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July 30, 2014 - 2:47 pm

Hi Woody,

I wanted to get a $60k LOC to leave sitting there until I find my next property. COmmbank want a contract first.

Could it be a LVR concern – that there is not sufficient Equity in your place? e.g. if $60k is a bit tight, they might be wanting to cross-coll your PPOR with a new IP (don’t do that !!).

Or, is it a DSR concern? Are they wanting to see extra Income from an IP in the equation?

If you are able to share a few more of the “numbers” we may be able to help more,

Benny

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July 29, 2014 - 7:02 pm

Hi Mercury,

Also, if i moved into this property as my ppr for 12 months, there would be no CGT?

As I understand it, this is true – but with some caveats:-
1. As long as you didn’t move into another PPOR (instead, go and rent), or, you sell it as you move out of it.
2. It retains PPOR status for up to 6 years (subject to 1.) after which you must move back in to “restart the clock”.
3. I’m not sure re the timeframe – 12 months sounds OK – but this is really a question for an Accountant (or ATO) to answer…

It is always good to run such situations by an Accountant or similar adviser.

Hope it helps,
Benny

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July 29, 2014 - 6:47 pm

Hi Camp grenada,
Wow, you appear to be in REALLY good shape !! With that amount behind you, I’d be thinking there would be a way to turn this ship into “positive geared” so that you can retain all properties. As you say, holding property in Sydney is usually a Growth play.

A little bit of confusion from me though – you mentioned two IP’s with little Equity, but followed up that they are “unencumbered”. I’m not quite sure what you mean there. What I would suggest is that you lay out a few lines with :-

Area/suburb Value Mortgage Rental Expenses

…. for each of these four IP’s. See, with the amount of Equity available, you could look to purchasing more positive geared IP’s to Offset any losses from the others, or even look to diversifying into Shares to “top up” the Income. Perhaps even use a smallish Margin Loan.

I’m sure many advisers would LOVE to have a client like you !! There will certainly be LOTS of options for you, so don’t go rushing headlong into anything right away. Do read up on Offset accounts (if you aren’t using these ATM) – you can find a post on them somewhere in here:-
https://www.propertyinvesting.com/forums/general-property/4349450

Meanwhile, I’m sure some of the stalwarts on here will have some really useful info for you. Keep watching – I’m sure there will be heaps of ideas coming your way soon,

Benny

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July 28, 2014 - 2:30 pm

Hi Mr LV,
What general area is your IP in? North, South, etc, or even a suburb if you are comfortable.

I had a property sold for me on the Eastside – I was NOT going to use the managing agent’s Sales Team (our Rental Manager was tops, but not the Sales team), so went looking for an alternative.

We compiled a shortlist by checking out houses each prospect had sold, their success in the area, etc. Wife and I then met with the prospective agents, asked questions re HOW they would market our property, and WHY they chose that way, their expected Market Price range (was it realistic rather than “over the top”), etc.

We then chose one that we felt comfortable with at the interview – both with answers to questions, and their persona – did we feel comfortable with them – the old gut feel. Our choice did very well for us – they were tops in keeping us in the loop, and in working for US rather than the other party. Happy to recommend them (if they are still in business – my Sale was a few years ago now).

Benny

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July 27, 2014 - 2:50 pm

Hi SwiftE,
A good problem to have, for sure !! If you have $170k in Offset, then you would be CREAMING your mortgage (only paying Interest on $27k, and the rest of your monthly payment will be paying off principal). I would suggest you check out just how well your Offset is already working. It MAY be advantageous to NOT pay it off your Home Loan (especially if you have ANY plans of turning this PPOR into an IP down the track).

See, while in your Offset, all of the $170k is YOURS, to do with as you wish. You have paid Tax on it – you can take amounts out to do what you wish. But if you pay it off your mortgage, then any requirement for chunks of cash will either have to come from more savings, or from a Redraw. Think long and hard (and ask a heap of questions) before doing this.

In case it helps, do take a look at this thread :-
https://www.propertyinvesting.com/forums/general-property/4349450

That thread has a post specifically about Offsets, and how GOOD they are. The other posts endeavour to answer a heap of “early questions” that may be worth considering before making your next move.

Do keep in touch as you arrive at your decision points. As NewGuy says, working out just what you want to do probably comes first – then, HOW do you make that happen. The HOW “might” mean paying down your Home Loan and having less outgoings per week, or it may not. Good luck with it,

Benny

• This reply was modified 9 years, 9 months ago by  Benny.

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July 23, 2014 - 1:21 pm

If both houses are similar in value, couldn’t he create a contract where the gifted house is chosen only after both houses have been built in order to avoid the builder to funnel most resources to his own property?

I like that thought, David – it prevents the builder from building “his” better than yours. Basically, YOU (Theresa) choose which one you’ll have after he builds both.

Of course, the Builder must then have the capacity to carry the costs of building two homes (offset by negotiated pay-backs from the buyer i.e. stage payments). But then, the builder would only receive stage payments for ONE property – he would have to be able to carry the second one himself, AND build both to completion – then allow Theresa to choose which one they want. The Builder then gets the other.

As so many have already said, it must all be water-tight….

Benny

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July 21, 2014 - 9:08 pm

Thanks for all of the replies thus far. Interesting point about LMR and its restriction to 3 levels. On 809m2, would this allow something like 12 units?

@nigel – “Once you know you could get a permit for the site a developer will certainly pay you a premium for that”
Hmm, the RE agent is talking like SHE already knows they CAN get a permit.

And, the house next door was sold about 6 – 8 months ago (half the size of ours). But if the same developer had bought it, and was now wanting to buy ours, it increases the value of the whole site, or at least makes it more easily possible to add extra units. With ours being the larger block, its purchase would be worth paying “over the odds” perhaps?

It gets interesting-er and interesting-er !! :p

Benny

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July 20, 2014 - 11:53 pm

Hi Matt,
Welcome aboard !! That is a bit of a different scenario, for sure. I don’t know the answer to your question. I do know that if you sell the old one, there should be NO CGT payable. But if selling the new one – ????? Hmmmm.

Hopefully one of our more experienced members can shed some light. To that end, my reply will bring your question back into the spotlight as a “new post”.

Out of interest, what led to the change of plans? Was it sudden “exposure” to property investing? i.e. being advised by someone that selling the new might be more beneficial for you.

Anyway, let’s see what happens now,

Benny

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July 20, 2014 - 11:09 pm

Hi FLW,
Welcome aboard !! Wow, no replies in a week? I can only think it got missed by most. Let me start by saying “I don’t KNOW Perth”, so my thoughts are more general. In the end, you will know more than I do, but maybe my thoughts might help focus you on the right choice for you.

Re the three choices you mentioned :-
1. “Rent out property, load up Offset etc…..”
This has some possibilities – it sounds like this is currently your PPOR – is it? If YES, then you have a CGT exemption for up to 6 years if you don’t take on another PPOR meantime (i.e. you live in another property that is NOT your own home). So this can be a major benefit when you do sell this place. Also, I hear from others on here that “Perth is a buyers market right now” – thus, perhps not a great time to sell?

2. “Keep IP, leave it as negative geared and still load up offset account…”
Though different words are used, the first part sounds like 1. to me. Am I missing something? Maybe it is simply that you are adding “the possibility of taking money in Offset to develop”. In both 1. and 2. just by loading up your Offset with any spare cash, this could turn the apartment into positive geared quite quickly – so both 1 and 2 sound good that way.

3. “Sell, take some profit and use that profit to fund property developments” That is one for you to answer – if this takes you closer to your goal, then by all means consider it. With Perth possibly a “buyers market”, do you think it is likely to grow in value in the short term? Or are you able to use the released funds in a more efficient way by developing? Again, that depends if you are “ready to rock’n’roll” with developments.

Hopefully others from Perth may be able to add some value to those thoughts of mine. DO come back with more info – we may be able to add some extra thoughts as your proposed action becomes more clear to you,

Benny

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July 15, 2014 - 8:13 pm

Hi Colagirl,
The major four are – Rates, Insurance, RE fees, and Maintenance – and, if a unit, add in Body Corp!!

Sounds like you have thought through most of them – re Maintenance, do you need to consider lawns, gardening, or is the tenant taking care of those?

Benny

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July 15, 2014 - 7:27 pm

Hi Ross,
Do you know of any other useful treads that might be of interest to me as I’m only starting my investment journey.
I plan to add them to that same thread as I find them.

Can you think of things that could/should be added? After that, it is a matter of FINDING (or creating) good answers for the thread. What of your early questions need an answer right now?

Benny

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July 15, 2014 - 7:21 pm

Hi Giles,
Congratulations on your first IP purchase !! Well done. *applause*

Doing some calculations, its set to be negative geared signifcantly.

Have you taken all calculations into account (Tax deductions, capital allowance, etc) in saying that? If not, do try it.

In fact, do you want to share (broadly) the income/costs that you are including?

Who knows, we may be able to make it less negative for you, or, we can give you a 100% Pass mark for doing the numbers !! Whatever, it’s all good, and it would be great for other new investors to see a real life example to digest,

Benny

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July 15, 2014 - 7:12 pm

Hi Ronnie,

I enjoy reading it and wanted to ask if jwareham1985 converts his loan to interest only loan and rents it out as an IP how will he ever get to pay the loan off?

Well, that depends on many things. Your overall question seems to infer that JW should pay it off. And you might be right – but each investor’s situation is likely to be different, and what is right for one may not be optimum for another (even if still “right”).

Let’s question the pros and cons of “paying down a loan on an IP”…..

PRO’s of “paying down a loan” :-
Creates a lower LVR, thus creating a good Bank history (i.e. more loans?)
Security – or “sleep at night” factor enhanced
…

CON’s of “paying down a loan” :-
If other debt exists (credit card, PPOR loan, car loan) these should be “paid down” first (the IP remains Tax deductible – the others aren’t mostly)
Reduces Tax refund as amount outstanding drops (less Interest being paid)
An Offset can have the effect of “paying down” a loan while retaining flexibility – pay extra into the Offset instead.
…

That’s just a quick starter list. I’m sure there will be MANY more CON’s (and some more PRO’s too – though I can’t think of too many). Anyone else want to help Ronnie out by adding to the list?

As a final thought – there are myriad ways of making IP investing work. The difficiulty in creating the list above is that it can become too generic, and taken as gospel. There are many “Ah, but what if…” situations that can turn a right answer into one that may not work in every case. Let’s give it a go anyway – I’d be interested to see others’ thoughts on this one.

Good question Ronnie !!! *applause*

Benny

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July 13, 2014 - 3:00 pm

Hi Theresa,
I haven’t done this – but, going by the tile, it sounds like you are effectively gifting the land to a builder in return for having them build two properties. There may be negotiated “give and take” $$-wise, but is that roughly what you are thinking of?

If so, the thought that struck me would be that YOUR house should be completed before the builder builds HIS. The last thing you would want is to have him go bust (or lose interest, or prioritise other work, etc) with your house un-built. I think it would be necessary to work with a Solicitor with this one.

A good thought, but don’t take half-measures with it…..

Benny

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July 13, 2014 - 2:49 pm

Hi Brizza,
Re your question” – “do the beneficiaries have to be named when the trust is drawn up?” – I have had a Trust set up for me some years back. I recall that beneficiaries can be included without names where they are actually “unknown” (e.g. children of a beneficiary who are as yet unborn).

We have Primary beneficiaries, and there is also a Secondary and a Tertiary group. Our family group (Mum, Dad, and two sons) are Primary (and named) Beneficiaries. Any “children yet to be born” go into the Secondary or Tertiary group. So, there is provision for “expansion” shall we say.

Re Terry’s comment “must be known with certainty”, that makes sense – i.e. if one of my sons were to sire a child, the certainty would be in the form of a Registration of Birth with my son as the father – even though un-named today, this future child can still be a future beneficiary.

I can’t help with the other questions, sorry – I hope someone else can help with those.

Benny

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July 12, 2014 - 9:58 am

Hi Shank,
Not sure of the answer to your question – it is quite beyond me…..

BUT, for a time that I worked in Sydney, I was able to claim LAHA. My accountant had said “NO, it doesn’t apply to you – it is only for politicians” but a colleague pointed me to an agency that DID provide this for me (I became an employee of theirs). They quoted earlier court cases that set precedents showing that my case DID apply.

And it worked – except for the fact that I was in my early investing days and looking to add to my portfolio. What transpired is that my Taxable Income dropped markedly, making it pretty much impossible to borrow any more. I then chose to leave their employ, and went back to being a PAYG with another manpower company. This returned my wage to its former high level.

I’m not sure that I should publish the agency’s name on line, but PM me if I can help further,

Benny

• This reply was modified 9 years, 9 months ago by  Benny.

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July 12, 2014 - 1:29 am

Hi Ronnie,

Would we be treated taxable income together since the property is under both names eg 50k + 50k = 100k salary minus the $5000?

I believe you would do separate Tax Returns (thus your Tax benefits will be lower than if one of you earned $100k). That’s simply because those on lower wages pay less Tax, so any refund will be less too.

Talk with an Accountant re how the $5000 is apportioned – I wouldn’t want to hazard a guess on that one. If it were $2500 each, then both of you would be taxed as though earning $47.5k and any Tax you had paid above the required amount would be returned to each of you from the ATO.

Make sure your losses include Depreciation and all the other “non-cash losses” too. Again, an Accountant will set you right. It’s a whole other dimension. But you sound like you have the basic idea – well done. Now to add to that knowledge eh?

Benny

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July 11, 2014 - 10:11 pm

One of the common areas providing confusion for new investors is the “gearing” of property (i.e. Positive or Negative Geared). In short, if a loan is positive geared, it means the loan is small enough (or the returns high enough) so that it requires none of your own money to keep it running – it puts money in your pocket each month.

Negative gearing occurs when all costs including the mortgage exceed the Income, and you lose money each month. With many investors opting to maximise borrowings (e.g. 100% and even more), the mortgage cost is also maximised, making negative gearing almost a definite. With current laws allowing investors to claim losses against their personal Income, these deductions alleviate some of the pain of losing money every month. Some might choose to pay down a mortgage when $$ are available to bring a negative geared investment into positive territory. Increasing Income and cutting costs can also help with this.

The term “neutral geared” is also used to indicate neither negative nor positive. It doesn’t cost you to hold, but it also makes no/little Income per month (of course, it may be growing Equity, but that is not Income).

When in acquisition phase (growing your portfolio), gearing can be a big help. Of course, it carries bigger risk too – so consider your own tolerance levels when planning whether to gear negatively. Like high gear on a bike, negative gearing can help you to achieve greater speed, but if you strike a hill, much effort is needed to keep going – AND it can end up taking you backwards if you are unable to maintain momentum.

Positive gearing is more like a low gear on a bike – even if you strike hills (e.g. Interest Rate increases) it requires less effort to overcome them. You may not make as many $$ per month, but it is easier to keep pedalling (pay your mortgage) when you are positive geared, even when climbing hills.

As Steve warns in his “Negative Gearing” article – https://www.propertyinvesting.com/strategies/negative-gearing/ – if a Sales person pushes the Tax Advantages of purchasing a property he is promoting, take special care !! The article linked above tells you WHY !!

There are advantages and disadvantages in both kinds of Gearing, depending on your situation and your goals. Feel free to ask more questions if things still aren’t clear. These subjects are very important to your investing future, so better to get them right before starting out.

Check out the useful articles in the Training Centre (look for the link on the Home page). A wealth of useful information is subdivided into sections like – Finding Properties, Buying, Selling, Analysing, Finance, etc.

Benny

• This reply was modified 9 years, 5 months ago by  Benny. Reason: update to reflect forum changes - Nov 2014
• This reply was modified 5 years, 1 month ago by  Benny. Reason: Update needed

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July 11, 2014 - 9:48 pm

Hi Ronnie,

To be honest I don’t know much about property investing, just read an article on the train one time about brief explanation on positive gearing and negative gearing.

Have a quick look at the link following – it will answer a lot of early questions to get you up-to-speed and warn of dangers.

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

Enjoy,

Benny

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July 11, 2014 - 8:45 pm

Hi Ronnie,
Did I make sense or is he on the right track?

You made sense…. He was just wanting to make a commission. I would think his “not understanding” was selective amnesia on his part !! I’m sure he knew EXACTLY what you meant.

Next time, if it is such a good deal, ask him how many of these great deals that he owns !! :p

Benny