Forum Replies Created
Hi,
thats means you need to keep telling them, if you cant pay you LOSE your home even if you have paid up 99% of it. do you understand?, are u sure u wanna do this?, really?, u get the pictureI reject the idea put forward that someone who has paid 99% of a contract and misses a payment walks away with nothing. It is factually incorrect. If this was the case any magistrate in the country would nullify the contract in a second as being grossly unfair.
What needs to be stressed is the financial undertaking being assumed when entering into the (any) contract. This is stressed in the pre-signing documentation that must conform to UCCC regulations.
It’s time people started to include some of the media commentators started to include some of the facts rather than the hyped in their stories.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Rob,
You don’t get around it. You have to work through the issue and disclose as needs be.
I feel there is only ambiguity in the contracts used by people who are not familar with the correct way to put a wrap deal together in a win-win way.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
The research behind this article seems second-rate at best, including:
1. The journalist did not contact me.
2. He spelt my name incorrectly.
3. John Burley is not my mentor. He quotes from a book where the current edition no longer includes that comment, in fact, that comment has not been publsihed for several years. Despite this, the comment is taken out of context.
4. The discount for the wrap kit has been available for some time now, not since Thursday as the article seems to indicate.
5. The finer details of how a wrap works, especially when someone is evicted from the property, are not fairly or accurately portrayed in the article.BTW, Rob… wraps must comply with UCCC too.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi CrownOfGold,
Thanks for your post.
There are a few holes in your figures, but for the sake of discussion I’ve used some assumptions to flesh out my answer (see below).
First, let’s look from a cashflow perspective:
Rent: $42,000
Interest: $26,000
Body Corp etc.: $8,000
Management: $2,940
Other Expenses (10% of rent): $4,200
Overall: $860That’s a good start.
From a capital gains perspective:
Bought: $172,500
Less FHOG: $14000
Net PP: $158,500
Sale Price: $203,000
Capital Gain: $44,500Overall (pre-tax):
Cashflow + Cap Gain: $45,360
Purchase Price: $158,500
% Gain: 28.6%
Over 3.5 years: 8.2% per annumWhether this is a good investment or not depends on your goal. If we adjust for inflation and then take away tax, it’s at least a good step in the right direction.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
Okay… I’ve spent a few hours building a plausible yet conservative model to express the likely net cashflow that the Map group may have achieved based on:
* 80% finance at 7% (I/O for ease of calc)
* 7% of income in management fees
* 15% of income in other costs
(therefore total costs are 22% of income)The net cashflow outcome based on these assumptions is $320,632 (pre tax).
All Mappers experienced net positive cashflow across their portfolio, with the annual cash-on-cash return (based on assuming 25% down and the assumptions above), coming in at an average across the group of an attractive 20.87%.
This CoCR does not allow for any of the realised / unrealised capital gains earned.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
I think Duritz has copped enough… he asked a simple question and some replies come across (I presume unintentionally) as semi-hostile.
In respect to Caravan parks… I don’t have any experience in that niche, but I’d be interested to know more from someone who does. Let’s do it under a new thread though please.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Niki,
Thanks for your post!
Congrats on your success to date… 7 properties is a great effort, and hopefully you are now sitting on a large chunk of unrealsied capital gains.
I have a copuple of suggestions for you:
1. Make a plan
It seems to me that there may be an element of an ad hoc approach to your property investing. Has your portfolio grown as a result of a plan, or have you just bought based on an opportunity presenting itself?
In any event, it would be a good idea to make a plan outlining where you want to be in 5 years time and then go back and assess each property against that benchmark.
2. Profitability
A common problem I see with many investors is that they have not identified a minimum annual return on investment and as such just accept the result without a basis for comparison.
In your case, it will be difficult to know which property to sell (if any) if you haven’t tracked actual performance to budget expectations.
You don’t need to do anything difficult… just identify how much (in $) your property needs to make each year for you to be happy.
3. Consider selling
I would definitely consider selling as this does two things:
1. Recycles debt by repaying the current loan and allowing you to reborrow on another deal.
2. Releases unrealsied gains – lenders only usually lend up to 80% of unrealised profits, but selling allows you to access the full amount (after paying tax and sale costs)
3. The realised profit flows through to your tax return, increasing your servicability potential for other loans.
Naturally, I’d only sell if I could do better things with my money.
Hope this has helped. Thanks for being part of the community!
Merry Christmas,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
My contribution is a little out of left field… I wouldn’t directly look for either, instead I’d look to build an investing system that identifies solutions to a range of problems.
Why limit yourself to one type when there are good opportunities in both?
The reason why I emphathise the need to have a system is, as Terry pointed out, securing finance in your own name will be difficult without a job. However, if you have a system then others (i.e. money partners) can co-invest in that system/process.
Finally, you don’t need a full time job, but it may be a short-term necessity to achiove a longer term outcome.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
You could certainly sue a person as a result of non-performance of a contract, but the damages you seek would result on your financial loss, which is unique to every situation.
You can’t make someone pay a debt who has no money, so it doesn’t matter what the judgement in your favour, you need to really weight up the cost vs. benefit.
On this point, I was reminded the other day about our legal process where a person received compensation (let’s say $500k) as a result of a negligence action. Immediately after the judgement was made the person losing made an offer to settle for $350k or else an appeal would be lodged.
On the basis that the appeal might be successful, and on the basis of additional legal costs, the lower offer was agreed.
From my experience, negotiating an outcome that everyone is happy with and avoiding the courts is often the best way to proceed.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
I agree with the comments made by JackW.
In addition, some key issues I’d be thinking about generally fall under the rights and responsibilities of all concerned, namely:
* Contribution of time and money
* Sharing of profits / losses
* Who ‘runs’ the investment
* Ability to exit the deal
* Requirements to contribute more funds
* Tax implications of investment
* Agreement on time frame of deal
* Established criteria to sell / minimum required returns on investment
* Death etc. of parties
* Basis for determining value of asset at any one point in time
* Procedure for mediation of disputesThat should get you thinking.
Oh, and if you haven’t already read it… pages 60 and 61 of ‘$1,000,000 in Property in One Year’ provide some good tips about matching yourself with the right type of business partner.
Finally, the two biggest things needed in a successful business partnership are: TRUST and ACCOUNTABILITY.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi DNL,
Generally, it is not a good idea to buy property in the name of a company (that is not a trustee coy) as companies do not get the 50% CGT discount.
The answer was that as we would not own the properties 100%, we could not place them in a trust or the commpany.I don’t understand the context for this response… Yes, it is true you don’t own them, but, provided you did it correctly, you will certainly control them which is what I really desire from my structure.
My suggestion would be to seek another paid professional opinion.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
I strongly suggest you seek accounting advice on this matter, but to get the discussion started, and based on the info at the ATO Website
1. You can only have on PPoR at a time. As such, your PPoR for the 2 months you lived in the property would have been the unit. I expect that if you had of sold while you lived there then there would not have been any CGT.
2. If you have had another PPoR since that time then you will now be liable for CGT on the unit from the period that you started your PPoR elsewhere to now.
HOWEVER… (from ATO Website):
In some cases you can choose to have a particular dwelling treated as your main residence even though you cease to use it as such. This choice only needs to be made in the income year that the CGT event happens to the dwelling.If you do not use it to produce income, you can treat the dwelling as your main residence for an unlimited period after you move out of it.
If you do use it to produce income after you move out, the total period of income producing use cannot be more than 6 years for any period you are absent. This can consist of one or more smaller periods of income producing use which total up to 6 years.
3. The tricky part is, and this is where you need an accoutant, how can you mount a reasonably arguable position that the unit remained your PPoR even though you didn’t live there.
This is because there is an exemption from paying CGT on a property that remains your main resience even though you don’t live their AND rent it out (max 6 years).
In the end it will come down to your intention at the time of moving out (i.e. did you plan to really treat it as your main residence).
As you can see, this is a complicated question that requires the skills of a trained and experienced tax accountant. This post is not advice, but rather an attempt to point you in the right direction.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
I’m not a lawyer, but as I understand it (and be sure to verify this), technically, a trust cannot operate in its own name (as it is not a separate legal entity), and as such, it would correct to have the nominee clause as:
<name of trustee(s)> As Trustee for <name of trust>
Be careful with nominee clauses too… generally (in Australia) the entity must have been established prior to the contract being signed. Seek legal advice for more detail.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Zen,
Thanks for your post… interesting question.
I’d imagine that the less risky thing to do would be to put in an offer subject to selling your home by XX date for (at least) YY price. The problem with that is that it gives the vendor a reason for saying ‘no’.
If you choose Option 2, then I’d certainly have a Plan B worked out should you not be able to sell your home by the time you have to settle on your new PPoR.
Yes, paying a few months of interest may be acceptable in the short term… but quantify how much this might be and also be aware of longer term consequences too (i.e. such as a drop in price).
Best of luck with it, and Merry Christmas!
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi DNL,
Such a simple post, but you could write a book trying to answer it (and indeed there are books on the ins and outs of commercial property)!
Property (with the possible exception of vacant land) exists to be a home – either for a person (residential) or business (commercial).
Both residential and commerical property markets are established, however the residential market is more regulated with the existence of tenancy laws and regulations to protect the interests of tenants and (to a lesser degree) landlords. In commercial property the rights and obligations are usally enforced in the Magistrates Court.
Another differece is the loan market. The residential property market has many players who are willing to lend on LVRs of 80+%. Commercial property loans usually:
* Are restricted to 70% lends
* Have bigger establishment fees
* Are generally only last for up to 10 years; and
* Attract a higher interest rateBoiling it all down though… assessing the quality of the tenant (i.e. the person for residential or the business for commercial) is needed to determine how regular and reliable your income stream will be.
Anyway, that’s a start… hopefully others will build on the discussion from here (and don’t forget to search the archives too).
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Shackles Off,
Welcome to the forum and thanks for your post.
This forum offers a variety of opinions, which is good because it will help you consider your options from various angles.
For example, I do not share all of Jo’s general views on property. Historically, and statistically, property markets trend down and sideways for longer periods than they trend up. Having said that, they generally trend up over time, if nothing else becuase of the effect of inflation.
This being the case, investing for the long-term may seem to make money, but I question whether it is the most efficient way to maximise returns. For example, most sophisticated property investors I know generally do have a long-term horizon, however they regularly buy and sell to cash in and reinvest profits (to increase the rate at which their money compounds).
In your case, the help I offer is in an effort to understand the decision before you.
1. Holiday homes are a lifestyle decision. Whether you keep or sell depends on whether you want to maintain that lifestyle.
If you have a holiday home as an ‘investment’ then I think it’s easy to cloud the decision making process as emotion kicks in.
Ultimately, if you want a holiday home and can afford it, then what’s wrong with that? However, if you want a holiday home as an investment, then to evaluate the nature/performance of the asset you need to compare the financial outcome of renting (for the time you are away) vs. owning (i.e. the income and capital gains you are receiving).
The lesson: Be careful not to confuse investing and lifestyle decisions.
2. How much money could you earn elsewhere (also known as the opportunity cost). If holding this property is at the detriment of another investment, then you could be hurting yourself unnecessarily.
This said… what other opportunities do you have at the moment, and how much extra will you make by selling here and buying there?
3. Jo makes a good point about the tax, but in the same token, I don’t let the tax impact run my investment, I let my investment run the tax impact.
What this means is: don’t be afraid to take profits (or cut losses) if it is in your best interests to do so. That is, the tax consequences reflect your investment decision, not the other way around.
4. MA raises a good point too that not all properties will earn capital gains in all markets. What’s needed is a solid and workable plan for how you plan to make and take your profit.
Hope this has helped clarify the decision before you.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
Just to emphasise some of the points made so far…
When it comes to including ‘subject to’ clauses the art is to use words that allow you to exit the contract (if you so decide), but at the same time do not seem so vague as to make your offer seem ridiculous.
I’d suggest purchasers be very careful with the phrases used, especially loose wording that can trip you up.
For example, once Dave and I included words “subject to the completion of a satisfactory building inspection.” When this came back not to our liking we sought to exit the contract, but the vendor’s solicitor demanded a copy of the condition report and made out like we could not exit if the condition report met what a reasonable person might think as normal wear and tear.
Whatever the merit of the argument, from then on we changed ther terminology to be:
“Subject to a building inspection within XX days, the outcome of which must be to the sole satisfaction of the purchaser.”
Regards,
Steve McKnight
Note: If you want more information on the way I structure my offers then Buyer Beware is a resource you might like to acquire.
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
Just to quickly answer a couple of questions:
1. John and Rondah sourced their first lot of finance to purchase real estate through a money partner… 20% through them and 80% through mainstream lending. The money partner was, in this case, a family member.
2. In respect to gross vs. net figures, I accept the argument and potential weakness in the quality of the data reported. In my mind, I thought it better to re-produce figures based on what was known (i.e. current rents) rather than building in assumptions about budgeted net figures.
For the sake of the argument, time permitting, I’ll go back and draft up some budgeted net figures and repost them in this thread next week. I’ll need to make some quite big assumptions, but it will be interesting to see how it works out.
Note: ‘$1,000,000 in Property in One Year’ does clearly outline what all the map financials mean. See page 218.
3. Yep, I probably am that nerdy… but I’m happily that way so. [8D]
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
I agree that it is difficult conceptually to understand (e.g. your comments about yield and residential property).
In the end, the rules you need to remember are:
1. Increasing annual income; and
2. Decreasing rent return %are the drivers to increase purchase price.
The maths etc. justifies this is the case.
One last point – you need to appreciate that ALL property is sold on a yield basis (even if it is not advertised or perceived, and even if home owners don’t really care), as yield is the measure of affordability and the acceptable price at which the market buys.
Keep working through it.
Bye,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Lukebe2,
Thanks for your post and welcome to the forums.
1. How is there asset protection in a trust?It’s a little complicated to explain in one or two sentences, but such a structure allows you to control the asset (and the income from the asset) without actually having to own it in your own name.
As such, if you get sued as an individual, the asset cannot usually be taken as you don’t own it.
2. If yes, is there any reason to incorporate a company since it’s expense and complex?The idea behind having a corporate trustee is to minimise the liability of the trustee (i.e. it has no assets other than a small amount of cash on hand).
This is not necessarily an absolute must, but it does ‘bed down’ the idea of complete asset protection.
3. I can apply for the first home owners grant so thinking about buying individually and then every other property under the trust. Any problems with this or would this be bad?Hmmm – the FHOG only applies to property you intend living in as your home. In many cases the perceived benefit of FHOG is swallowed up but other aspects in the deal.
Ultimately, you need to crunch the numbers and weigh up lifestyle and personal decisions. As a general rule, I don’t let tax decisions run the investment, I run the investment for profit while also trying to pay the lowest tax legally possible.
4. Some info says Trust are expensive, yet I see them for sale for approx $250 (I find this cheap). Are there any hidden expense I haven’t found yet?You should expect to pay about $2,000 for a coy/tust set up, and then $1,000ish per annum to cover compliance and accounting fees. It’s not cheap, so be sure to weigh up the cost:benefit.
Have a very merry Christmas,
Bye,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
