The answer is inflation Benny.

All the cheap money is enticing people to spend, which is causing prices to rise. So too though are supply chain issues that aren’t related to consumption though.

The argument is that by taking money out of people’s pockets by causing them to spend more on interest it leaves them less to spend on other things, and so that relieves pressure on prices, because demand is diminished.

It’s a big political statement though to increase by 25bp, higher than the 15bp expected. I was expecting no change this month, but a change next month, as wage price data is not released until later this week, and the RBA could have sat pat with good reason, and not dropped an anvil on SocMo’s head.

It’s not panic stations though, as we are coming off the lowest cash rate ever, but, it is also true to say that there has been a 250% increase off the base rate (.1 to .35). I think that will hurt some people who are already struggling.

• This reply was modified 2 years, 6 months ago by  Steve McKnight.

Taking max rent and max PP, $6k per month rent = $72k per annum, against a purchase price of $1.3m (and that’s before closing costs) gives a gross yield of 5.5%.

As an income return against commercial property, where returns are typically net, this is not particularly attractive.

Still, I have sent your details to a couple of my WA based clients to see if there is any interest in following up.

All the best,

– Steve

Hi,

Owning land is a generic growth strategy. It usually delivers no income, other than agistment and storage, so because it is growth orientated, it tends to be speculative.

As investors, our job is to make the most money, in the quickest time, for the least risk and lowest aggravation. As such, what is right for one may not be right for all.

In your case, I would complete financial models on the returns of each, and of both, with the financial outcome strongly influencing which way I was to act.

Sadly, quite a large number of people don’t know how to crunch the numbers, and so make decisions based on ‘feel’ or ‘intuition’. The problem with that is that they are emotion based and so judgement can be easily clouded.

So, my answer to your question is to proceed with the option that gives you the best return, for your time, money, skill and risk tolerance thresholds.

Bye,

– Steve

LOL.

Terry makes a good point about banks not looking at links. They will have their own policy, and their own legal department.

The principle is this though: a mortgagor is different to a guarantor.

The mortgagor receives the proceeds for the loan and is responsible for making repayments, and adhering to the terms and conditions of the loan.

A guarantor does not receive the loan proceeds, but agrees to be responsible for repaying a debt owed if the borrower(s) can’t make their repayments.

(for more information on being a guarantor, see: https://www.commbank.com.au/content/dam/commbank-assets/home-buying/home-loans/docs/004-150-guarantor-information-sheet.pdf)

Having a guarantor usually allows a mortgagor to borrow when they otherwise couldn’t, or else borrow more.

Importantly, a mortgagor has the liability for the debt whether it is in default or not. However, a guarantor only ‘owes’ the debt if the loan is in default and the guarantee invoked. Provided the loan is not in default, there is no liability recorded on the guarantor’s balance sheet, although the existence of the guarantee would need to be disclosed as a contingent liability in the notes to accounts, if such disclosure is required. For this reason, providing a guarantee is sometimes known as ‘off balance sheet financing’.

Hi Steven,

Let’s look at each in turn:

Stamp Duty

You are right in that purchasing multiple properties takes advantage of the ‘stamp duty free’ threshold for each property, and this could add up to quite a lot of savings depending on your total investment capital.

Applying your example in Victoria to calculate stamp duty, 4 x $250,000 properties = $10,070 x 5 = $50,350 vs 1 x $2m = $142,500.

However, we need to be careful not to let the tax tail wag the investment dog. If the $2.5m property was to generate a higher profit, sooner and/or with less risk and aggravation, it may be better.

Land Tax

Grouping means all properties owned by a common entity are combined for land tax purposes. However as land tax is a State tax, not a Federal Tax, investors will get a tax free threshold in each jurisdiction.

Applying your logic, and assuming each $250k property is bought in a different jurisdiction, there will be considerable savings compared to buying one property for $2.5m.

However, again, don’t let tax drive your investment. It is one of many considerations. For instance, owning one property in four states will increase your management and aggravation footprint, and your accounting costs if they are all owned in separate entities.

CGT

I’m not quite sure your example works here, because in one scenario you are selling your whole portfolio, and in the other only a quarter. The example really needs to compare selling everything in the same year, in which case the CGT impact would be the same.

However, you do make a valid point that owning 4 properties allows you to sell piecemeal as opposed to ‘all in or all out’.

My Experience

I’ve owned lots of cheap properties in various jurisdictions, but found the management aggravating. Today I own a commercial property in Tassie, and two in Queensland (in separate entities), plus a large investment in my US Fund (no stamp duty on purchase in the US, but a small amount on sale). Being commercial property, the land tax is passed on to the tenant, or reflected via an inflated gross rent. In my case, a CGT discount isn’t very attractive vs the company tax rate given I am already on the highest tax rate, and trusts pay high stamp duty and land tax rates.

Good discussion though, and thanks for your contribution.

Hey mate,

This sounds like a planning issue, and based on your username, I’m guessing you are a ‘Cuz from across the ditch…?

If that’s so, I recommend you contact the folks at https://planning.org.nz/ to see if there is a planner near you who can help navigate you through this tricky situation.

Sorry I can’t be of more help. I do think you did the right thing seeking permission though, as you wouldn’t want to risk illegal works compromising your insurance.

All the best,

• This reply was modified 3 years ago by  Steve McKnight.

G’day,

I understand why you’d want to post this to a forum board to get some idea of the issue, but given the specific nature of the question, and its complexity, I would urge you to seek the help of a town planner as soon as possible.

Regards,

– Steve

Hey Peter,

Thanks for your question. Yes, there are heaps, and heaps, and heaps of questions to ask, and matters to address in due diligence… if you want to make an informed purchase that considers risks and rewards.

This has been the focus of the recent study groups I have been running (Inner Circle 1 and Inner Circle 2), where I showcased the DD I did for two commercial property deals, the questions I asked (with checklists), and the outcome.

If you’d like access to recordings of those programs, as well as joining up my next study group, read more here: http://www.PropertyInvesting.com/IC3

All the best,

– Steve

Pre-approval is an indication, not a guarantee. Finance will always be contingent on the lender’s risk assessment of what is bought. If the valuation comes back lower than the purchase price due to initial repairs, you will need to chip in more cash. If the house is a knock-down job, they may only provide a land-valuation.

If you sign up but can’t get finance and you can’t settle, then you can lose your deposit and be sued for any further losses. It happens!

– Steve

G’day,

Perhaps rephrase what you are looking for and seek tomorrow’s value today. That is, get ahead of the value curve, rather than trying to find a needle in a haystack, that is… it’s unreasonable shopping at ALDI and expecting David Jones quality. Cheap is as cheap does.

That said, assets are ALWAYS being mispriced (over and under) and mismarketed. Look for the inefficiencies and then take advantage.

And remember… every property can make a profit, if you buy it at the right price. The art of investing is working out that price, and the validity of the assumptions that underpin your profit.

Bye,

– Steve

P.S. If you want to reach out to Richard, I believe he left his website address…