Hi
Im trying to reach that elusive goal of having an investment portfolio that takes the pressure of my living off income from my business and provides great future wealth.
I just bought 3 IPs in a row in Outer Melb with following numbers:
1: PP $225K rent $210/wk
2: PP $265K rent $240/wk
3: PP $250k rent $220/wk
Expected cap growth: 10-20% (very good area for this)They are “cash flow positive” after tax, which is still a negative approach.
The business does pay tax of over $200K per year so yes we have a tax problem. We also have money sitting in the bank doing nothing, so its better off in a property.However, the bsuiness, whilst Im not being negative, may not be there one day and I wanted my investment portfolio to be something I can achieve great wealth with – Steve’s book canned this type of investment as keeping you poor, not sure what to do. Do I take a staged approach? If the business falls, do I convert them to something?
Please provide advice.
Thanks
Jars
20 reads no replies – I really need some advice…
One idea to consider is a high growth property – even negative geared.
This will give you some tax deductions whilst enjoying strong growth.
Waterfront property up this way sells for around the $1M mark and has a solid history of strong growth.
Double this in ten years and enjoy some deductions along the way would be the aim!
Food for thought[8D]
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi jars11, I’m one of the guilty 20 that read your question, but I don’t have enough finacial knowledge to offer advice, sorry.
C2
“Is it true the more you owe the more you grow until the bank steps in?”
Gday,
Wouldnt these 3 properties actually be negatively geared (positive CF after tax), seeing the highest any of them return is 4.8% ?
These figures are a bit out of my league, but I would have thought youd need a few positively geared properties to alleviate pressue from the other 3 ie.
Jars
Sounds like you are doing alright and the properties sound great. Rents will rise over time and you will have good growth. So before too long they will be cashflow positive without the tax offsets. Just keep buying more of the same.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Im with terryw on this one but you will still have to work on that business for a few more years to come.[
]Thanks everyone. For me, I feel like I have a lend of the business, and I need to be ready should that carpet be pulled out from underneath me and that can be without warning. I am a “make hay while the sun shines” kind of person and we all know that if we knew in advance that we would lose our job/income/business within 2 years, how would your plans change to reach the goal of wealth? Should we live like we are on borrowed time?
Jars
I would probably start paying off principle and interest on these to get the mortgages down and then sell one of them using the capital growth to pay off the other two.
As long as you have money sitting around you can use it to pay off any shortfall month by month but I would be a bit cauious once this runs out and you have to start digging into your own cashflow.
Dec
Dianae01
Email MeJars
If anything did happen and you lost your job, you could always sell one of your properties and pay down some debt with the money you release.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hey Jars
Your business must make a lot of money if it pays $200K in tax!! I would suggest sitting down with a really good accountant (I believe Dale Gatherum-Goss is in Melbourne) and discussing structures and ways that you could perhaps do some income splitting etc.
I think Negative gearing with positive cashflow (and cap gains) is a good strategy while you have a big tax bill. It is not the be all and end all, but it can certainly help.
I would agree in the current climate to possibly reducing the loans, and moving them towards cash positive, or alternatively having a trust or some other structure and buying positive geared properties in that.
Just make sure I guess that you do have some cash reserves to pay into the loans if necessary when the market eventually stops the meteoric climb, and in some areas falls back.
My advice, for what it’s cost you!!
Cheers
MelHi jars11[
]
There are 3 phases in property investment
1/.Aquisition of property in the highest growth areas you can find, using negative gearing. This maximises the ability to purchase more growth producing property.
For example. A client purchased two properties that produced a capital gain of $20k per month and after 14 months he purchased his third property by using the equity and cash flow produced from his original purchase.
2/.Aquisition of property to produce positive cash flow.This is used to increase loan serviceability or to provide income.
For example.Investment into a land float to deliver a return of 12% when paid monthly or 15% if paid yearly.
3/Consolidation of property to provide income either on retirement or as required by changed circumstances.It is also important to consider how the portfolio is set up in the first place with regard to tax structures,liabilities and loan flexiblity.
The use of Hybrid Trust is to be discussed at the next Somersoft/msm meeting and would be worth attending.
It is also wise to consider the avoidance of cross colateralisation with loans and a discussion with an experianced investment Mortgage Advisor is worth while.
Risk management must also be considered. Due dillegance is required to purchase sound investments.
Another way of risk minimisation is to use a good Financial Planner, in order to spread investments across other asset classes such as shares,managed funs and cash.
However a word of warning should be given to chose a Financial Planner who uses a fee for service as services given for commision may be biased.
They should also have an arrangement to work with a property consultant as they are not able to advise about property matters.
It is also worthwile to investigate changing Superannuation into a self managed fund.Regards
Bryce Inglis
[email protected]
http://www.ipal.com.auThanks everyone, this meant a lot as I was losing sleep, believe it or not!
The company, yes it makes a good buck (today), has a “fee” relationship between itself and the Discretionary trust. The ideal scenario would have been to have the business in a trust as moving money between trusts is so much easier, but that was a mistake of going from a lame accountant to a good one. So, as the trust pays for the business expenses, there is a fee that the company pays for this servce and hence the ability to move funds to the trust to invest.
Thanks for suggesting Im on the righ track, I will buy a few more with the after tax scenario and will then reassess. I guess youre all right, stop fretting, you can sell one to pay off the others if required. They are all on interest only terms and Im debating paying more off them to gain more equity (i.e “making hay while the sun shines”). I agree with the cross-collatorisation point, I think I was a little trusting with the bank and as I asked for finance on all 3 at once as I assumed (!) that they wouldnt do that. Better check tomorrow hey.
Does that sound ok?
Thanks all
Regs
Jars
jars – if your paying that much tax, you should be buying more and more properties – neg geared properties and let the tax man pay for them, and then you can cash in on the capital gains.
i was only paying 30 grand tax, and i managed 8 ip’s, so just imagine what you could achieve with 200 grand in interest instead of tax.
please don’t limit yourself to only positive geared or cashflow ip’s, you could be doing so much more.
I’d be intersted to know who’s name you bought the IP’s in; the company, yourself/spouse, family trust or another company?
Wouldn’t you want to protect any capital gains you may make from these properties from your business in case profits fall in the future.
As the IPs are after tax cash flow positive it would be benficial to have them in your name (highest tax bracket of 49.5% compared with 30% for the company). I would also suggest keeping the loans as int only to again maximise the tax deduction. Any excess cash from the properties you could then put in a separate account and used as necessary.
Also have a look at the possibility of increasing your rental return through things like:
– review the rental market in the area. A $5per week increase can really help.
– give new tenants one weeks rent fee but make the rent $5 higher (extra $310 per year).
– review the property managemnt fees. With 3 properties you can probably get your prop manager to reduce his fee by 1 or 2%.
– look at ways of increasing the rent eg put in a new airconditioner but raise the rent by $10 per week. If the property has a garage could this be rented seperately? Could any of the properties benefit from minor improvements (painting) which could allow you to increase the rent?
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