Forum Replies Created
Hey Alexus,
Thanks for your thoughts. I agree with a lot of what you wrote, and no, I wouldn’t want those on lower wages particularly to be even worse off. But then, what do you think of that “straight dollar uplift” I mentioned, rather than a %age uplift? That would certainly help those on a lower wage, while those living comfortably would be hardly affected (and would still get those same extra dollars though not the same percentage uplift). For those at lower levels, it may well allow them to keep eating, while for those on 6 figure incomes, a few extra dollars (or not) may make little difference.
But yes, you are right – I do look at the numbers principally and they can tell an interesting story. But I don’t think I do so to the total exclusion of values. I just like to garner opposing thoughts to see if there can’t be “a better way to do things”. Like, instead of a wage increase, wouldn’t a wage cut work? So, everyone could cut their prices, their charges, and their payroll bills and we would likely ALL be better off, or is that just too naive? No, not a trick question – just another opposing thought out of left field.
Benny
Hi Mat,
You sound like you two are in good shape – sort of. Having the rentals’ mortgages fully offset sounds like a good position to be in. On the flip side, that sounds like a lot of lazy equity. Now, so you know, I am NOT any kind of professional adviser – I’m just a bloke with an opinion or two to share, so do take the time to test any of the following with your favourite professional adviser.
1. With the mortgages offset, wouldn’t that mean that you can’t claim any interest on these two mortgages? And, as they are rentals, normally the expenses from a rental are deductible. Of course, you might be using a different structure that might change things (e.g. company).
2. From your words, it sounds like your own home (the expenses of which are not deductible) is carrying a mortgage. To me, this would be the one to owe nothing on, as interest on it is NOT deductible.
3. Given the above two points, my earliest thought was to take the dollars in offset to pay down (or off) your own home. BUT, you would need to check on break costs. As I understand things, when you are breaking a Fixed Mortgage from a LOW interest rate, most lenders don’t hit you too hard as they can then lend the freed up dollars out for a higher rate. But if your Fixed Rate was higher than the current rates, I think the break cost could be HUGE. So check it out before doing it.
4. Again, depending on your actual structuring, if point 3 was able to go ahead, I would think the mortgage interest from both rentals would once again be deductible after using the Offset dollars to pay down your own home. This would (or should) help you with your year-end Tax numbers into the future. And, if your own home was not yet fully paid off, it would be a good one to pay right down.
5. Once paid off, your own home would be mortgage free. At that time, if you were to take another mortgage for investment purposes, then any mortgage expenses would likely become deductible too. Then again, having a paid-off home is a treasure in its own right, and a welcome oasis in a world becoming more and more financially fragile.
Once again, Mat – have a think on these, but DO NOT action any without checking first with your own advisers. Laws and rules have a habit of changing from time to time and, though these worked some years back, will they work today? Still perhaps some thoughts were useful
Benny
Hi Gurpreetc,
The link posted here might provide some thoughts around the subject:-
This takes you to the “Big Picture” thread, then click on the next link seen in that post. You may wish to check out more of “The Big Picture” too, so scroll through it (further up that page is the Index that tells you what other posts are in the thread.
You mention having a 5% deposit, but for what price house? See, a 5% deposit for a $1m house might allow you to buy TWO $500k houses. But then the deposit you have is just one small part of the whole buying process. First off, check out the above link, to see if that way suits you. As stated, though buying an investment first is ideal from a financial point of view, it may not be preferential from an emotional or family point of view.
Benny
RBA: Here they go again. A 0.50% increase this time, after a 0.25% first up. So, double what I said last time.
But hey there are a few schools of thought here. The RBA have been jawboning for months about “needing to have 6 rises of cash rate by end of year” or some similar rhetoric. Now, by going hard right off the bat, some analysts say they may not have to go so hard in future as these two increases are likely to take the heat out of the average family’s spending and having them tend to save more (to cover future house payments?) rather than buying stuff.
Then again, if the RBA did continue to go hard, I can just see tens of thousands of Aussie families in mortgage distress in a time where inflation is hammering them for food, utilities and petrol – and the increased mortgage interest is one extra increase they DON’T need right now.
Hopefully that idea of “6 rate rises” will turn out to be the threatened stick that doesn’t have to be used after all. Time will tell….
Benny
Hi Tony,
Since we are no longer on Daylight Saving time, some of these times are incorrect (e.g. Qld for sure, and perhaps NT and WA?):-
That’s Wednesday at 7pm in NSW, ACT, VIC and TAS | 6:30pm in SA | 6pm in QLD | 5:30pm in NT | and 4pm in WA.
Benny
Hi Runnyman,
Found this just today on ATO website:-
https://www.ato.gov.au/individuals/capital-gains-tax/cgt-events/
if you sell a house, the CGT event happens on the date of the contract, not when you settle.
i.e. it sounds like you have it right, except I didn’t see anything about BUYING and its CGT date.
That ATO page has a chat function – perhaps check them out re the “Buy date” to be sure that 10June was when the BUYING of the asset was deemed to have occurred. If so, then a selling contract date after 10June should put you in the clear for the discount. (Note, I am NOT a professional adviser – it is just my opinion).
Benny
For anyone else reading, check out this topic for info re STEPS
https://www.propertyinvesting.com/topic/5082846-training/
Note too, the Deal Club mentioned is already in train, but those who sign up can access recordings of previous lessons to “catch up”,
Benny
Hi Bel,
Sounds like you are ready to move on – and it is great that you are checking out options ahead of jumping in. Right off, there’d be more info required before being able to offer sensible options. so, if you would, have a crack at answering the following questions.
1. What are your long-term goals? i.e. are you considering further investments in property, even perhaps to make a career of property investing? As you have high income, is more income your focus right now, or would a growth property suit you better?
2. Is there something about a trust that has you wanting to utilise one? They can soak up a fair amount of time and dollars, so beware of that.
3. Positive-geared sounds like a sensible way to go if wanting to add more to a portfolio – would these be regional areas or suburbia? Each has its own areas to consider (i.e. traps).
4. Separating personal monies from investing monies is for sure a good way to go, but (to my knowledge) that can be done without using a Trust. Separate bank accounts can do that. Read up on Offset Accounts too.
Do come back with whatever extra info you don’t mind sharing, and let’s see what can be done,
Benny
Hi dDream,
Currently, have a loan of $350 k with a bought property two years ago. And this will return equity of $85k for today ( as the broker told me).
I presume from the above that the house value is now about $550k (i.e. your equity is approx $200k). i.e. the borrowable extra amount is $85k if refinancing to 80% LVR. About right? (If you only had equity of $85k, you COULDN’T borrow it all).
Assuming that is correct, the next part of your question is whether to buy an OTP house, or an existing one at around half the price. I can’t advise you, but for me, it has been existing houses all the way. Here’s a few ideas why I chose that path:-
1. You can likely buy two for the same investment amount, allowing more equity increases, more rent, and (if one tenant leaves) you only lose half your extra income while you find another tenant.
2. OTP houses are often highly priced (being new, and “desirable”) and in a new estate that lacks a lot of the usual niceties of a community (schools, shops, transport, etc). Capital growth is often held back because of the initial high price – the new suburb will be competing for value increases with all the other new homes being built as the estate expands.
3. With an existing home, various situations with current owners may allow you to “buy at a discount” where a developer may not.
4. An existing home often comes with manicured lawns, garages, fences, etc all complete and be in a fully functioning (settled) community. This alone lifts values over time as many families want to rent in a settled area.
5. Your two can be in different areas – i.e. if one suburb suffers from some unplanned event that devalues its houses, you would be unlucky to have BOTH properties affected if you have “diversified” via buying in different suburbs.
6. Most times, higher value properties return LESS yield than low value ones. e.g. a $600k house might return 3.5% where a $300k house may be 5%. That helps with investing further down the track.
7. Just as “you can’t sell one bedroom” if you are bit short, if you only own one house and you need some extra cash, you can’t choose “which one to sell” while you keep on with the other. In a word, having two cheaper allows diversification in many ways.
8. Those OTP houses can be sold by marketeers who are looking to fleece you – not all OTPs, of course, but if any group offers a “free flight” anywhere, remember free lunches really aren’t. There are plenty of posts around re these particular OTP traps, so beware.
I’m sure there are more benefits too. Don’t fall for the old chestnut re “you save on tax, as an OTP can have you claim more deductions”, as the aim of investing is to make money. Any saving you might make on tax pales into insignificance compared to the very real benefits of buying two cheaper homes (in my opinion, of course).
Well, now that I’ve got up to dance, hopefully others will join in and we’ll get this party swinging !! :p
Benny
Hi Sandhya,
Sorry, my comment was a bit terse. Good to know you worked it out. For others who were wondering, let me add a bit more around that calculation :-
For the person with the average mortgage of (say) 2.5%, that is a 10% increase right off the bat.
A 0.25% increase against a 2.5% mortgage interest rate is a 10% lift. That is actually correct for anyone with an IO (Interest Only) mortgage. For those with a P&I (paying both Principal and Interest) mortgage, the % uplift will be lower. That is because the uplift is measured against a larger $ amount.
As a quick example, someone paying a $400k Interest Only mortgage at 2.5% will be paying $833.33/mth. After this uplift (assuming YOUR bank passes on that 0.25% lift) the repayments will be $916.67 (or an extra $83.33 per month – a straight 10% lift in costs).
For someone with a P&I (paying both Principal and Interest) loan, the actual monthly cost will be nearer $1600 per month – and the 0.25% rise in Interest (adding $83.33 to their repayments) will be an uplift of 83/1600 or just 5.2%.
Benny
Thanks Steve. Good comment about “dropping an anvil on ScoMo’s head. So true !!! That will give Labor lots more ammunition for the next 3 weeks.
And yes – a 250% increase. Well caught. For the person with the average mortgage of (say) 2.5%, that is a 10% increase right off the bat. Why so big so quickly? While we have a housing problem, a 10% increase could lead to even more rental anguish. A $400wk rental might now be $440. And what about the “6 rises before year end”?
Gee, I hope the RBA read the tea leaves before doing too much more… What would 6 x 0.25% rises equate to by year end? 1.5% on 2.5% is a 60% increase. With over 40% of householders already in mortgage stress, this has the potential to rip the hearts out of the average Aussie.
Yes, of course, that 10% (or 60%) increase is accurate for those with IO mortgages, but in reality the % lift is a lot less for P&I loans. Still could be half that though – and a 30% increase by year’s end is still quite significant. Time for RBA attendees to have cold showers ahead of each months’ meeting methinks !!!
Benny
Hi Naruk,
Are you out there?
Benny
Hi Laura,
There is a series of webinars due to start soon in May. Call up the office on 03 85920270 and enquire about Deal Club. As far as I know this will be Steve sharing his findings as he does a deal (likely Commercial) and also advising viewers who are looking at buying properties (likely using STEPS) and want to ask him questions. These webinars are chock-full of useful tips and ideas – Steve is well-known for providing good value in his responses, often continuing to question the questioner until he is sure that they “get it”.
This webinar series is not free – be prepared to pay for good education. Just one good tip could pay you back many times over – and Steve will be providing way more than one good tip I’m sure. It is due to start within a week or so (maybe even days, so be quick),
Benny
PS Sage quote – “If you think education is expensive, try ignorance instead”. ;)
Hi Naruk,
Did you build it to live in? And did you live in it? If so, how long? Have you asked your accountant these questions?
Benny
Hi jeeakz,
Looks like you have put yourself in great shape to sculpt a really good future in your retirement. Well done. Re “what’s next”, I’ll leave that to smarter people than I, but I did want to pop in a question or two so that others might formulate a path that will really suit you.
First, you are talking of retiring – at that time, what kind of income would you want? At least $35k obviously, but are you aiming for more? If so, how much more? $50k? $100k? And I’m talking after Tax of course.
Also, are you happy in your PPOR, or would you consider selling that too and (perhaps) moving elsewhere? I say this, as your PPOR being sold will (likely) be a CGTax-free sale. Thus you could clear $500k or so to pay off other debt (and perhaps making you positive geared?) Of course, that means you could start paying tax, but then that is not such an imposition if your income is way up on $35k, is it? You might also consider moving into one of your IP’s. e.g. Would you like to move to Melbourne or the Gold Coast?
Would you consider selling ALL Ip’s to parlay into other investments (if they prove to be more beneficial to you by doing that)? Would you prefer to be completely mortgage free? That is an option for you as I see it, yet still able to bring in a very nice yearly income. All because of what you have done so far.
Let’s see what others make of this once you come up with a few more answers.
Benny
Hi Timely,
That depends on a lot of factors. But for mine, I prefer to look the other way, so I’m a “NO” to your question – rather like Jason in this link :-
https://www.propertyinvesting.com/buying-investment-property-off-plan-dumb/
There are so many things that can go wrong when purchasing any property off-the-plan that I prefer to leave that to others who haven’t taken the time to research things better.
Benny
Hi HLaura,
Wouldn’t be likely – the meeting is a Brisbane one. Steve is from Melbourne.
Benny
Hi HLaura12,
The training that is available currently is computer-based, and it outlines the steps Steve recommends we take leading up to, and at the time of, purchasing investment properties. The course is very complete and includes a 14day free trial to ensure that the product suits your purpose before final commitment.
To check it out, go here – https://www3.propertyinvesting.com/steps – I recommend it to you,
Regards, Benny
Thanks to Steve – in another post he found a link that puts a statistical value on a human life in Aust. I link his post here, as it adds some value to an earlier post in this topic. Here’s Steve’s post:-
https://www.propertyinvesting.com/topic/5082736-65-roses-gamechanger-for-many/#post-5082778
The first link goes to a Wikipedia entry titled Value of Life.
And it helps me with the earlier post in this very topic I made on Aug 10th, 2021 (scroll upward to find it, or go to the link below):- – https://www.propertyinvesting.com/topic/5070205-are-govts-making-covid-tougher-on-us-than-they-should/#post-5076539
Wow – that’s one helluva discount. With a statistical value of $5m per human life, paying $330m to save one life sounds quite extreme (just as I had thought at the time). Interesting !!
Benny
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