Forum Replies Created
I can understand how you can have unlimited finance from a serviceability viewpoint – so long as your average rental yield is high enough.
But doesn’t unlimited finance require unlimited deposits?
I can’t understand how you can have unlimited finance with a limited amount of deposit.
My only thought at this stage is to build this requirement into your strategy. For example, your strategy might be (in part or whole) to ensure your average yield is over 8.5% (for buy & hold properties) and that you do a buy-reno-sell every 2 properties to create instant equity. You can then use that equity as a deposit for your next two by & hold properties.
BUT there may be a better way – if so, I’d love to hear it.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi PB
Just a couple of points (you may already be aware).
Commercial finance (this might be classified as commercial because it’s a B&B business) is more expensive than residential finance so perhaps the best way to fund this deal is out of your line of credit. Commercial properties have some great advantages over residential properties but the finance side of things is quite different – I have an article about this being published in the next issue of API magazine (but if anyone wants it now I can email it to you – email me at [email protected]).
One issue with this property is that it is quite ‘specialised’ and as such the pool of potential purchasers is smaller. This affects the liquidity of the property… just something to consider. But it seems you have thought about your exist strategy.
On my calcs if the total cost of the purchase is approx. $455k then the annual interest cost is approx. $29k… therefore it should be cash flow positive regardless of how you structure it (or an I missing something?).
By the way, 6.44% for a LOC of $500k is far too expensive. You should not be paying anymore than 5.97% – I would look at that if I was you.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi Smirkyy
Yep, sure can…
Check out Janet Spencer at http://www.buyersolutions.com.au/
Or David McRae at http://www.david.mcrae.net/
These are both honest and professional buyers advocates (no other reason for me referring – no kick backs or anything like that).
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auMy vote is IP, IP and another IP!
Enjoy the Carlton lifestyle while making money from property investing… can’t get much better than that.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi Michael
Yes – some people do obtain finance AFTER signing contracts… probably not the best way to do it. It sounds like you’ve got everything under control.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi Michael
Transferring the ownership of property and refinancing triggers the following costs:
– property stamp duty on valuation (3.5% to 5% depending on value and State).
– mortgage stamp duty (only if you are increasing the mortgage amount as most State’s only charge on ‘upstamping’)
– mortgage registration and deregistration – $57 each in NSW (therefore $114 per property).
– Most lenders charge a title search fee at around $50 per property.
– There may be a settlement fee (for lender to attend settlement) in the range of $50 – $100.
– Loan discharge fee (to process the discharge of your existing mortgages) normally in the range of $150 to $300 per mortgage.
– Some lenders charge an additional fee for loans in company or trust names and/or to prepare a guarantee (because you’ll probably have to provide a personal guarantee).
– Conveyancing costs (to affect the transfer of ownership).I think that’s about it. Yep, it can be costly.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi Steve
Good question. The answer is that it depends on individual circumstances, strategies and objectives. However…
- I0 versus P&I
Why not go IO all the time? If you elect to repay IO your minimum repayments are equal to the monthly interest costs. However, you can always pay more (most IO products allow extra repayments without cost – but check with individual products). Therefore, you can make to equivalent to P&I repayments on a IO loan. The advantage of doing this is that if your cash flow get tight you can always go back to just repaying interest. Furthermore any principal repayments made on a IO loan are counted as “extra repayments” and can be redrawn at a later date (subject to redraw terms).
- Variable versus fixed
I’m just about to purchase my first cash flow positive property. I will take out a 100% variable loan. I will always go variable up until my borrowings are around $800 – $1 million. Then I’ll probably think of fixing a portion to manage my interest rate exposure. I have decided to do this on the basis that from a financial perspective you are probably always better off to go variable (the banks don’t offer fixed rates to be nice… they think they’ll make money out of you and normally they are right). However, a prudent investor should manage their risks based on exposure. I see fixed rates as buying interest rate insurance – I know I’m paying more but I do so to insure my risks.
But variable versus fixed is a very personal thing and I don’t think there is a right or wrong so long as people understand that its more likely than less likely that fixed rates are going to cost them more (in financial terms).
I would love to hear other people’s views.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi Darwin
You might what to have a read of this article that was in The Age today… see http://www.theage.com.au/
Interesting question where rates are going to go. It’s hard to pick the top and bottom of a rates cycle. Lenders are still dropping their fixed rates so perhaps now is not the right time to fix. You may also like to read my article at http://www.prosolution.com.au/ps_docs/prosolution_doc051503_151111.pdf
History shows that fixed rate borrowers are often financially worse off. Obviously this analysis ignores the emotional aspect of having certainty of repayments.Anyway a bit of food for thought.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auMichael, I would like to echo Steve’s sentiments. I alway stop to read your posts (even on a Saturday night…). You seem very knowledgeable. Thank you for sharing.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auI would agree with AlsionW & G-MAN007 in part.
I think a property portfolio need to be cash flow positive and exhibit capital growth. Obviously this can be achieved by purchasing a combination of pure cash flow properties and high capital growth properties (but my rule is that the portfolio MUST always be cash flow positive).
Therefore, Fullout might be looking for a cash flow positive property (with low capital growth) to fit within his overall portfolio… nothing wrong with that in my opinion.
I guess we all have different investment objectives.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auThanks Sooshie [
]I’m pleased that you found the report useful.
I’m thinking of writing a similar report specifically for investors… but I need some time [xx(]
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi APIM
I’m pleased that you found my website interesting.
By the way, I have done the sums on LOC (and offset) products. They don’t save borrowers very much. At best, the saving might be 5% to 8% of interest over the life of the loan.
See my article at: http://www.prosolution.com.au/ps_docs/prosolution_doc060703_095004.doc
Plus also see Personal Investor magazine article at: http://www.prosolution.com.au/ps_docs/prosolution_doc021403_150841.gif
The Australian Securities and Investment Commission agrees with me. It warned Westpac about its advertising late last year (i.e. Westpac was advertising that offsets and LOC’s can save borrowers up to 40%). It’s simpily not true.
You better of to find the cheapest loan and make extra repayments.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auI think I understand what your suggesting Terry. Essentially you’re converting non-deductible debt into deductible debt – is that correct?
One thing that leaps to mind is this arrangement may have Part IV A (anti-avoidance provisions) issues.
Just a word of warning…DON’T TAKE TAXATION ADVICE FROM MORTGAGE BROKERS OR OTHER UNQUALIFIED PEOPLE.
Whilst I am a Chartered Accountant I still recommend people get professional advice becuase it’s a mine field out there and you need to take advice from people that are well skilled and practice in that area day in, day out.
Be careful RickHy because your finance guy might not be much use if you get audited by the ATO.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi Huey
If you have used your PPOR and your IP to secure your IP loan then yes, the bank can foreclose on the loan and sell both properties to recover their debt. If the IP can stand alone (i.e. if the value of the loan is less than 80% of the value of the investment property) then it is advisable to vary your mortgage and release your PPOR. There may be costs in doing this (normally around $300). The advantages of doing this are:
1. Your not over securing loans. You don’t want to give the bank any more security than you have to.
2. You are not tied to the one bank.
3. You can use the equity in your property to buy your next property.Just a tip…
In future perhaps think about structuring your loans a different way… e.g. Say you purchase a $100k property (costs = $3k)…
One loan (or a split on your existing loan) secured by PPOR. Use this split (or second loan) to pay for 20% plus costs (therefore $23k).
The second loan is secured by your investment property and is equal to the remaining 80% of the properties value (therefore $80k). Therefore, you have avoided cross securitisation. Once your IP increases in value you can refinance and draw down on the equity to repay the split ($23k) on your PPOR (therefore you have one loan of $103k secured by the PI only).
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi Wilandel
They never cease to amaze me.
Just as an aside – ANZ restrict the types of products that they will use if you borrow through a trust or company. Therefore you would have had to pay the standard variable rate. ANZ are not the best if your borrowing through a company or trust structure.
Wilandel – I’m happy to help you. I think I am educated enough to understand your objectives (I am a Chartered Accountant and a new property investor). Perhaps I’ve best demonstrated this through the many articles that I have written. See http://www.prosolution.com.au/free_articles/free_articles.php
My contact details are on the website.
My direct email can be found on this post: https://www.propertyinvesting.com/forum/topic.asp?TOPIC_ID=1542
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auOk here’s my two bob…
Hurricane – I think APIM is correct. The capitalised interest is not deductible. Therefore, from a tax stand point this structure is not really beneficial.
From a practical perspective I think its very likely that the government will legislate that capitalised interest is not deductible irrespective of the outcome of the ATO’s appeal.
APIM –
quote:
What he wants to do is NOT repay the IP loan at all and let the interest capitilise. Form a taxation point of view, only claim the interest that is NOT capitalised (the ATO doesn’t like the capitalised part.) You will still be heaps in front. However to do this you will need a “special” type of loan.I’m not sure I understand why you say that you will be heaps in front if the capitalised interest is not deductible. These arrangements only make sense if the interest is deductible. That is, you are better off paying non-deductible expenses before you pay deductible.
Not sure if I’ve made sense…
Matthew – What you’re suggesting sounds very convoluted. Why not just set up the $67.5k loan and not draw it down until you need it? If the product doesn’t allow it then what you do is take out the loan. On the same day as its set up repay all the funds back into the loan (except for $1) and then you can use the redraw to access the funds when you need them. Be careful with this one – make sure doing this will not trigger any early repayment fees.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auThanks for the vote of confidence Andrew.
My direct email address is: [email protected] for anyone that needs it.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi Sebastian
Yes, you can depreciate these items if they are used solely for income producing purposes. It doesn’t matter if the goods are second hand or new. The purchase cost of these goods can be depreciated over their useful life (which normally equates to a deprecation rate of 5% to 15% on a straight line basis – varies according to the white goods).
I hope that helps.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi Cazdean
One of the lenders concerns about serviced apartments is that they feel that the value of the rental guarantee is reflected in the purchase price. That’s why most lenders will restrict the LVR on such properties.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.au
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