Forum Replies Created
OK, I’m consulting my crystal ball and I can see you are going to get conflicting advice from this forum for both your questions.
One of the problems of posting questions like this on a public forum is that for us, the posters replying to your question, it’s all care and no responsibility. You need to take your questions to the person whose opinion matters, you accountant.
FWIW my answers are: YES and YES.
Originally posted by indigo_violet1625738:Thanks all for your responses-
I have about 10K available for redraw on my own home, however I would like to avoid dipping into it. My own mortgage is a debt i want to quickly get rid off to allow me to free up cash for investing. I divert part of my income into a high interest savings account which i then use for deposits on IP’s. I was hoping for info/ideas on areas where other people have ‘cut-back’ in order to save faster- for example ways to save on electricity etc- to free up capital…?What is the value of your home?
What do you owe on your home?Even better, why not list the current market value of your own home and your IPs, along with the balance of the loans against them.
I strongly suspect that the answer to your question on creative ideas on how to come up with your deposit will be answered as soon as you post those figures. 5 minutes effort, it’s worth it!
Scrimping on day to day expenses to come up with deposits for IPs is what I’d call working hard, not working smart.
Originally posted by young investor:Where would i go to speak to a professional about purchasing a property i have a appointment with a finacial advisor today at my bank but he said on the phone he can not advise me about real estate i need to speak to someone to understand more about tax can someone here maybe explain tax to me in more detail in regards to positive and negative geared property
r.wilson
Unfortunately financial advisors aren’t the best source for financial advice, they have taken that title for the job they do and IMHO it is very very misleading. What they are are insurance and managed funds salesman.
How about refinance? Have your 2 IPs grown by, say, 20% since you bought them? If so you shouldn’t need to use any of your own money to purchase your next one.
*** SPAM ***
where are the moderators?
Firstly, you have done unbelievably well.
Although you don’t say it, it seems like you may be taking out P&I loans. If you want to speed up aquiring properties then you should be taking out interest only loans to improve your cash flow.
This highlights that you are in fact after 2 different advisors
1) An accountant for tax advice
2) A financial advisor for investment adviceNeither can do both.
Navra Financial Services (www.navra.com.au) is Sydney based and is one of the very few financial advisors who strongly recommend property investment. The company has an excellent reputation amongst property investors on that other forum.
The example Dazzling gave looks only at cash flow, it doesn’t take into account capital gain. However as I pointed out, the financial benefit of owning a property is the captial gain. That is what my equation tries to take into account.
BTW, you need to put in your own figures into the equation. What do you think the capital growth will be for the area you selected? What is the gross and nett yield for the property type, and what do you think interest rates will be.
For example; if you think growth will be only 2%, gross rent 4%, net rent 3% and interest rate 7%, then financially it does not make sense to buy and move in.
But, and this is a big but, you need to make an assessment on how important to you the non-financial aspects of owning a property are. How important is it to have enforced saving (without it would you just p*** the money away), how important is it for you to have security of tenure, how valuable is it to be able to repaint a room? Only you can tally this up.
As I said in another thread, “rent is dead money” is just a crappy cliche that means nothing and is plain wrong. Rent is the price to keep a roof over your head. What is dead about it? Interest on a mortgage is dead too, no??
Do not make you decision based on cliches you haven’t thought through.
That said, I say stay put. Nothing to do with rent being dead money, all to do with capital growth on your unit.
One question, why would this family do this, what is in it for them?
Here’s my equation with errors corrected.
===========
Removing emotional factors such as enforced saving, pride of ownership, tenure, this question boils down to numbers.
CG is the % likely capital gain
M is the mortgage rate %
G is the gross yield %
N is the nett yield %Mull over this very simplistic equation:
1) Owning net benefit = CG – M – (G – N)
2) Renting net benefit = -GNegative figures mean a net cost, positive figures mean a net benefit.
Lets look at a median priced house in Melbourne, the figures look like this:-
1) Owning net benefit = 8% – 7% – (3.5% – 2.5%) = 0%. Yes, this means effectively it is free to own a property based on those figures.
2) Renting cost = -3.5%Therefore you should buy (as 0% is greater than -3.5%).
Originally posted by foundation:Originally posted by shake-the-disease:1) Owning cost = CG – M – (G – N)
2) Renting cost = GLets look at a median priced house in Melbourne, the figures look like this:-
1) Owning cost = 8% – 7% – (3.5% – 2.5%) = 0%. Yes, this means effectively it is free to own a property based on those figures.
2) Renting cost = 3.5%
Therefore you should buy.Actually, the CG figure for Melbourne is not currently 8% pa. Nor was it during 03/04…
From the REIV:Jun 03 – $363k
Sep 03 – $376k
Dec 03 – $386k
Mar 04 – $371k
Jun 04 – $371k
Sep 04 – $368k
Dec 04 – $370k
Mar 05 – $348k
Jun 05 – $363kSo the average capital gain in Melbourne over the last 2 years has been 0%.
Your equation becomes
Owning:
0 – 7 – (3.5 – 2.5) = -8%
vs
Renting
G = 3.5%Which is fine, but it doesn’t make any sense. A holding cost of -8% is surely better than 0%? Imagine how much better off you’d be buying a house that dropped in value by 20%![blink]
Please explain?
Good post though.
F.[cowboy2]Good pick up, thanks (no sarcasim intended).
I picked 8% as that is the historic growth, but you are correct that it has been 0% of late, so in fact renting has been better for the last couple of years than buying.
I agree that me using “Owning cost” is a bit too loose, I should have used “Owning net benefit”. Actually a -ve percentage is a cost, a +ve percentage is a net benefit.
I also should have stated that the “Rent cost” (rent net benefit) is in fact -3.5% (ie negative), I used the wrong sign in my original example.
cheers
Got to agree with Wylie.
If you have negatively geared property then you mustn’t have bought them for the income, instead you bought them for the capital growth. So why are you now using just income as the criteria for whether you keep them, that is not what the investment was designed for, right?
Property is a great generator of capital growth, but not an asset class that produces good income, that asset class is called “shares”.
Don’t sell unless you can’t sustain the loss, if you sell you will be giving up the capital grow on that asset forever, and capital growth is what makes you rich, not rental income.
What does “rent is dead money” mean?
If rent is “dead” money, then what then is interest on a mortgage?
What about food to keep you sustained, is that “dead” money too? No I don’t think so.You need to question cliches like this.
Rent money is not dead money, it is the price you pay to have a roof over your head.
OK so back to the question, how does renting and buying compare. The down side of renting is that you miss out on capital growth. You also miss out on enforced saving, the value of that varies individual to individual. The upside of renting is that it is much cheaper to rent than buy in most areas of Australia.
So, is the upside better than the downside? Removing emotional factors such as enforced saving, pride of ownership, tenure, this question boils down to numbers.
CG is the % likely capital gain
M is the mortgage rate %
G is the gross yield %
N is the nett yield %Mull over this very simplistic equation:
1) Owning cost = CG – M – (G – N)
2) Renting cost = GLets look at a median priced house in Melbourne, the figures look like this:-
1) Owning cost = 8% – 7% – (3.5% – 2.5%) = 0%. Yes, this means effectively it is free to own a property based on those figures.
2) Renting cost = 3.5%Therefore you should buy.
Another scenario to explore is continue to rent but buy and rent out a property, that is going to look even better than the pure buy and move in scenario above.
As for what to buy; here’s another cliché that has more than a little element of truth in it “Land appreciates, buildings depreciate”.
Congratulations, you are in a fantastic position, especially considering your age.
My advice is ……. do nothing. You are exactly where you should be, pushing 80% LVR. You have done the hard work, now let time grow your asset base and as it does borrow more and continue to gear into more property or shares.
Selling is simply absurd, I can’t understand that logic.
There is another person on this site posting up a storm, who used to be a RE agent for a bazillion years. (red flag, or what!?)Is now trying to flog off his mates’ developments and offers them to me (!!!!) to offer to my clients and then split the fee!!!!!
I like guessing games. How about “Green Planetary Sticker Neglect”? Am I warm?
Originally posted by Qlds007:Regrow
No the interest isn’t tax deducible.
Cheers Richard
[email protected]
http://www.yourstatefinance.comIP funding and US property finance
our specialityI disagree, it is deductable, it is a legitimate cost of doing business.
Try the “How you could build a S10mill property portfolio in just 10 years” by Peter Spann. Peter bought a lot of properties in NSW. Don’t be put of by the title, it’s an excellent book and an entertaining read.
Even though the % managment fee may be the same, make sure you take into account the once per lease fees such as the letting fee (sometimes 2 weeks rent). Short term rentals mean more one off PM fees. Also, depending on how short is short, say less than 6 months, you might also want to consider
1) including utilities (except phone) in the rent
2) including gardening
3) including cleaning
4) including internet accessObviously these services will take a sizable chunk from you gross rent and you would need to charge far more than the figures you are quoting.
The point is, research how long these kind of leases are and know exactly what cost increases are going to be driven by going down the short term furnished rental route.
