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January 2, 2014 - 5:49 am

Hi John,

  A broker would be better placed to advise you of the current scenario with different banks.   Certainly though, there are many benefits of being able to borrow over 100%.  And there are ways to do that too, depending on each investor's situation.  

  You seem to have "what it takes" in my eyes (based on your input), but others would be better placed to assist you in depth.  Main thing is to sit down with someone knowledgeable and map out your likely path (set goals) so that you will be heading in the right direction from the outset.

  Go for it,

Benny

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January 2, 2014 - 4:54 am

Hi John,

Quote:

Also does this mean when i go to purchase my next property ill not only need to save up for the 10% deposit, but ill also have to save up to pay the full stamp duty amount?

  No, you'll probably borrow 105% ( the extra being to cover such costs).   Assuming of course that your future goals include "growing your RE portfolio". 

Benny

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December 31, 2013 - 5:12 am

Quote:

e.g for MELB in eastern suburbs always had more capital growth than western side

  The East has a lot going for it particularly on the Eastern Seaboard of Australia. 

 1.  If travelling to or from work, the Sun is NOT in your eyes (assuming you work a 9 – 5 work-day.).

 2.  You are automatically going to be nearer the Coast with its cooling breezes.

 3.  There is LESS land available to the East – most evident in Sydney where there is diddley squat to the East, but what IS there is some of the highest priced (and prized) real estate.  Still applicable but to a lesser degree in Brisbane – it is about 25Km to the Coast when heading East.

  (I don't know how this East vs West thing might work in Perth…..) ????

Benny

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December 31, 2013 - 4:54 am

Hi Sampson,

Quote:

my mother thinks the brick one for location and thinks the newer house will go up in value a lot more than the older one. What do you think about this? The newer house is bigger too…will a 90 year old house still go up in value compared to the newer Brick home?

  Typically, buildings devalue while land appreciates – at some point, both houses will be knocked over and replaced (could be MANY years away however….)   

    A lot depends on the area and the Council.  e.g. if the older house is in an area with many other old homes, a Council "might" want to keep the heritage look of the area, and will be less keen to have anyone knock it down.  In Brisbane, this is called a Demolition Control Precinct, and it leads to much difficulty with getting approval to demolish if the area is of heritage significance.  We own one in East Brisbane that is under this Control.  

   Depending on the area you are in, there could be several possibilities :-

1.  The older house (if part of such a precinct) could even grow faster in value if neighbouring homes are having $$ spent to "gentrify" the area.  Of course, the 20yr old house could also be in a nice area where similar pride is displayed and the 90 yr old might be in a street where "nobody cares"…..   In that latter case, Mum may well be right. 

In short, in BOTH cases, are the houses you are looking at "the worst house in the street, the best, or somewhere in the middle?"

2.  Older homes tend to have larger bedrooms and smaller living areas – the larger bedrooms might suit the student market where they can spend time in the peace and quiet of their own room without going stir-crazy.  

3.  When reselling later, many buyers might "think like your Mum" – like, "Oh, we wouldn't want to buy that old place – it will cost too much to maintain!"  That could be why the current price is lower than the 20 year old…..   Can you get it for an even lower price perhaps?

4.  Re location, is the newer house perhaps closer to – shops, transport, schools,etc.   If so, this could also make the 20 yr old home more desirable, even to students.  They won't want to carry their groceries too far…..  

5.  Developers (including you, a few years on?) would want to get demolition approval as easily as possible.  What are each of the surrounding areas doing in that way?  Maybe they are not yet knocking down 20 yr old buildings, but does its location lend itself to more apartments (shops, transport, schools, etc) meaning that development into the future may well be easier.   Not too many Councils are concerned about "20 year old" districts (little heritage value) – but then, the 20 year old "might" be in an area with other 90 year old homes….    (gasp!!)   Is it?

  Sorry Sampson, no quick answers – just more food for thought, things to check, research to be done…..  

  Keep it up though – this is called due diligence (finding answers to questions that you may not have otherwise considered).   Go for it,

Benny

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December 30, 2013 - 12:11 pm

Hi Sampson,

  Just a few thoughts that may help you choose…..

  I feel the older home has a few advantages over the brick home :-

     1.  Closer to the university (question – will students pay an extra $5 to $10 a week to save a bit of time?)

     2.  "Recently renovated" (read – could be some useful Depreciation $$ just waiting to be picked up)

     3.  Gross rental return ~8.5% (compare with ~7% for brick home)

  Of course, this is predicated on the 90 year old house being structurally sound.   Is it?   A building inspection would be mandatory methinks …..    What about the garage?  Is it "built under house" or "free-standing"?   Lots of DD required here too.   Is it legal height already?  Is Council happy to allow "dual tenancy" in this area?   And the big one (applies to BOTH properties:-

   I have heard that SOME Banks either won't lend for student rental, OR they lend at a lower LVR.  (read – do be sure you have finance approvals sewn up well before you go to contract on either one). 

  There are usually higher maintenance costs on an older home, but the "recent full reno" would have sorted out a bunch of the usual maintenance issues – do you know if the reno included rewiring the place?   How sure are you that the final figure of $350k will be accurate?   e.g. bringing a garage up to habitable standard will require considerable work.   What will you do with the pool?   Will you fill it in, or use it as a drawcard?  (Pools can be a very expensive cost to landlords….)    Maybe students will pay slightly more to have a pool too……

  Hmm……..    Which one were you feeling "attached to"???       Good luck with it,

Benny

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December 29, 2013 - 10:36 pm

Hi Matt,

Qlds007 wrote:

Maybe i am slightly biased but i would always suggest using a Broker

  As one who is not a Mortgage Broker, let me say that I have found it to be a very good move to involve one. 

  As Richard says, a bank will not tell you that your circumstances would be better suited by another bank's product.   A Mortgage Broker is able to take an overall look at YOUR situation and tailor a loan for YOUR benefit, as they have hundreds of possibilities at their fingertips.

  Richard is one who is spoken of highly within the forums, and there are several others right here who are also able to assist you (check their sigs as they reply).   Their replies give a very good idea of their expertise – as you read them, ask yourself if any bank lender would be able to provide similar in-depth answers.

  I say do yourself a favour, and check out what a MB can do for you.

Quote:

any real estate traps from the agents?

Yeah, don't ask a barber "Do I need a haircut?"   An agents role is to sell you a property, and they are expert in closing deals.   Remain level-headed (perhaps even take someone else along with you who can give some cool and calm advice).  

Think of it like a Sale at a store – if you find an appliance that you like, appear interested yet mildly un-convinced, and can walk away even after they lower the price, and then go check out other appliance stores for better, you are ready to deal with an RE agent……   

Especially with your first buy, do be sure that you have your solicitor inspect the contract PRIOR to your signing it.   That is a very sensible way to give yourself time to relax and REALLY consider if this is the house you want.   

And have your finance in place (i.e. you have already seen your Broker) prior to buying.  Good luck,

Benny

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December 28, 2013 - 10:22 pm

Hi GL,

  You appear to have started three threads on the same topic.    I'd suggest you respond to this one (since you have had a response from Jamie) and leave the others to a Moderator to delete.  

Benny

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December 28, 2013 - 2:05 am

Hi Christine,

  While talking to your Banker, do check out the "break cost" of any/all of your Fixed Loans.  Depending on what Interest you have locked in, and the lending rates today, you may be up for a huge cost, or nothing at all.   I would think right now, the break costs would be huge.   As I understand it, if they can finalise your Fixed Loan and then re-lend those freed-up dollars at a HIGHER Interest Rate, then the break cost may be very little, or even free…..

  But if your Fixed Loan is (say) at 7% and they are only getting 6% if they lend it out again, then the break costs can be exorbitant.   Better to know upfront where you would stand with those.

  Perhaps an extra loan can be created over and above a Fixed Loan e.g. using Shahin's example (value $500k, current loan $300k) perhaps you can borrow an extra $100k as a separate loan without "breaking" the Fixed Loan.   It is worth asking the question of your banker/broker. 

  Oh, and check any LMI cost – I suspect it could be factored on the total borrowings, and not just on a new $100k loan.   Again a banker/broker would know this.

Benny

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December 26, 2013 - 1:06 pm

Hi Manolo,

   I was about to say "Welcome to the forum", but I see you have actually been around awhile !!   So, well done on your first post.  

  You've posted a fairly complete scenario, so I wanted to swing by and add a few thoughts as an outsider.  (Note that I am not an adviser of any kind, but others who follow often are – do listen to them over me as I could easily get things wrong, though not intentionally).

  Here's what I think:-

Quote:

1) If i decide to buy the home for my family should i use just the money in the offset.

 

  Makes sense to me.  It would help keep things "cleaner" for your accountant.

Quote:

…  Would the use of the equity in this property be a poor decision given that can be use for other investment and in this way maintain it tax deductible.

  Yes, I would think that the extra equity would be better "spent" on further IP's (assuming that is what you wish to pursue).

Quote:

2) Today the IP property will be positive cash flow, however I am afraid if the interest rate rise to 7% it will become negative. i would like to know what is you opinion in regard with this topic and how would you manage this. I guess that one way to speculate will be the rise in rental income although i am not sure if i can match my rental every time the interest rate goes up.

  Hmm, one thing often overlooked is the REAL increase as Interest rates tick up.   e.g. a jump from 5% to 6% is just 1%, right???     Wrong !!  It is actually a 20% increase in the Interest you pay on an IO loan.   So, good luck with jacking rents 20% as Interest Rates tick back up (see 2007 to 2008 when the cash rate went from 6.25% to 7.25% – the major banks added a further 0.55% to that, making a 1.55% increase into a 25% increase – Eeekkk!!!)    Know any tenants that will happily pay an extra 25% in just 12 months or so???

  Of course, that was the time of the GFC – while the rest of the world was madly cutting Interest rates, Ruddy was talking ours up with comments like "The inflation genie is out of the bottle"!!  .   Fortunately, the RBA saw the error of their ways, and proceeded to cut them WAY back again (to almost unheard of levels – a real overshoot/undershoot story).  Still a 25% increase is not an every day event – just one to be watchful for when Interest Rates start their Northward march again….

  And right now, they are still WAY low – probably necessary to get our dollar back where it should be (but then, I'm no economist either….)

  In answer to YOUR question, I'd think you should stick with other rental properties as they slowly tick up their rental rates – don't be too far behind, and add to your rent if/when you add extras that can command a better rental (one of the blogs from Steve – I think – mentioned some really good ideas re rentals – don't give money away, but reward good tenants with extras that actually add value to YOUR property as well as to their lives!!).  If I find the link again, I'll pop it in here…..

Quote:

3) What will be the most tax effective and cost effective Loan structure way to move my equity.

  Hmm, I'll pass on that one…..   Specialist knowledge required, and that's not me !!  :p

Quote:

I should also add that we discussed with our accountant our future and they suggested to set up a company and a trust which we have done and have not have the opportunity to use yet.     So the next investment property we will be looking for it will be renovated and rented. Should we consider to use the company rather than the trust in this case in order to claim?

  I'll be very interested in the comments of others re that question.  For mine, I have often wished I had never heard of a trust…..    But that is likely to be my failing more than a problem using trusts.  

  Re using a Company, my book-reading has seen several authors saying a Company is NOT ideal for holding IP's (at least, not for the average IP investor – it might be fine if you run a business buying/selling property)   Again, one for somebody else to answer more fully.

Benny

PS  One final thought (re you buying a home that you like the look of).    Somewhere on here there is a brilliant thread that talks of "How it is financially better to buy IP's and rent a home for yourself".  If someone can post a link to that, I would appreciate it, and perhaps Manolo too.

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December 22, 2013 - 10:26 pm

Hi Ryan,

Quote:

Is Steve talking about the AUSTRALIAN market or the AMERICAN market?

   Bingo!!    You may have just hit the nail on the head, Ryan.   The book came as a gift when attending Steve's seminar on investing in commercial property in the US.  He shared the stage with "Uncle Zally" who is an investor from Florida.   So, it could be that his words may be something more relevant to the US.   Thanks for the thought,

Benny

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December 22, 2013 - 7:06 am

Hi aussieguy,

  And welcome !!     I'm not a wizz on this stuff, but I had a thought or two that could help others to help you……

  First off, I read that you "bought PPOR in Sydney in 2009, and lived in it for 7 months".   All good.   Later, I see this – "so I figure maintaining the property in Sydney as our PPOR would be more beneficial".    Yep, with you there too…..   But then this :-

  "they cannot be a normal tax deduction as the property is not rented"      So, for clarification, has the Sydney place been not rented for the last 4 years?   Or is there more to the story?  e.g. "it was rented, but the tenants moved out xx months ago….."  

  As I understand it, if you haven't been renting it, and you haven't nominated your Brisbane property as your PPOR, then I believe there is no CGT to pay – end of story.  

But, if it HAS been rented, then I will step back, because you will need other input from more knowledgable people like Terryw and others who know this stuff backwards.

  Also, further to Terry's comment re "PPOR status" – isn't there something about "Even after 6 years (if it hasn't been rented) it can remain your PPOR with full exemption so long as you don't have someone else living in it…."  (something like that – I read it in a book, so that is only hearsay, and not advice by any means – but could be worth asking the question if it applies to you and your future plans).   And, of course, you don't nominate another property as your PPOR !!

  Anyway, good on you for asking first – it saves a lot of anguish later !!!     

Benny

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December 22, 2013 - 12:22 am

  Some very interesting insights coming out here – thanks for those, Jac, Wilko, Qld007, etc.    It all helps to get the bigger picture…….

Benny

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December 21, 2013 - 4:54 am

Hi Wilko,

   Can I draw you out on one point that I am unclear on….

Quote:

Im going to take person 3's offer. If they don't get finance or default on the contract then at least im protected in that i have their large deposit and then if the market downturns and you only sell for 400k they can also sue to get the difference in Loss of selling price between your contract and the next sale contract. $225k in a agents Trust account is going to be easier to work with then 1K.

  Perhaps I am labouring under a delusion, but isn't a seller only entitled to something like 5% or 10% if I were to default – or is it the WHOLE deposit (as I think you are indicating)?.   I've never come across this, as I have never put more than 10% down. 

  Anyway, if the seller is allowed to keep all of a deposit, that pretty much answers my original question.   Thanks for taking the time – I appreciate it.

  Re a 100% cash contract, yes I agree the seller's side of things could add delays, but a buyer could likely settle in a matter of days if paying cash, couldn't they?  But NOT if a 50% deposit is involved, surely.

Benny

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December 21, 2013 - 4:34 am

Hi Hari,

Quote:

Do you think it is good or bad they are investing in Australia

  I have no issue with overseas investors from any country, Hari.  

  My point was more that some of the current laws seem to have "unintended consequences" – like, creating negative spikes in values for Mum and Dad investors here.

  Can you see that the FIRB laws should perhaps be reviewed and/or re-drafted?

Benny

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December 21, 2013 - 3:45 am

Hi mwb,

  Thanks for the extra info – it all helps…..   Here's a few thoughts and opinions (I am not any kind of "adviser", so do check things out with your advisers – accountant, broker, etc).

 

Quote:

….. how can I better this scenario?

  1.  There is $10k of "lazy money" in that Offset Account (and growing, as that P&I loan gets paid down….)   Perhaps look to see if you can open another OA against one of the other loans for maximum effect.  

  With all Interest on the $70k loan being Offset, your current P&I payments should ALL be coming off the Principal – but DO check this, as I have heard some lenders don't allow "100% Offset", meaning that your extra Offset $$ are going to waste.

  2.  Have you arranged Depreciation Schedules for both IP's?  If not, there is some serious money going begging, especially with you on that high wage (with a high Marginal Tax Rate).

  3.  What are your goals for the next few years?  Are you primarily looking for more -ve geared property (and Capital Growth), or is it time to add some +ve geared IP's to the portfolio? 

  4.  Is either property "ripe" for any kind of value add that could lead to a rental increase?   e.g. add a new kitchen, carport, etc.

  5.  How are Perth and Townsville shaping up for future growth?  Are you happy with both IP's?

  How's that for starters?   I hope others who ARE advisers can put me right if I have said something incorrect (I'm here to learn too…. )

Benny

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December 21, 2013 - 2:51 am

Hi Freckle,

Quote:

Believe me there's nothing new in finance.

  You are probably right – but it is new to me, hence the question.  Just wanting to understand a bit more about WHY/HOW it might work….. 

Benny

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December 21, 2013 - 2:44 am

Hi Ramki,

  I find that question a little difficult to answer without knowing more about your requirements.  e.g. "top 5" in what context?   Sounds like Capital Growth, but over what timeframe?   

  e.g.  If I quoted a market that could double within 3 years, but there might be another that could triple in 5 years, which one is best for you?   

  Also, what demographics are you chasing e.g. families, older couples, young progressives – wanting apartments, houses, townhouses, etc.  Please post a little more around what attributes would you see in a  "top 5" suburb,

Benny

 

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December 21, 2013 - 2:14 am

Quote:

Mellor estimates 17,000 apartments will be built in inner Melbourne during the next three years

  Many years ago, I became aware of a useful piece of knowledge that has had me very wary of apartments ever since….  

  In short, the FIRB allows overseas investors to buy new property only.   I heard back then that around 50% of new apartments (large, high-rise in major centres) were sold overseas.   The problem only appears when overseas events (e.g. GFC, etc) lead to the overseas owners selling their apartments in quantity.   With them now being second-hand, they CAN'T be onsold to overseas buyers, so the sales are into a market that is now 50% smaller than before……

  Perhaps this is a major factor in areas like the Gold Coast and its "wild swings" in apartment prices.  Talk about upsetting the supply/demand curve !!!

Benny

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December 20, 2013 - 1:35 pm

Hi Paul and Marn,

   Congratulations – I don't know much about leasehold (is it in Canberra?) but the other numbers all look pretty good to me.   Bonus that your skills as a chef can add even more value.

   A bold move, for sure – but then, "people businesses" can do very well if the owners like meeting people.  The attitude shows, and the goodwill follows.  

   Oh, and congratulations on your first post too (but it seems you have been reading on here before eh?   Anyway, we hope you stick around, tell us how it goes, and share your "wins" and your trials – we can all do with learning from others who do different things.   Good luck with the big shift – I'm sure you will do well….

Benny

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December 20, 2013 - 12:59 pm

Hi again,

Quote:

Thanks Benny, are you property investor in & around Brisbane?

   Yes.  I kicked off in 1999 after spending almost a year "boning up" – going to seminars, meeting good people like Steve McKnight, Jan and Ian Somers, and many other PI's from all around the place.   The knowledge gleaned from them helped me to gain the confidence to "get in".   And the timing was excellent too.  

   Do you buy in Brisbane yourself?

Benny