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Nothing confusing about it. Doing this means that the property, which being in Sydney is probably a NG prospect, is neutrally geared for them for 12 months. And the best bit is that you are financing it all for them. Hopefully you got a higher price to reflect what you are giving up, like about 5%.
To figure out why a 12 month settlement is good for an investor, have a think about an extreme example of say a 10 year settlement at the current market price. Would you have been prepared to go for that long a settlement? Why not?
I would apply through BT or commbank for a margin loan of 10k and put that along with your 10k into a high yielding income fund like the navra one.
“Don’t try and predict the future, be prepared for it”
Don’t second guess interest rates, whether property is going to be flat for a decade, whether the share market has gone up so much it can only go down, whether there is going to be a world recession as the baby boomers retire and cash out. Instead be prepared for it. This means to invest, and invest in such a way that can cope with the uncertainty of the future.
So this means some or all of the following
1) fix interest rates
2) ensure you have a sizable cash/LOC buffer to cope with unexpected events
3) have income insurance
4) exhaust your LVR limit not your DSR. The thinking here is that cash flow is critical if/when things go wrong. In practice this may mean owning 2 NG properties plus $200k of high yielding shares thereby exhausting your LVR, instead of buying that 3rd NG property.IMHO you are very ready to invest right now. However you may need to think more carefully about your investing criteria. As Peter Spann says “Good Cash flow, good Capital growth, low risk. Choose two.” It seems you’ve used one of your 2 choices on good cash flow, so that leaves either low risk/low growth or riskier/good growth.
Think carefully before ruling out NG property. Why not a combinaton of NG property for low risk and good growth, and some high yielding shares or funds for good cash flow and low risk to support the NG property. You have enough equity to do this.
I’ve got to agree with the above reply. If it all goes pear shaped and you can’t meet your financial committments on the investment loans, the bank isn’t going to forgive and forget the debt just because your PPOR hasn’t been used as security for the IP purchase.
You appear to be uncompromising on something you think is too valuable to risk, when you are in fact risking (v. low risk mind you) it anyway.
Originally posted by ajayayyar:Hey guys,
When do you all predict the next housing boom? Within the next year, next five years, next 10 years?
Please let me know and also any additional comments you may have.
cheers
Ajay
10:03am 25 June 2007
Don’t be shy, you are paying the PM to provide a service, make them deliver it. You should ask them how to remove the tennant. Chances are it is going to be very difficult to do so before the end of the lease.
Just to explain a bit more. There are 2 probable causes your cash flow is suffering, and it’s not that you owe $550k.
1) You have a large debt on your PPOR, and this is non tax deductable
2) Your debt on your PPOR is P&IThese two problems can both be solved if you have decent equity in your IP by selling your IP and paying down your debt (starting with clearing the IP debt). Once that is done you can then buy another IP and all these borrowings would be tax deductable.
If you do not have equity in your IP then some hard decisions need to be made. You could tweek your existing PPOR loan and make it I/O, that would ease the paid a bit. If that isn’t enough though you need to consider selling your IP and buying a cheaper IP, but the change over costs are high.
It makes no sense though in either situation to sell your PPOR.
I’d say it depends on the value of your old PPOR (currently the IP).
Let’s assume it’s $600k with 220k owing. It would be better to sell it and pay off all borrowings. Then you could borrow 107% and buy another IP or 2. Even though your borrowing might end up being the same total amount, the great thing would be that all the interest would be tax deductable.
I would definitely not sell, unless the $6k/year NG loss is causing pain. Even then there are ways to ease the burden. WA has great CG prospects, why swap it for CF+ properties that have very limited growth potential.
Here’s a couple of options to think about
1) Open a new $60k LOC, secured against the property you’ve had the longest as it would have had good growth. Use that LOC to fund the NG shortfall for years to come. Remember as rent rise the shortfall will decrease over time.
2) Open a $100k+ LOC and invest in some high yielding (9%+) shares or LPTs. The income generated is going to go a way towards funding the shortfall, plus you will hopefully get CG form the shares. Plus you are nicely diversified.Selling should be done as an absolutely last resort.
Originally posted by lifeX:Even if the granny flat/ 1 br home is approved by council, I would doubt you could rent it out separately no matter whether you call it a spare room or a granny flat or an igloo.
I would seriously approach the council and plead ignorance or get a lawyer asap.
Live, Learn and GrowLifexperience
It is quite legal to rent out a granny flat on a separate lease from that on the main house, so long as it is an approved structure which in this case it is not. Within certain limits, even individual bedrooms can be leased to separate tennants.
I have 2 kids under 3. Everyone’s different, so here’s what I do. I focus on producing cash flow through by J.O.B. and outside my work hours I spend with my family not doing anything IP related. I put a team together to find the deals, finance the deals, do the legal work, do any renos, manage the property, do the accounting. I set strategy and direction, approve deals and select the team, effectively I’m the CEO of my family IP business.
My kids aren’t going to be young for long so I want to enjoy them, not drag them round to IPs. My wife has no interest in IPs and given we both have busy jobs, we don’t want to spend our weekend driving round looking at or renovating properties.
As I said, everyones different ….
Originally posted by Old School Skata:Um if you still own the properties, don’t you have other expenses you still have to pay for rates, insurances, management fees, repairs etc?
These expenses seem to be forgotten and from my workings in excel these can be pretty substantial especially when you index some of these for inflation (Show me a council that constantly indexes its rates with inflation [blink])
Do these magically disappear when you choose to LOE?They don’t. LOE is about borrowing for non-tax-deductible living. Those other expenses stay, but why pay those out of your own pocket when either the rent covers them or if still neg geared, you can just borrow to pay them and claim the interest.
Here’s another option to consider. For that amount of money and at this stage in the property cycle, IMHO the best place to find positive cash flow from property is in an LPT (listed property trust). The underlying asset is quality property, you can get net yields of 8%, you can gear at ~70%, and whats more they have a history of strong capial growth, and the effort involved is minimal.
The risks involved in investing in small regional towns at this stage of the cycle are far greater than getting a small slice of a well managed portfolio of commercial/retail property.
Originally posted by APerry:Hi firefox,
In that price range, you might be able to pick up a decent place in Yarraville or West Footscray. They are both very close to the CBD, have good infrastructure and are rapidly moving upmarket.
Regards
AlistairAgree this this. Also consider Coburg or Preston which are inner northern suburbs.
Don’t confuse these 2 issues
1) name on the title
2) name on the loanIt is #1 that determines who receives the income & deductions on the property, not #2. Sometimes what may happen is that the highest income earner has their name on the title to maximise deductability, and their and their partners name are both on the loan for servicability reasons.
