Hello all,
I have spent 6 months on this website and reading books trying to understand the ins and outs of property investing, everytime I think I've got it, I realise I dont.. I may be in 'analysis paralasis' but I am hoping you might be able to help me out with this weeks thoughts/confusions.
A little while ago I purchased some Silver, it wasnt until after I had purchased that I thought about the fact that I will need to pay capital gains tax on any gains from this investment… (is this as at ones normal tax rate?)
If I had instead invested that money into my PPOR mortage or offset, I save interest and have no gains tax to pay.
So I thought I had better quickly work out what sort of gain I need to get from the silver in order cover the cost of holding it (i.e. the interest on the amount I effectively took out of my PPOR home loan and capital gains tax). I think I now know this figure and am comfortable that I may make better profits through the silver.
Sorry for the story… This then lead me to think about just how much gain I need to earn from a property for it to be an effective investment for me? (I have learned how to work out what yield makes it a good investment for me but I can't seem to work out what growth rate I need, thus determining whether I believe property in my chosen location has the ability to deliver it currently).
For example.. I have a small and simple home on a rural property. It has NO shed (what sort of rural property doesnt have a shed.. hee hee) I dont have a shed because I havent as yet justified the spend. (trying to get ahead)
So at present I have an LOC set up in order to purchase an IP. I can see how leverage and equity work and thus I have been keen to do this however…am I robbing Peter to pay Paul, could it be better to invest in my PPOR?
I am wondering how do I calculate what property growth rate I need and whether I generate greater equity by investing $20k in my PPOR or investing $20k into a IP considering the potential CGT. (working on finding a cash neutral property)
Does that make sense?
hmm….. so 30 people viewed and no-one commented.
To hard?
To confusing?
I'm crazy?
Impossible?Hi Intrique,
Intrigue wrote:Hello all,I have spent 6 months on this website and reading books trying to understand the ins and outs of property investing, everytime I think I've got it, I realise I dont.. I may be in 'analysis paralasis' but I am hoping you might be able to help me out with this weeks thoughts/confusions.
A little while ago I purchased some Silver, it wasnt until after I had purchased that I thought about the fact that I will need to pay capital gains tax on any gains from this investment… (is this as at ones normal tax rate?)
If I had instead invested that money into my PPOR mortage or offset, I save interest and have no gains tax to pay.
So I thought I had better quickly work out what sort of gain I need to get from the silver in order cover the cost of holding it (i.e. the interest on the amount I effectively took out of my PPOR home loan and capital gains tax). I think I now know this figure and am comfortable that I may make better profits through the silver.
Sorry for the story… This then lead me to think about just how much gain I need to earn from a property for it to be an effective investment for me? (I have learned how to work out what yield makes it a good investment for me but I can't seem to work out what growth rate I need, thus determining whether I believe property in my chosen location has the ability to deliver it currently).
For example.. I have a small and simple home on a rural property. It has NO shed (what sort of rural property doesnt have a shed.. hee hee) I dont have a shed because I havent as yet justified the spend. (trying to get ahead)
So at present I have an LOC set up in order to purchase an IP. I can see how leverage and equity work and thus I have been keen to do this however…am I robbing Peter to pay Paul, could it be better to invest in my PPOR?
I am wondering how do I calculate what property growth rate I need and whether I generate greater equity by investing $20k in my PPOR or investing $20k into a IP considering the potential CGT. (working on finding a cash neutral property)
Does that make sense?
Certainly not an expert by any means so take my input with a grain of salt. These are just my thoughts on the matter.
CGT won't be an issue unless you sell. I don't intend to sell any IPs I aquire but if I do so be it. CGT isn't going to be a deciding factor in whether I invest. My plan is to have as much value (looking for a better word here? Maybe debt is a better word!) in properties in as short a time as I feel comfortable with. Retirement is probably 10-15yrs away so I figure I should be right by then.
Let what properties we do have accumulate in that time.I just see our PPoR as another property. One that doesn't bring in rent but should still return an 'adequate growth'. What's adequate? I don't know, but isn't it better to have multiple properties growing at X% a year rather than just your PPoR?
I can't think of any other investment where you can:– borrow as much
– have someone else help pay off the loan (tennant).Just found these which might help:
http://www.afsd.com.au/article/aip/aip36a.htm
http://www.afsd.com.au/article/aip/aip35a.htm
Not exactly what you were asking, but a good read anyway.One other thing:
Quote:I have spent 6 months on this website and reading books trying to understand the ins and outs of property investing, everytime I think I've got it, I realise I dontI'm probably a bigger procrastinator than you (no offence intended). I got to a point where I knew I wasn't going to know 'everything' but decided I knew enough. Time to jump.
—
MarkReally good article thanks Mark – very helpful.
I think it answers my question.. I need
"1.25 times the interest rate (ie if interest rates are 8%, then the total return is 10%)"Soo, if I understand correctly I want the rental income to come close to covering the cost of borrowing (interest amount) and I then need a say 2-3% pa growth rate? If my rental income was less than the cost of borrowing I would need greater annual capital growth to hold my own. Is that right, sounds so simple like that!
I normally like to just make spreadsheets where you can quickly and easily fiddle around with the variables or estimations such as interest, growth rate, net rental yield. So that way the research you do can lead you to do a most probable case scenario with your expected return, and even a best case and worst case scenario quickly and easily.
All you have to do is make sure the variables you input are accurate and realistic, otherwise you may be trying to achieve something that is near impossible, or on the other side you may pass up an oppurtunity because you were too negative in your estimates.
Feel free to email if you wanted an example spreadsheet, nothing too complicated to start off with, but just something which can help you see what your potential is.
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