Forum Replies Created
Hi Guys
A twist on the LOC option is to get a interest only loan with a 100% offset capability.
The advantage of this method is a cheaper interest rate.
The down side is that they review this loan as the interest only component is for a fixed period.
As AD says it is very important that you set up the structure correctly.
Some of the things you need to consider are
a method by which people can exit the investment without detriment to the other parties.
what happens when one of the group becomes non financial (sickness death etc)
Basically contingencies and what if’s
Cheers
Cheers
I believe your right AD but what Young gun could do is sell an option to buy at a token amount. This could then roll into a contract with appropriate dates at the right time.
The buyer is happy as he can start plannng as if purchased at the expense of the seller and seller is happy as meets the CGT requirements.
Cheers
Hi ireland
What about instead of selling extending the loans as lines of credit and accessing the equity.
Your way of ‘cashing in’ you’re up for capital gain tax and selling costs which will come to more than 30% of you profits.
Based on 80% lend you will be 10% ahead money wise and still see any future capital gain come your way.
Off course if you want to go of and blow your dough rather than invest then you need cash in as per your actions.
Cheers and good luck with your investments
Hi Tails
You seem somewhat frustrated by the current market and the difficulty of achieving +ve cash flow.
I think you need to reread your uncles story and draw some inspiration from it. Your uncles way is just one of many different approaches all of which will work because the person that has set his aims will make his approach work.
The +ve cahs flow is just another way that works using leverage to accelerate the accumulation process (at a snails pace).
Similarly -ve cash flow will work if you find a sleeper area that is undervalued, buy up and wait. ( you need to be very knowledgeable about the area).
Personally I am going into wraps as I see that wraps is my ideal vehicle for the next 5 years.
As per your uncles story the accumulation process does accelerate. In the last 5 years I have actually bought multiple properties in the same year, some of which have been -ve as I could afford to finance them with the income from other +ve properties.
In relation to maintenance and tenant problems these are simply issues that are part of doing business. If at the end you didn’t want to deal with these issues then simply sell up and camp on a beach somewhere. (at least you would have that as an option)
Cheers
Hi Louise
Its the principal of the clock not the actual clock that matters.
What the clock actually illustrates is the economic cycle and the types of environments that follow on from other environments.
The clock is not an absolute but just an indicator for the type of environments that you need to be aware of.
For example when the stock market booms start getting into property as any money leaving the stock market will go to property etc.
Cheers
Hi Isagold
What you have is time on your side. Yep its positive and your going to make $663 pa this is $633 more than you had.
Whilst you have loans on property the return is generally small, as per your example, in relation to the total amount in gross rent. But in 8-10 years you will see a doubling of the value and on the way see a slight to generous increase in the rent obtained. So you win 2 ways.
Always remember that buy and holds is a slow but very profitable game. You will not achieve millionaire status overnight but will achieve it in the end, particularly if you build that property portfolio over the time between now and the next boom.
Remeber you can buy way more properties (deposit available) if each property is not costing you any further money(+ve) then if they are (-ve).
Personally speaking it is worth while, I have been investing since 1985 buying a property every 2-3 years. I still only make a small amount on each property and the effort does at times seem overwhelming but the capital base I now have is enormous. Similarly all those small amounts added together would allow me to retire immediately if not 5 years ago.
So in conclusion remember the ultimate aim and don’t deviate from the path as in the end it will all have been worthwhile.
hth
Cheers
The clock is in time the wave (or ripple effect), “grasshopper”, is the knock on that happens from suburb to suburb. As property increases in one suburb the bargain hunters move on to the adjoining suburb with similar amenities and so on. This result in an increase in prices suburb by suburb until suddenly a mania takes hold and the rush is on everywhere.
Have a look at this site which has a further discription re the clock
http://www.hpc.co.nz/property_clock.php
or the huntley investor site which also has one that is more discriptive.
Generally speaking it doees get out of wack with government inteference, terrorist etc but still it does tend to repeat itself.
By the way who is this elliott I knew a guy ones who liked to ride around in his car waving to everybody!!!!!
Cheers
Hi Hiu
If the world was this steady then you would never get ahead.
My experience with property is that it increases explosively with a massive increase in value happening in a very short time (say 2years). Then for the next 6 – 8 years nothing much happens capital gain wise.
This investemnt cycle repeats as per the investment clock.
In my view if the cycle is over the top (this is always hard to know) then buying now means you are holding a property that is going to remain flat for some 5+ years.
You can counter this situation with other strategies to increase either the value of the property or the rent or both. If you don’t and you buy at market then the result could be a very flat situation as you outlined or worse a real negative return.
In the end you will always need to buy well and if you buy well (below market) then you will make better than the gains you mentioned.
hth
Hi Micheal
I agree with Andrew re the deductions except that the interest is still a cost to your business. As a cost the interest is offset against the income derived from the wrap.
So as a result the net income that you make from your wrap increases your taxable income (Damm!!! LOL)
Cheers
Hi Nick
Apart from the legal requirements in managing tenants the other aspect is the contact/availability. Every person that I know that has/is managing their own properties will get calls at anytime of the day or night as there are no “office” hours. Obviously there can be plusses with this as you find out immediately any serious problems but you also find out about any inconsequential on the same basis.
You mention looking for a property manager but you will need to determine the area where your properties are going to be first. One on the major advantages of having a property manager is their local knowledge so finding one unrelated to your property can be self defeating.
I just reread your post and if it is your intention to look for the manager at the same time as the property then by all means interview some PM as you go to realestates for property. Get them to give you a written quote as you go and remember you do not need to leave the property you purchase with the property manager that is in place. So you can simply pick the PM you like and the property you want to buy.
hth
Congratulation AD.
I can well imagine your elation at this point in time. Why not, as Bruce suggest, share a bottle of champers with your partner as soon enough doing the deal will just become the standard with no reason to celebrate.
Wishing you bigger and better things
Andreas
The other thing that ezypay won’t do is look after the dispursements. Thus only half of the transactions load has been dedicated. I would suggest that you still need some appropriate software yourself to be able to produce loan statemnets etc
I am with Jason on this particularly if more leads are generated through the agent.
Cheers
Edited by – [email protected] on 28/10/2002 07:35:51 AM
Hi All
What is a section 32? This may go under another term in NSW which is the only state where I have purchased property.
Cheers
Hi Sooshie
I like your active post on all subjects, certainly keeping it alive and interesting.
My initial reaction to a ” Property Expo” is a pool full of sharks that you are volantarily jumping into. Don’t get me wrong I have been know to approach hyped salesman just to stir them on. With previous “expos” IMHO I have found that these setups just attract financial advisers, two tier marketers and off the plan (planet) product salesman, certainly not anyone that is interested in actually helping you achieve your financials goals.
Generally the presentation are interesting but are pitched at the “Money” show type level, all gloss and not a lot of depth.
Keep up the posts
Andreas
Hi Regina
The other thing you may want to try is get your current PM to contact and list the property with some PM’s that are local to the property. The only thing you then need to watch out for is that the local PM does not dump one of his undisirable tenants on you.
Interesting point that you intend keeping the tenant in place ones you start developing. Normally this is very difficult because of disruptions and liability issues unless it is a corner block and you establish a fence between the house and the development.
I would certainly never mention my future intentions to a tenant again, having done this ones and 2 months later they up and left. Yet the action did not happen for 2 years. The other thing that tends to spook them is when you get valuations done, they start fretting about a possible sale.
Cheers
ziz
Hi Regina
What market are you operating in?
Part of my portfolio is in a low end unit market and found that the fhog really took a lot of tenants out of my market with the vacancy’s throughout the area enormous. Like pages and pages of available properties not just at one agent but every agent in the area.
I have found that the market is just starting to recover, with renovated untis in demand again, these are at a premium to the standard ($120-130 in comparison to $170)
The other word of reasurance is that a well presented property is always going to be taken before a run down property so the ones you are renovating should not posse a major problem unless you pitch the rent to high.
In relation to pm I have found that in the end it is better to have a local pm rather than one away from the area. For years I used only one PM, with my properties up to 25km away from the PM. Made it very convenient from my perspective but the vacancies were always a number of weeks. Circumstances changed which forced me to move all my properties and as a result engaged local PM. Now the vacancies tend to be much shorter to non existent in most of the markets except the one mentioned.
hth
ziz
Hi Steve
Isn’t it interesting how land tax alters between states with no consistency, further illustrating how much of a grab for cash this tax is.
In my example the uv is about $120k thus the $2000 land tax.
The option of the benificial owner in Vic certainly helps the wrapping process.
Would this apply in both the lease/buy and straight wrap? Also does the wrappee get the threshold excemption? I assume they would but then again….
As far as softening the blow – a tax, is a tax, is a tax.
So my question is still when you are in the land tax bracket, is it equitable to pass on the land tax cost to the wrappee or do you have to absorb it as a cost of business? My preference would be to pass it on, on a per annum basis.
Certainly I would think that with the number of properties you have on the go and the long term philosophy of your wraps the potential for creeping into the land tax threshold is a real business consideration.
Cheers
Hi Regina
In NSW a trust does not even get the threshold allowance. Even seperate companies are excluded from getting more than one allowance if there are associated directors.
Cheers
Hi Bris22
This is certainly a variation of the original approach I used. The one point of directing all funds to paying of the mortgage is that you are then not building up a deposit on the next IP. This is OK if your intention is to redraw the capital to use in the purchase of the next property.
The method I used was to ensure enough equity in the property to be neutral to slightly positively geared at which point any further funds are then earmarked for the next purchase.In this way you should be able to purchase another property every 2 years and avoid cross collaterization.
Over time the increased equity will make the outstanding mortgage seem insignificant as this is a historic amount with inflation eroding the actual amount in relative terms.
Just a word on the income from rental property. Based on my experience the cost are about 30% of the income where no mortgage exists. So for every 2 properties you need one extra to pay the expenses for all 3. This includes land tax as you will find that the land tax net will catch you in about 7 years.
As AD says the other effect will be that the process speeds up in that you can direct the additional income to more IP’s or use the increased equity to buy more of the same.
As an example I recently purchase 3 townhouse with no money in using the value of a fourth townhouse as the LVR. The fourth townhouse still had a mortgage of $40k having originally started at $100k. I am about to release the fourth property from the mortgage as the values have jumped. The net result, I have 3 townhouse now with 100% mortgage and the fourth townhouse debt free.
hth
ziz
