Hi all, have almost finished reading Steve’s first book and i must say it has opened my eyes to alot of little things cant wait for the second.
Anyway here is my situation, my father owns outright two properties, one which he lives in and one which he rents, both properties combined yield a value of probably close to 1.5million AUD, i have been trying to convince him to use the equity in those properties to invest but he doesnt seem confident in it.
Here is what i want to do, i want to go in to business with him, him being the financier and me being the invester, researching and finding properties (much like the way steve began).
My question is whats the best thing for him/us to do , would it be better to sell the higher valued property (worth about $1million) which only earns $550 per week rent atm and purchase say 3 or even 4 properties from the cash left OR to borrow against the two properties to purchase more? and therefore keeping the current properties, i can see in the short term we loose the rental income however my train of thought is longer term (not so long say 12-24 months) we can earn more money from say 3 or 4 rental properties than owning one and using the equity from it to buy another.
Damn i hope that all makes sense
I just feel there is too much money sitting in the two properties doing nothing when they could be making money.Anyway any advise you can give would be fantastic, offcourse i will be seeing an accountant and financial adviser but thought i could ask here first.
Thanks again
MichaelMichael its a big world of property investing out there and reading both of Steve McKnights book’s is a great start…When I read the second book (first) this cemented for me some home truths I had felt for many years…
I usually ask the question “where do you want to go†or “where do you want to be†in say the mid and long term? 10/20-30+ years…Once you work out where you want to be you can work back from there and create some goals to help get you there and this might influence your father if he were to whitness your planning strategies…
The market has changed since Steve’s books were written though there are still +CF properties out there to be found… Have an open mind to all the posabilities from comercial through to residential as some say a peak in the commercial market is due in the next few years so now might be seen to be a good time to buy commercial…
The tax implications are complex and far reaching when it comes to PPOR against RP’s…
All is subject to your particular circumstance. Though it seems you are on the right track when it comes to thinking outside the square in looking to purchase multiples of property from the sale of one, some will say to hang on to this property and loan against it, once again, what is your mid to long term goal for this property ,CG, etc?Keep in mind that this site is open to anyone and you potentially could get 42,000 opinions and they are just that, opinions, please don’t ever take opinion as fact or substitute it for proffesional advice…
Perhaps you could undertake to assemble a “dry run†portfolio to present to your Father enabling him to appreciate the true concern you have and how you all can benefit from the excellent undertaking you have set for yourself in becomming the familes property investor…
Trust structures are critical in an ongoing investment portfolio particularly one relating to property… The depth and breadth of information available in property investing is almost limitless, start with something simple and work your way around to whatever will fulfil your dreams and desires…
I am sure you will recieve many responses relating to crunching the figures you have given, thats great for you and great for your Dad however if a clear plan of where you are aiming for is not in place, then potentially number crunching is pointless…
Hope this is of some assistance though obviously your situation is dependant on many factors not submitted with your post which will all create a more concise idea of how to tackle the questions you put forward…
Sincerely, Jarrah
“S.O.L.U.T.I.O.N.S” Mentoring Groups!
<find us at> http://www.jaffasoft.comOriginally posted by michaelv76:Hi all, have almost finished reading Steve’s first book and i must say it has opened my eyes to alot of little things cant wait for the second.
I would recommend you read a little more widely and spend a great deal more time researching and learning. There are other books out there that espouse a different style of investing that may open your eyes equally or better than Steve’s book has.
As part of your education process it is important that you be ’rounded off’ so that you are wise to all possibilities and not just single dimensional.
For starters I would recommend a read of Jan Somers, Peter Spann’s and Michael Yardney’s books.
Then there are those that relate to tax and trusts written by Dale Gatherum-Goss which will also enable you to continue your education.
Anyway here is my situation, my father owns outright two properties, one which he lives in and one which he rents, both properties combined yield a value of probably close to 1.5million AUD, i have been trying to convince him to use the equity in those properties to invest but he doesnt seem confident in it.
It is possible that your father comes from a generation where debt is a bad thing and that he is very comfortable with what he has achieved and is therefore reluctant to take on more debt, probably at an age where he can see the end of his working life.
This is a huge hurdle for some people to overcome as their general focus is on being debt free rather than ‘wealthy’ – some people I work with took over two years for this to happen. So be prepared for a long journey.
Here is what i want to do, i want to go in to business with him, him being the financier and me being the invester, researching and finding properties (much like the way steve began).
If this is what your father wants to then you are advised to start very small – don’t blow him out of the water with grandiose ideas. He will be scared for the reasons I mentioned in my previous paragraph.
A better place to start may be a small line of credit established by your father and only sufficient for one property. Depending upon where you buy this would only need to be around 25% of the purchasing price.
My question is whats the best thing for him/us to do , would it be better to sell the higher valued property (worth about $1million) which only earns $550 per week rent atm and purchase say 3 or even 4 properties from the cash left OR to borrow against the two properties to purchase more? and therefore keeping the current properties, i can see in the short term we loose the rental income however my train of thought is longer term (not so long say 12-24 months) we can earn more money from say 3 or 4 rental properties than owning one and using the equity from it to buy another.
Under no circumstance sell either of these properties. While you are very cashflow focussed the real wealth is in equity and with equity you can always get aloan (if your father wants one).
A $1m property is quite likely to be in a quality area and will have good long term growth prospects. As it is debt free then it is earning an income, albeit at a low rental yield.
Selling the property will probably incur CGT (assume it was purchased after 1985) and therefore your father will loose some of his profits to REA fees and CGT. This is something that your father needs to consider as this property obviously has a place in his life and his needs should be considered first and foremost.
Damn i hope that all makes sense
I just feel there is too much money sitting in the two properties doing nothing when they could be making money.Don’t forget they are your father’s properties and they are doing something. They will be growing in value (in the main) and even though the market may be slowing (slow?) at the moment there will be a time in the future when your father will say “I cannot believe how much my property is now worth – it seems so expensive”
Anyway any advise you can give would be fantastic, offcourse i will be seeing an accountant and financial adviser but thought i could ask here first.
As said earlier ’round’ your education and consider your fathers feelings in this whole process. Start small, get the runs on the board and both parties seek good, independent legal and accountancy advice.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi All,
Consider this… 1 Mil x 10% (which you should be able to get fairly safely on that amount)= $100,000pa (or $1923pw) Obviously 1 Mil would not be the full useable amount after the sale because of CGT tax but it just goes to show to me that this option requires some more thought. The tax rate would be high too so you would need plenty of deductions and there are probably other ways to get onto a lower tax bracket.
This scenario does not take into account the effect of compounding interest if you could get a investment that pays monthly returns.
Having said all that, I think you should go to a switched on accountant who will go through some scenarios with you. There’s a lot of money (and someones whole life) tied up in these assets.
Don’t let forum people do anything more than give you a few ideas to explore. You really need to run these issues by the relevant professionals.
Todd Burns
http://www.freepropertyhelp.com.auOriginally posted by crusher:Consider this… 1 Mil x 10% (which you should be able to get fairly safely on that amount)= $100,000pa (or $1923pw) Obviously 1 Mil would not be the full useable amount after the sale because of CGT tax but it just goes to show to me that this option requires some more thought.
Hi Todd – are you saying sell or not? This wasn’t clear to me.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Michael,
Why don’t you start your investing career small with some of your own funds to demonstrate to your dad what is possible in the world of property investment.
Your dad I am guessing would be close to retirement age so he has to think about what risk category he is in in terms of investment. If you lose everythingtomorrow you still have a lot of time left to build yourself up again. If he loses it, he has to live through retirement struggling on government hand outs.
I would recommend you prove what you’re capable of over the next 12 months then return and encourage him to come down the same path but not with teh full $1m, maybe just with $200k fo it to start.
Property does not guarantee that you will make money.
Thanks for the replies everyone, i’ll definately pick up that other reading material.
Here is the thing with Dad, yes he has semi retired however he has always been the property hunter just never taken it upon himself to take a risk, i know he wants to. See i think his major concern is everything will go bust, here is why, back in 84/85 (i think) he built 5 new townhouses in the inner city of Sydney and was set to make a killing, easy 500k+ profit back then however just as they finished the recession hit and they had to sell everything and from memory i dont think they made anything, if they did it wasnt much, since then he has really been careful with everything hiding his money under his bed type mentality.
Anyway i have managed to convince him if i can find us a 100-200k investment which is +CP i will use my savings (25k) for the deposit and use his investment as equity (im unemployed atm but have saving from when i was working) long story short dad had some major health issues and i basically quit working to help him, he is about 90% better now but i too have liked the retired lifestyle which is why we want to get in to investing and if we find something good possibly developing (Dad is a builder by trade).
Enough of my life story
Originally posted by michael76:Anyway i have managed to convince him if i can find us a 100-200k investment which is +CP i will use my savings (25k) for the deposit and use his investment as equity
At $200K you father will only need to provide a further $25K (assume 80% lend and you provide all of your savings)
I would also suggest very strongly that your father establishes a line of credit secured against one of his existing properties rather than providing titles as security for this venture.
If this arrangement transpires your father will probably be asked to be guarantor (brokers?).
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hi Derek,
To promote discussion, I was outlining a possible scenario if the higher value property was sold.
By the way, how do you get the ‘originally posted by box to appear’ when replying to a specific post.
Todd Burns
http://www.freepropertyhelp.com.auO.K. Here is another Scenario – Instead of selling the property, why not use it instead via a refinancing option. You can take $1m in equity still leaving you a buffer zone of $500k as a safe guard. Using this Money doesn’t have to be immediate if for instance you take it and place it into an offset account. This mean only the amount you draw on will cost you repayments in interest. depending on how you wanted to go you could purchase properties which met your requirements in terms of CF on Cash Contracts and short Settlements refinancing the property after purchase (a nice buyers trick to make a lower offer more attractive) or alternately you could simply use the cash as a deposit and purchase them all individually funded.
The better way to go on this is to take your father with you and speak to an accountant who is able to understand your goals and property investments and the relevant taxation issues and loan structures available this can save you thousands of dollars. I would also speak with someone who could provide the funding for you in a manner in which is suited to your individual circumstances.
Best of luck.
Stuart Milne
Non-Conforming Specialist
READY Mortgages
http://www.readymortgages.com.au
[email protected]
Mob: 0404 056 055isn’t michael76 one of jarrah’s alter ego’s? and therefore should be ignored.
cheers
brahms
Purveyor of Fine Finances
aka Mortgage Broker BrisbaneI’d like to be one of Jarrah’s alter ego’s also – how is one able to acheive that??? [upsidedown] And what makes you think such things?? Why would anyone want to waste time – loggin and ‘pretend’ ????? There R some unusual practices around here.
Michael76, i wish my parents would offer some of their equity (and advice on how they acheived their comfortable standings) for me to play with, but im from a family of seven kids, Do you have any Bro’s & sisters???
Mumofthree, don’t make excuses for yourself! You can do it too!
You don’t need rich parents, or brothers and sisters. You don’t need others to help you. What you need is the decision and the determination to do it. Then what you need is someone who will hold you accountable to yourself.
So go and do it! Determine what “It” is and start work.Harley
brahms i have nothing to do with jarah.
mumofthree i dont have any siblings. The only reason i want to work with my dad is because of his recent health issues which will bring us closer and for the simple fact i know he could be making money , well more money off his properties.
Anyway a small update he has basically said if i can find something within 200k and isa +CF IP he will consider it, we are also seeing our accountant next week.
Originally posted by brahms:isn’t michael76 one of jarrah’s alter ego’s? and therefore should be ignored.
cheers
brahms
Purveyor of Fine Finances
aka Mortgage Broker BrisbaneLighten up Brahms – these posts don’t do you any credit. You have a lot to give the forum so why not do so?
I checked IP addresses and they are certainly not coming from the same computer. Usually it is obvious to moderators when someone has multiple identities.
All the best,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[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.
Originally posted by crusher:By the way, how do you get the ‘originally posted by box to appear’ when replying to a specific post.
Todd,
Go to the bottom right corner of the post you wish to quote in your post – as I have done with yours above.
Select the quotation marks ” button.
Go from there.
What is best if if you delete out everything but the actual point you wish to quote. Saves space and makes your post more succinct rather that just quoting the lot.
Much as I have done with yours,
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[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.
Originally posted by Mortgage Hunter:Originally posted by brahms:isn’t michael76 one of jarrah’s alter ego’s? and therefore should be ignored.
cheers
brahms
Purveyor of Fine Finances
aka Mortgage Broker BrisbaneLighten up Brahms – these posts don’t do you any credit. You have a lot to give the forum so why not do so?
I checked IP addresses and they are certainly not coming from the same computer. Usually it is obvious to moderators when someone has multiple identities.
All the best,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[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.
tks Simon, glad you checked that out, i seriously thought this was one of the pseudonym’s confessed by jarrah in an earlier ‘interesting’ thread – obviously not, sincere apologies to the very real michael76 – regards brahms
cheers
brahms
Purveyor of Fine Finances
aka Mortgage Broker Brisbane
I just feel there is too much money sitting in the two properties doing nothing when they could be making money.
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