Hi Andy,
I can understand your wife making that comment, and from one angle she is correct (i.e. property investments are typically long-term investments). Perhaps the point she is missing though could be this – if an investment sours, it is often better to “cut your losses” than to hold in hope. Without any actual numbers though, an indication either way is impossible.

Think in this direction though – if the current investment property is costing you money, and its short-term future for growth and/or an income increase are close to zero, would you be better to turn any remaining capital in another direction (one where it will PAY you to purchase it?)

With your wife now not working, ALL of the costs that aren’t covered by the rent are coming out of your dollars, and these could likely be after-tax dollars. See, if your name is not on the title, you might not be able to claim the costs against your wage. But then, I am not an accountant, so maybe there IS a way that can happen.

What I am endeavouring to do is to point you toward working out HOW many dollars it costs you to keep it – if too many, the prospect of a sale should put its hand up just with the numbers.

The capital loss itself can be offset against any future gains (but maybe not by you – only your wife – but again, an accountant should help you with any planning around this). Find a good accountant if you don’t have one already, and seek out an adviser to help plan “the way out” from a finance/investment perspective. Good luck on this journey, and do come back with any further queries and/or an update or two,

Regards,
Benny

Hi Kenif,
Usually, water only flows downhill. One exception would be “capillary action” (think of a sponge, which can actually draw water UP). Now, if the water from your courtyard has been fixed previously, is it possible that the problem might be porous materials drawing water UP from underneath the building – up the walls, or through the floor from UNDERNEATH, rather than from that higher level that you have already attacked. That action may not be common with concrete floors, but I have heard of walls acting this way (damaged or non-existent damp course laid when constructing them).

Fixing any problem comes down to identifying what really is the actual problem, and THEN fixing it. e.g. Your courtyard is higher, so you put down membrane to prevent that higher “courtyard water” from entering – but, what if you have a hill behind you, and water comes down, seeps underground to your lower level, goes UNDER your courtyard and the new membrane, wets the ground beneath the building, and is then drawn UP the walls via capillary action? I would think that WOULD be a Body Corp problem.

Could it be that the first time you spent money to fix it, it WAS done well – but maybe didn’t fix the ACTUAL problem, or maybe didn’t fix ALL of the problem.

For water issues, I’d suggest tracking down someone who actively advertises themselves as one who understands hydrology and can provide a shortlist of their successful fixes involving water. Or find someone who can recommend a really good builder who might also have a vast experience of putting right any water issues (even if not calling themselves a hydrologist).

I think I would make an effort to talk (in much detail) with other owners who have courtyards too, to glean what they might already know. Good luck with it Kenif, and I wish you good fortune in fixing this persistent problem,

Regards,
Benny

Hi Brian,

“our vendor did not pay the council rate that we have agreed to the settlement adjustment sheet.”

Now, I am not someone versed in all the ways of property and the legals surrounding them, but I have a bit of experience. Still, if others more wise can offer extra thoughts, please do so.

AFAIK, settlement involves a lot of agreeing to figures and the presenting of cheques from one party to another. And I would be asking your conveyancer (or solicitor, whomever did the conveyancing for you) just HOW they managed to complete settlement with monies still outstanding from one party.

Your solicitor is the key to all of this I believe, and should be the one answering you, as THEY are in charge of settlement on your behalf. The buck stops with them (I believe). Ask them to explain it.

Benny

@terryw – is there more to it than that?

Hi Hem,
I’m sure there are many good companies out there. Main thing is, what are you wanting to buy? If you don’t know, then others might have a plan for your money (or Equity). Watch out if ANY company follows this script:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/page/3/#post-5038486

But mainly, what are your goals, Hem? Are you a Growth Investor, or an Income Investor? Will you buy and flip? Or Buy, renovate and Hold, or Buy split and develop the block of land, etc. Or do you want to do business with someone who wants to sell you a new house? i.e. You want it ready-made with nothing to do except to bring in rent. That is valid too – but there are some things you need to be aware of, BEFORE going down that path – try this topic:-
https://www.propertyinvesting.com/buying-investment-property-off-plan-dumb/

I hope those links have some thoughts for you that help you to make up your mind. Feel free to come back with more questions (perhaps in a new topic, so this one can remain about “Asset Partners”).

Benny

Hmm, here we are 18 months later – I happened to be rereading this topic, when two comments from above fused together in my mind, and a huge lightbulb lit up !!!

Here they are:-

1. from the original poster – “From the start it is cash flow positive.”
and
2. from several reply posts – “…you will only get a 60% loan and that’s if you are lucky…”

Bing !!! On came that lightbulb.

Did it shine for you too, having read those two points close together?

For those who are newer, this is a very important point (often put to good use by those who are marketing OTP properties):-

“One of the main reasons it is cash-flow positive is because you have put down such a large deposit.”

So, ANY purchase looking like being a highly negative geared property can become cashflow positive if you only put down enough deposit. How much? Well, let’s see – we’ll start with purchasing a house that is looking like being negative geared right off the bat:-

Purchase price is $600k, and it will have expenses of (say) $10k pa for Rates, Insurance, Maintenance, RE fees, and other costs and then a mortgage (Interest Only) of $30kpa at 5% Interest Only. Rent will be $600 per week, so allow 50 weeks to get $30k in rent per annum. (You plan to use equity in your own home as the deposit, so your total mortgage is $600k). From those numbers you are going to be losing $10,000 a year (roughly $200 a week).

OK, so let’s pay more of a deposit – let’s say you had $50k in savings, so you put that down to lower your Mortgage Costs instead of borrowing that extra $50k against your home. That reduces your Mortgage cost by $2500 a year. Still $7500pa in the negative. Damn.

So instead, you sell the $250k you had in shares (watch out for Capital Gains?) then put $200k of THAT down as a deposit and don’t borrow against your house at all (the extra $50k hopefully covers any CGT). This reduces your mortgage to $400k and your mortgage interest drops to $20k per annum. Right at that point, your income and outgoings are in balance. Put more than that into the investment, and it becomes positive geared – finally!

BUT, you’ve had to put down 33% of the total cost to get to that – put down 40% (as in the original example) and yes, it will be cashflow positive by about $2000 a year ($40 a week – whoopee).

Spruikers conveniently leave that bit out when telling you how “positive geared” their investment property is going to be. They talk you into a 40% Deposit on a little apartment and massage your ego with stories of what a great investor you are going to be (to get you to sign the contract).

OK – you usually won’t need to put 40% down on a house and land. 20% is common as a deposit and not too hard to get this.

My main point was to show how you can FORCE any purchase to become positive geared if you only throw enough cash at it. Before taking that path, consider the poor return you might now be getting on all that cash you’re putting in.

And consider too the opportunity cost of releasing all of that cash. Will it prevent you from locking in some other screaming-hot deal that pops up if you’ve used up your cash to do something else?

In short, for sure any property you buy can become positive geared – but, at what cost?

Benny

Hi Pascoe82,
Once again, Terryw is “teaching us to fish” rather than giving us one. One super important learning re Offsets (and indeed ANY accounts relating to property – savings, redraw, cheque, etc) is spelled out rather succinctly by @terryw here:-
https://www.propertyinvesting.com/topic/4997918-redraw-from-an-offset/#post-5029521

Have a very slow, thoughtful read through that, and DO go back to read the topic from the very start too. That is one of many really good inputs re Offset Accounts and things that can be overlooked even with the best of intentions. It is “what we don’t know that we don’t know” that can really trip us up.

And, if that piqued your interest, also read this one that has a few differing points of view on Offset Accounts – some good learnings in there too:-
https://www.propertyinvesting.com/topic/4997918-redraw-from-an-offset/#post-5029521

Enjoy!!

Benny

Hi Warren,
Although I’m not one who has enough experience to help you to answer this one, I wanted to reply to bring your question back into view for those who CAN answer it to take a look. It seems you have already done a lot of digging, and have provided a very complete set of “What-ifs” for others to contemplate – you deserve accolades for that.

I hope some of our experienced members can point the way forward for you – some of them only come by once a week, and I wanted your question to be “front and centre” for them to find it,

Benny

Hi Jsoe,
If it is important to be in your sister’s name, then the CGT and Stamps will be the cost to do it. Keep a couple of things in mind re CGT:-

1. Have you owned it longer than 12 months, or not? (A 50% discount on the CG calculation if held longer than 12 months).

2. Consider whether to sell in this FY or next (and Sale is deemed to be the Contract date not settlement date – I think…. but check). It might make no difference to you, but it is best to be aware of your options. Usually people try to sell in a year when their Income is less. That is because a Capital Gain is added to their Income, and then Tax paid at their marginal rate. It also means, if you sell in the NEXT year, you won’t need to do your returns for about 18 months – but if selling in this year, the CG etc. will be part of this year’s Tax Returns.

3. If you have other capital Losses (e.g. shares that you know have tanked, and you know you must sell them at a loss) sell them first as (I believe) a loss ahead of your Gain can offset it. e.g. a loss of $10k and a CG of $50k becomes a total CG of $40k. That gain is then added to your Income for the year and you pay Tax accordingly (as though that is your Income for the year – which it is).

4. Maybe your Sis will want to give you a wee “gift” to help offset your costs. Keep in mind, that she would have to pay Stamps no matter WHO she buys from – so that was always going to be “hers to pay”. If you are going to pay CGT on the true value, maybe she can pay a price halfway to that market value – that way, you aren’t bearing all the cost yourself.

And no, I am not an accredited adviser, so treat these all as “ideas” and run them past your accountant before relying on them. They may well have other thoughts for you to ponder too……

Benny

Hi Valluvan,
I noticed no-one had “got up to dance” on this one, so I wanted to share a couple of thoughts with you.

First, I would think deciding what type of property you are planning to buy, and what financial limits you have should be sorted before choosing an area or a BA. Have you got these all mapped? Of course, the finances can change a little depending on each deal, e.g. buying well means less of a mortgage, less deposit, and perhaps higher rent, meaning you can perhaps go for your next deal quicker – always a good thing. Or it may allow you a better choice when deciding “which of three IPs to buy”.

Second, give some thought to “getting out” of a deal before you even get into one. And there is a lot in that – clauses to add to contracts, choosing a solicitor/conveyancer, where will you buy and why, who will be your target market when you rent this, and later, when you SELL this? Have some contingencies in place before you go looking to buy.

If one were to use a Buyers Agent, I would think using a “local” would make sense (i.e. use a BA from the place in which you are looking to purchase rather than someone in a totally different city/area). From what I have heard, their costs can be a percentage of purchase price (seems to me to be a bit like a “conflict of interest” with that way….) or a flat fee. They can cost several thousands – so do weigh up whether you jumping on an aeroplane and spending a few days might be more advantageous to you – you’ll learn a lot more that way. And of course, (as you attempted) ask others WHO you should use – the old reference is always a good way to go to weed out any duds.

I’m sure there are some good Agents out there who (like RE agents) are wanting your long-term business, so they will work their butts off to delight you to get “on your team”. I can’t recommend anyone though, as I have always done my own buying. Good luck,

Benny

Hi Dave,
You have just confirmed it, so what a good place you are in. It is smart to look elsewhere too (to test the water?) but there are ways of doing that without upsetting what appears to be a very solid situation. Here are a few more thoughts, just because…. ;)

Yes currently 60k after costs which I realise is a good position. And no I am not schooled in shares. I would have an expert help on that fo not. So you are probably thinking I’m a bit mad perhaps! I just thought shares were give me a more diversifIED portfolio. Less risk. Spread the money into different areas. The motel is putting all my eggs in one basket. If something goes wrong (unlikely but possible) that it could be a big problem to deal with.

Worthy of thought, for sure. Warren Buffett himself says “Put all your eggs in one basket, then watch that basket like a hawk”. And this is from one who has made most of his money in shares. He avoids “trading”, and also won’t back anything he doesn’t have much knowledge about (even if he misses out on huge booms).

I hear of many “experts” relating to shares, but really, how do you KNOW how expert they are. What might be worth considering is to invest some of your passive income into Berkeshire Hathaway by buying a few B shares. Then you will have Warren Buffett and Charlie Munger making all the decisions about your shares, and likely making the usual 20% pa return….

One other thought would be to take a defined percentage of your yearly Income and devote that to Shares. If you do well, fantastic, but if you don’t you won’t sink your own ship.

An no I don’t have any expenses myself. The motel is maintained by the leaseholder. So yes it is a no passive income, but shares would be even more passive I feel.

Awesome. And yes, the right shares could well be more passive, though your current position doesn’t sound overly “active” :p

There also might be a ‘retirement advantage’ in 25 years to sell the property but as it is a commercial property and laws might change in 25 years I’m not sure I can base a decision on that point of view.

A part of “Watching it like a hawk” methinks !!

Benny