. You will still have a $6,000 balance in the margin loan account for future purchases.
If the share price increases, the LVR decreases allowing you to buy more. In some margin loans, your balance will also be increased. If the prices decrease, the LVR increases. As you have available funds in your margin loan, you might not be required to do anything but you will often experience a margin call.
A margin call is where the lender will ask you to put in more money to bring the LVR back down to 80%. They usually hold a direct debit authority for the interest payments so they can also just draw the margin call funds from your transaction account if required.
The interest on the margin loan is tax deductible but you will need to have dividends or share price growth that exceed the cost of funds by an acceptable margin to make this investment worthwhile.
Robert Bou-Hamdan
Mortgage AdviserMarch 2004 – second paragraph…
http://www.reiq.com.au/mediaReleases/view_media.asp?media_id=256
Great article about property prices…
http://www.loan.echoice.com.au/pages/h_housing_market.html
Various articles and commentary…
http://research.lawlex.com.au/news.asp?id=2278&sp=1#3
Even though the above links show that overall, prices are reducing, there will always be some exceptions. The exceptions are what we need to find.
Robert Bou-Hamdan
Mortgage AdviserHey there superman,
Here is another investment for you that you might be interested in as it involves depreciating assets.
I find that the yield on depreciating assets is much higher when considering the impact of taxation.
How would you criticise a person who told you that you could get a guaranteed 20% GROSS return on your investment while also being able to depreciate 100% of the assets purchased over 3 or 5 years and then sell those assets for 50% of the original purchase price at the end of 5 years?
I was put onto this investment by someone in this forum but did not criticise them or tell them it was impossible. I went and checked it out and found it to be real.
You might argue that a guarantee is only as good as the entity providing it. In this case, the entity has been in operation for over ten years and has strong management and succession planning in place to secure all investments.
I guess things are done differently in the USA. That is where you are from isn’t it?
Robert Bou-Hamdan
Mortgage AdviserJust to clear it up a bit more, you can move in on the last day of the first year following settlement and have to stay for 6 consecutive months. You will not lose any benefits if you do this.
http://www.mortgagepackaging.com.au/index_files/first_home_owners.htm
Robert Bou-Hamdan
Mortgage AdviserSuperman,
I would appreciate you checking your email before trying to make me out to be telling some sort of lie. I outlined the investment in the email I sent you yesterday. Go read and I would like an apology upon your return.
Now, regarding your post…
Originally posted by superman:“You only have to account for tax.” Only!!? Top marginal rate is ~50%, there goes half your return. 12% takes 6.1 years to double as opposed to 3.2 at 24%. I think it is valid to assume all +ve cash income is taxed at this rate given the savings potential of Majoh.
Top marginal rate is 47% excluding the medicare levy.
Secondly, you say the “investment you have outlined” exhibits the phenomenal returns Majoh3 would require, such that his goal is reasonable. But Majoh3 quite clearly plans to purchase cheap +vely geared properties. So his goals are unrealistic unless they borrow 80-90% against the investment you allude to.I do not think his goals are unrealistic at all and I actually said…
“I think majoh’s goal is realistic considering he seems to have a lot of income available to reduce the gearing and compounding will do wonders to increase the cash flow. Good accounting strategies will also help increase cash flow exponentially.”Just because you do not know how to do something or that a higher investment return exists does not mean it does not exist or that it is “unrealistic”.
Finally, please refer to the following link:
http://www.fido.gov.au/fido/fido.nsf/byid/A9F432CE4F18EA71CA256BB20024FBD6?opendocument
and perform a text search for the word “unrealistic”. You will find, “In today’s market, ASIC suggests that more than 15% per year should flash warning signs.” FIDO is a branch of the Australian Securities and Investments Commission. So with a 24% return, before gearing, I question the accuracy of your math.I am very familiar with FIDO, ASIC and their advice regarding high returns. Regarding you questioning my math, save your time. Math is one of my strongest points and I find it very simple to multiply 2 x 12 to come up with 24. 2% per month is the offer as outlined in the email I sent. It is very simple maths. Get over it!
It is a disservice to inappropriately distort investor expectations.It is more of a disservice to criticise something you know nothing about. This type of inaccurate and porrly researched information is what gets you sued in my line of business.
Finally, I thought we were discussing ‘passive income’. I do not recall majoh asking for a $3,000 per week NET income and my example shows a $3,000 per week GROSS income as has been made VERY CLEAR every step of the way.
If you wanted to get the NET return that you are focused on, double the amount required to invest and you will exceed the $3,000 NET per week required. My math says that will require $1,300,000 to be invested which is also not “Pie In The Sky” as ASIC likes to say.
Your comments are exactly why we are not allowed to talk about securities and other instruments in this website. Those that do not know or don’t believe because they sit on mediocre returns all their life and think they are doing well usually criticise those that do know but who cannot say.
I will be very interested in your response after reading the email.
Robert Bou-Hamdan
Mortgage AdviserHi Kay,
Equity is just the difference between current valuation and what is owed. I don’t know what you mean when you say ‘debt dogs’ but LVR is always calculated on current valuation. The 80% level just avoids mortgage insurance costs but you can borrow at higher levels.
If LVR was done against purchase price, those who bought million dollar properties for $20,000 about 20 years ago would be severely retarded when considering their investment potential.
Serviceability is the only restrictive variable when there is a sufficient surplus equity being held.
Robert Bou-Hamdan
Mortgage AdviserI am not saying you could not get a stand alone loan as I do not know your individual circumstances. It is important that all the information is provided to give a more accurate response.
For example, a fixed interest only loan will be more expensive today than a variable interest only loan.
Regarding the family benefits, many lenders will accept this but the interest rate will be higher in most cases.
There are some good tools and calculators available at…
http://www.mortgagepackaging.com.au/index_files/tools_calculators.htm
It is important not to over-commit yourself especially having children. The current market is also very flat and in decline in some areas. This makes it harder to change structures if need be as a result of reduced property valuations and lower capital growth.
Robert Bou-Hamdan
Mortgage AdviserCheck out the following link…
Line of Credit v Loan with Offset Account
It outlines my position.
Robert Bou-Hamdan
Mortgage AdviserThanks kp. I add to it or edit it regularly so check back…
Robert Bou-Hamdan
Mortgage AdviserOriginally posted by stargazer:I was actually going to increase the Loan to $120000 as to have a $20000 buffer also adding new pergola may need another car in the near future etc.
This would look like this:
PPOR LOAN…..120000
In offset account…..20000
This would be an interest only loan.Sounds like a good plan to me.
The Question i guess is would the whole 120000 be tax deductible if changed to an IP or only the 100000. I would also need to get it revalued for CGT purposes.The pergola could be included but the car wouldn’t.
I would not bother with a LOC but take another loan as a split instead.
You have lost me hereI am not a LOC fan as you can do what you need with other products.
My thinking was to have deposit available if opportunity presents itself. By taking from LOC then the interest is Tax deductible for the draw down.The funds do not need to come from the LOC to be deductible. You could have another loan with redraw or offset on your PPOR and do exactly the same as what you would do for the pergola and car.
I have been told that for the ATO it is best to have everything seperate even the rent should go into the account which pays the expenses for the investment property. If a shortfall occurs the LOC would pick it up and the interest is tax deductible.The ATO does not care as long as you declare everything properly. Keeping expenditure seperate makes it easier and cheaper at tax time. Mixing up the income is never a problem as you will have rental statements and your transactional offset account will clearly show where the funds are moving.
Minimum fortnightly direct debits should be setup from the offset account ATO?What about the ATO? The ATO have no problem with this. You are not capitalising interest to reduce non-deductible debt.
Robert Bou-Hamdan
Mortgage AdviserYou are right there neo, I am very much against them. Only one or two in the market are cheap enough to warrant using them. Besides capitalising interest or not having to make any payments (which I think both are crazy), I see no benefit using them.
Robert Bou-Hamdan
Mortgage AdviserIf you are married or defacto, her rental income will count. Most main stream lenders will not look at family benefits. This is not very much anyway.
The rent from the next property will also count but all rental income will only be used at about 70-80% of gross.
If you rent out your house, a rental figure will apply even if you live at a friend’s place for free for one year. The only way out of this is living with parents.
Please sit down with a mortgage adviser. It will all become very clear.
Robert Bou-Hamdan
Mortgage AdviserThanks Star. It is good to be allowed back. I missed the place.
I always try and leave any investment property at 80% LVR with an interest only loan if there is a non-deductible debt. I also try and place as little debt against the PPOR as possible.
I like that you have the $100,000 non-deductible debt and the offset account being set-up. It might be good to set this up as interest only as well in case you move later.
I would not bother with a LOC but take another loan as a split instead. There is no real need to take the maximum unless you intend to use it or foresee some problems where you may need it. It is not that expensive to increase your loan if you need to and it can be done very quickly. Also, under the right package, it will not cost you anything except the stamp duty on the mortgage for the upstamped amount.
The greatest benefit to you will be how you use your finance package. All income and rent from all sources should be deposited into the offset account.
Minimum fortnightly direct debits should be setup from the offset account to only pay the interest on all the loans (including the PPOR). This would result in cash accumulating in the offset account instead of having to use redraw which might help you later if you need it.
If your total borrowings are more than $500,000, you should get a rate of 6.62%. If less, it should be no more than 6.72%. Most packages will not include the value of the line of credit in the total borrowings to get better discounts.
Robert Bou-Hamdan
Mortgage AdviserHeaps of links to find loads of information…
http://www.mortgagepackaging.com.au/index_files/hot_links.htm
Robert Bou-Hamdan
Mortgage AdviserI think your mortgage broker is probably telling you something that you don’t want to hear but it sounds to me like it is the right thing. It sounds like the broker is one of the few with good ethics.
Any unscrupulous broker will tell you just to state a higher income on another low doc loan and use up all your equity and get the next property. Brokers get paid to write loans so your current broker is doing him/herself out of income by telling you that you do not qualify. I think your broker is also protecting themself from being sued by you if you lose a property down the track and decide to acuse the broker of telling you to state a higher income. Believe me, you will be out for blood if it happens.
If you do the low doc thing again and don’t have the income, you might find the ATO calling you to make an appointment to audit you.
What happens if a tenant moves out of one of your investment properties and your income is still at the low end? How will you meet all the repayments?
Regarding the comment about 2 or 3 years figures being required once your income is stable, this is not required for low doc loans. You should stabilise your income to protect yourself from losing everything.
I think your broker has done a great thing!!!
Robert Bou-Hamdan
Mortgage AdviserSorry, I missed that bit. My comment referred to a property that was an investment from day one.
If you convert your PPOR into an investment property, you also get the benefit of not having to pay CGT for 6 years (if I remember correctly) or until you move into another PPOR.
I think this question should be put to an accountant. Sorry I can’t be of more help.
Robert Bou-Hamdan
Mortgage AdviserHi Freedom,
It would be important to know where (which State) you want to purchase to know how much benefit you could receive as you said you hated Melbourne. I will assume you meant the house you are in and not the city so you intend staying in VIC.
The First Home Owners Grant (FHOG) is $7,000 as most people know. In VIC, the First Home Owners Bonus is an additional $5,000 but you have to enter into a contract before June 30 2005 to be eligible. That does not leave much time. You may also get stamp duty concessions if you have a family or hold a concession card.
More information about the FHOG is available at…
http://www.mortgagepackaging.com.au/index_files/first_home_owners.htm
No-one can really answer your question whether to rent or buy except yourself or maybe your accountant. Many people will rent to take advantage of tax benefits by paying less to live in a house than it would cost them to pay off a mortgage. Others do it because they cannot afford their own home.
If you can afford to buy your own home, and with the added incentive of the FHOG bonuses in VIC, it might be better to buy something to live in instead of rent.
I would probably look for something that would also be a decent investment property in case I changed my mind about buying a property to live in and decide I want to rent again. After 6 months, you could move out and not lose your FHOG entitlements. You could also rent the property for just under a year before moving into it for at least 6 months.
Basically, I would probably buy something if I was in your situation with all positive cashflow investment properties and if I had the income to support from my employment.
Robert Bou-Hamdan
Mortgage AdviserOnly applies to purchase price.
Robert Bou-Hamdan
Mortgage Adviser
