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April 18, 2021 - 7:40 am

Hi PSR,

I recall one or two examples in the “big picture” topic – here’s the link to one of them:-

https://www.propertyinvesting.com/topic/5014274-how-do-people-buy-multiple-properties/#post-5014274

As Richard Taylor says in there, along with the theory espoused, the structuring of your borrowings is also very important, so go looking for words around that too.  Using a Mortgage Broker who knows their stuff is also a smart move (one from on here would be a good start).

And another

https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/page/2/#post-5012680  This one leads to two other links – do check them both out.  Do note that Steve would be saying to plan to purchase the outcome you want (i.e. don’t just buy anything and hope for a positive outcome – instead buy SOMETHING that will lead to the outcome you want).   Of course there is so much more to it all – but those links may just fire up some extra thoughts….

Benny

PS Do note the dates on these topics.  Some go back several years, so lending laws and Interest rates will be quite different to today (and some “numbers” won’t seem to make much sense in today’s environment).

 

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March 31, 2021 - 3:33 pm

Seriously?  :(

What do you mean by “best”?   Cheapest?  Safest?  Best return?  Easiest?

 

Benny

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March 11, 2021 - 12:59 pm

These days with low interest rates I think buying a main residence first is ideal ….

Terryw’s comment above makes a lot of sense – I was one who had earlier thought (10+ years back) buying IP’s first was better from a financial point of view.  This was mainly because any Interest paid on an investment is a Tax deduction, while on your own home, it was not.   There were one or two other benefits too, but Interest Rates were the elephant in the room.   Of course, with Interest Rates now stupid-low, the whole scenario has changed.

As an example, check out this post:-

https://www.propertyinvesting.com/topic/5048770-will-moving-some-investment-loans-from-io-to-pi-reduce-serviceability/#post-5048778

In there I commented

 “Interest Rates are so low today, the principal repayments now make up a WAY BIGGER portion of a mortgage repayment than they used to. e.g. 20 years ago, a $200k loan taken over 30 years is repaid at 3.3% pa (so, Principal repayments averaged out to $6,666 per annum, while Interest back then might have been at 9% – so Interest was $18,000 per annum). i.e. Interest is nearly 75% of the total mortgage payments, and principal repayment only 25%.”

Today, with a likely Interest Rate around 3%, and (likely) a far larger mortgage, the ratio of Interest to Principal payments has totally reversed.  Though Interest Rates on IP’s are deductible, Principal repayments aren’t.  Hence the PPOR swings back into favour.

The points Terryw made today do indeed change the whole situation.  These low IR’s have been a game-changer for sure.   But there are still other advantages with IP’s that might tip the scale in your case – it depends on a host of other factors.   As always, “run the numbers” to see which is best for you today.

Benny

• This reply was modified 3 years, 1 month ago by  Benny.

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February 15, 2021 - 1:40 pm

Yeah, that was me having a grumble about what seemed a quite stupid decision.  In the end, that was quite a minor disruption, and yet, it didn’t need to happen if they had only thought a little more i.e use a 2am lockdown start time.

But there really has been far worse decisions, haven’t there?

One major one is this stop-start-stop-start-stop thing that goes on with borders and businesses.  Borders shut with little notice leaving folks who are visiting inter-state relatives stranded.  Wedding guest numebrs get restricted.  Wedding caterers are pulled from pillar to post.  How can most businesses run that way?  Some might, but others just can’t.  Imagine being a restaurant in this environment.   You know you are able to open again, so you stock up with food to cook and re-sell, call your staff back in, and prepare to open up with a procedure in place to cover the required “contact tracing” et al.

Things go fine for a week, then some palooka high up decides “we must shut down again”.  Really?   Why?   And how can this not cause even more problems?  Bookings get cancelled, food spoils, staff are laid off – again!   Border towns can lose half their customers at the stroke of a pen – and what of those families who live in one “twin city” but their kids go to school in the other?

NSW (along with several other countries) seem to be able to have most businesses (and borders) stay open full time.   Why can’t Qld and Vic, and SA, and WA do the same?   Some are worse than others – shutting a border with virtually NO notice at all.   How can any business survive that kind of damage?

Why not be a wee bit slower to “shut everything down”.   Surely there is a better way?  Ask NSW !!!

Benny

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February 8, 2021 - 7:10 pm

Hi Justin,

It would really depend on whose “portfolio package” it is, and just what it entails.   A bunch of years back, I took a portfolio package with one of the big 4, and found out afterward (my dd was shameful !!) that it was charging me a higher rate than Standard Variable so I unwound a lot of it.  It had other benefits, but the over-high Interest Rate initially left a bad taste in my mouth for many years.

Check first before signing up !!!   Don’t be dazzled by all the “key phrases” they say that make things sound Mickey Mouse – do your DD on them.

Benny

PS  Edited later>>>>   And I recall that cross-collateralisation was also their “default” position (it is better for the bank, but not so good for you).  We had to re-affirm that we wanted NO cross-colls at all.   They listened, but if we hadn’t insisted, it might have been different, so watch out.

• This reply was modified 3 years, 2 months ago by  Benny. Reason: Additional comment re cross-coll !!

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February 6, 2021 - 4:07 pm

Hi Mehmet,

That’s a very clearly stated situation – well done.   As you say, there are Pros and Cons to be considered, but despite that, we may be able to point you forward somewhat.  I’ll start by saying that to me, option A looks the better choice.  Here’s why – it is a link to an earlier post on here that asks “Should I buy my own home, or an Investment Property, first?”

https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697967

Note that there is a further link within that link – I wanted you to read the Introductory comments before going to the second link (which is the useful one).

Your later comments hold a lot of truth too:-

for a more wealth creating perspective would option (a) be more viable?

I believe it is more viable as you can claim expenses of an IP that help to reduce your tax paid when investing.  An accountant can help more with that part.

Would choosing option (b) limit the banks in lending me debt to a degree where it will be difficult for myself & partner to be approved a loan for an investment property next year?

Contrary to above, you can make no expense claims on your own home costs.  Banks therefore are likely to lend less for an “own home” than for an IP.  And, as you say, if you take out a home loan first, it may well slow you down in getting your next property.  By going for an IP first, you get any Capital Gain, and also the rental income that helps pay a loan and cover some expenses too.  Ideally the rent should cover all expenses, but even if not, it is still (financially) better to buy an IP than an own home as the link above shows.

* Note – all my opinion only as I am not a professional adviser, Mehmet.

Benny

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February 5, 2021 - 8:57 am

Hi Justin,

There’s a lot to learn, eh?  Good that you are asking before doing.  The earlier topic you started – https://www.propertyinvesting.com/topic/5070041-structures-for-larger-positively-geared-portfolio/ – only touched on the subject of “how” to structure things, and Steve’s new offering in that space is still a wee way off.

BUT, if you read (and reread 4 more times) Chapter 9 of the updated “0 – 130 properties” book, Steve provides quite a LOT of detail re his structuring.  I recommend that book to you as a starter.  After that, run his thoughts by your favourite accountant/lawyer to have them answer any questions that your situation might invoke.

Benny

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February 2, 2021 - 8:30 am

Hi John,

That’s an interesting post.  Reads a lot like an advertisement, but largely the truth.  One part I disagree with though is this comment from you:-

Regular wear and tear must be fixed before you move out.

That is an unusual phrase to me.  Fair wear and tear is a normal part of any tenancy and those costs would surely be borne by the landlord.  Or did you perhaps mean irregular wear and tear (also a strange phrase) – i.e. where a tenant has caused damage through negligence?

Another piece missing from your ad is the cost of such a bond clean as it might be even more expensive than the bond that we are trying to claim back – is that so, or no?

How about providing us all with a quick “ball park estimate” of such a bond clean for (e.g.) a 4 bedroom house, or a 2 bedroom flat?

Benny

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January 29, 2021 - 9:11 am

Hi Justin,

Great question, and it looks like you have had a couple of great answers too.   When things just “don’t sound right” I always like to ponder WHY someone might say something like this to you.

So, as we know that the answers from Steve and Terry are correct, WHY would someone else who sounds successful (100+ properties?) advise YOU to buy in your own name?  I wonder if they are need of a quick commission or two to make payments on some of those holdings of theirs?   Perhaps they are $10k short right now, and they don’t want to wait while you go away and set up a Trust before buying through them(?)

Hey, I don’t know really – but it can be fun to ponder…..  ;)

Benny

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January 18, 2021 - 8:10 am

Hi Sammy,

I agree with “Home Buyer” above on several points.  Main thing to consider is that some brand new homes can be poorly built and doomed to be money pits, while many really old homes were built very well and have stood the test of time, so there is no quick answer really.

For sure, always get a Building Inspection before committing to a buy to cover your lack of knowledge and to give you peace with your decision.  The old adage about “location, location, location” still holds true too, and having a good sized chunk of land gives you lots more options into the future.  Are you looking as an investment or to live in, as that can have you buying quite a different property !!

Benny

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January 13, 2021 - 8:40 am

Hi Hoppy,

After reading the other replies and thinking further about your excellent situation, I’m wondering if it might be beneficial to pay out one or two of the seven IPs.  I’m thinking there of keeping flexible ahead of possible troubled times.  e.g. Have you heard about “bail in laws” that I’ve been hearing about for about a year now – where banks may simply “take” your money if they run into trouble.    Will things get to that?  I don’t know, but then I hadn’t considered ever seeing Interest Rates at all-time lows either….

So, maybe there is some merit in choosing one or two of those IP’s that you would plan to keep over the long term (perhaps the location is likely to see better Capital Growth than others, or perhaps their return is higher than others) and use their Offset money to pay them off completely.  That means you can then retain them despite any adverse future financial situations that might arise.  It also provides diversity of your financial position too.  The Banks could not “bail in the cash from those Offsets” if it’s been used to pay off the house and the IP is now YOURS.

Interesting points from Steve too – you get into debt to get out of it, but also an alternative thought that it is better to have cash and not need it.  i.e. you have CHOICE – do you pay some off and keep the cash in the Offsets of all the others?   If so, which ones, and how many of them do you pay off?   Like two bob each way eh?   Can’t be bad, and your situation leaves you open to making your really good position even more secure.

Benny

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January 12, 2021 - 8:53 am

Hi Hoppy,

Wow, your are doing way better than I first thought (and I was impressed then!!)

…..with the offsets we have them filled to the entire value of the Principal amount for each property

So your total P&I payments are paying down the principal amounts, eh?  How cool.  Based on that, and after hearing Terryw’s thoughts re tax on further loans perhaps being non-deductable, it seems to me you are better to keep going as you are.

Other thoughts I have relate to “where to from here” and our economies.  There has been a huge cash injection in all major countries – think Jobkeeper, Jobseeker, etc but similar in USA, UK, etc.   So lots more money printed, all looking for a home, leads to inflation.  Thus we are seeing banks and other finance gurus (who had first thought Covid would send our property market into a tailspin) now seeing property values surge i.e. people pay a higher price for the same object = inflation.

So, (at least for now), doesn’t that mean that cash in the bank is doomed to lose value?   i.e. is it better to own assets than to keep large amounts in a bank?   And properties (at least for now) are headed for a rise in “value” in dollar terms?   Is another investment a better option?   And hey, I certainly don’t have the answers Hoppy – I simply put my thoughts out there like a coconut shy (for others to have a shot at, as I’m sure there is FAR MORE to the current situation than I am seeing…..)

Anyway to you, SO well done !!   Keep on,  ;)

Benny

• This reply was modified 3 years, 3 months ago by  Benny. Reason: Making the quote work - for clarity

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January 11, 2021 - 1:04 pm

Hi HoppyM,

  Is there a downside to paying back the IP Principal in the interim or better to continue saving?

Sounds like you are in good shape !!   Well done.   Re “paying back IP principal”, it sounds like you are already set up to do just that.

Or, are you considering moving any extra savings in the Offsets to pay down the mortgages even more?  See, that latter move (to me) would not do you any good – in fact, could do quite the opposite.  Simply put, your Offsets are already minimising any Interest paid (as if the money HAS come off the Principal amount owing) and yet that money in Offset is YOURS to keep, and it can be removed at a moment’s notice.  This can be very useful if you have the “deal of a lifetime come your way” (or an emergency) and you need cash NOW.   So by keeping it in the Offset, you get the best of both worlds.

To me “Saving in your Offset” makes a lot of sense.   One thing I’d suggest though is to look at moving all Offset monies to be against ONE property (simply because this can be against the mortgage with the highest interest rate, AND it means being able to remove a LARGE chunk of change with one transaction when needed).   It is all about staying flexible in my eyes.

Let’s see what others think too…..  ;)

Benny

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January 4, 2021 - 9:51 am

Hi Nick,

Welcome aboard – this is one good place to start.  I personally found that the Internet led me to meet with many others who are doing what I wanted to do then (i.e. invest in property).   Today the forums have declined somewhat as Facebook and other social networks have tended to attract a “Now” clientele.  Steve has such a site too – go there to join up with hundreds of others – https://www.facebook.com/properinvesting

Also, depending on where your base is, you might find some investors meeting up (usually monthly or two-monthly, depending) and you could go along to check them out.  I know of them in Melbourne and SEQueensland with other occasional one-offs – go looking in this forum for “what’s coming up” :-

https://www.propertyinvesting.com/forums/community/heads-up/

Over Christmas and New Year, things do tail off somewhat, so do check back on here every week or so.  Failing that, share with us where you are – who knows, someone from here might live in the same suburb and be willing to meet up for a coffee…..

Even better, why not share some info on those first 3 purchases – What and where you bought, what went well, what didn’t, what you learned, etc.  Your words might well inspire others to share their thoughts….  or provide some answers for another new investor.

Benny

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January 4, 2021 - 8:30 am

Well, it pops up now and then – a question re the creating and/or using of a Trust to invest in property.  These are such an unusual beast that the average Joe knows little about, so we are dependent on having advisers who know them (and all their wrinkles) from front to back.

The link below brought a question from a poster, then a reply or two from someone knowledgeable, then more questions, and more answers too.  In the end, a LOT of good information was spread throughout this topic about Trusts  and I commend it to you.  Here it is:-

https://www.propertyinvesting.com/topic/5068817-home-loan-borrowing-using-trust/

Keep in mind a saying from Steve (from elsewhere) that it is possible to build a strong defence using Trusts that protect “not much”.  And for those starting out, this is a good point to consider.  i.e. If you are putting your toe in the water re investing, and are not sure if you will do more after your first purchase, is it wise to incur the cost of a Trust straight off (because they can be quite costly ongoing).

But then, if you ARE going to build a large portfolio, it is also costly to ADD a property to a Trust after you have bought it in your own name – so, it’s all a bit like Catch-22.   There’s a couple more questions to discuss with your adviser when considering whether to use a Trust.

Benny

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January 4, 2021 - 8:17 am

Hi Terry,

Thank you for such a full explanation of what can be a confusing subject for many (myself included).  Thanks to Steve too, and to those who have proposed the questions that led to this learning.  Good stuff,

Benny

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January 3, 2021 - 3:34 pm

Hi rliwanen,

“I hope you wouldn’t mind if I seek further clarification.”   Indeed, that is why we are here, so feel free.  We don’t learn to ride a bike the first time we are on it, but we get there with a bit of help !!

Benny

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January 3, 2021 - 12:56 pm

Hi Terry,

“Some lenders, most lenders, treat guarantees the same as borrowings for serviceability.”

That is an interesting point – a lot like when lenders assess credit card limits – the borrower is deemed to be borrowing up to the limit, even if they owe nothing to the credit card company.

So, the way out of that is what?   I would think the history of the borrower and their structure would be key here, yes?  e.g.  Someone who has borrowed for years using Companies heading up Trusts, and those companies have always made a profit, and there has never been a need to call on any guarantees made to support these Companies’ borrowings.   Surely that manager is seen to be doing a fine job, and borrowing will likely mean more profits once again, so the lenders will likely smile on them?

Is it simply a matter of “don’t try to run before you’ve learned to walk”.   Where does the would-be investor start?  How do they get their first Trust operating?  Is it only with a personal guarantee from them initially?   And then, how do they get the next one?  Is it by proving their worth over time?

What say you Terry?

 

Edited in later – thanks for your words Steve.   Your path has been an inspiration to me over many years, and that chapter 9 is a big one in my book.  I hope the original poster can see a path for themselves after hearing those words from you.  It is relevant to note that none of Terry’s words are at odds with your book (which is pretty much as I had thought anyway) – always good to hear it from the horse’s mouth though – thanks !!  ;)

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January 3, 2021 - 8:02 am

Hi Rliwanen,

You say this:-

“The claims in the book and what Mr. Terry seems to be exact oposite. Can Mr. Mcknight please shed some light on this matter. We would like the idea of what is taught in the book but a lawyer says otherwise.”

I have always thought chapter 9 of the updated “0 to 130 properties” is very well written and quite complete.  But you do need to read and assimilate ALL of it, as there is so much information to be absorbed.   Like Terry says, it is possible that “the wording is loose” in legal terms but I, as a regular reader with no legal training saw no such contention.

My take on the words “putting under a Trust structure instead of personal name” might confuse someone if they already have a Trust with themselves as trustee (i.e. the Trust is administered by themselves under their personal name).  From what I recall of chapter 9, Steve does not use that structure, but instead has a Company acting as trustee of the Trust.

 

To take this further, and to provide more clarity, please identify just which words you are reading that have you saying “The claims in the book and what Mr. Terry seems to be exact oposite” and “a lawyer says otherwise”.   Once we know just where your concern lies, we can better shed some light on it.

Other than that, DO re-read all of chapter 9 slowly, carefully, and completely – it may just answer all of your questions.  ;)

Benny

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December 29, 2020 - 10:00 am

Hi SydMan,

I imagine whatever your next moves should be must depend on where you WANT to be.  Let me explain:-

You look to be in good shape financially, with several options.  Your path could take several different paths – e.g.

1.  sell your house and move North and pay cash for your next PPOR, without paying a cent on CGT, and say goodbye to $356K of debt.

2.  depending on the numbers, perhaps sell one IP to liberate cash to pay off another, (CGT applies) or

3.  borrow to purchase another IP or two, with better Income prospects (i.e. NOT negative geared), or

4.  Sell existing neg geared to buy pos geared (CGT would apply though, so do the sums first)

In short, I would be looking to clearing the neg gearing either by selling, or trading, or renovating, or doing a few chunk deals to produce cash to pay down debt.  Thinking that way, I imagine Steve would be saying “buy residential to grow your Equity, then later, move to Commercial for a better Income”.  So Sydman, is it time for you to make THAT move?  Is that something that appeals?

You have lots of options – but what sounds like it might work for you?  i.e. what skills do you bring that would have you favour one path or another?  I know, questions, questions – but they are yours to answer…..  Let’s see who else has some thoughts that may be of benefit.   Come back with more info if you wish,

Benny