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size in sqm is not the be all and end of if a subdivision would be approved by local council. If the merits of the subdivision are strong ie. Private open space is met, set backs, rear set backs then then can be allowances for sqm size.
Know your end sale value. Is this house with a new kitchen, cosmetic fix up, (I would render externally as well) going to be worth what ?? 300k ?, 320k ??
If you purchased at 260k (prob would negotiate a bit lower or for more favorable terms ie early access, long settlement)
5% for closing costs and stamp duty – 13k
renovation budget . 20-25k approximately
holding costs (assume 80% lend at bank at 5.2% interest rate for minimum of 6 months – 5.5k)
selling costs 2.5 % of end sale value say 320k – 8 k
bills m water rates insurance – 1.5k for 6 months
total example costs – 313k. If sold at 320k would only be a 7 k profit.
total cash required to complete the project would be 20 % deposit, closing costs, stamp duty and holding costs (unless working at the same time you could pay these as you go, best to have upfront though for lower risk) – total – 97k
This is why having your end sale value is absolutely critical, more critical then your renovation budget.
– Replacing the carport is a expensive cost that wont return as much dollar for dollar spent as say painting or rendering.
externally i would render, minimal landscapping and a paved area.
internally i would paint new kitchen, new light fittings and floor coverings or if decent floors polished wood.
I agree with freckle in this market I would not be flipping. Many times I have flipped a home but had it revalued at the end of the renovation. 80% of the time the valuation is higher then the end sales price. I could of keep 4-6 extra houses at a neutral rent (positive after depreciation and tax).
Unless you have a specific goal in mind for example.
you wish to flip 4-5 houses in a year to create a good cash piggybank and then shift into a larger development, after obtaining 1-2 years of self employed income. Then you could get a new job . Have the combination of 2 Incomes plus your self employed income and shift into a medium sized development which would get you a greater net cash return or a better choice of new property to hold for growth./ income.
Also it gives you experience in low value real estate first unless you have a mentor to advise on property development and or advisers.
Plus you could have one investor invoice the other, for his management costs. Then you have the advantage that you are a lower risk, your not a renovator, your a professional, project manager. Would only need to get 1 year bas statements/tax return then.
Get a accountant. Pay for some advice – $300 a hour might seem like a lot but it's invaluable when you get information from the correct person.
You would have to register for gst only in some circumstances. Most likely if you did a structural renovation, subdivision then yes you would, the threshold is only 75,000 (turnover not profit) which is pretty much one house easily. (Unless your buying in the middle of whoop whoop)
purely cosmetic renovations might not be subject to gst upon sale. But you have to look up the definitions of when a renovation becomes " substantial"
replacing fixtures and polishing floors etc might be seen as cosmetic. But rebuilding the back section of the house and adding a extension would become substantial.
The repairs and renovations are not deductible at tax time. Unless the property is rented. Work done before the property is tenanted cannot be claimed either as a deduction it must be depreciated (if going down the path of buy renovate and hold, a BMT tax deprecation and scrapping report should be done to maximize any deductions before you go ripping out the kitchen etc)
the repairs and renovation costs are simply your costs. Profit = Sale of house – House price + Reno costs + holding costs + purchase and selling costs
1) harder then you think to do successfully.
What's your current incomes if you keep working ? ALOT of people neglect the fact that there is only 38 hours in a working week and there is almost easily another 40 hours that your can work if you want to put your head down.
I would actually personally ignore low doc loans. Unless you have bucketloads of equity/cash for 40 % deposits without LMI.
Its tough to crack the 2 year self employed mark. Sometimes it easy to time the purchase and selling of the 1st couple properties just before one financial year so you only have to wait 14-16 months instead of if you had bought a home in July 1st 2013 etc. You would have to wait the full 24 months, which might be tough.
Pick the correct bank as well. Ie you might find wespac consider 1 year self employed income if you ask the right people.
Also the correct structure. If your friend was working to provide servicablity then the sales proceeds should go to the person who is not earning any income that financial year.
The loans can still be in both names. Depends what structure they purchased in. Ie a company with 2 family trusts as shareholders.
My advice is that if you have a decent job and decent equity is to do something less time intense.
Or you might hate your job.
Bit more information is required to make a better comment
Wouldn't be that worried about it.
Would only be concerned if it was 10-30mm not 1-3mm
or if it had grown by 1-3mm in a week etc.
Continue to rent in the area that you wish to live and then buy investment properties in areas that are within your budget and that you can afford.
Buy investment properties that have a upside, Ie renovation, subdividing and developing. Gain some equity
Save longer and more intensely
Go halves in a large home with another person (in your area you wish to live ie 700k home). Perhaps with the opportunity to convert a 4 bedroom home into 2 /2 bedroom homes and you each retain one of your own. Good houses for this include bungalows and houses that have dual entryways already.
Plus I'm going to say it. That you get ALOT of motivation when you are halfway through the year and you have already bought and renovated 4 houses. It changes what you think is possible.
Multiple properties even of low value (using a buy renovate revalue strategy) lets you produce greater on paper equity (IE house bought at 100k, spend 10k, revalued at 140k but could only potentially be sold for say 130-135k). Which lets you leap frog quicker into more expensive quality houses.
"Consider tapping all of your equity today even if you do not plan to use it all in the next purchase."
Only if they are financially aware people. I've seen many people go down this path and end up with a boat and new car… Silly people. But it is a good financial back up for loss of work etc if your not insured or get dismissed or for medical.
No suprise that took forever. The made Many many millions more by having the ridiculous MISA accounts.
Min withdrawals – $500
if you empty the account ie take out to a zero balance it disappeared off your netbank as a account.
so much more interest that cba earnt.
I would be looking at lending at %80 not at any higher as well if your strategy was to buy/renovate/sell for a couple reasons
– at 80 percent you have a greater chance of just getting a desktop valuation over a valuation where the valuer comes into the property.
– that becomes a problem when you a trying to buy a property that requires work. Ie bad smells, missing kitchen, holes in walls and doors and treated badly over the years. A number of things can deem the property to be unlivable which means it would get valued at land value.
– if you are at above 80 % ie 80-95 %. It becomes the lenders mortgage insurance responsibility to give the final approval. And if your missing a kitchen the answer will be no. (A kitchen is defined as a oven and sink)
just something to aware of.
What is the aim of the "joint venture "?
You would have to have a bank that allows 2nd mortgages over property. Some banks ie NAB will only take a mortgage if they are 1st. Others such as CBA can go second mortgage.
Why wouldn't you use the same bank. It is a much easier process.
And it depends how you go 50:50
jojnt tenancy
tenants in common
50;50 shares in a unit or discretionary trust
or company purchase. Each have their own pluses and minuses occurring to your goals
Wouldn't say that time is running out for you. You have 20 years plus before the retirement age.
Can get a lot done in that time. Some people make millions in that time period.
You should ask yourself what the purpose of the unit would be.
is it to rent and hold long term?
what the area like?
What is the expected rental
What is the expected holding costs including bills, water, insurance, repairs, strata fees, set up cost on trusts or structures
20k equity assumes you already have another property as your PPOR. How did you caluculate your equity.
Lots of questions to answer along with Jamie's critical questions.
Well it might be under land tax value currently. But in 20
Years time it might be well over taxable value, if the government don't increase the land tax threshold inline at least with inflation
the 6 year rule means that if you lived in the property for 3 years as you said. Then moved out you would have 6 years Of being able to
claim the PPOR CGT exemption. If you moved back in to your house at 5 years and 11 months say for 1 year then the 6 year rule would begin again. And you would get another 6 years.
And what type of house you are buying also plays a factor in what structure you should put it in. Are you buying a new/recent property. Is there going to be depreciable quantities left in the home. A brand new home can have up to 10-12k depreciation in the first year. Are you buying a home
which require some maintenance and renovations to occur. Are you buying just a average home ?
Whats your profession like. Is there a chance of being sued personally ie a doctor. A doctor might choose to have a PPOR and all other assets in different structures to prevent them from being targeted if any malpractice or accidents happened
Hi nicki
Terry is pretty knowledgeable in tax, law, and estate planning. The only reason he cant give you specific advice on your situation is because he doesn't know your situation. The information you gave in your initial post is enough to give general advice. The specified advice you can ask for $200-300 a hour for a qualified person to sit down and go through your situation and the merits of buying both in your own name or buying a trust.
How much is the property worth? (Ie if it was a million dollar property) perhaps buying in your own name and not having issues of CGT for 6 years and no land tax would be beneficial
Distributing from trusts are not as powerful as they once were. To kids under 18 its less then $500 now before you start getting taxed at maximum rate. And you wouldn't have any 18 year old children yet so distributing to them isn't possible. Most likely if you had a spouse then they would also be working and you couldn't distribute to them anyway.
You are selling property 1. I personally would buy this property 2 in my own name. because the CGT exemption is such a benefit, i personally believe it outweighs any tax advantages at this stage of your property portfolio.
It is still possible to add a martial partner to the title/deed later in life (without incurring stamp duty in sa)
Choose the properties that would have had the most capital gain. Ie if property 1 only went up by 100k but property 2 went up by 200k it makes sense to have your exemption on property 2.
CGT exemption should still be valid for 6 out of the 10 years.
http://www.ato.gov.au/Media-centre/Articles/Moving-on–Remember-the-six-year-rule-for-CGT/
A valuer does a valuation based on sales history from that time Ie. You purchased 200k. lived in for 18 months say it went up to 210k. you then rented it for 10 years. 6 years of that will be exempt. A Valuer will have to value from 7.5 years into the property. Say property valued at 400k at that time.
Now you have another 7.5 years of which (4.5 years is continue to rent and the last 3 are your ppor again.
Say property increased in value to 500k (from 400k) CGT can be applied as a percentage ie. 3/5ths of the time it was rented and 2/5ths was poor so you will get a excemption for 2/5 ths of the time. and the pay CGT on the remaining 3/5 which say in this example would be 60k . Plus you would of held the asset for over a year (if in personal or trust name) so entitled to 50% discount. Therefore pay tax on 30k. (at your marginal tax rate) minus and capital expenditure you have spent on the property ie additions or previous capital losses.
For solicitor/conveyor fees I would just assume 1000 dollars. And for advertising I wouldn't advertise more then 1000 dollars. Signboard, Internet, maybe some
local paper adds.
As as a rough guide to calculating gst. It roughly works out to be 10 % of your profit. Roughly speaking ie a 100k profit on building a house could lead to a 10k gst payment.
As a guide for costing the price of building look on BMT tax depreciation website and they have average sqm rates for building dwellings. 1,2,3 bed 1 and 2 story etc
