Forum Replies Created
It will be interesting to see what happens post the floods in Brisbane. I have heard some talk about a change in what they rank as important. Will this include devaluing the "materialism" value that you talk about.
The perceived value you talk about is not just about the physical construction. What has affected us at Graceville after the floods is the mess that the community spaces are, eg, parks, walk tracks etc which all adds to the perceived value of a location. This certainly is a constant reminder of what happended and could happen again.
The other issue that will start to affect things is the new responsible lending requirements under the NCCP. Upgraders may face age issues, proovable income is focused on much more, etc. Is the purchase a "reasonable thing" for the borrower to do? How can you objectively answer that?
The other issue still holds – that income growth is not keeping up with property value increases. We will become more and more like Europe where there are fewer land owners and more renters.
We have seen property listings in our area reduce. That is one thing we tend to do in OZ. If we don't like what the market tells us we generally delist and bunker down till things look better. We haven't had the same toxic lending that America had.
We are looking at renovating at the moment – it is much cheaper to renovate the house we have than buy a finished job as we bought about 6 years ago. Most houses comparable would cost an extra $300,000 on top of the construction of our renovations.
I wouldn't be surprised in seeing some stagnation for a while. Mammoth drops – not really as the cost of land and construction is still high.
Hi
It doesn't matter what industry, there will always be shonks. That's life.
The issue is that often there is more than one legislative area that needs to be covered – a mortgage broker should not necessarily be giving advice on property ownership or structuring – unless of course they have extra qualifications.
Often there is a combination of loan structuring, ownership of investments, taxation issues, legal risk, estate planning, personal insurance, general insurance etc that need to be considered when buying a property. The issue is that in this list there are at least 4 to 5 separate professions – all with various issues to be considered some which can conflict with others. The best tax strategy may leave you at risk of asset loss to other risks like public liability etc.
Therefore you often need to find a team of people that can work TOGETHER for your best interests.
As regards commissions – if more people were actually prepared to pay a decent fee for quality assistance that helps them generate FUTURE sustainable wealth then period of holding the loan wouldn't be an issue.
Why do you think lenders now have entry and exit fees – because of the tendancy to trade loans like trading shares.
I think the answer is that you have to do a bit of research yourself and find professionals who have a good reputation and can either confirm or challenge your own thoughts with logical strategies that have merit – and be prepared to pay for it.
In the end it will be the investor making their best informed decisions that they can, rarely are strategies perfect on all levels – often there is a trade off.
Getting into the mortgage game just because you haven't found a good broker yet is pretty full on way to solve the issue.
In the end it often comes down the the relationship that the MB has with the loan providers – the MB doesn't approve the loans, the lender does. Similar to personal insurance good advisers will develop strong relationships with quality product providers so the approval process works well.
My experience with mortgage brokers has been mixed, there are plenty of good ones out there however.
Terryw wrote:You may get things wrong if you go alone with the trust – eg if you put a relative as appointor you could get into trouble as the appointor can never benefit from the trust.New trusts do not have appointors they have principals – the principal can also be trustee and beneficiary. Just make sure you don't have default beneficiaries in my view.
Hi
$2000 to provide a solid risk managment structure is a reasonably cheap amount.
There are a number of clauses in both the company constitution and the trust deed that if not done right can cause all sorts of issues going forwards.
If you are serious about SUSTAINABLE wealth creation be prepared to pay for good structuring.
You say nothing of what you do for an income – you, your partner or your business?? could be at risk, therefore prudent structuring can avoid unecessary risks of your investments being at risk as well. Not just the actual risks of being a property owner in relation to your other assets.
Remember you don't know what you don't know – these are the things that can damage future wealth accumulation.
Do it yourself and you are accountable – have a professional do it and they are accountable.
Hi
I agree with Linar – too late for asset protection now. Like bankruptcy, anything done after the fact or even when there is knowledge of a particular risk can be unwound by the courts.
Latest options for those who aren't there yet but are at risk can look at Contractual Wills or the "Beta Strategy".
Not much will protect from family law claims.
s michie wrote:But in the mean time I do not want to be in idle mode.Any suggestion?
If the interest rates down trend you will gradually gain more cashflow to be used elsewhere.
Maybe it is time to diversify into other asset classes (shares etc) or property in other states.
Need to ensure that any changed income situations don't blow a hole in the gearing strategy – eg : one income rather than 2 for a period of time.
You could consider an off the plan purchase – likely to become popular with the interest rate decreases predicted.
check out the units on this webpage – http://www.Brisbaneunits.com. You only have to make a small deposit now with the balance being paid when construction has finsihed.
Remember the aim is to accumulate enough NET assets to allow you choose whether or not you want to work for a living or have your investments fund your lifestyle.
Hi
It seems that the interest etc paid to date is likely to be considered a capital cost rather than an expense to offset other income.
If selling the block doesn't provide enough to payout the loan it is very unlikely future costs will be offset against income they are likely to increase the Capital Loss on Sale of the land.
Remember Capital loss can only be offset be capital gains not ordinary income.
If you crystallise this capital loss (which can be carried forward to offset capital gains in future years) then you will need to look at other investments where you can use this up going forward.
Managed share funds and managed property funds often will distribute capital gains as part of their annual distribution – therefore using up the carried forward loss and providing cashflow that won't increase tax.
There are a number of issues to consider.
Best of luck.
ankitjain wrote:Also I had paid off my residential property – I have recently extracted the entire amount to buy property overseas.What is the purpose of the property overseas (india I assume) ? Will you be receiving income on it. If you become a non resident for tax purposes this Income will be taxed in India and any deduction for interest will be related to that property not the PPOR in Australia. If the property in India is for living in I am reasonably sure that you won't be able to use the 6 year rule. Remember deductibility of interest relates to the purpose of borrowing not the asset it is secured against.
If you become a non resident for tax purposes in Australia the income and costs in Australia on property still require an AUS tax return. If by chance the expenses are more than the income from rent the loss will be carried forward till you eanr positive income in Australia again.
Property and other investments like shares and managed funds are treated differently when you become a non resident for tax purposes. If you have any other investments check out the ramifications for these as well.
Cashflow may be more of an issue than tax – check for rules regarding repatriating income from India to Australia if these are needed to cover income shortfalls.
These are a few things picked up from working with other expats.
Good advice is like foundations to your house – be prepared to pay for good advice that the provider can be held accountable for. Getting it wrong could be very costly.
This should not be considered tax advice – seek professional assistance on this one.
kezzah62 wrote:Hi all – the latest newbie here. I am currently living in a (cheapie) home I purchased just over a year ago. Current value around $280k with a $235k mortgage – fixed for another 30 months. Looking at moving in with boyfriend who owns his house outright. I have an income around $85k.Anyone able to give me advice on what I should/need to do to change the house to an investment property? Also the timing of any repairs/renovations to maximise tax deductions for these items?
Moving in with boyfriend – never know the future could be short term.
Just use the 6 year window of renting it out maintaining the PPOR and CGT free status. This is until YOU become the owner of another property where you live.
Consider a binding financial agreement to ensure you keep what is yours if things don't work out – of course who knows you might have more to gain by not doing this based on the information already provided.
Remember defacto is as good as married from a property settlement view point.
If you live rent free with him – you benefit which means he would then potentially gain a share of your net equity if you were to split up.
Think about the big picture when making decisions.
Hi
I'm 35 and my wife is 34 – 3 kids 7 and under.
Our short term goal 12 months is to finish some renovations on our current PPOR (already renovated and sold one to help finance my business start up).
Short term business goal is to access 2 quality clients every week, thereby increasing business income to fund other goals. Doing this by providing quality service to our existing clients and then requesting referrals.
Along the way we are gradually investing in the sharemarket, with use of a margin loan (50/50) LVR via our Family Trust. It would be nice to have more to invest in the current depressed sharemarket but you have to balance lifestyle now (renovations)and later with current financial abilities (funding 3 children etc).
Our long term aim is to reduce reliance on our personal exertion income to the point where we choose whether or not we "work", this is when "work" becomes "play" in my books.
Hi Kyla
A bit late on the scene with this one, just remember that in the end it as about accumulating NET wealth in the most efficient way based on YOUR situation.
Over time it is about reducing reliance on your personal exertion (work) income to fund the lifestyle you desire.
When borrowing to invest be careful not to become a slave to the arrangement requiring added pressure to produce more personal exertion income depending on the income performance of the investments – the debt has to be serviced by some sort of income (not capital growth that can't be accessed until you sell the investment).
I see you are on two incomes, plan your future decisions on whether both of these incomes will always be available (eg time off work to have a family – if this is in the plans). I'm sure Richard (QLDS007) would agree, this is where things can come unstuck if there is too much debt reliant on the second income.
The other one to consider is using "income protection insurance" to protect your debt servicing ability – negative gearing relies on income from both of you, if that isn't there then there is problems. This is not mortgage insurance – it is sickness and accident insurance – beware to get a quality product.
Best wishes with the project – you have done well to get where you have so far.
duckster wrote:This makes sure that security is not tied together — avoid it – known as colaterisation across two properties so you lose both houses if things go wrong.Whether it is listed as security or not the first property would still be accessable to the courts if it went as far as bankruptcy. The only difference of not having it listed as security is that you can sell it in the mean time without affecting the loan on the second property.
Same owner – therefore still in the melting pot.
chrisb57 wrote:I have also just inherited a unit which is fully owned by myself and my sister value around $265,000Both are Metro Melbourne, with the inhertited prpoerty my sister is also open to perhaps using this to purchase more prpoerty.
Hi Chris
One thing to be aware of is what stages of life yourself and your sister are at and what might change in the future.
Check the tax implications but you might be better off in the long term selling the inherited property and doing your own individual investing going forward. That way you determine your future and your sister determines hers. As joint investors the lenders may require you to both invididually provide a personal guarantee over the whole investment loan used to buy another property. Jointly and severly is the term.
By selling you could both buy your own investment property with the proceeds of the inherited one and provide better future flexibility. Either way you are selling and buying in the same market so even if the values have decreased a little you will benefit from a resurgence in the future if you then reinvest in your own properties.
Hi
As a guide there are 2 ways
one is valuation at date of change of use – must be realistic, then if it has increased since then any gain will be taxable – if you can prove that it was an IP for over 12 months then only 50% of gain is taxable at your marginal rate.
second is to get the gain from original purchase to final sale and apportinate the gain on a percentage of time as PPOR vs IP. Again if time as IP is greater than 12 months then 50% CGT discount applies. Timing could be an issue – is there a better financial year to do it from on overall tax perspective.
Of course this doesn't subsitute paying for professional tax advice – should also consider what strategies you have to remove extra tax payable eg: super contribution or something like that.
No decision should be made on its own – watch the collateral affect on the rest of your financial situation.
Hope this helps.
Hi
Sometimes we can focus too much on the tax side of things and it can take away from the end goal most would have of accumulating net wealth that can provide a passive income to replace our personal exertion income (or at least give us choices).
Initially it all comes down to cashflow and what you are trying to achieve through making the investment.
Short term investments are really speculation and carry greater risk as shown above.
Re the deductibility issue – if you want as much certainty as possible get a private ruling from the ATO.
As the land wouldn't be providing income in the short term you would probably want to pay the debt down as fast as possible money to the bank vs money to taxman – what's the diff! Once the debt is paid down the land might add to security for other investments – check with your lender though.
In this case if the deductibility is available you would have yourself and your tax paying off the investment – if you have a rental property or shares you have three "people" paying off your investment you have your share, the taxman's share and the renter or the dividends share in the case of the sharemarket.
Extra income provides extra investment opportunities, whether that be reinvesting the income in the current investment or using it to fund new investments.
Borrowing money increases both the potential gains and potential losses – ability to service the debt is the issue.
Gather as much info as possible to help make an informed decision. If seeking advice to make the end decision take it from someone who is professionally liable for the advice – which of course will mean there is a cost involved. There are no free rides in our dear world!
Scamp wrote:Erik,You realize that the real-estate in Japan has been crashing for decades already ?
Are you ready to invest your money into something that will keep going down every year , costs you a LOT of money per month ( negative gearing ) and on top of that have 10% inflation ?Everything looked similar in Japan 20 years ago to Australia now. And their housing market has been crashing lower, and lower… and lower every year, without exception. I think a house there is worth 10% of what it was worth in the height of their bubble.
Hi Scamp
I have a client who has just fronted up with a big fat tax problem by investing in property in Japan – nice problem to have of course.
The bottom line is where there are people accumulating wealth there are others with dwindling wealth and the ones that just outright spend every cent they earn. Financial literacy in Australia is not great by any stretch of the imagination. We live in a capitalist society which means there will be the "have less's" the "have some's" and the "have more's", money and wealth just circulates. In the end money can't buy happiness. Once certain "rewards" become the norm they are no longer rewards. For most in Australia, they have enough food and they have accomodation – so then they want more – the aspirational side of humans. The issue is of course that this aspiration can get out of hand and the lack of financial literacy compounds that.
The bastard problem for some at the moment that understand the system is that whilst property can build wealth most need borrowed funds to assist – borrowed funds are costing more and therefore buying isn't as easy even if property prices drop – then you have the issue where property prices drop the "equity" people have drops and further compounds the issue.
Heavy gearing is great in the positive market and booming economy – when it goes south as it does because us mere mortals can't hack being happy and positive ALL the time shit hits the fan. See the news about the 680 Starbucks staff that just lost their jobs – this will help magnify the issues.
Fixed loan resets have to effect the rest of the economy as want has to be paid in increased repayments isn;t getting spent elsewhere!
We are in for a very interesting time for the next 12 months or so.
You must be revelling in the number of responses you got to your statement – you don't happen to be on the websites payroll do you??!!
Let those you want to be on a downer do it, let those who want to get on with life do it. Today is the new normal, yesterday is history.
Hi Johk
I think Scott has put it quite clearly – if you are keen to live on a knifes edge and are prepared to lose the lot – go ahead.
What I find interesting is the the townhouse based on your figures would have a value of around $550K yet you feel you can get a bigger single house for $500K. Must be making some sacrifices on quality or state of repair.
My view would be you would want to be on very substantial incomes and have good personal insurance (income protection etc) to even consider this option.
You need to consider the potential negatives as well as positives so you can make an informed decision.
In the current markert you would probably be lucky to get a bank valuation that agrees with your valuations.
Best of luck.
Hi Angela
In your statement you have pretty much given yourself the answer – husband employee, no business income, therefore unless you have substantial other investments already in a trust there is no benefit. From the information provided you have no major "risk" eg professional indemnity risk like a doctor therefore the asset protection benefits of a trust are limited – they don't protect against family law claims. In your situation gross income can't be funnelled through to soak up net losses from a negatively geared property.
As a general rule PAYG employees don't benefit one way or the other – unless you take a long term view and build a positively geared portfolio in the trust by contributing after tax income into it and benefit from intergenerational wealth transfer in the most efficient manner including ability to stream different types of income to different beneficiaries in the future – it will take time to see the benefits though.
Just remember there will ALWAYS be a cost of accomodation, whether paying rent to someone else or having loads of capital tied up in a property you own outright – the opportunity cost of not having to pay rent. Of course there is the touchy feelly overlay of having your "home" and having more control – once you own it rather than the bank owning it.
Whilst negatively geared you will always need a positive income from somewhere to soak it up and pay the difference to the bank.
At some stage you need to accumulate net wealth to replace personal exertion income!
Best of lick with your endevours.
Hi
Getting a uni degree is about providing choice in the future. I have a client with net worth over $3 million who is frustrated by the fact that he never did get a degree. It shows commitment – and helps lateral thinking.
I worked three jobs when I did my undergrad full time.
You can do it if you have the motivation – get a law degree and do your MBA and you could be earning $ 2mill a year as a CEO – go corporate not legal firm.
Think of the investment portfolio you can build with that.
Congratulations on your commitment to date and your achievements to date.
Hi
Unless there is a reason to move eg: need a bigger house etc, why do it. Just make sure you are paying as much equity into the PPOR as possible so that if needed you can then redraw it to help purchase an investment property.
We still drive past our first house (that we renovated and sold) wondering how it is going.
That is something about property, once you have lived in it there are memories.
Minimise the amount of equity from your home that you have to use for security on the IP purchase. That way as equity builds overall you can probably remove the PPOR as security altogether.
Regards
