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March 12, 2014 - 2:43 am

Hi Niccy,

  It is quite likely that some of them will be dropping by this thread of yours later on….  

  Check out their signatures telling you their professions.   They will likely also be providing you with a direction in their replies.   Keep watch….   

Benny

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March 12, 2014 - 1:12 am

Hi Niccy,

  It is the "purpose of the loan" that is important.  Your words seem to say that you have purchased Prop #2 as a place to live.  In that case, I would tend to agree that you wouldn't be able to claim the loan as for investment purposes.

  But do you HAVE TO move into Prop #2? 

  If you can stay where you are, then $100k of the $104k should be deductible – BUT you have an account with "mixed" personal and investment monies.   I'd suggest getting that put right.  Talk to your accountant, or one of the advisers on here. 

Benny

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March 11, 2014 - 8:22 am

Hi Scott,

  Thanks for taking the time to expand on that for me – I think I will give it a miss for now,

Regards,

Benny

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March 8, 2014 - 10:49 pm

Hi Ferdinand,

  It seems to me like you (and your wife) would be wise to sit down in front of someone like Richard to thrash out all of those aspects.  Even as a layman, I see a number of good possibilities for the two of you.  With a plan that is agreed to by both of you, you can do very well.

  Re the current PPOR becoming an IP later, that can work in many cases, but there may be better ways too – e.g. is the PPOR in a position where it "suits" being an IP, or would you be better advised to sell it, and use the proceeds to buy 2 IP's in better rental areas?  

  There are lots of ways to cut this cake – choosing the best way that suits the two of you is a good starting point.  Once you know which direction to head, your journey will be easier.

  It is great to see you looking to your future and sharing in the collective knowledge on here.  Well done,

Benny

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March 8, 2014 - 5:54 am

Hi Robbie,

  I'm with Redwood (and PLC) who says this :-

Quote:

don't buy an inner city apt 'in general'. Why? they are overpriced and priced for the wealthy chinese market, and generally 10% over FV.

  Another major reason why apartments (especially in highrises in major cities) are not such a good deal is that a huge percentage are sold to overseas buyers (I don't know current figures, but have heard up to 50% can be to the overseas market).

  Because of FIRB rules, o'seas buyers are ONLY allowed to buy NEW properties (it helps to keep our builders employed).  If 50% of an apartment complex is thus owned o'seas, what happens in a downturn in their country?  Many of them might wish to sell what are now second-hand properties (thus they CANNOT be on-sold to other o'seas people, leaving only  Australian residents to buy them).  

   If too many come on the market at once, and with half of the original buying market now GONE, what is likely to happen to the prices of these apartments ?     Hmm…….

Benny

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March 8, 2014 - 5:38 am

Hi Johnny,

  And welcome !!   It sounds like you are in good shape, despite a little "untangling" to be done.

  I'm sure if you choose to utilise one of the Mortgage Brokers on here, they will be on top of everything.  But, should you choose to go another way (via a Bank, or another Broker somewhere), do consider your current situation re your PPOR.  Your words suggest you might be retaining it as another IP.  If that is to be the case (and even if it isn't…) do look at changing its current mortgage to Interest Only, and set up an Offset account against it.  This will do a couple of really nice things :-

1.  It will see you paying less and less Interest on your PPOR as the Offset balance grows.

2.  Should you then wish to buy another PPOR, you can simply withdraw the monies from the Offset as your Deposit/Costs on the new home, and the existing IO mortgage on the old PPOR is then ripe for a Tax deduction with the mortgage that you set up today (or soon).  

Since you have already paid off a chunk of your PPOR, there remains a lot of equity in that place which could then be harvested to buy another IP or two.

You look to be in really good shape to achieve your goal – "the ultimate goal is to have a reasonable second income from IPs whilst having the PPOR paid off."

Benny

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March 7, 2014 - 4:29 am

Hi Tommy,

Quote:

My biggest question has and still is: where does the deposit for the next property come from? ……

This just seems a long way off my traditional understanding of purchasing 1 property a year.

The early days are always the hardest.  When starting, more than ever, buying property "at a discount" or buying where you can add value quickly (reno?) is the way to go, even if cf+ already. 

That way you get the quick equity jump that can help you into property #2, then #3, etc.  One you have a portfolio of 5 or more, even a small %age rise in values (2 – 3%) can be enough to allow you to buy #6. 

Benny

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March 5, 2014 - 10:00 am

Hi Schplak,

 

Quote:

how would you choose between two $500,000 properties in an area with a median house price of $500,000, compared to four $250,000 properties in an area with a median house price of $250,000 (all other variables and potential gains / income being equal)?

  Purely to "help you get your head around it", if all other variables are equal, then having four properties helps you out when a tenant vacates – you have lost just 25% of your rent until another tenant is found instead of 50%.  With 75% still coming in, hopefully your mortgages will still get paid without too much damage.  Conversely, with half your rent gone (if a higher value tenant leaves), covering the mortgages could be a bit of a stretch for a few weeks.  Having four properties could also help if you want "diversification" (not one of my hot buttons, but it can be a safer ploy for some).  

  At the lower end, anyone can afford to rent them, so you are less likely to have an empty place for very long.  Of course, some things won't be halved with a lower value property – e.g. conveyancing costs on purchase, rates, insurance, accountant fees at EOFY, maintenance, etc. 

  But then, rents of a cheapie are likely to be more than half of the more expensive property – just as well eh?    

  I'm sure there is more – but that should start a few thoughts going.  In the end, personal choice, abilities, goals, etc will dictate your path,

Benny

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March 3, 2014 - 7:49 am

Hi NI,

  The answer to your question comes from the "numbers" – at 95% LVR, there would need to be a really good Gross Rental Income to be +ve geared.  This is simply because of the high %age borrowed, thus making the loan a higher number.

  Yield comes from Income divided by costs.  Thus with a 95% loan, the Income needs to be higher to still have a +ve cashflow.    Gross Yield is the "quick and dirty" number that is often quoted on here – simply, "Expected Rent per annum divided by Property Purchase price".    It is often used as a quick way to decide whether a property is "worth spending time on" prior to a possible purchase.

  So if Derek were to find a property with (say) a 10% Yield, then it is likely to be positive despite the extra high (95%) mortgage.   .With Interest as low as it is right now, maybe even a 7% yield is enough…   But there are other costs, and they vary hugely….

Benny 

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March 3, 2014 - 7:36 am

Hi NI,

  Jamie is right with this….

Quote:

You're only disadvantaged if you decide to rent the PPOR at some point – because you would have paid down a chunk of the principle (which would become tax deduticble when it becomes an IP).

… but again, it is something that isn't a major problem.  e.g. If you decide you want to move out of this PPOR and rent it out, but have paid heaps off the mortgage while it was your PPOR,  there is nothing to stop you borrowing against this for more investments (thus having those new loans becoming tax deductible).

  The issue can be, if you are moving out of one PPOR and buying another, then any borrowings for the new PPOR will not be deductible (because it is not for investment).   Other than that, anything is fixable – and of course, you can choose to SELL your old IP, thus getting a CGT exempt sale.  

  Whatever move you choose, do run each scenario in front of your adviser before doing it – and it helps if you can "get a handle on it" from your earliest investing days (hence this post of yours, I guess).  Well done – keep on asking until you "get it" !!

Benny

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February 28, 2014 - 11:57 pm

Hi AI,

  See link below – it points you an article that should answer the question of "PPOR or IP?"  

https://www.propertyinvesting.com/forums/general-property/4349450#comment-296958

The further question (Tax deduction re the business) I would think it would be similar to how it would work in your PPOR – i.e. a percentage of costs might be able to be claimed based on office size, personal vs business use, etc   That would require more input from someone else though.

Benny

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February 28, 2014 - 11:24 pm

Hi Shangrila,

  What an interesting question !!  I will be intrigued to read what those who KNOW can provide.  

  As a layman, I see a problem for the party that owns "half as an IP, yet doesn't draw any rent, and lives in it".   To me, that makes it NOT an IP at all, but a PPOR.  But then, "maybe" they can own the other person's half, and rent their half from the other party.   That would then leave the other party NOT in their PPOR, but "renting" the IP owner's half.

  Wow – it is a minefield, and not one I can easily see a way out of.   But let's hear from others who know….

Benny

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February 28, 2014 - 2:23 am

Hi Derek,

   Welcome aboard.  You have come to the right place, my friend.   It is great to see one so young (looking at your picture there) getting interested in the world of Real Estate investing.   I hope you stick around and do lots of reading, as the amount of knowledge here is outstanding.

  As well as that, do find and read some good books from different authors to get a rounded view.   And go to Meetups that are often posted here (usually monthly) to meet with others who are already a year or ten ahead of you.   For now, by all means start to get familiar with RE agents and "what's out there", but it really seems a bit early in the piece for you to be "looking for a bargain to buy".

  For now, take the time to learn, meet up with others, save more, keep reading, go to seminars, ask more questions, etc.   Your enthusiasm is there, so channel it into doing the important first steps (buying a property comes later…)  In my case, I took nearly a year to do all those things, so that once I had it all together I really was "ready to go" and bought 3 IP's in the next year.

  I hope these words haven't "put you off", as RE investing is a GREAT way to build your wealth over time.   There are lots of strategies to consider, some of which might get you started for just a few $k's too, But these really need to be understood before embarking upon them.  

  I'll step back now and let others have a go – but again, WELCOME !!

Benny

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February 26, 2014 - 12:06 pm

Hi dude,

  It is probably a good idea to have a one-on-one chat with someone who can assist you to make the decision.  The sharing of your private information would allow a better discussion – i.e. do you have a large wage to handle a -ve geared property?  

  But then there is :-

   Are you confident that where you buy the market has the signs of adding value over time?  Do you know which demographic you want to rent to (e.g. professional couples with no kids, family groups, seniors, students, etc).  Do you have the $$, skills, time, to buy a -ve geared and add value and raise the rent – making it neutral or +ve geared?   Do you want to buy a house with potential for development down the track?  etc, etc.  There are lots of horses for courses – picking the one to bet on is the first hurdle… 

  See, your skillset and desires may well guide you into possibilities that can be more beneficial once you identify just how you want to proceed.  Keep reading, meet up with other investors (see the Meetup posts that pop up now and then), take ideas from within posts and align them with your thoughts. 

  Of course, some on here can provide advice too, as part of their profession.  Making contact with one of them might focus your thoughts once you can share more of your personal financial situation with them.   Their works are on display – maybe make contact to see if their words can focus you into a more specific area of property investing. 

When starting, we don't know what we don't know, so using others' knowledge is a smart move – your post today was a smart move.  Let's see where it leads,

Benny

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February 23, 2014 - 5:56 am

Hi David,

Quote:

My understanding on VF monthly instatement repayments process is that the owner keep his loan until last payment done by the buyer

  That could well be right – I am not familiar with VF loans. 

  Just beware that if someone is buying from you in the "normal" manner, that the break costs could be large, depending on tenure of loan (3yr Fixed, 5yr Fixed, etc)

Benny

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February 22, 2014 - 11:38 pm

Hi David,

  Be sure to check out the "break cost" of your Fixed Loans with your Bank before putting the units up For Sale.   There could be a nasty surprise, depending on where variable rates are sitting.

Benny

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February 21, 2014 - 12:23 pm

Another great read re "How do I choose which suburb to invest in?  What should I look for?" 

In his reply recently, Dave Ward goes above and beyond with a VERY full description of things that can influence a suburb and thus its potential for investors.  

I'll let Dave explain it more, here :-

https://www.propertyinvesting.com/topic/4410658-advice-on-finding-properties/#post-4699150

Great post, Dave, 

Benny

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February 21, 2014 - 12:10 pm

Hi TNI,

 

Quote:

I am guessing these are house & land packages being developed but my question is what does the description mean by "LOT"

 When a new development is being planned, this includes mapping where streets will go, but without street numbers allocated, they use the Registered Plan description of (e.g.)  Lot # 11, RP # 123456, Parish of Timbucktu.  

 You will see this on Contracts, Rates notices, etc.   It is what developers use probably right through the process of developing new areas.   Even with street numbers assigned, I think they would continue to use the Lot #.  Your current house would have a similar Lot # even today, even though it has a street number and address.

 Someone else can likely give a more definitive answer, but that will get you around any adverse thinking for now.  it really isn't any kind of issue.

Benny

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February 21, 2014 - 5:17 am

Hi Elizabeth,

  And welcome to this place.  here is an absolute wealth of knowledge available to you here.  I'm sure you will get a lot of benefit just by trawling around and reading.  More to your question though, I must agree with others who say "It doesn't make sense to spend a $1 to get 40c back – BUT, it can be helpful if you are reasonably sure that it will advantage you down the track (with growth, either engineered or just buying the right property in the right area). 

 Have a read of this thread, and do help me populate it with any threads YOU have found useful :-

https://www.propertyinvesting.com/forums/general-property/4349450 (post #3 may turn on a light for you….)

 For now, that Offset account sounds like a good way to go – it allows you to "take out" that money without upsetting things later.   i.e. your current PPOR might make a worthwhile IP of its own – but that will depend on what you choose to do. 

Do come back in Reply with any further questions too – who knows, maybe THIS thread will become a "go-to thread" for other new members down the track.   I am still looking for useful threads to add to that "big picture" one.

Benny

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February 19, 2014 - 11:57 am

Hi CH and Hank,

  Hmm, what a shame no-one else has "got up to dance" on this one.  I would be interested to hear from others too.  Here's what I can think of for now :-

Quote:

  Also, can you get a personal loan to use for a deposit? I asked a broker this years ago when I didn't want to save a deposit and he pretty much laughed at me.

  I read in more than one book that Personal Loans are not issued for Deposits on investment property.    So, these authors went to their lenders, saying "I need a Holiday" or "I want to build a garage", etc. 

  Then, having got the Loan(s), they decided "Hmm, I don't really need that holiday, and the old carport will do for now……" and they then <….you fill in the blanks ….> 

  … or, were they just good story-tellers?   I haven't done it personally, so can't add anything more that I can point to specifically.  I hope others can,

Benny