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scratchme
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July 31, 2003 - 4:43 am
Hi hwd007,
I think I know where you are getting confused.
You must look at each property on its own….
So if you are negative gearing, the property will cost you say $5,000 p.a. Before tax. (Don’t worry about your income for now.)
So this means that whatever your tax bracket is (say 47%) you will get back 5,000*47% = $2,350.
Ok now what happens if you earn $62,000. This means that you would get back 2,000*47% + 3,000*42%.
They key is to just look at the property by itself.
Actually becasue of this I have made a new spreadsheet that takes into account gross income rather than “tax brackets”. Because when you own several properties your tax bracket may changes for EACH property . This new spreadsheet will analyse a whole protfolio and tell you exactly where you stand with and without having properties. (and is much more accurate than my first version. Surpisingly so!)
Hope this helps.
APIM
scratchme
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July 28, 2003 - 12:14 pm
Hi Joanne
I am not sure people are allowed to lend you the DVD’s or the manuals.
If they did they would have to make sure that they didn’t sign any contracts saying they couldn’t.
This NII group doesn’t sound to good! Wouldn’t suprise me if they were reading this thread so beware!
I can tell you now, $15,000 is way to much for any seminar. This leads to a good question though. Which is the best value for money seminar you have attended?
Perhaps people could advise on this. I will start a new thread so that people can discuss this.
I would recommend you read some books and go to as many FREE seminars as you can WITHOUT signing anything or joining their Course unless you are sure they are good.
There are a few threads that discuss which books to read. Do a search for books.
Soshie, is there a page on books somewhere?
scratchme
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July 23, 2003 - 3:14 am
Hi MiniMogul,
Sorry to hear the bad news. Things will get better…
Anyway I wanted to mention something VERY important.
I have seen people get “stuck” on rent and holding out for their figure, when this is NOT RATIONAL!!!! (exept for commercial properties.)
OK Let me show you the numbers (I must admit that this took me a while to digest at first too.)
OK let’s say you want to rent a property for $120 a week. This means that you will get 120*52 = $6,240 a year.
Now if you miss FOUR weeks you get 120*48 = $5,760
Now If you had rented it at $110 straight away you would get 110*52 = $5,720
SO IF YOU MISS MORE THAN 4 WEEKS YOU WOULD HAVE BEEN BETTER OFF RENTING IT AT $110.
The difference is not that great with low rents (below $170) but whith higher rents (around the $300 pw mark) there is no point holding on. You are better of taking off $10 or $20 and renting it fast. (WITH HIGHER RENTS YOU ARE WORST OFF IF YOU ONLY MISS ONE (or two) WEEK(s)!
I know someone that wanted $350 pw and waited 6 months to finally rent it at $310. If they had rented it form the start at $300 they would have had no problems renting it straight away.
Lets look at the figures for this.
350*26 = $9,100
300*52 = $15,600
Yes, that’s right! they would have been $6,500 better off if they had rented it at the lower rent right at the beginning!
Hope this will be of some help (Just do the calculations for your situation)…[]
Cheers
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scratchme
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July 21, 2003 - 1:40 pm
Hi Everyone,
Thought I would try and balance the views a bit. Why negative gear? There are a lot of reasons and you will see why by the end of this post.
(To give it away you will see that the BEST strategy is actually to have both Negative AND Postively geared properties, with a ratio of 1/3 or 1/4). I will not go into the details , but just give a quick overview. I will let you fill in the gaps.
The reason why negative gearing has been so popular is that the numbers add up. Yes that’s right, you are actually better off negative gearing that doing nothing! (Ok the main disadvantage to negative gearing is that if you can’t find a tenant than you suffer.)
We need to have a closer look at the people who negative gear. Negative gear is fine if you are a “causual” investor. (1, 2 maybe 3 properties MAX!)
Negative gearing is not recommend for serious investors. (3 or more properties) since there is a limit to how much you can borrow.
We will look at three cases. (I ran the numbers on a spreedsheet.)
Case 1
Income $80,000
Taxable amount $80,000
Tax $24,980
Left AFTER Tax 55,020
Case 2 (Negative Gearing)
Income $80,000
Rent $15,000
Loan Interest $20,000
Non Cash Deductions $10,000
Taxable amount $65,000
Tax $17,930
Left AFTER tax 57,070
NOTICE that by negative gearing the person is $2,000 BETTER off than if they did nothing!
(OK Now try and tell someone that Negative gearing is wrong [])
Case 3 (Positve gearing)
Income $80,000
Rent $10,000
Interst $8,000
Non Cash Deduction $5,000
Taxable amount $77,000
Tax $23,570
Left AFTER tax $58,430
OK cleary this case is better if we only look at these figures. However if you look at the WHOLE picture things get a bit more interesting.
Now lets say that the Negative geared property is worth $400,000 and the Positievly geared property is worth $150,000. If they both grow at 8% per annum (OK this is very optimistic especially for the positively geared property!) At the end of 5 years the equity build up on the “neg” IP is $187,700 whereas the “pos” IP will be $70,339. (This is a difference of $117,000 in 5 years!!!).
It is VERY clear which property is best. OK I am sure you will find fault with this reasoning, but in all fairness there are ALWAYS problems with whatever strategy you use. So it really depends on each individual investor what strategy they want to use.
Sure Pos gearing is the way to go if you don’t have a strong income, but it is NOT the only way. Actually as I have said at the beginning the best is to have a mixture of both. There is a lot more that can be said and a lot more “Interesting” observations that can be made, but I will leave you to work it out.
There is as lot more to property than Just being Positive or negative, the depreciation is important as well as the growth.
The IDEAL property for a person with good income is a brand new house, in a growth area, with good deductions and is neutral geared.
The IDEAL property for a person on low income is a pos IP.
The IDEAL property for a VERY rich person is a neg IP.
Every person is different, but for the majority of us the best portfolio is a mixture of pos and neg IP.
OK hope this all makes sence…
*************
Australian Property Software
APIM: http://www.apim.com.au
APDM: http://www.apim.com.au/apdm.htm
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scratchme
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July 3, 2003 - 2:32 am
Hi Brad,
quote:
Is that all I should be thinking about? Are there are other things / issues that are evident that I’ve missed.
YES… What are your goals? What is it that you want to achieve?
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APDM: http://www.apim.com.au/apdm.htm
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scratchme
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July 2, 2003 - 8:48 am
Brad,
None of us really know what your problem is.
Could you elaborate a bit more…
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APDM: http://www.apim.com.au/apdm.htm
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scratchme
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July 2, 2003 - 8:48 am
Hi Mala,
There is some really good advice here!
OK I am going to ramble so feel free to skip this post if you don’t have the time to read it…
What peterp said is excellent and very true. It is interesting how some people will be ready to pay someone $16,000 to spoon feed them when ALL the info is out there (especially on the net).
It is very interesting how some people will be happy to pay $16,000 but won’t check prices on residex or homepriceguide! or even buy a book and readit! or even buy an ice cream for their kids. (OK do you see what I am getting at…)
It is funny how poeple will spend big amounts on some things and winge on little things. (ANY STORIES; ANYONE?)
I think most of people do not have the time and believe that there is a magic formula that will make them rich , so they are willing to pay big money to find out…
OK let me tell you now; there is NO magic formula! and most of what these guys teach is available on the net. (Also ask specific questions on the forum and people will be more than happy to give you the answers.)
Actually I think (*am sure*) that a lot of these seminars are a means to get you more and more involved in an organisation. The sad thing is that they will get more and more money out of you.
Get a good team of people around you. (Like INVESTOR said don’t listen to everything your accountant tells you about investing…, but do listen to as many people as possible and filter the junk out).
Run away from financial advisors as quickly and as fast as you possibly can. (They are only there to bleed money out of you. OK there are 0.001% that are good … I still haven’t met one though…)
** End of ramble
*************
Australian Property Software
APIM: http://www.apim.com.au
APDM: http://www.apim.com.au/apdm.htm
*************
scratchme
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July 1, 2003 - 1:42 pm
I heard on the radio a few months ago that Australians have about $800 billion in superannuation….
Which is worst !!???!?!![][xx(][?][?][?]
*************
Australian Property Software
APIM: http://www.apim.com.au
APDM: http://www.apim.com.au/apdm.htm
*************
scratchme
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July 1, 2003 - 7:01 am
You can download my free copy.
I don’t know how it compares with theirs, but it is free and you can modify it as much as you like…
It will do all the calculations you will need.
Just click on the link next to APDM.
Cheers
*************
Australian Property Software
APIM: http://www.apim.com.au
APDM: http://www.apim.com.au/apdm.htm
*************
scratchme
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June 10, 2003 - 1:09 pm
Hi Tiff,
What are the deals? Have you already exchanged?
I am sure there might be some people interested in your deals. You might be able to transfer the contracts to someone else that would be interested in them.
A lot of people don’t have the time to look. You already have one or two that would be good for them.
Let us know how the figures stack up.
Cheers,
APIM
*************
Australian Property Software
APIM: http://www.apim.com.au
APDM: http://www.apim.com.au/apdm.htm
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scratchme
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June 10, 2003 - 7:23 am
Hi Youngie,
Sounds interesting. How about I buy a block of land and then sell you an option to purchase it in December. If the price goes up then you complete the option. If the price falls you can pull out.
This way you carry no risk (but you will have to pay for the option.), and I carry the risk.
I would need to get more info though so email me at [email protected] if you are interested.
Hi Theenjolady,
yes your idea is a good one and has been around for a long time in the building trade.
Generally someone that is having difficulty selling land (usually land developers) will approach a builder to do this with.
The way it works is like this. Say you are trying to sell land for 100K but you are having problems, no one wants to buy. You then get a builder and ask him to build a house on a block or two. They will generally be happy to do this (even though they have to be careful since the house legally belongs to the land owner.). However the disadvantage for the land owner is that they only get the money once the house is sold and most of the time only get what they wanted for it at the beginning (i.e. 100k) (Generally it is NOT profit sharing, remember the builder is taking the risk so they want to be well compensated for.)
The land owner don’t get into this kind of agreement when land is selling fast though. They only do this if they are having PROBLEMS selling the land and can wait to get their money.
Hope this helps,
APIM
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scratchme
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June 7, 2003 - 12:59 pm
Hi Terry,
Ok thanks for the explanation. I understand what you are doing now. I agree that this seems legitamate but I am NOT an accountant either. (not even a mortgage broker for that matter!).
Not sure I find it very useful though. Will keep it in mind however.
APIM
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Australian Property Software
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APDM: http://www.apim.com.au/apdm.htm
*************
scratchme
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June 7, 2003 - 12:47 pm
Hi Stu,
Thanks for the links. I read them and found them well balanced.
You are correct in comparing apples with apples. If people put their diposabe income back into their loans they would be in front either way. However I am not sure that many people do this. The worse would be for them to but their disposable income into a savings account that only give them 4% p.a. AND is taxable.
Even though your pay an interest premium on a LOC I do believe that it gives the greastest flexibility. (especially for buying properties down the line.)
I used your example and did some sums, and this is what I got (from worse to best).
1) If the person does not know what they are doing it will take them 30 years to repay their loan and cost them $294,000 over the same period. (interest 6.07%)
2) If they are disciplined and put their extra $800 back into their P+I loan (at a 6.07% interest rate) they will repay their loan in 12.5 years and this will cost them $106,600 over the same period.
3) If they use a LOC (at 6.57%) and are NOT disciplined and spend their extra $800, but put all their expenses on a credit card that has a 40 day interest free period and pay that in full when the 40 days are up. They will repay their loan in 11.17 years and this will cost them $102,760.
4) If they are disciplined and leave the extra $800 in they will repay their loan in 7.75 years and this will cost them 69,310.
5) If they know what they are doing and are disciplined they can repay their mortgage in 5.67 years and this will cost them $49,500.
6) OK, now if they are really switched on and are disciplined they can pay back their mortgage within 4 years and this will cost them less than $38,000.
Wow, Imagine in 4 years the banks have made $38,000!!!! This makes me feel sick [xx(]
But imagine the people in the first situation…
*************
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APIM: http://www.apim.com.au
APDM: http://www.apim.com.au/apdm.htm
*************
scratchme
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June 6, 2003 - 1:51 pm
Mathew,
I see a BIG problem with what you wrote. I don’t know where you got your info from but it is wrong. (or did you explain yourself wrongly. It makes me worry that people are giving this kind of advice.) I agree with what lynne14 said.
Stuart,
I am not sure I understand what you mean by:
quote:
That is, you are better off paying non-deductible expenses before you pay deductible.
What I am saying is that you are allowed to claim the interest on the IP if the interest isn’t capitalised. So what I am saying is: let the interest capitalise BUT only claim the interest component AS IF it was not capitalised. Do the sums and you will see that you are still way in front.
Terry,
OK, I think I understand what you are doing, but you forgot to say WHY it repays your PPOR loan faster, becasue ALL the RENT form your IP goes into your PPOR loan, so now you not only have your own income to pay back your PPOR loan but the rent from your IP as well.
Also the tax deductions DO NOT come from the loan structure you are using (in itself) but rather from the fact that you can claim depreciation on your IP. (and if the property is negativeely geared you can also claim that, whoever BEWARE! (You must know what you are doing)).
However make sure that you do not claim the capitalised PORTION of the interest on your IP loan as the tax man doesn’t like that.
Also a good advantage of using this method is that you are “essentially” moving equity form your IP into your PPOR so that when you sell your PPOR you make a greater profit WHICH is NOT TAXABLE!
However you must make sure that you do not sell your IP too quickly as you could loose there. (I guess that what you loose you gain on your PPOR.) Just make sure you guys know what you are doing.
Also for those that have big incomes there is also a way to do even better. (save about 5 to 10K a year, depending on your situation.)
Can anyone tell me why you were not advised to have a LOC on your PPOR with two accounts. One for the PPOR and the extra equity in an “investment account”? Were you even told about this? Just curious that’s all.
Stuart,
Interesting web site. Do you know why banks don’t push LOCs on PPORs? Is it because they don’t make so much money from them (i.e. can’t rip people off as much)? or is it that they are worried that people don’t know how to use them?
*************
Australian Property Software
APIM: http://www.apim.com.au
APDM: http://www.apim.com.au/apdm.htm
*************
scratchme
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June 5, 2003 - 11:41 am
Hmmmm,
I had a good read of this. At first I thought, yep this is your standard split loan arrangment, but after reading more carefully it doesn’t seem to be.
Yes there is a way to repay your PPOR loan much faster but I think your friend is doing it wrong.
He needs to make “special” arrangments with the banks, but he shouldn’t be using the equity in his PPOR to make his IP repayments.
quote:
All moneys paid to the IP loan from the equity loan become tax deductable as it was used for investment purposes
Yes this is true BUT any money would be. It is not tax deductable because it comes from his PPOR but because it goes TOWARDS his IP, no matter wher themoney comes from.
He is just going in circles.
What he wants to do is NOT repay the IP loan at all and let the interest capitilise. Form a taxation point of view, only claim the interest that is NOT capitalised (the ATO doesn’t like the capitalised part.) You will still be heaps in front. However to do this you will need a “special” type of loan.
APIM
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scratchme
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June 2, 2003 - 11:50 am
Hi Avranjes,
What you need is the yearly interest rate (call it i%), and the amont you want to borrow (call it X)
Since there are 52 weeks in a year, your weekly repayments on an interest only loan is:
weekly repayment = (X*i/100)/52
so if your interest rate is 6.3% and the amount you borrow is $100,000 then your weekly repayments will be = (100,000*6.3/100)/52 = $121 (approx).
APIM
*************
Australian Property Software
APIM: http://www.apim.com.au
APDM: http://www.apim.com.au/apdm.htm
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scratchme
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May 31, 2003 - 11:37 am
Hi Fullout,
Landlord insurance or malicious damage insurance?
Not sure what you mean but I know they will insure IPs as well as PPORs.
I am not sure whether they have malicious damage. I am prety sure CGU do. The best is to call them up and ask.
Not sure what you mean “by combination of a few”
APIM
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Australian Property Software
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scratchme
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May 30, 2003 - 2:12 am
Hi Everyone,
We used to use Zurich because they gave us a discount (15 or 20% can’t remember exactly.). However now that they have been bought over by QBE their prices have increased!
We called NRMA and saved $1,250 !??!?
Saved nearly $400 on the car and $500 for my PPOR!!!! and now I am a member too.
I also use CGU but think they are a bit too expensive.
Give NRMA a go and post back to let us know how you went.
APIM
*************
Australian Property Software
APIM: http://www.apim.com.au
APDM: http://www.apim.com.au/apdm.htm
*************
scratchme
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May 28, 2003 - 1:01 pm
A good deal is a good deal no matter where the property cycle is!
If the numbers stack up and you know what you are doing then go ahead. The good thing with property (unlike shares) is that people need a property to live in.
APIM
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Australian Property Software
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scratchme
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May 28, 2003 - 3:19 am
Hi andyj,
Let me try and answer this one:
quote:
If I buy a new resi property for 330k inc GST will the BANK value it at 300k or 330k?
NEITHER!!!! The bank will send a valuer around and whatever figure he comes up with will be the value of the property. It can be anywhere between 250K and 380K. HOWEVER your bank will use the lesser of the contract price (which is 330K) or the valuation.
So if the valuation comes in at 350K the bank will go off the purchase price, which is 330K.
If the valuation comes in at 280K then they will use that.
I guess what you want to know is whether 330K or 300K is the correct price. The correct price for YOU as a consumer is 330K (You dodn’t need to worry about the GST content.)
Let me try and explain. As an educated consumer you will only buy a property if it is a good deal. So if 330K is a good deal then buy it.
Think of it this way, the developer can ONLY sell his property for the market value (NOT the market value + GST because no one will buy it…). This means that the market value already includes GST (and this is only for new developments). So really it is the developer that is loosing the money NOT YOU!!!
Hope this helps,
APIM
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Australian Property Software
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APDM: http://www.apim.com.au/apdm.htm
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