[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 22, 2005 - 12:02 pm

Originally posted by sansue6:

What is a good profit for investors as far as in percent per year…if the project takes 3 years to finish and they invested lets say $100,000.

I know how much I WOULD want to make such an investment, but that is theoretical and somewhat irrelevant.

Let me turn the question around. Let’s assume that the development was my brain child. Knowing what YOU KNOW about this ‘investment opportunity’ (let’s call it that for now) WHAT RETURN on your investment would YOU want from ME to entice you to invest your $100k in MY project for 3 years?

Let’s keep it simple…. You give me $100k now. How much interest do I repay you (on top of your $100k) 3 years from today?

Oh, and what happens if I don’t pay you back for 3 1/2 years or 4 years maybe. (because the market has turned against us and the properties don’t/won’t sell as anticipated 3 years ago)?

Let’s say this ‘opportunity’ was a Sydney project that started 2.5 years ago and we are therefore 6 months away from putting the completed development onto the (currently) flat Sydney market. Three years ago my projections, whilst rosey were (at the time atleast) realistic. Under these conditions I’d say that my expected gains calculations might be starting to look a little suspect to say the least.

But anyway, back to the initial question. How much (on top of your $100k) do you want back from me in 3 years time to invest in my project now? And there will be no interim payments during that 3 year period either.

Over to you Sansue [biggrin]

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 22, 2005 - 11:45 am

Think about what you want from an investment, and more importantly what your exit strategy is.

What happens in 10 years time when you want to exit your investment? The lessee still has a lease that has up to another 10 years to run.

Therefore you cannot give a buyer vacant possession. This will limit your pool of potential buyers to investors only.

Similarly if, in 5 years time you wanted to occupy the property (or one of your kids wants/needs to come home – you don’t want this, you’d rather they occupied THIS property instead), you can’t do it because the current lessee has control of the property for (up to) another 15 years.

Anyone investing in this type of property deal has to, in reality, be prepared to stay in for the FULL TERM of the lease (in this case 20 years).

What happens too if the 3% rent increases are way less than the inflationary rate?

These longterm lease-back deals can be quite restrictive. Be careful that their investment profile matches yours.

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 22, 2005 - 10:27 am

Sounds like a Wrap to me (albeit at a discounted selling price represented by the agreed/shared added value of the tenant).

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 22, 2005 - 10:19 am

I trust that your $70k is sitting in an account that has full offset to your home loan? (I wouldn’t rush in to dumping the $70k straight off your home loan just yet).

Why is it that you have 0% equity in your own home? Did you buy, and the market moved backwards that much? or perhaps you owe the usual 20% deposit plus closing costs to your parents? (and therefore you say that you have no equity in your own home)

Royalty, you may need to do a little tidying of your own back yard before embarking on your reno

[biggrin]

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 22, 2005 - 10:05 am

When running the ‘numbers’ you don’t usually include the principal repayments of a loan.

This exclusion would make the ‘deal’ (in fact ANY deal) extremely +’ve due to the nil interest rate.

As Byronet suggests – factor in a real interest rate.

If your financier IS able to do a 0% loan then all the better.

I wanner believe in the Nil rate loan and the 100% of valuation BUT …..[blush2]

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 22, 2005 - 9:14 am

You would pay off that credit card debt sooner if the interest rate were lower, yes?

Credit card interest rates are still approx 3 times that of a home mortgage. Credit card finance is for those that either fall into their grasp through spending more than they can repay at the end of the month (sorry to be blunt but I suspect this is what happened to you), or they are for people who need fast finance or can’t get traditional finance elsewhere soon enough.

My advice is for you to do one of the following (depending on which best suits your circumstances).

1. take out an unsecured personal loan with a bank or credit union. The interest rate is still reasonably high (because the lender has no security) but is still cheaper than the interest of a credit card.
2. a secured personal loan – interest rate a little higher than standard home finance but still less than half that of the credit card.
3. a home loan of $10,000 over a suitable repayment period. Since you plan to repay a large part of the capital from the upcomming bonus, make sure you can repay amounts of principal WITHOUT penalty. Don’t be tempted to take the loan over a long term just to reduce your repayments. The interest rate on these loans will be approx 1/3rd of the credit card rates.
4. you might want to consider a ‘line of credit’ style borrowing either for the $10,000 or a higher amount. That higher amount could go towards your property investing/developing – whichever you decide to do. Make sure though that you have seperate loan accounts for the investment and non-investment portions. (keeps your tax affairs suitably quarantined.)

I agree with Landt – get rid of the credit card debt asap (which you said yourself anyway).

The above strategies will save you heaps of interest on your extremely expensive credit card finance.

Good luck with your investing future

Not that you’ll need it though – knowing to get rid of the credit card debt and destroying the card (at least till you can develop a system to use them better) tells me that you have ‘your head screwed on right’. And that’s why I know you’re now on the right path.

Credit card finance traps many people – that’s why the bank’s (etc) make a helluva lotter profit from that source. Credit cards are like ANY form of finance (including the above refinancing options I’ve outlined), ANY of them can be dangerous if misued. Perhaps that’s why you recognised the ‘risks’ in moving forward with an investment strategy.

Personally I have large amounts available to me on credit cards. Yes it COULD be dangerous but to me it isn’t. It is a source of finance available to me to use ONLY when I consider the circumstances appropriate.

As for the wife and her need for a new car – well, I’ll leave that one for you to handle.

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 21, 2005 - 1:10 am

Hi Dan,

You live in NSW and I’m assuming that your intended IP is also NSW.

As has already been said,

1. the ‘standard’ settlement period in NSW is 42 days
2. it should be their price and your terms, or your price and their terms – exert some control to your advantage.

I would also NOT waive the contract cooling-off period. It gives you time to review the contract with your solicitor and to negotiate amendments/changes/additions if something is amiss.

Listen to, and take the advice of your team members (solicitor, mortgage broker and accountant) – you know they are on your side and have your best interests at heart.

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 20, 2005 - 11:43 am

Originally posted by Still in School:

…..”How to Buy Property at $50,000 or More Below Market Value”, anyway …. to being scrudges or preying on the vunerable.

(paraphrased)

Let’s see, is it possible to achieve the above without being a ‘scrudge’… hmmmm.

What about:
1. attend a morgagor in possession type sale where all the mortgagor is looking to do is recover their loan. Whether the property sells at its true market value is of no concern to them.
2. another variant of the above is when councils sell properties to recover the unpaid rates.
3. buying from a builder (or investor for that matter) that has gotten into financial trouble on a development (whether completed or not).
4. buying a business (that has real estate amongst its assets) for book value which is ($50k) less than the market value.
5. provide cash as capital/equity to someone who hasn’t done their math homework properly and can’t get to settlement on a purchase without some (perhaps expensive) OPM….. ie yours.

OK. so off the cuff, there are 5 legitimate ways to buy property at $50k less than its market value.

Why not make it (6) on the trot

6. In the Sydney market at least, the current state over the past couple of months is a softening of prices that many vendors are yet to realise (ie they are yet to hear what the market is telling them). You take almost any property listed for sale in Sydney and take $50k off the listed price and your offer is likely to be seriously considered or at least not laughed out the door (as it may have been 6 months ago).

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 20, 2005 - 11:12 am

Originally posted by Robert B:

Gordon is the CEO of Conquest Property Developments Pty Ltd, a development company established for his personal portfolio. He is also the mentor behind Appreciating Realty, a Queensland based real estate company set up to provide a buying agency.

Over Gordon’s lifetime he’s bought, built and sold more than 50 million dollars worth of property.

I wouldn’t pay that much for this guy. Sounds like he is just selling his own investments to suckers!

Gee, if he’s traded that much real estate in his day, he must know something about the ‘game’ (unless the researcher has double counted – $25m bought and $25m sold = $50m [blush2] )

And your research did say that “Appreciating Realty, a Queensland based real estate company set up to provide a buying agency.”

It doesn’t clarify whether it’s a ‘BUYING agency’ for his acquisition of further property investments for himself (structured properly it could just achieve tax deductibility for what would otherwise be non-deductible property acquisition costs), OR whether it’s a property ‘SELLING agency’ designed to market (as you concluded) his own property and developments on to the final buyer, and was designed to otherwise ‘disguise’ this fact.

Not sure Robert. Your conclusion could be spot on, or it could be a little harsh.

I’d be more interested in what the marketing materials (for the workshop/seminar)say about reversing my risk if I attend.

I’d also like to know how Paul learned of the seminar. He didn’t say whether he’d been telemarketed, or he saw it advertised, or he’d been recommended by a friend who had attended a previous presentation my our Mr $50m Property Investing Accountant.

I think this information could yield more about the seminar and its possible worth and hence add to the research you have presented thus far.

Robert, I don’t doubt the research you have provided – far from it. I’m just looking for some more information before drawing perhaps the same conclusion.

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 20, 2005 - 10:48 am

Originally posted by terryw:

And watchout, you can’t just setup a LOC and use the money for the trust/company. Loan agreements need to be drawn up so that the interest can be claimed – as they will be different entitites.

If the LOC was set up in their personal names, the action you recommend is good advice.

I would however use the same lender that holds the current first mortgage, to set up a lending facility for the new entity. Yes, it would then be 3rd party security and not an easy join-the-dots type loan exercise, BUT it isn’t impossible to achieve.

If my current lender wouldn’t do it for me then I might go looking for one who would.

If I can set my new loan facility up in this way then I don’t need a loan agreement to (in effect) on-loan the newly borrowed money to the new entity (presumably the new Trust structure).

My borrowing structure has already achieved that outcome for me. And as we all know, it isn’t what secures a loan that makes the interest deductible. It’s the purpose to which the funds are used.

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 20, 2005 - 10:36 am

Is that a generally available publication/magazine?

I can’t recall seeing it on the newstands.

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 20, 2005 - 9:39 am

Hi Julia

TD51 of what year?

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 20, 2005 - 3:36 am

The problem is the dentist is only prepared to sign a 1 year lease.

Just a few thoughts to contemplate:

1. Was the now-expiring lease only for 12 months too? If not it could signal a problem with the dentist as a continuing longterm tenant. I would also use the now shorter lease to buy more cheaply – the premise is no longer prime.
2. How long has the current tenant occupied the premises?
3. Where were they before?
4. Why are they prepared to only sign a 12-month lease? Are they planning to move? Close the business? Semi retire?
5. How many practising dentists are in the business? Do they use subcontractors?

Once I had all this due diligence available to me , I’d be in a better position to plan my strategy.

Don’t forget to assess the strength of the current tenant. Call for most recent 3 years of accountant-prepared financials and the matching tax returns.

Want an out of the box thought?

Take an option to buy the business too. (yes, the dental practice).

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 20, 2005 - 3:06 am

Yes, the Trust will need a TFN.

On the basis that the company was ONLY going to act as the trustee of the Trust, then I would have the company apply for a ABN. Since it was not trading in its own right then it won’t need a TFN.

Depending on the type of property targetted, you may also need to register the Trust for GST. (ie where you will be dealing in other than private residential property. eg commercial or industrial property).

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

January 20, 2005 - 2:38 am

There are very few “tax free employee benefits” these days. The introduction of the Fringe Benefits Tax System (back in mid 1980’s)saw to that.

What you are suggesting re: the free rent is caught by the Fringe Benefits rules.This would effectively double the price of the ‘rent’, whereas, say, paying a salary sufficient to cover the net rent would be a much cheaper (aka tax saving) alternative.

Also, if you do lotsa ‘move in, renovate, sell’ activities then you could be deemed to be ‘in that business’ and taxed on the profits accordingly.

Prepare a Plan for, say, the next 12 months. Can I then suggest that you appoint a good accountant to your team before you go too much further down the track – then have a good chat with them.

Yes it will cost you but it should be viewed as ‘a good investment’ in itself. It’ll help to clarify your thinking and save you falling into some serious tax traps.

Don’t want to find that you’ve shot yourself in the foot.

[blush2]

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

February 16, 2004 - 3:59 pm

I’ve just re-read the post and the responses and since it doesn’t appear to be mentioned anywhere I guess it begs the question – why would you want your family home in trust in the first place? – asset protection (from creditors) only?

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

February 16, 2004 - 3:51 pm

Terry, you’re strategy is workable so long as one trust a beneficiary of the other. But then you get nested trusts which the taxman can take a dim view of.

Agent007’s basic problem is this:

Let’s assume s/he builds up assets of $500k for the trust. Let’s assume too that there is a successful action against the trading company for $1m and there are no assets in the $2 trading company to meet the judgement.

I am the creditor and I do a search and see that there are assets in the trading company’s name for $500k. I naturally put my hand out and attempt to take them as part of my judgement.

Agent007 stands up in court and says ‘You can’t do that, those assets are owned by my trust’.

To which I say – “Prove it”.

Agent007’s success at defending the position would come down to both paperwork and or his/her credibility as a witness (which could be rattled as a result of the court case).

I say – why take the risk in the first place and would never advise a client to use a trading entity as the trustee of a trust structure. Especially for the sake of saving such a minor amount of money in the overall scheme of things.

In fact I go the other way and tell my clients that the trustee company SHOULD NEVER trade in its own right, even though legally it could do so.

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

February 16, 2004 - 3:31 pm

Unfortunately the renos are as a result of you living in the home and therefore are not claimable against the future rental income of the IP.

Money spent in bringing the property ‘up to scratch’ – ie a rentable standard – would be taken into account when determining any capital gains that would be taxable when you eventually dispose of the property.

How is the money recouped? The repairs should improve its current market value. This higher value is not taxable (due to POPR exemptions) and therefore goes to minimise the value that would attract a capital gains tax in the future. (Unless of course the property was purchased before Sept 1985 in which case none of the eventual gain would be taxable)

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

February 15, 2004 - 8:19 am

Chris would be unimpressed being referred to as an accountant …. he’s a tax lawyer/barrister and probably wouldn’t know a debit from a credit (old accountant’s joke)

[betterbizParticipant@betterbizJoin Date: 2003Post Count: 47]

February 14, 2004 - 5:44 am

Mel

You’re right but then you still have to split the interest between the appropriate item numbers in the tax return/s. I would normally recommend the pro-rate approach unless there is good reason NOT to use it.

As you say, if the purpose to which the loan was put was ALL income generating (and hence all the interest deductible) then it doesn’t matter which (in the investors mind) is repaid first.

In any event you’d need some good record keeping to track the components of the loan !!!