Hi and thanks for for the wealth of information on here…about me, im 34 seperated and have two wonderful kids that live in WA and i now live in Newcastle. I have a good income of 170k and i have a block of land in WA that is worth 120k and i owe 108k and currently have no other dept. I'm planning on buying a house in Newcastle and i have two scenarios, 1- buy a house for PPOR to live in but get someone in to help with the repayments and expenses etc.. 2- buy IP with good capital growth potential, with positive cash flow or close to as possible. Now i will need somewhere to live after christmas, and i'm leaning towards scenario 1 but with my high tax bill i can see more rewards with the IP. I could rent somewhere or live in a tin shed i really dont mind, i work away for half of the year anyway. My goal now is to be financially secure by 50 and im willing to do the work needed. I do understand that i need to see professionals but im here to get some educated advice. Cheers Kane
Hi Kane
Welcome to the forum.
Firstly, I wouldn't use tax reduction as the main driver for buying an investment property. Reducing your tax bill means spending a $1 to get back 40 cents. The tax incentives with property investing are great – but should only been as a bonus and not the main motivator.
Instead, look for a property that fits into your longer term plans. It could be something that you could renovate/develop, something that you believe will experience decent capital growth, cash-flow or a combination of the two. This isn't an exhuastive list – there's plenty of other reasons why investors purchase particular properties.
On a separate note – have you considered doing both? Buying a PPOR and an IP? I wrote this article for Australian Property Investor mag on this topic. Here's the link.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
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Hi Jamie, Thanks for the reply and link. Tax is defiantly not my motivator to buy a property but it is a consideration that i'm taking onboard, i guess i feel i'm in a good situation (making the most out of a bad situation) to not have to live in a PPOR so i'm basically looking for the best strategy for me to take.
Hi Kane
I am wondering what industry sector you work in, and as such whether it is likely that you'll have to up and move from Newcastle after a short period of time. A lot of money is lost in the buying and selling process (Stamp Duty, Agent fees etc) so if there is the possibility that Newcastle is a short-term thing I would weigh this up carefully. Potentially in that regard renting would be better.
Either way, it may actually be possible for you to do both (purchase a PPOR and also an IP). Placing the bulk of your savings into the PPOR and acquiring an IP with a high lend (100% is possible). Then of course there is the option of renting yourself and acquiring two IPs…. with the right kind of property it becomes possible to carry on buying.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
ps have you considered using your superannuation to purchase investment property?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi JacM,thanks for the reply, Newcastle wont be short term as it is were i'm from originally. My strategy is to buy a house that needs a bit of a renovation, i have renovated before and i'm a wall and floor tiler by trade (thats not what i'm doing now) so i'm aware of what's needed. my main question is really what is best to buy first IP-PPOR ? for me in my current situation?. I do plan on buying another property as soon as i can free some cash up, ie equity or savings. I have not looked into smsf i'm 34yr and i don't really have alot in there so i havent considered it. One thing i forgot to ask is buying a new IP a better option for me, or an older one to renovate?
Hi again Kane
The order in which to do things will come down to serviceability which is best commented on by one of the brokers.
I'm wondering what's happening with your block of land in WA which is accruing mortgage interest but is not earning rent because there is no dwelling on it. I thing this is something to ponder.
As to the new versus old argument…
Unless you have a crystal ball you cannot know for certain which areas will rise in value. The property is new so there is little you can do to force value-add. With an older property, there are several things that can be done such as renovate or subdivide.in
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Kane
Certainly a wise goal to want to achieve and one i would suggest for every client.
In saying that as JacM has mentioned it is the order of events and the steps you take to get there which is important.
With the sort of income you are on i wouldn't have suggested you get too involved in doing your own renovation as your time could be better spent elsewhere.
Look to engage professionals to help you get to goals and carry on generating your income.
Remember if you want to retire at 50 you will want to ensure you can replace your personal income with rental income.
I was fortunate enough to be able to do so at age 40 but takes a combination of strategies.
You cannot retire on capital growth alone so need to ensure the properties you source generate an income to get you to your end goal.
Buying in Superannuation is a strategy i am a great advocate of and balanced with acquisitions in other entities will certainly serve you well.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
With a decent payg income you should start salary sacrificing $25,000 a year ($500 a week) into a superfund.
that will give a tax offset of 37 cents (current tax rate over 80k) – 15 cents ( current superfund tax rate) = 22% saving on 25k, extra $5,500 a year saved (on tax)
build up that money in a normal superfund account until you can start a smsf
then keep salary sacrificing and use your deposit to purchase property with a smsf
You can do this alongside any normal purchases in your own name at the same time.
Like Richard said i wouldn't give up your income at this stage for a renovation/fix up type property.
With some efficient saving, smart purchases and perhaps some future development projects you could quite easily achieve your goal quickly.
Make sure you have a look at your spending and ensure you really are making the best use of you money.
and as JacM said perhaps you should identify what you are doing with your block of land. If you wanted to you could pay that off in a year. Perhaps build a house on it. Otherwise why do you have it, just putting interest payments down the drain for no return except a potential for capital growth that is going to be offset by your interest payments every year.
Thanks guys some great advice, i have though about building on the block and will but i'm leaving that for now for personal reasons (seperated and its near the x and its still pretty soon). With the renovating side of things i have put in a lot of thought (no number crunching yet) with what i could and couldnt do, i do get 5 weeks off at a time and i do enjoy getting dirty and with a good strategy and a lot of planning i feel i could do this in the time frame, obviously depends on the property. Qlds 007 the strategies your talking about are they a combination of positive cash flow propertys and negative cash flow for better capital growth areas to compensate each other? I really have not thought much about SMSF as i always thought i was to young to be locking that money away, but i guess i'm still very nieve on the subject. Wilko1 with the salary sacrifice do you think this is a good stretegy for tax savings, to save money seperately to buy propertys simitainously or a combination of both? Thanks for the comments its great to here all points keep them coming….
Superannuation money is already locked away anyhow. Might as well put it to awesome good use. Further, when you salary sacrifice income into super, you simulataneously reduce your taxable income, which in turn saves you tax.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
SMSF is a great vehicle to purchase properties however please get specific advice as it is not suitable for everyone and specific types of investment strategies.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Time to invest we always use a combination of both to develop income.
In regards to salary sacrificing the limit is 25K for 13/14 (increases to 35K for 14/15) but this includes the compulsory employer contribution of 9.25% of your salary so on your income will be fairly limiting. In saying this it is an excellent long term strategy to provide for your retirement.
Taking control of your own destiny is the only way to go as the Govt wont be handing out gold coins in 31 years time when you come to retire.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Qlds007, I still feel that salary sacrifice may not be the best strategy for me at my age, it is a great longer term strategy but i feel locking away more money now might limit my investing abilities later on, or is there something that i'm missing
Yes you are missing the point.
Why would reducing your Tax bill and putting pre tax dollars into your SMSF limit your borrowing?
If anything it will increase your borrowing as your SMSF as JacM has mentioned earlier can invest in property with reasonable gearing.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Your name should give it away. Time to invest.
Investing in property is about the long term
if your 30 stop thinking 5 years, 10 years time. Think if I want to stop working at 55. That's 20 years where should I start accumulating your assets.
Income earnt in superfunds is currently not taxed when retired. Now I don't have a crystal ball but I can see that's attractive option. Also you have to think even further and think that assets sold in superfunds also pay less cap gains tax then if it were sold in personal name.
and I think the most powerful thing is that with a decent size superfund you can start doing small to medium property developments. Or at least buying the sites and doing joint ventures with builders/developers.
I'm not saying you should buy your first house in a superfund but I'm saying you should have some in your name, some in a superfund, some in family trusts etc.
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