Forum Replies Created
While there are ways to minimise your tax obligations that you should discuss with your accountant, this is unfortunately not one of them in Australia. Well at least not in the way Robert Kiyosaki talks about in his books. That is specifically an american tax rule. Here you have capital gains tax.
At least that's my understanding on it. If someone can correct me, I'd love to be proven wrong…
Here’s a link to Dymocks – I’m sure you could buy it online, or you could take the details (ISBN, etc) to your local bookstore and educate them.
http://www.dymocks.com.au/ProductDetails/ProductDetail.aspx?R=0731405773&Producode=0731405773
I do find it interesting that they’ve got the photo for 0 to 130 properties by mistake…
Cheers,
Craig.
I think buying the house before they get foreclosed can save their credit rating and possibly save them from bankruptcy. Therefore they can go out and buy another property in the next couple of years, possibly even save their business.
Sure beats twiddling their thumbs whining about the world having it in for them. Obviously there’s a line that is easy to cross, but so long as it’s not just milking them for their mistakes, buying before foreclosure can be a great thing to do for someone.
Craig
I’d recommend you sell at least one of them using a creative strategy like vendor finance, or a second mortgage carry back.
Selling a property is NOT a sin. Even selling at a loss is sometimes worthwhile. If you were running a business and it was going broke ’cause you didn’t have any cash-FLOW, you’d cut costs to increase cashflow. The same is true for individuals.
In this case, your negative equity is not very much, so you should be able to structure it so you don’t lose any money AND you actually turn your weekly losses into positive cashflow.
I’m in Sydney, but I can help you with some of this if someone closer to home doesn’t respond.
Send me an email (via my profile) and I’ll give you a call.
Good on you for actually asking for advice. It’s great to see someone getting that advice BEFORE they have problems!
Regards,
Craig.
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Ask me about Joint Ventures earning 15+% COCR.For a wrap, while the settlement is several years down the track, there is still an exchange of purchase contracts. This is the transaction that attracts stamp duty, not the settlement. Each state has it’s own rules about exactly when the stamp duty is payable, but they all revolve around exchange of contracts. You can pretty much assume you’ll have to pay stamp duty pretty early in the piece.
Now, for a LO on the other hand, there is no exchange of purchase contracts for some time. You’re effectively just on a rental agreement, so stamp duty is not payable until the actual sale contract is exchanged – usually when the purchasor gets finance from a bank a couple of years down the track.
I don’t quite understand what options you’re trying to improve, but hopefully this clarifies things a bit.
Craig.
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Ask me about Joint Ventures earning 15+% COCR.Hi foxyac,
My take on what the investor / Joint Venture partner / etc would want out of the deal depends on the deal and the investor. I think most look at the following factors (not necessarily in this order):
1. how much it costs to get in
2. how much they profit (either dollar amount or relative to their cost to get in – also known as COCR or Cash On Cash Return)
3. how much risk and how is it mitigated / managed
4. how long will it takeAs for whether it’s a good deal for you and the investor, ask yourself what you would want if you were on the other side and providing the money. What would you be willing to do / give and what would you want to get back? I’ve found that by asking those questions, it helps me to see if the deal really is worth doing – even if I’m doing it on my own.
By the way, if you’re looking for a way to make your negative geared properties give you positive cashflow, drop me a PM and I may be able to help.
Regards,
Craig.
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Ask me about Joint Ventures earning 15+% COCR.I’d say 250,000 is fine, even if there are some others in the area.
I know some people who do them now and then, and also know some who do more than one or two per month as their main business.
Saying you don’t start a business offering finance must really confuse banks. It doesn’t matter how your business makes it’s money – a business is about making money. In this case wrapping is just what your business does. Talk to your accountant and solicitor about what actual structure you should use.
Good luck,
Craig.
You definitely have the right drive to succeed, so you’ll get there.
I can totally understand your frustration, though – it all seems pretty frustrating sometimes.
One thing you may find useful is to drive, bike or walk around the area you live to see if you can see obvious signs of investment. If you can (say a new development, etc), just wander over and start talking to the people involved. The more questions you ask, the more you’ll learn. If you can find someone in your area who can mentor you, you can be set up for life from the knowledge you gain.
As a few have already said, you have the desire, so you’ll do well.
Good luck.
Craig.
I just had another one recommended: http://www.jajah.com.
They use the same technology, but you use a normal phone. You register up to 3 phone numbers to call from, then you log in to their web site and start the call from there. It rings your phone and the person you’re calling, connecting the two together.
If you’re both registered the call is free, pretty much anywhere in the “developed” world.
Now I like the idea of that. I haven’t tried it yet, but it seems pretty damn good to me.
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Ask me about Joint Ventures earning 15+% COCR.Commercial property is more driven by rental yield than anything else, especially since most of your running costs are covered by the tentant as well.
If you can increase the rental return, you’ll increase the value and therefore equity in the process.
Ideas could include splitting one larger shop into 2 smaller shops with higher per metre rent; buying empty and selling or refinancing when fully tenanted…
just ideas.
Craig.
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Ask me about Joint Ventures earning 15+% COCR.I worked for a company in NZ who used skype for everything. Their head office was in NY, so all their communication was using Skype. It was pretty impressive.
I also personally use instant messaging with a microphone when my wife goes to NZ to visit family. Although we haven’t been able to convince the rest of the family to use it yet, we’re still working on it. the fact they’re all still on dial-up is putting them all off.
Do you know what the experience is like for users on dial-up?
Regards,
Craig.
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Ask me about Joint Ventures earning 15+% COCR.First of all, my condolensces on the loss of your grandfather. While it is fortunate for you that he was able to leave you something as an inheritance, it’s still not the same as him being there to share it, is it.
As to the options, just as a different angle, how would this look?
1.240k into PPOR. Putting it all in, then redrawing 10k for discretionary spending must get messy.
2. redraw 140k for investment purposes so that much is tax deductible, as suggested by Mat. This would leave your PPOR with 50% LVR. Not quite as much as you initially suggest, but if you keep the same repayments, you’ve now increased the equity build-up by around $150/wk.
3. put $40k into the fund
4. put the other 100k into positively geared property that includes growth in the equation. Call me biased, but I strongly believe in well purchased property as a wealth creation vehicle and that you CAN have growth property that is positively geared. And after all, this IS a property investing forum. You have already stated you want to have 2 IPs in 5 years, so why not start now? In 5 years you may have more than 2.
Mat suggests you should seek tax advice before you do this. I agree, but make sure you get wealth creation advice, not just tax advice. Anyone can say “lose money on a house” (a.k.a negatively gear a house) and you’ll save tax. But some tax advisers also know how to maximise wealth. That is who you should talk to.
Anyway, just my 2c worth.
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Ask me about Joint Ventures earning 15+% COCR.Hi FF,
You ask if 10.4% is a “safe” return.
When you calculate your return, the 10.4% “rule” is a great place to start, but you really need to follow that up by breaking it down to specific costs. One of the costs needs to be the interest you pay on the property.
When people say the “create room for interest rate changes”, they are most likely using a figure higher than the “current” rate in their calculations. If you calculate the deal based on a higher figure, your actual returns will be higher unless/until the interest rate reaches your figure.
For example, if you use a current interest rate of say 6.95% for your calculations, your figures will change when interest rates change. If you add a “buffer” into your figures of say 1% and use an interest rate of 7.95%, you have 4 RBA increases before your calculations start getting challenged.
As the others have said, fixing the rate for a period of time will protect you from changes, although it’s only for part of the life of a loan. Don’t forget, too, that the banks are there to make a profit. They aren’t offering fixed rates to be nice to you or me, they’re doing it because they believe they can make more money that way. They do it either because they think their variable rate will be less, or because they don’t think you’d do business with them if they didn’t let you fix it.
And remember, less than 30 years ago, interest rates we WELL into double figures! [sick3] Whether they will go that high again is definitely another topic in itself, but I reckon it’s pretty unlikely in the next year or so.
Regards,
Craig.
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Ask me about Joint Ventures earning 15+% COCR.There are a few calculations I use.
First, the gross yield = purchase price / annual rent. For a rough figure I use the weekly rent x 50, since this allows for a couple of weeks vacancy.
I also use Cash on Cash Return (COCR). This is a far more accurate figure which takes all the actual out of money costs into account related to the profit I get back.
In your example, this would include the deposit, stamp duty, fees, etc PLUS your reno costs (the amount you pay for out of your pocket, not any borrowings). Also, I make sure to include holding costs like interest, rates, etc since they come out of my pocket (or the profit).
Gross Yield gives me an quick look at the potential of the property. COCR shows me how well I can use leverage to profit from the deal. COCR is what I actually use to guage the value of a deal, either for myself or for my investors.
As an example, If I can buy a house for $100k and it rents for $200/wk, that gives me roughly a 10% yield (200×50 / 100,000)
But, I put down 5% deposit (and include the LMI into the mortgage), the sellers pay all my closing costs and I can sell it for $150k after 2 weeks and a coat of paint. I work out my COCR as (5000 deposit + $250 paint + say $500 advertising costs) = $5,750 money out (of my pocket). Then 150,000 – 100,000 – 5750 = $44,250 profit.
COCR = (44,250/5,750) x 100 = 769%Now don’t get me wrong, I’m not suggesting this is a real deal, it’s just a rather weak example of the calculations I use.
As for whether you should do the reno if your money won’t be made back dollar for dollar, I guess that’s really a question only you can answer. My questions would be “Why are you investing (i.e. what are your goals)?” and “Will this deal get you CLOSER, or FURTHER from your goals?”
Hope that helps,
Craig.
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Ask me about Joint Ventures earning 15+% COCR.Hi Deb,
I think what Kiwi is saying is not to buy a dog-house in Perth, but buy one on the other side of the country. Lots of really successful people has said you make money by going against the herd. If the herd is in WA, maybe there are better opportunities elsewhere.
I’d sit down with a good mortgage broker and talk about what you can get elsewhere. You don’t have to buy in your back yard. Sure it’s easier to see, touch and sometimes to research, but not always the best option.
If you identify a good growth potential area (residex was mentioned and they have a pretty good track record) on the east coast or in a major regional centre, I’m sure you’d be able to get something.
For example, you can currently get 3br houses for under $200k in Sydney’s western suburbs. Or you can get houses for under $100k in loads of places outside major centres. I’m not suggesting they are the right places for you – only you can decide that. Just pointing out they are there.
As a side note, if you’re saving $900/week, I would have thought on the surface of it that you could cover more than 200k for an investment property. But you need to be comfortable with what you can cover and you need to work it out with a good mortgage broker.
Whatever you decide, research, make a plan and go for it.
Regards,
Craig.
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Ask me about Joint Ventures earning 15+% COCR.Hi Michelle,
Obviously only you know all the specifics of your deal, but your payout calculation really depends on what your plans were when you started the deal.
Go back to your notes and documents from the start and look at the outcomes both partners went into it with.
e.g. when you bought the property, you may have specified that “partner A” paid the money and “partner B” put in the time. The end results was to be sold and the profits split 50/50.
If that was your plan at the start, you could look at the purchase price, add the money put in and calculate the “base value” a bit like the ATO does for CTG. Then work out the difference between that and the value now (use a valuer if you need to). On the surface, 50% of that figure as a buy-out seems fair in that case.
Whatever figure you end up with, good on you for getting to this point.
Regards,
Craig.
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Ask me about Joint Ventures earning 15+% COCR.Thanks Kiwi,
One of the things I’ve always liked about Tim Shadbolt is his willingness to throw bold ideas out there for people to think about. Whether they were his ideas or someone elses, Invercargill and Southland in general have done a great job of turning the popluation trends around over the last 5 or so years.On the positive side, they are in a much better position now than they were 10 years ago. I’m sure councils around the country, and the world for that matter, would love to have to ask “What are we going to do with all this money?”
Given the openness and bluntness he’s brought to issues before and the publicity this should generate around Southland, I’m actually pretty confident they’ll do the job over the next 10 years.
Of course the proof is in the Haggis (pudding), isn’t it.
Thanks for the update.
Craig.
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Ask me about Joint Ventures earning 15+% COCR.Hi Dave,
I think the real estate agent Elka mentioned would be a property manager – usually part of a real estate office’s team. If you ask on this forum, I’m sure someone will be able to recommend a good one in the area.
The depreciation schedule is basically a list of things the tax department recognises as costs. Things that go down in value while you own them, so that loss of value is considered a cost to the tax department. As others have said, http://www.depreciator.com.au is a great place to start.
Redwing’s recommendation to get a valuation is a great idea as well.
And yes, I agree with the others – talk to a good accountant who knows property investment. That’s the important part – make sure they know property investment. Talk to them about interest only vs P&I. Talk to them about your goals and fears. If they invest themselves and have several other clients who invest in property, they should be a great place for advice.
As for renting vs buying asap? Personally, I wouldn’t rush in and buy asap unless you know the market quite well already. I’d be looking at the market in Canberra and learning about it before I bought anything. But if you know it well, it really depends on your goals. Again, talk to your accountant.
Whatever happens – enjoy the shift. The lifestyle changes will be fantastic.
Craig.
Interested in Property Joint Ventures earning 15+% COCR? Email me for details.
have you looked at adding a sky-light? I’ve seen them used to really lighten up dark rooms. But make sure it’s an appropriate one for the rest of the room. I know they come in various costs, too, so you may have some options.
Craig.
Interested in Property Joint Ventures earning 15+% COCR? Email me for details.
Personally, I’d be asking: what’s my goal?
you’ve identified it as being “in a position where we [don’t] both need to work full-time”.
Do you see holding a non-performing property hoping for capital gain as moving you towards your goal?
For me, if I could see a valid reason there may be growth there in the near future, I’d possibly hold it if it helps my goal. If not, I’d check the numbers for developing it – would they get me more money to reinvest in CF+ property? If not, I’d sell it and take the loss after checking the repurcussions with my accountant.
But, it’s your goal. Only you can really tell if this is moving you towards or away from that goal.
Good luck.
100% of the shots I don’t make don’t go in – Wayne Gretzky
