[BennyModerator@bennyJoin Date: 2002Post Count: 1,416]

June 15, 2023 - 8:02 pm

Hi Toby,

If you haven’t already, do devour pages 173 to 175 which lay out a lot of extra information re borrowing capacity.  One comment from Steve on p173 says this  –

“A personal guarantee is given by the director(s) to use personal funds to repay the loan if it goes bad.”  So Steve himself says such a guarantee is required.  The guarantee though is not a loan per se – it is a promise to “put things right if needed”.  If not needed, there is no comeback, is there?

Re the Tax Savings, it seems pretty good to me that, by apportioning Income from the Trust in such a way that the partner with the lowest marginal tax gets the biggest share, you win on Tax Paid, PLUS you have asset protection that doesn’t come with personal ownership.  But yes, you pay for it through extra accounting and audit costs.  Just like any Insurance really, isn’t it?  They don’t come for free.

I’ve heard it said once or twice that “Some folks have a Trust that protects ‘not much’ and I guess that is a question we all must ask when starting out.  Are we going to build a large portfolio, or are we going to settle for one investment property?  If the former, then Trusts sound compelling.  If the latter, then there are other ways to provide a modicum of protection without a Trust.   Do you have a goal in mind yourself Toby?

Anyway, that is an interesting question, and you’ve obviously spent some time researching, so I hope some answers on here get to provide you with other views to help your understanding from their points of view.

Regards,

[BennyModerator@bennyJoin Date: 2002Post Count: 1,416]

June 10, 2023 - 4:11 pm

The following cartoon had me splitting my sides – a golden pictorial comment from Brett Lethbridge, a well-known cartoonist.

https://content.api.news/v3/images/bin/000155924091cdcedf53ce7caf5b4ce2

And doesn’t it just “tell it like it is” !!

:)

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June 8, 2023 - 11:11 am

A further 10% yesterday – when will it stop?  Or are we beholden to the rest of the world, and must keep our Rates high to keep those fires burning?  I hear more and more:-

– People living in cars (rental shortages and hiked rents forcing folks out of their accommodation)

– Businesses being hit with higher power costs along with mortgage interest, thus having to cut staff (which then affects other households’ incomes)

– Fuel going up which forces all commodity prices up (thanks to delivery costs)

– All of which mean NON-discretionary spending is increasing leading to a cut in discretionary spending (so, less meals out, thus affecting businesses, which affects other households as staff are laid off)…..

– etc, etc, etc

Is a recession imminent?  Could be, but that depends who will win as we now seem to have the Fed Govt with their foot on the accelerator while the RBA keeps its foot on the brake of our economy.

As this drama goes on and on, I question (again) WHO decided that a 2% growth is ideal ALL the time?   Surely it is reasonable to allow higher and lower growth depending on factors in play at particular times?   Wasn’t it China that was growing at 12% per annum a few years back – they seemed to come out of it alright.   So again, “Who says 2 – 3% is best?”    And why?  And when?

What do YOU think?

Meanwhile I feel for all those doing it tough while this ridiculous arm-wrestle between the Govt and the RBA goes on……

Benny

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May 29, 2023 - 2:57 pm

Hi Ando,

We had a team meeting this morning and I brought up your post as one to discuss.  From that, Steve’s mortgage broker (Chris Berry) said he’d be happy to discuss things with you.  Though it is early days yet, he also mentioned an accountant with whom he has been interacting.   Once he knows they are open to new clients, he will likely put you onto them.  Steve meanwhile said his accountant is not taking on more clients, so we can’t share their name with you.

Do be in touch with Chris Berry re your situation.  Here’s a post that he replied to – his contact details are at the bottom of the post:-

https://www.propertyinvesting.com/topic/5068955-increasing-burrowing-capacity/

Regards,

Benny

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May 24, 2023 - 11:19 am

All good Jezza.  There’s a lot to take in, and you won’t learn it overnight.  Allow yourself to grow into the role and keep learning.  Come on back with any questions that we can perhaps help with,

Benny

 

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May 23, 2023 - 10:17 am

Hi Jezza,

Welcome aboard.  Property investing can be an exciting journey, but can also be risky, stressful, and even (for some) dangerous.  The best way to guard against all of the negatives is by educating yourself.  Here is a good place to start, but I would also suggest the following:-

1.  Don’t be in a hurry to buy “any old thing” (but of course your parent’s situation might be a factor in your case – e.g. are THEY needing you to buy quickly to help THEIR situation?)

2.  Read around a lot.  Steve’s books are a great start, as is his STEPS program (which guides you through the minefield of purchasing by utilising “Due Diligence”).

Other books can be a blessing too, as can seminars, meeting with other investors, and even meeting and talking with RE agents.  Be careful of folks whose role is to SELL to you though (e.g. agents) and especially beware of spruikers who are itching to HELP you by selling you a new property, and they can provide legal help and all.  These latter will tell you “The tenant and the Taxman can make you rich as you buy one of our new properties, and hey we’ll even fly you there for free”!    There is no such thing as a free lunch, as I’m sure you know.  ;)

3.  That “Big Picture” link (below) has a host of different topics and learnings wrapped up in it.  Do take the time to step through all of the various subjects in there, as they will help to grow your knowledge at least enough so you can ask your advisers more pertinent questions.

 

OK, I’m sure you’d really like to hear some thoughts re your actual situation, so let’s take a look at that now:-

FIRST – “Should I buy or build?”   That is quite a question – for me, I found purchasing 2nd hand to be more lucrative than buying new. There are many reasons for this e.g.

– folks selling a second hand house may be more amenable to price negotiation than a developer selling a new one,

– a second hand house may be in need of some renovation that can be tackled over time, thus reflecting in a lower purchase price.

– a second hand house can be bought in an area that suits Mum and Dad more easily than a new house (latter often in new estates away from amenities)

– a second hand house can be viewed then and there, where a new one may be only a drawing on a pad when you purchase it, or a builder may go bankrupt leaving you with a problem.

– a new house has included the developer’s profit in the purchase price, so any equity gain could be 5 to 10 years away.

Read Westnblue’s story in the Big Picture link (it is halfway down the first page of topics in the Big Picture) – how he created a small fortune in a very short time by buying 2nd hand properties, and doing them up. He only bought 2nd hand properties.

SECOND – “If my parents pay enough rent for me to not lose or gain on the rental income, is it still a good investment for the future?”  Jezza, if you buy a good investment, it will be a good investment.  The property will be a good or a bad buy – the amount your parents pay should not be determining that.  e.g. If your parents could afford the rental on a high-class property on the water-front, it could lose tenants if times were to get tough.  To me, such a purchase would not be a good investment.  I prefer to buy where ANYONE can afford to rent there.   In that way, I never found it hard to get good tenants even in hard times.

THIRD – “Does it matter a lot on picking the right house if they are willing to pay enough rent to help me to pay it off?”    I think I’d repeat my answer to the second question.  In short, yes it does matter.  Buy well and you can do well.  Buy badly, and it can reach out and bite you.

With times being as they are, I’d be looking for the kind of property that can pretty much support itself.  Buy in a good area, in good(-ish) condition, with a projected income that is likely to cover any/all mortgage and other costs.  Some areas are cheaper than others (some are cheap for good reason, so beware) while other areas are expensive.  Do consider checking out Steve’s product, STEPS, to help you buy well.

In all this, Mum and Dad are likely to factor into any decision you make.  Do they have a preference for which city, suburb, area, etc?   Do they need to be near shops, hospitals, amenities, transport, etc.   What suits them is likely to suit many others once M and D cease to rent it.

Hmm, that’s a fair bit.  Go looking for an Accountant who understands property investing (has some property themselves ideally…) as there are several things you need to account for with Mum and Dad renting.  e.g. paying a commercial rent can be a biggie….   it may not be an issue for you, but you need to KNOW that !!  ;)

Hope that helps somewhat – do check out the “Big Picture” – you’ll be glad you did I’m sure,

Benny

PS  For those readers who aren’t able to find “The Big Picture”, here’s the link:-

https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/

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May 13, 2023 - 5:05 pm

Hi g4d,

  suggestion has been to pay into our Supers and maximise the 27,500 for the remaining 15yrs as the tax advantage is good.

On reading that, it sounds like a saving !!   Steve says often that saving to invest makes sense, but saving on its own won’t lead to wealth.  Many are trapped by the sound of “save Tax”, and end up in deals they perhaps should’ve stayed out of.

Investing takes many forms.  Some I have heard bought a PPOR they could afford, spent time and money doing it up, then upgraded to the next highest value/level.   If your family/spouse can handle a few moves, there is a significant saving because of the CGT exemption on your own home.  Over some years and several moves, it is possible to end up with a home worth a lot of money.  But then, you’d need to move out of it to utilise the new-found equity, so it isn’t all beer and skittles.

Find a way that you (and yours) can work with and agree to, to create wealth.   Some ways are fast, and some less so.  The fast ways often have more risk, but risk can often be mitigated by knowledge or experience.  Keep on looking and keep asking questions until you find “your way”.

Regards,

Benny

 

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May 11, 2023 - 10:32 am

Hi G4d,

Check your Private Messages…  ;)

Benny

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May 7, 2023 - 3:36 pm

Hi G4,

Hmm – who’s your accountant?

Our PPOR even after 10yrs where it was located did not really provide that great return and sat around the same price for many years and we only made about $300, so after CGT and fees was not left with that much.

I believe a PPOR is a CGT-free entity, thus there should have been none to pay at all on its sale.  Of course, there might have been extenuating circumstances not mentioned (e.g. you bought another PPOR, or you rented your PPOR for more than 6 years…..).  If $300 was all the profit, then any CGT would be laughably small anyway….  but hey, there shouldn’t be any…..

Puzzled…..

Benny

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May 3, 2023 - 8:25 am

 

Another 0.25% (sorry, that’s 10%) rise in the Cash Rate yesterday.

Or will the RBA learn the error of their ways in time to prevent a crash?

Nope – seems not !!!!!

And now time to update this quote:-

Thus another huge chunk of the populace who will face a near 140% rise in the Interest cost of their mortgage as they endeavour to re-finance, whether onto Variable or another Fixed Rate.

Better make that 150%.

150%?   How does anyone handle that?  They are wondering why there is a rental crisis in Queensland – after changing State laws to put the tenant into prime position and sticking it to the landlords a year or two back, the RBA is now having a crack.   And they are wondering why rents are climbing 10% to 20% – those that haven’t already sold their investment properties that is?

I think I also read that around 50% of landlords are not rolling in dough either – they are just Mums and Dads having a crack at making their futures better.  So what will it take for the RBA to see sense and stop this stupidity?  Do we have to have half of the businesses close, unemployment to get back into the teens, bankruptcies and suicides rise, or what?  (It feels like Covid all over again).

Or do we simply get a new RBA boss in place?   Can’t wait…….  :(

Mr. “Cash Rate shouldn’t rise before 2024” should go – before September !!!

Benny

 

 

[BennyModerator@bennyJoin Date: 2002Post Count: 1,416]

April 18, 2023 - 9:57 am

Hmmm – so, after leaving a Cash Rate lift alone in April, what’s next from the RBA?

RBA Governor Phil Lowe recently shared a chart showing that even though Australia’s official cash-rate hasn’t risen as much or as fast as in other countries, the interest rates facing mortgage holders have, in fact, risen much more quickly. This is because the majority of mortgage rates in Australia are variable, rather than fixed, as is the case in other jurisdictions.

So, isn’t that even more of a reason to NOT push rates as high?  Have the RBA been reading the tea-leaves and seeing how a huge chunk of the population has entered mortgage stress?   Or are these people simply cannon fodder, thus expendable in the current climate?

However, one of the things that makes forecasting a little tricky at the moment is that an unusually large share of the market went on to fixed rates during Covid.  Government policy made fixed rates exceptionally cheap during 2020, and many borrowers locked in record low rates.

Correct – but now, enter “the mortgage cliff”!   There are a huge percentage of mortgagors whose fixed rates are due to expire by the end of this year.  Thus another huge chunk of the populace who will face a near 140% rise in the Interest cost of their mortgage as they endeavour to re-finance, whether onto Variable or another Fixed Rate.  Of course, like many others, they might also find they CAN’T refinance (with Qualifying Rates having been increased hugely over the last 12 months) so where will that leave them?

Could there be an even more drastic nose-diving of the economy as more and more face stress?  Could that drastic development be the catalyst that sees the RBA ease up on the Cash Rate once more?

They did that in 2008 – increased the Cash Rate madly even as the rest of the world were cutting theirs (around the time of the GFC).  I personally came out of some 6% Fixed Rates at the time into a 9%+ variable rate (a mere 50% increase back then as I had IO loans).  That was a bit scary until later in the year (Sep08) when they realised they had got it wrong, and the Cash Rate plummeted about 300 basis points to 3.25 by Feb 2009.   And they were cutting by 100 basis points each time to do it quickly.

Have a look here for the historical Cash Rates – https://www.rba.gov.au/statistics/cash-rate/

The rate today is back to slightly higher than things were in Feb09.  Of course back then, the median house values were way lower than today, thus the mortgage amounts were also way lower.   A quick trawl shows me the average house mortgage for all of Australia was around $250k in 2008, while today it appears to be nearer $600k.   So Interest payments today would be around 140% higher than in 2008.  Have wages kept up with that?

What’s the bet then?  Is Australia going to be driven into recession?  Or will the RBA learn the error of their ways in time to prevent a crash?

Place your bets ladies and gentlemen !  :)

 

 

[BennyModerator@bennyJoin Date: 2002Post Count: 1,416]

March 20, 2023 - 9:21 am

Ah, what the hell – bump !!   Go back two posts and tell me that news isn’t worth spending some thought on…..

Better yet, here’s the link, so you get to the one with the huge news:-

https://www.propertyinvesting.com/topic/5050126-the-climate-is-changing-2/#post-5087027

We could do with a viable alternative to the current expensive energy sources (wind, solar and battery) that are being foisted upon us…..  Or am I wrong?  Let’s have it…..  ;)

Benny

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March 14, 2023 - 8:26 am

Hmmm…..

That same entrepreneur went into print again today.  His final words (after discussing 3 banks that have failed in the US in just 3 days) were these:-

… they had substantial assets tied up in Treasuries – fixed rate securities. ………….. That’s not necessarily a problem. You can just hold them to maturity, and you just didn’t make as much money on them as you would have liked.   But if you’re forced to sell them, you have to sell them at a loss.   And you lose big money.    ………………  this is what happens when you raise rates aggressively (too aggressively).

Is he right?  Makes sense to me…..  But then I’m just an ordinary bloke with an opinion.  What’s yours?

If he is right, perhaps I should send this chap’s email to the RBA before they break something major here too !!  :(

They’ve raised rates by 140% so far, with perhaps more to come?  I think there are already many broken people…. when is enough going to be enough for these clowns?

Benny

 

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March 8, 2023 - 8:48 pm

Hi Evan,

Do check out this link – https://www.propertyinvesting.com/topic/5086923-using-business-income-as-guarantor-to-a-loan/ – where another member asked a similar question.  Also, see where Steve also added some words to help.

If you have the older books, you will be missing the “Chapter 9” that I reference.  It has to be the updated book to get that chapter re Trusts.

 

Also, I used Search to look for other posts where Trusts were discussed.  This link is quite complex, and it includes some very good input especially from Terryw.  Here’s the link first :-  https://www.propertyinvesting.com/topic/5068817-home-loan-borrowing-using-trust/#post-5076652

Do look for this part of one of Terry’s replies :-

Some lenders will disregard personal guarantees as long as the borrower is paying their own way and the guarantor is not needed to fund it.

You will find the quote above at this link – https://www.propertyinvesting.com/topic/5068817-home-loan-borrowing-using-trust/page/2/#post-5076654

I found this whole topic was a great learning tool, with both Steve McKnight and Terryw adding very useful information.  I hope it helps you too,

Benny

• This reply was modified 1 year, 1 month ago by  Benny. Reason: Adding further links

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March 7, 2023 - 7:49 am

Just this morning an email from a local entrepreneur had a bunch of figures that I hope the RBA consider today when they meet.  The figures showed that the wheels have already fallen off, and that households are staggering.  He also quoted current CPI, GDP, jobs, and Inflation figures – all of them are showing a weakness that the RBA has been trying to engineer.  But it was his parting two sentences that had me smile:-

“The only sensible thing to do is to stop hiking rates, just to make sure that the Aussie consumer is still breathing.  But the RBA doesn’t have a reputation for sensible.”

Thanks Jon – good one!   And yes, as my earlier posts indicate, I totally agree with that last sentence.

Question now is – will the RBA get to check their emails before making their decision today on what to do next with Interest Rates?   Or (as I suspect) are they totally on another planet?

 

Edited later:-   Well, we got our answer – they are on another planet entirely.  A further 0.25% (another 10% really) brings the actual lift to around 140% extra Interest (based on a nominal 2.5% interest rate on a mortgage prior to the first increase – see earlier posts).

How many people can cover a 140% rate increase without effort?   This stress is bound to have a huge impact on homeowners, business owners, renters, employees (who may suddenly have no job…).    And it hasn’t ended yet?   Sheesh !!   What does it have to take?

I’m picking they will do another 2007/8 sequence where they raised rates way past where they should, only to madly chop them again once they realise they got it wrong.

Anyone want to bet agin me?

Benny

• This reply was modified 1 year, 1 month ago by  Benny. Reason: Extra after the rate rise

[BennyModerator@bennyJoin Date: 2002Post Count: 1,416]

February 25, 2023 - 9:31 am

Hi John,

I’ve sent you a Private Message,

Benny

[BennyModerator@bennyJoin Date: 2002Post Count: 1,416]

February 9, 2023 - 4:34 pm

Well, well, well – on the news last night, I hear some are calling for Phillip Lowe’s resignation.  I can’t say I blame them.  With yet another 0.25% (wait up, that is really 10% – see earlier posts) increase, the pain just gets more and more intolerable for many.   Let’s revisit an earlier statement from this topic:-

What ever happened to the RBA of old who would make a couple of changes, then sit back to read the tea leaves and see what effect the changes had rather than slamming down harder on the brakes.

Seems like that (somewhat sensible) ‘old’ RBA doesn’t exist any longer.   Is that Mr Lowe’s fault?  I don’t know, but SOMEBODY in the RBA should be saying “Hey, wait a minute – let’s think about this a bit more…..”    Shouldn’t they?   Shouldn’t Jim Chalmers be having a chat re what is going on?   And what happened to his earlier words re “Initiating a review of the RBA” or was that just a throwaway line from an inexperienced Treasurer?

Surely “It’s time” for some action before the RBA drives our economy further into the ground.  And re their mantra about keeping inflation in a 2 – 3% band?  Who says that’s a good idea to push for that RIGHT NOW?   Long term, yes, but hey, with the cost of near EVERYTHING going up, and folks now struggling to pay a mortgage that has ballooned out over a 9 month period, do we really want to create more unemployment just so the RBA can get inflation down into that magic band?

See, think on it – by taking funds out of the average person’s pocket, they cut back on spending, thus adding to the woes of small business owners who may be running a restaurant, so they sack staff too (and their mortgage – or their landlord’s – has also risen in cost, so they are making less from Joe Public, while also facing increasing costs).   Talk about a vicious circle – and much of it being of the RBA’s making.

What’s the time, Albo?  Time to line up the RBA board and have a wee chat – for all of our sakes.  And bring a few attack dogs with you.  This has all got way beyond a joke.

Benny

 

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January 28, 2023 - 4:35 pm

Hi jcso,

Use Private Message for info like that (unless Sasha is happy for his phone number to be made public),

Benny

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January 25, 2023 - 9:55 am

Well, there are two more weeks before the RBA meets for cucumber sandwiches, strawberries and cream, and Moet.  Ahead of that, I hope they get to think long and hard about this quote:-

Let’s hope interest rates stay at record lows – with today’s house prices, it’ll only take a relatively modest increase in interest rates for mortgage payments to become completely crippling. (quote – circa 2020)

Well, is a 120% lift in Interest costs enough of a “modest increase” to tip folks over the cliff?  Add it to increases in food costs, petrol costs, power costs….  What now?  Is a further 10% or 20% (0.25% or 0.5%) lift really needed?  Inflation has nose-dived already – lots of belt-tightening going on….   Some economists are still saying “One or two more”…..

What’ll it be, RBA?

 

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January 25, 2023 - 9:31 am

Well I thought that last post was exciting – but what, no other takers?   Wow !!   I’m quite surprised……