Hi I am completely new to this forum and also property investing.
I recently bought an off the plan 3 bedroom townhouse in Cannonvale QLD for $448k
My two sisters also decided to go in to investing with me (based on a long term goal to use this property as collateral to purchase others)
We got a 10% deposit bond and until recently we thought we had till 2010 to pay for it, we now have till Jun/July 09 till settlement as the developer has pushed the site ahead…
We did plan to have more monies saved, but we will have the 10% deposit none the less.We are planning on renting the property out at a standard rental return for the area at approx 420-450 per week.
So with all cost calculated at a approx rate the property will cost us 32k per year ( including body corporate, rates etc) minus approx rental of $23k per year. Leaving us to pay approx $9k per yearWe have a budget of 1200 per month to pay for this property and others (provided rent is payed) we should be well able to cover the costs) will some extra to hit the loan with or buy into another property.
I have a couple of questions that if anyone can help me with would be very much so appreciated.
FINANCE:What options do we have for finance.
Do we have to put 10% down or is it better to put less and keep a stock pool of contingency cash.TAX: are there any benefits we can get from owning this property as sisters, will tax benefits apply to us.
GOOD OR BAD BUY: Albeit this is a negatively geared property.
Is this a good buy particularly to hold long term even if times could well be hard ahead (I am trying to keep from being emotionally attached but the media and all the doom and gloom talked about is having an effect on me) is it true there tends to be a 7 year cycle for property gainsDo I sell now before settlement take what little profit there may be (if any) and reevaluate the market for a positive geared property. I have called 4 real estate agencies and they state I would get the same if not slightly higher price at present stage.
Thanking you in advance
Sarah Jane ChamberlainYes tax benefits apply and (very rough guess) may halve your 9k input per year.
If you can, put as much deposit down as you can to avoid spending thousands on mortgage insurance.
Get an offset account to the loan so that you can all store your $1200pm in there, reducing the loan interest, while having it easily available for future investment.
I can't comment on good/bad buy long/short term as I know absolutely nothing about the area. There are always good buys, the question is what and where.What you need to do is look at the trend, And the trend for property right now is down, And I wouldn't expect that to change much for the next couple of years at least, Sure, There may be some kind of a mini rise because of artifical government intervention in the free market but that dosent change the fact that the tide is going out.
The very fact that the developer is rushing foward the project to try and minimize his losses should tell you something.
Also, I don't want to discourage you but I think townhouses are a bad investment, You may have problems renting it out (Have you weighed up the scenario if this townhouse is empty for 6 months ?) Also there is as you said the body corprate fee's ect, Basically a scummy, high nosed form of self declared aristocrat type people who think they are better then everyone else will tell you how, what, when and where to do everything. You almost can't even flush the toilet without body corporate approval.
You have to sit down with your sister and work out if you can truley continue to poor money into something that is not giving you anything back in return.
What if one of you broke your leg or lost your jobs and you couldn't earn any more for a certain time ?
basically you need to work out if you can afford NOT to work, if the answer is No then I suggest you try and cut your losses, And put it down to a hard learned lesson. Learn about investing and the ecconomy before jumping into the game blindfolded
You don't want to be forced into selling this bad apple in 2 years time for 50k less then you paid for it
Goodluck.
You are in now…..
Did you buy this as a long term or short term investment?
In 10 years time your property will still be worth significantly more than it is now. But you might lose out in the next 3 years.
Whether you can afford it or not is a decision you should have made before signing on the dotted line.
Hi Sarah
Firstly welcome to the forum and I hope you enjoy your time with us.
On the basis that the property is an investment property i would suggest that you try and gear as high as possible so look at a 95% LVR and use the additional funds you have saved to cover other costs.
Assuming non of you own your own principal place with a mortgage then definately look at an offset account which will certainly save you interest and reduce the shortfall.
I am unsure as to how you have purchased the property but will assume that it as Tenants in Common.
If this is the case then the income from the rent and interest expense from the loan will be split according to the Shareholding.Each of you will then be able to make an individual claim based on your marginal tax rate.
Cannovale is an expanding suburb so think you will be suprised how easy the property is to rent.
Remember in addition to the interest / rent shortfall you will be able to claim you will also be able to claim Depreciation and Building Write off on the property as well as all the loan, mortgage insurance and mortgage costs generally. Depending on your individual incomes you maybe very suprised how little the property actually ends up costing you.
Certainly make sure you get a Quantity Surveyor to prepare a Depreciation report on the property prior to the tenants occupying it and lodge your Tax variation as soon as settlement has taken place.
Richard Taylor | Australia's leading private lender
There is lots of negativity around property at the moment
Most of the richest people in the world made it in property. Property is always a good investment (always a few exceptions of course)
Property should be viewed as a long term investment.
If you can afford to cover the repayments if you have no tenant you're OK. Could you afford 12% interest rates? Who knows what might happen in this crazy world?
Location, location, location. Your exit strategy will be resale. Will people want it? eg views, close to ammenities, holidays etc.
If the ATO is paying your repayments, what's the problem?
Negative gearing is a shitter if you'll need to sell it especially in a falling market. It could lose 10% value over the next year or two. If you are happy to sit on it for 5-10 years it should be a good investment.
Positive gearing is always best but harder to find.Wow…. Thank you all so much for your time and advice….I have read and re-read all your comments and will make sure I cover all the recommendations you suggested…..what a fantastic forum !!!
Points to make to fill in the gaps…..
You are right…… wallyt99
Whether you can afford it or not is a decision you should have made before signing on the dotted line.
I agree everyone should look into affordability before they enter into property……of which I am glad to say I did my numbers so often I was dreaming them……we could and still can afford the property with money to spare…..I just wish I had a crystal ball to see into the property future ( my first time nerves are getting to me a little especially since its my and my sisters money I have taken responsibility of)……..as you also mentioned
In 10 years time your property will still be worth significantly more than it is now. But you might lose out in the next 3 years.
and from CHIS
There is lots of negativity around property at the moment
Most of the richest people in the world made it in property. Property is always a good investment (always a few exceptions of course)
Property should be viewed as a long term investment.If you are happy to sit on it for 5-10 years it should be a good investment.
Has given me confidence….
My sisters and I bought this first property to hold for a minimum of 7 years, possibly for ever… to use as collateral for other property purchases….. so your advice is affirming that my long term approach is a good one….If interest rates go up, and we have no rent for 6 months and we all loose our jobs then we will be feeling sorry for ourselves indeed……. I am sure there will also be many others feeling the same………I thought about all your advice……..to sell now and learn my lesson….to hold and wear the possible 10% devaluation in the near future until prices once again rise……..I didn't budget for no rental incoming (my silly if not costly mistake) but after some series thought and numbers calculations I believe I can afford to wear the costs should the sky fall ……….. I run my own profitable companies, so if time becomes tough for my sisters I could cover them and myself for a lengthy period of time….
Cannovale is an expanding suburb so think you will be suprised how easy the property is to rent.
Remember in addition to the interest / rent shortfall you will be able to claim you will also be able to claim Depreciation and Building Write off on the property as well as all the loan, mortgage insurance and mortgage costs generally. Depending on your individual incomes you maybe very suprised how little the property actually ends up costing you. Qlds007
Thank you Richard for your warm welcome, your advice is fantastic I will get my accountant onto it all ASAP
This is a first purchase for my sisters but I own my own home (with husband) and have collateral to use via that also……..
This property is my first little attempt at making a go of a dream to get into seriously building a portfolio throughout Australia, so I guess your right wallyt99I am IN NOW…. whatever the future holds……. I'll just make sure to keep up to date with more research and more communication via this fantastic forum……Thank you all again so much…..times are possibly going to be tricky but I feel better for all your solid and professional advice…….I am now once again confident this is going to be a successful beginning to a long term education in property investment.
Warm regards
Dr Sarah ChamberlainSarah
Couple of other quick points:
1) Your Accountant is unable to arrange the Depreciation report so engage the services of a Quantity Surveyor.
Someone like http://www.depreciator.com.au should be help you out.
Your Accountant can certainly arrange the Tax variation for the 3 of you once the report is to hand.2) Be careful in the way you structure the investment loan as circumstances change. I am assuming that all 3 of you are putting
in an equal deposit (make sure that you do not use other security held in personal names for such a venture). Definately
dont pay down the loan even if your sisters are keen to do so as there are better ways to structure it.Richard Taylor | Australia's leading private lender
Sarah,
Dont forget that if you choose to cut your loses now and sell, you are still up for the stamp duty which in NSW has to be paid within 3 months of EXCHANGE – not settlement. This is not a comment on whether to hold or sell, just a reminder to factor in that cost NOW rather than later.
Cheers
MickMick
Good point for our NSW listeners but the property is in Qld.
In Qld it is 30 days after the contract goes unconditional subject to being prior to settlement.
Richard Taylor | Australia's leading private lender
Hi, can't comment on your numbers. What I can say is that Richard Taylor has always appeared to me a person to pay attention to and his comments have been measured and knowledgeable. I'd pay attention to his words.
KY
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