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with your loans.
i would consider changing at least the investment property loan to interest only. As that is the tax deductible loan. And redirecting the "principle "component into your offset account of your PPOR. As your PPOR has the debt that is not tax deductible. Thus your principle payments will pay more off the principle if you have more in your offset account.
Change both if you want. And have the discipline to set up a direct debit every pay (not hard) to continue to pay the same off into your offset account. Other people require the principal and interest because it's the only way they save money.
50k would get you a 200k property with non LMI. Depends perhaps you could try for a cosmetic renovation to then revalue and pull your equity back out. Creating the leapfrog effect. Where you use the same 50k again and again to purchase and revalue. It's too small a amount to look at any property development really.
The reserve bank act in response to the global and australian economy.
when it goes to shit, they drop rates
when it runs well they rise rates.
Expect a few rate rises over the next few years.
also just because we have had the lowest levels of rates in recent years. Doesn't mean anything really except that people that are saving money are getting the smallest rate of return after inflation. And that the level of debt has risen higher that enables banks to have lower rates because the avg mortgage is now higher then it was 10,20,30 years ago.
Creating income streams will net a higher result long term then buying income streams. Good development can return great equity gains and positive cashflow at the same time and is repeatable. Purcashing 100,200,500k below market value that has a positive cashflow is less repeatable.
Same problems as catalyst, base your LVRs against the land value of the property – 10 % as some valuers will even include a deduction for demolishing the house to get to the land value. As you won't see the CBA bank manager in there with a paint brush fixing it if they reposess.
Thanks for that terry.
You have proberly answered this in another post. But what formal qualifications have you done to gather the taxation, estate planning and other legal/property related advice over the course of your career.
I think the vendor arguing for a bigger deposit is a social upbringing. The majority of houses being sold have been owned for a while and anyone above their 40's would have grown up in a time where you HAD to or it was socially accepted to offer 10 percent as per the same conditions as a regular auction.
jacm what are some of the reasons you have given for not releasing the deposit early because I'm guessing you have had long settlements before.
I thought the was limits to how much you can gift a spouse or a relative etc
my other comment was the thought of setting up a testamentary trust for the grandson/son.
Your grandmother should be entitled to the Capital Gains Tax exemption for her Principle place of residence. A better method would be … Say your renovation budget is for example 100k.
For you to lend that money to your grandmother at normal lending rates, have your grandma do the renovations (you could organise it but all receipts in your grandmas name)
Then when she sells the property she repays you the money. She wouldn't pay any CGT on her own home. She could then gift you the other money. Not sure what the limits are on gifting. But certain gifts to different trusts can take larger amounts then the individual.
Good to check over the gifting with a accountant.
I wasn't indicating they could have your entire deposit . But if you breached a contract they would have ever right to sue you if they then sold their home under what you offered. And with a larger deposit in the agents trust account they would have a greater chance and or greater possibility that they would in fact do this.
Yes if a buyer was paying cash they could settle quicker.. But they can still only settle as fast as the seller. If the seller cannot settle for a month then neither can you.
But if you are saying that you have the possibility to settle faster then a 50 % deposit then yes you do as you'll need finance on the 50%. But as I said before if the buyer is going to be delayed 3 weeks etc in settling anyway you might as well take finance.
the only reasons I haven't taken finance on property before was for unlivable houses that I would of only got valued at less then land value anyway. So it seemed quicker and easier
I think chances of a interest rate drop are slim at best.
no yearly fees for myself
FIxed in a few loans at the 4.79 % 2 years with CBA when that offer came out.
Its just simple seller psychology.
There might be 3 offers on the table.
the seller is asking 500k for his property. (He is a desperate seller, he might even accept 470k)
Person 1 offers 500k with a 1k deposit and subject to finance, the agent discovers he has never bought a property before before and he is currently unemployed.
Person 2 offers 480k with a 10k deposit, assures the agent they will be able to get finance, but they want to have a builder a structural engineer a pest inspector and a council officer to look over the property for issues all of which would be subject to in the contract as well as a 3 month settlement
Person 3 (thats you) Offers 450k for the property with a 225,000 dollar deposit. (50%) with no subject to finance and no other conditions 1 month settlement
Seller goes I need money ASAP or im going to default on my business loan or the money is getting split in a divorce and i honestly want this over with NOW. not potentially in 3 months and theres no guarantee Person 2 or Person 1 can even afford it or wont pull out.
Im going to take person 3's offer. If they don't get finance or default on the contract then at least im protected in that i have their large deposit and then if the market downturns and you only sell for 400k they can also sue to get the difference in Loss of selling price between your contract and the next sale contract. $225k in a agents Trust account is going to be easier to work with then 1K.
So you end up paying 450k for a property that was advertised at 500k that the seller would of taken 470k and you feel like you got a 10% discount to the "asking price" by offering a offer that gave the seller the smallest risk of not getting paid possible.
and actually CASH offers Might not be a quick settlement anyway.
Just because you can settle and have the money available, doesn't mean the the sellers bank has all the discharge papers and potential valuations of the sellers other property already organized. You'll still find that it can take up to 3 weeks if the seller has finance on the property.
Books on property are like books on learning how to ride. Useless except for a overall generic overview of property. Books and articles and magazines can give you ideas though on what property's have the potential to make money. You'll learn more from your first couple of property purchases then what you think you learnt in those books.
– Buy properties that fit into your plan.
– don't trade one job for another, renovating can be especially taxing if you are in their making "sweat equity" the rewards can be good if you have the dedication to it. And that means going out to work after you finish your job, everyday Of the week and on weekends and. everyday until it is finished. Delays from not performing if renovating yourself directly relate to your profit. And it's a double edged sword. If you take a extra day to finish. That's a extra day of
mortgage and another lost day of rent. Sometimes a partner can help you stay on track and motivate you when you don't want to do anything.
– you may benefit in consolidating ie selling a property after the first couple of renovations to release equity.
– depending on your deposit amount you could consider a small development. Ie a corner house with land at the rear. A hammerhead type situation. A block that fronts two street frontages from streets at both it's front and rear setbacks. The reason why you would benefit more from
a small development of a straight renovation. Is that your are not attempting to make 50k-100k in just a straight renovation. Which in this day and age. Is gonna be difficult
on a property under 250k. However there are many more opportunities to make 50-100k in a development. Where the renovation isn't the driver between adding the value and it's actually the subdivison. Whilst you still might renovate the existing home
just so that it maintains as much of its value as possible after losing the land component.
It also lets you do the development In stages if you are cash poor. And is a greater leverage on time. Ie all up you could spend 50-100 hours organising a land division and build of a new home. Your hourly rate for your return is a lot higher then trading your time for money.
There is no right and wrong way. Most likely you need to just Start and you figure out what method will work for you but it's only after you purchase a couple properties you decide what you like the most. But it might not be the most profitable way to make a living or become wealthy.
I like renovating the most. But I stopped doing it because property development is a HUGE leverage on other people's time and the profits are bigger and there are step ups you can take almost for the rest of your life. By step ups I mean You can start with small developments and progress to medium sized and then large size, it's a bit difficult to do that with renovations. Like the most expensive house is most likely 1-2 million Unrenovated. Which puts a cap on your upper level of money that you can earn. It's very easy to coordinate multiple developments at once. You should practice developing a skill set that will enable you to step back and observe a managing type role over a labourer role.
But it as I said. Starting anywhere is more important then anything. Overcoming that first mental hurdle and procrastinating/scared step is sometimes the hardest.
Not quite the same situation as yourself. But I did have one occurrence with CBA on a similar topic. I was selling a property (that had been purchased with 20 percent deposit) about 10 months ago. I had other properties with cba. All of them are not crossed together (always always took out a separate loan with a 20 percent deposit.) I'm 3 weeks from settling and they tell me they need to come around and value my other properties. I asked them why they needed to do that. She told me they were cross collateralised. I told her they most certainly are not. She better get her manager and tell me why CBA have CC'd my assets whilst my loan documents specifically say they are stand alone. They (cba) back tracked very quickly in that conversation (also got another year free on the wealth package for that one). You never know what they are doing behind the scenes and sure they prob could get the other properties if I defaulted. But not before they took the property I defaulted on first.
Btw I have noticed though. A lot of the times when I purchase property with CBA if I tell them what my other properties are worth they would put that into the system as a desktop. (The system has a medium house price for each suburb and depending on what you listed the value of your property at will say if it requires a desktop valuation, drive by or full valuation. And specifically your house might be worth 350k. But by putting in 360k,370k (opps changed to a full valuation) drop back down to 365k and it's back to desktop.
Then when you sell with CBA they go… Full vals on everything they are not sure about.
They are prepared to load the additional risk if you are giving them business but not if thy is taken it away.
Always good when you get the colour right Jamie . Reminds me that I have all the downpipes and facades to paint on my. PPOR. Perhaps if I leave it long enough the old paint will peel itself off so I don't have to strip it. Here's hoping
Hi melb investor.
I'll be frank so I don't waste your time.
On those numbers I would not go ahead.
Your outlaying over a million to make a 40k return. That really is not good enough.
you also have to consider holding costs interest on the initial property
interest on the construction loan
rates water taxes power whilst not being rented.
also sales costs of a minimum of 2.2 % even if you intention is to hold. Because you require several backup options. There's just not enough fat in the deal to justify that amount of of outlay.
Also as a gross yield of 4.9%. That is very low for a developed solution. My honest opinion is you need to focus on your product. 550k got building 2 x4beds is a 1/4 million a house plus builders profit .
Too much risk not enough return. You'll lose your. Potential 40k profit on any number of unforeseen circumstances.
How much is it going to cost to subdivide?
Are you going to subdivide into torrens (green) title or community title? Community title will be $5-10k cheaper. and really makes no difference Unless they both have street frontage then torrens is worth the extra money.
How much are you going to spend to rebuild the two new homes, What level of finish ?
How much does demolishing cost ?
If you plan to keep both, how much is the rent going to be for both? Can you afford to keep both
Work out how much you renovation would cost. How much would the front property be worth after a reno and after removing the land at the rear.
Write down all your end values, Write down your costs, write down how much capital you require for both option and also write down the amount of time required for both.
even though for example renovating and building one at the rear say might make a potential 100k. If demolishing and rebuilding 2 made 80K then you have to factor in your time and effort. The effort of rebuilding two houses can be conducted over the phone and email. Whilst the effort of managing a renovation might not be worth the additional money.
So that the owner of the building can hold all the strata funds in a trust account that is very sneakily a offset account. 100 k plus in the sinking fund equals more cash in his pocket. IT happens.
Terry, Wont the bank want to look at the new director to see if they can service the previous loans of the company ?
and what happens if the past director of the company has given a personal guarantee. (as mostly standard these days). Are the absolved of their responsibilities if made not a director anymore.
