Forum Replies Created
Hi BB,
The “numbers” will likely confirm the way to go. Without knowing what you bought these for, my example below may be inaccurate, but use it to add YOUR numbers to see what works best.
Assuming your mortgages are IO, it sounds like a 3.35% increase, but the Interest paid would’ve DOUBLED, so a 100% cost increase. If P&I, it is the Interest portion that doubled, but Principal repayment would be unchanged, so not double, but a significant rise nonetheless. Good to hear that you two can handle the increase anyway, but now to your questions:-
Assumptions:
1. That if selling one property, #1 would likely be the one (largest equity available). Assuming you purchased for $600k(?) based on $500k mortgage at ~80%. Purchase and selling costs (I believe) come off the gain, but a balancing charge may well put some $$ back on too, so let’s say it is a Capital Gain (900 – 600) of $300k. Since you had a Fixed Loan, I assume you have held it over 12 months, so half the gain is added on as Income and CGT paid at your marginal rate (the highest as you are a top earner). So let’s say you’ll pay around $75k in CGT. This leaves $225k to be paid off your PPOR. You could choose to use it to pay down the IP’s mortgages to make them +ve again, but then you lose any Tax benefit that negative gearing gives, AND you continue to pay your PPOR with fully taxed dollars, so little Nett benefit (in my eyes) for paying down an IP mortgage at this time. And even little change to your PPOR payments either – but you will stop paying it some years earlier.
2. You mentioned Qld – I am in Brisbane, and I note that Bne homes median values increased by over 25% in the last year. In that case, a negative income from Interest around 6% is hardly an issue. Of course, that depends on what happens ongoing. Right now, I can’t see much light at the end of the tunnel regarding the current LACK of rentals, thus values and rents will likely continue to climb for some time (years?) to come.
Right off though using IP #1 as a test case – 3.35% extra on Interest is an extra $17k per year (near enough) while the value goes up by $90k if just a 10% increase in value per year. Worth holding on that basis? It is to me.
3. You COULD sell one to buy another more positive geared, but then you do give up the (likely ongoing) rises in value of the current one(s) – “all great properties that go up in value decently each year and rent out very easily”. And, as Terryw mentioned, you then incur more agent fees and Stamp Duties. You also then forgo the Tax benefit of the negative gearing losses (which you can easily afford anyway).
4. Or you could buy another without selling any – if your lender hasn’t already tagged you as “too rent reliant”. And if they have, a good MB can help with that anyway.
So, a few different angles there to consider, BB. For mine, I don’t see a problem holding for now. But then, as Steve often reminds us “You don’t go broke taking a profit” and if that profit can assist your situation in some better way, then why not?
Anyway, over to you – use YOUR numbers to see what they tell you.
Benny
Hi Highview,
I had a chat with Steve this morning – he came up with this link that may be of some use to you re Hebel problems:-
https://hebel.com.au/warranty/#:~:text=Hebel%2020%20year%20product%20warranty
Benny
Hi John,
Train lines can be a drawback for some, but there are ways to ameliorate that issue. e.g. double glazing of windows facing the train line can help – a bit more expense of course. Also, high fences can help to deaden the noise. If these exist (and are wooden, concrete, or composite – not metal) then that could reduce the decibels and some buyer reluctance along with it.
Then again, trains can be useful for some – if commuting daily on a train, the proximity to a train line could be considered a benefit. I’d be checking values of other neighbouring properties to see if the train line affects their vals markedly. Check too how often a train goes by – some lines are actually not in use. Are these short trains (i.e. do they go by in a few seconds, or are they goods trains clacking away for 2 or 3 minutes or more?)
Some might offer a place with a nice loud stereo system or HD TV with a quality sound bar that they can have playing when showing the place – all about disguising the sound of any passing trains.
There are a few ideas – what more can be done? Help me out folks !!
Benny
Well hey, I am now hearing of 6 likely rate cuts starting early in 2024. Oh, wait – that is for the Federal Reserve – i.e. the USA. Did THEY go too far, too fast too? And was our RBA simply following their moves blindly? Hopefully not – but it looks a lot like they may have been…….
So what now? Are we really likely to have 6 x 0.25% drops this year? That would help a lot of people, but I’m afraid it all just makes me rather angry. I think about how many folks might have been forced to sell up, or lose their business, or go live in a tent, or even suicide, or some other drastic measure – just because our “higher-ups” at the RBA weren’t too good at reading the tea-leaves relating to our economy, and they cranked Int Rates way out of sight!
As I said to my wife “Don’t get me started…….” It all just seems too raw, too stupid, and too damned pigheaded of the RBA. I think you already knew MY thoughts (just start at post #1 ;). But what do YOU think of what has transpired over the last 2 years, with a likely partial unwinding yet to come?
Benny
Hi DD81,
Did you hear back from your accountant yet? Were there some useful takeaways from other replies (i.e. vetted by your accountant of course).
In short, how’s it going?
Benny
Hi David,
Ask anyone in Kalgoorlie at the moment about how vulnerable the system can be. No power, no gas, no air con,
I hadn’t heard – what has happened in Kalgoorlie? Sounds major – has someone shut off a tap somewhere?
Later – I went looking – a freak storm took out 200,000 KvA power line towers (which won’t get rebuilt overnight). Not just one either. Seems Kalgoorlie might need a power station of its own. Or a few more diesel Gennies as backup. Anyway, for those interested, here’s the link I found from the ABC
https://www.abc.net.au/news/2024-01-19/kalgoorlie-blackout-explainer/103365870
Benny
I simply don’t like putting so much trust into 3rd party systems especially when it comes to money.
Amen to that comment, Adam. And how much more robust are any “digital dollars” liable to be anyway? Have our systems got more clever, such that hackers, or failing power systems won’t affect them and our use of them?
Meantime, what can we do?
Well, for mine, I’ve made a decision to use cash WAY more than I have previously. Yeah, the Debit Card is handy, but its use is likely trackable and, do I want some “power” to be able to track me? With cash use reportedly dropping like a stone, the only way I can see to push back is to start using the folding stuff more. Let the powers know we aren’t wanting to give up our right to a good old system that works !!
Any other ideas? I’m all for pushing back a bit more….. ;)
Benny
Hi Realist,
It didn’t look all that dark to me, but if it concerns you, first ask an RE agent’s opinion. They look at things like that objectively and, if they think it could help, suss out the cost of fitting a skylight. Could be that it may be money well spent.
And, if you have bought this as a rental, how much does it impact your bottom line to pay off a skylight over time? Would it help to RENT the property, or is it already rented? If the latter is Yes, you may need to hold off on the fitting of a skylight until the next break in tenancy.
Benny
Hi Eliana,
Check out my answer in this topic you started – https://www.propertyinvesting.com/topic/5093458-need-help-13/#post-5093468 – I think you’ll find some interesting thoughts therein….
Benny
Hi Eliana,
When I read this, my very first thought was “Never ask a barber ‘Do I need a haircut?’ as they have a vested interest in having you get that haircut.” That RE agent in Gladstone wants to sell you a property. In fact, RE agents are in business to sell you a property. But OK, let’s take a look at Perth and Gladstone.
I have an advantage in that I was watching as Gladstone went into a huge price jump, followed by a crash. It goes back quite a few years – there was some talk of a new huge venture in Gladstone, so some bought in on the news – but it didn’t eventuate. Developers too, overbuilt in that area as I recall – result, too much stock and not enough buyers – result, prices crashed.
Google “Gladstone median house values over time” and check out what happened. Check out the curve in the median graph, then tie up the year with news reports around those times. Then think about “What is different today?” Is there something ACTUALLY taking place up there that will make properties more valuable? e.g. Will more properties be needed than are currently available?
Oh, and do a similar Google search for Perth and see its trend. Which of the two looks like it has an upward curve right now? That is only the start of course, but having the trend on your side is a good place to start.
Benny
Hi Eliana,
I had a quick look around and found this (re Perth’s values):-
https://www.openagent.com.au/suburb-profiles/perth-property-market
Scroll to roughly the middle of the whole segment and you’ll see a graph showing House price growth over the past 3 decades. It shows Perth pretty much stood still from 2007 until today. That has me thinking good times may well be ahead for Perth.
Oh, and note around 2007 – right there it shows Perth equalled Sydney’s median. I knew it was quite some time back – in the day, I thought Perth’s median actually passed Sydney for a time. But that may have been for just a month or two, so the yearly figure doesn’t show Perth ahead of Sydney on the graph.
Hi Eliana,
Re your first question, I recall Steve saying things along the lines of “Grow your wealth in Residential until you have enough Equity to be able to move into Commercial, then live off that Comm Income”. The reasonings behind that come from a few factors:-
1. Resi investing is usually cheaper to get into (better when starting out?).
2. Resi has MANY more folks invested in it (everyone needs a home, but not everyone needs a place of business).
3. Resi sees many opportunities for profits to be made, whether thru good buying, developing, renovating, etc.
4. Resi has a wealth of different “playgrounds” allowing you to purchase according to your goals – e.g. do you need more Income right now, or more Growth? Different areas provide differing results – e.g. regional vs city investing. Lower vs higher socio-economic areas….
Onto question 2 – “I am enquiring if I paid LMI upfront instead of having it capitalized onto the loan amount , Can I claim this LMI amount in my tax return as tax deductions?”
Hmm, I think you could (but I don’t KNOW!) – and capitalising onto the loan can be a way of getting into something with a smaller deposit, and at a somewhat minimal cost. Of course, this means you will need a higher loan, and above 90% the LMI becomes quite fierce (yet still a small part of the total loan, so one to consider). And the second part of your question re re-borrowing is one for a Mortgage Broker, so I’ll leave that one alone.
Question 3 re WA – not my bailiwick, but I have long seen Perth marching to the beat of a different drum to the East Coast. And up until a couple of years ago, it was heading downhill. If you are seeing similar problems to us in the East (high immigration, high rental demand but super-low vacancy rates, builders going bust, etc) then your market may also have turned around and would be trending upward. The good thing is that (unlike East Coast) your prices would be starting from quite a low point, meaning equity growth may come more quickly.
Back quite some years now, I recall Perth’s median actually EXCEEDING Sydney’s – an unheard of event. I would think Perth would be quite a lot lower today, but perhaps on the climb? How are the medians trending over there?
Regards,
Benny
Using a different lender for IP’s was simply so that, if the proverbial ever hit the fan, my lender would not have the choice of selling my PPOR from under me. Given that it is common to have had many years of paying down its debt before getting into IP’s, and its value is likely to have climbed, if a lender wanted to get their money, the PPOR may have been the one with the most equity available to them.
That is ALSO why (I believe) one should never cross-coll. That allows the lender to dictate how things might happen when you want to pay down dollars, or want to refinance. And of course, it mixes up your Tax-deductible with your non-Tax-deductible debts too (unless ALL loans against your PPOR were for investing – i.e. you had paid off your home loan already). So, yeah, NAH !!! :p Tread carefully.
Oh, but, I DID borrow against my PPOR with separate “loans for investing” as deposits/costs for IPs, so the interest was Tax-deductible (I’d previously paid off the PPOR). Still stayed with the original lender, and used a broker to find funds from other lenders for 80% loans against the IP’s.
Benny
PS good work finding the links re cross-coll – they make interesting reading, eh?
Hi Wayne,
Is this how it works? Also borrowing 100% value, will I also have to pay LMI for the amount over 80%?
Surely it would depend on whether you went for two separate loans or a cross-securitised loan. By going for two separate ones, you would eliminate LMI (I would think). e.g. Borrow deposit/costs against your PPOR. Take out a separate loan from your personal home loan, so it can be considered as “investing”, thus helping tax-wise. Then borrow up to 80% on the IP, eliminating the need for LMI. Personally, I’d use a different lender for the IP than for my PPOR…. but then your mortgage broker can guide you through all this stuff.
Beware of going the “all-in-one” cross-securitised way (some say cross-collateralised). There are warning posts on here re that path. If you can’t find them, just ask – I reckon I can find them…. Usually, that “crossed” way is helpful to your bank, but not so much to you.
BTW, please note I am NOT an adviser of any kind – just a bloke with an opinion and a few runs on the board. So DO check all this out with your favourite adviser,
Regards, Benny
Hi BJ,
I’m from the South side of Brisbane (Logan actually) so I would say don’t go 40 mins or you’ll be into greenfield estates (i.e. all new and expensive – e.g. Yarrabilba, Coomera). I think your choices mentioned are nearer 25 – 30 mins and are older burbs with a lot of possibilities for renos and/or positive gearing. Other similar options then would be in that same ring (25Km?) and could include options up North too (with which I am unfamiliar). West is Ipswich and surrounds, and these tend to be also “playing catchup” with their prices. However it is likely to be these burbs where folks are becoming stretched by the Interest Rates and may well need to sell. Your offer might be the option that allows them to exit and start again elsewhere.
Maybe view Brisbane from above (google earth) and look for suburbs where there is still a bit of a backyard. Another clue is to look for roofs that are the orange/ochre of older tiles thus indicating older homes. Most homes built in the last 7 years are all the grey tiles or grey or white colourbond. Most new stuff also has houses jammed together, so this will indicate new estates. Go for the older ones in my book. Good hunting,
Benny
PS Do check out Westnblue’s journey (linked below) – he went looking for cheaper homes in Brisbane and other areas years ago now, but the suburbs may still be valid for your purposes.
TIme for a bump (drawing your attention to the previous post).
With Christmas coming up, what better gift could we give than a book that reveals the mysteries of Money, how to make it “work” for you, and how to use it in the best ways to enrich our lives, and those of others too?
On a par with “The Millionaire Next Door” (a favourite of mine), Money Magnet steps away from property investing and into the realms of how we can best view money, and use it to benefit all around us. Of course, Steve adds his own inimitable touch with aphorisms that delight, or provide a subtle wake-up call (like “Time is your friend until its your enemy”).
Do yourself (or someone special) a favour by putting a copy into their christmas stocking !! :)
Benny
Go to https://moneymagnet.au
Well, here we are another month or two down the track. Yep, the Cash Rate went up again on Melbourne Cup day. Needed? Not in my book (as you probably know already….) but with Govt continuing to spend up large while all mortgage holders get hammered, the “basket of goods” showed inflation was “still not coming down quickly enough!” Spare me !
On a quick reread, this quote from a few posts back deserves more thought –
Brisbane mortgage broker Glen Barnes of Barnes Finance Solutions said mortgage repayments now “far exceed” rent returns. “Generally speaking, investment property holdings for some owners is now too much coupled with the mortgages on their principal places of residence and other general cost of living pressures,” Mr Barnes said.
If you’ve kept up from the start of this topic, you’ll already know that many mortgage costs have doubled and more over the last 18 months. Lucky is the landlord who is able to double any rents payable. And if not, then pain is the result. Add to it the overall cost of living outside any property investments and it is not hard to understand why folks are struggling.
Meanwhile, our current Govt sits idly by and allows the 25c reduction of fuel excise set up by the Morrison Govt to expire without fanfare, so up go fuel costs (part of the parcel of goods on which CPI is measured). Oh, and they logged a budget surplus – ‘twould be nice if they used $3bn or so to reinstate that fuel excise reduction. Might even gain them a few brownie points were they to do something meaningful like that. It might even allow more folks to feed their kids, or cover a rent increase that would otherwise have them sleeping in their cars.
That 25c saving would apply across the board, leading to reductions in cartage costs, thus impacting on delivery costs to supermarkets and other stores, thus lowering food prices and having a beneficial impact on the CPI, thus keeping the RBA happier. Isn’t it as simple as that? And yeah, that’s just one aspect where the Fed Govt could make a world of difference quickly. Another is to stop spending themselves. If we all need to cut costs, why not the Govt too?
More and more, I think it is time the RBA became an elected body, so we can throw them out when they are making poor decisions.
I know, I know, there are two sides to every story – what’s theirs? What’s yours? How are YOU travelling in this
bravescarey new world?Benny
Hi dd81,
First off, I am NOT any kind of accredited adviser, so I simply present a few ideas and opinions that may help you reach a conclusion or two. Of course, anything I mention should be confirmed via your own accountant or other adviser.
You look to be in really good shape, and have some important choices to make. Here are a few thoughts that hit me when I looked at your post – in no particular order:-
1. Keeping some cash available to get you through the Maternity Leave without troubles would make sense. How much depends on the other “numbers” that are involved. Perhaps keep enough cash to cover a further 18 months of the same income you had prior to the Mat leave. That will likely still leave a bunch for paying down debt, or simply adding it to redraw on a loan.
2. You appear to have funds in the Trusts’ Redraw accounts, but not in your Personal Loans. Was that from earlier advice from your Accountant or someone else, or just a guess on your part? Certainly paying into Redraw should reduce any Interest Cost on that loan, but will that change your monthly payments? i.e. You may be paying a fixed rate per month that includes principal and interest – having $$ in redraw might mean you are simply paying more off the Principal (the saved Interest) without actually reducing your monthly mortgage payment. That may suit you to do that, or it may not – your call.
3. When you exit the Fixed Rate loans next year, your monthly repayments will likely SOAR !!! The interest is liable to go from 2.54% to 6% or more. That is not just a 3.5% lift – it is a 136% lift if an IO loan !! That could alter your calculations considerably, so do be aware of that likely occurrence. That alone might make sense of paying out one of those, and even reduce the other loan to a manageable level (but don’t forget point 1).
4. “I have some properties under my name that the offsets / redraw are full, so no repayment required. Below are the loans that I am still paying interest on.”
Wow, you are doing well !! Perhaps part and parcel of all this might be to consider your end goals – Steve often promotes the idea of using residential properties to generate growth, then, when the Growth component has reached the desired level of Equity, trade yourself into Commercial where a tenant pays pretty much all expenses and the income then “keeps you”. What that level of Equity is, depends on your goals and desires. Is now the time for you to be looking to parlay out of the existing properties? Or perhaps sell one to pay off the debt on all the others?
Doing the latter would (of course) lead to higher tax payments, but that means you are MAKING more. Tax deductions never did replace your losses – i.e. Money spent and claimed against Tax owed would effectively replace just the Marginal Tax that you “overpaid”. Like, you might pay $2,000 on something but only get $600 deduction on your Tax payments (i.e. you still paid $1400 from your own Tax Paid $$). With a property paid off, then you don’t get to claim any Interest on a mortgage payment, but then you aren’t paying a mortgage anyway – how cool. And it throws off cash with little cost – and yes, you pay Tax on that cash that is now largely your Income.
I suspect you are already well aware of much of the above – but I include it for newer investors who may be reading this and formulating their own thoughts re property investing (does it work, and how does it?). And for them, please go back and read the first paragraph of this reply. :)
I hope some of these thoughts prove to be of some use to you, dd81. Maybe not, as your portfolio tells me you are already a solid investor. But your story might attract further comment from members who ARE accredited advisers and can guide your steps. Or correct me where I stumbled *gasp* :(
Benny
Hi NL888,
Good to see that Steve has replied already. One other thing that is rarely mentioned (I first heard it from Steve MANY years back) is that Depreciation deductions are added back on sale so that you end up paying for those earlier deductions anyway (perhaps via CGT??) I am not sure on that, but it could also be a good reason to NOT claim deductions as you go. I think the term used may have been “Balancing Charge” or similar…..
Sounds to me that your Trust is working well in your particular situation. As Steve said, depreciation can be useful for some, but not all. Sounds to me like you are doing fine as you are. Of course, as I am not an Accountant or anything, my thoughts are little more than encouragement, but do check with your favourite adviser re any/all of this.
Benny
If you’ll pardon my levity, the result came as “No” surprise !!! Many of the Yes protagonists are blaming it on the No voters (saying they are racist and other such nonsense). In fact, the Referundum contained so little detail as to be almost a blank cheque that our PM wanted us to sign. And now he is surprised we said no? Says a lot about him frankly.
Anyway, there is work to do, and it can proceed without the red herring of a Referundum to slow it down. Let’s start with an audit of the generous funding provided yearly to assist indigenous peoples. Someone is getting the largesse, but is it the right people? That’s where work needs to be done.
And as for a voice, isn’t that what NIAA is meant to be? I also heard we have 11 indigenous MP’s – their voices carry some weight. We didn’t need a voice in the Constitution, surely.
