[CattleyaParticipant@cattleyaJoin Date: 2008Post Count: 121]

May 4, 2013 - 3:08 pm

Terry,

Interesting post there. Would be interested to know your reasons / thoughts.

I usually pay principal as well. This is because, at the end of my 25 mortgage I will be… well in my 60s or 70s (hate to give out my age.. lol).
So if by then my mortgage is not paid off, presumably no body is going to give me homeloan anymore because my work / productive time is but over.
In that case then I have to sell the house and hopefully the proceed is enough to pay off the loan and buy something else.

The problems with that are:
1. I may like my house too much to move out. Or for some other personal reasons, don’t want to move out.
2. Given the share market spectacular crash in 2007 / 2008, it is not impossible that property market also crashes. And given the recent development in finance industry, any thing can happen. Raiding on saving accounts in Cyprus is not illegal, ECB and Bank of England both contemplating negative interest rate … meaning people have to pay the banks for keeping their money in there..??? Ridiculous… but not impossible.
3. Even if property market does not crash, inflation may eat up most of my capital such that there is simply not enough to pay off existing loan and buy another house.

Hence I always pay interest + principal. Look fwd to your wisdom.

Thanks
Catts

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

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May 4, 2013 - 2:54 pm

I did try to calculate as well, just to ensure the calculations are correct. Tried it a few times, seemed ok so I stopped counting. Do you guys check regularly?

Elisey, would be interested to know how you go, whether there is any mistake.

Thanks,
Catts

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

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May 4, 2013 - 2:42 pm

Sorry,  What's LMI?  Lenders Mortgage Insurance?

Thanks,
Catts

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

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July 23, 2012 - 7:04 am

Hiya,

I don't know much about Land Tax, but this is my 2cents worth:
1. OSR does send valuation March – May but your property is only valued every other year or even longer depending on the zone. But definitely not gonna get the valuation notice every year.

2. OSR calculates your tax based on their valuation and a specific formula which includes threshold and PPOR. It is only negotiable if you disagree with the land valuation, which you need to lodge a complaint on asap.
 
3. ATO's tax is self-assessed ie. you tell them what income you have + allowable deductions – tax you already paid during the tax year. The balance is your tax bill / tax refund. The allowable deductions include your Land Tax.

4. It is not true that OSR get on to you if you have >1 property. As soon as you are over the threshold and a Land Tax becomes payable, you will get a notice letter from them. However, this is only for investment properties.
For example, if your ownership on a property is 5% and below the threshold, you will not get any letter. As soon as it becomes say 50% ownership ie. over the threshold, they'll  be on your back. And they will know the change in ownership as the lawyer's paper work flows to them.
Another example is, if your PPOR becomes an IP. So still only 1 property but now over the threshold.

Hope this helps?
Catts

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

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June 15, 2012 - 7:00 am

Thank you All for your interesting comments.

Am pleasantly surprised that my retirement plan is one of the most detailed one around. I would've thought there would be more detailed ones as well.

Totally agree with Derek that retirement is not just about 'Fishing and play golf'. So the way I see it, retirement is 2 things:
1 Can fund the life you want
2 Can live the life you want

I plan to fund the life I want through rental income of IPs. I currently have $1650 per week… so I reckon, the equivalent of such income 20 years from now should be enough because rental income is inflation neutral. I also have a little bit of super.  So tick number one.

Number 2 is about figuring out what life I want. So like Derek, I still want to be busy without the headache of meeting sales targets, expenses, etc, etc. Hence I will set up a company to do the Gloria Jeans Cafe and the curio / ethnic / collectible shop.
 
–  I have an understanding with a friend who is a very good cook and also looking for retirement activities. She'll do cakes for the Cafe.
–  Another understanding with a friend who loves sailing, that we may co-own a boat or I could just occasionally rent his boat to go fishing, explore NSW coast lines, etc.
–  I also like growing orchids. So will also rent out orchids to customers. I got the idea from a book rental I visited in the Blue Mountains, but the details remain to be designed.

All the above can be incorporated into or done side by side with the Gloria Jeans Cafe.

So the whole point of Gloria Jeans Cafe is to have an activity. The financial objective of the company is just to make it break even.
I'll be travelling for the Curio / Collectible shop. I can also do contracting work in any of the banks – maybe 3 months in a year? Can be in Sydney or London depending what I fancy? Will definitely need staff to run the Cafe while I am away.

The plan is to start retiring as soon as my finances allows, which hopefully is before 55. So should still be physically capable to do all the above.

But again these are just plans. Good luck to you all…. hope we can all realise our dreams.

Catts.

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

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June 13, 2012 - 7:09 am

Josef,

ATO will only approve your PAYG Tax Variation based on your previous year's tax return. if you did not get any tax return last year, you would not get any tax variation this year. That also means, if you used your IP as PPOR last year you wouldn't be able to claim your IP losses for this year's tax variation.

Besides, the PAYG Tax Variation only helps with your cash flow, but doesn't solve your negative gearing problem ie. you will still lose money.

The only ways to make it positive are:
1.  to reduce costs – anything you can reduce. Maybe self manage your property rather than use a property management company?
2.  to increase income – can you increase rent? Rent will increase through time. So eventually your IP will become positively geared. Question is, how long is that gonna be and can you absorb the losses until then?

What ever the self proclaimed experts tell you, it is mathematical logic. Either reduce cost and / or increase income.
They'll offer you bells and whistles leading to nirvana – keep a cool mind and an eye on the fees they are charging.

Hope this helps.

Catts.

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

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June 11, 2012 - 4:28 pm

My strategy / risk appetite:
1. Risk averse – after all I am an accountant and work in a Bank. I understand the risks associated with Banking, gambling shares, etc. Hence, I like to see my wealth grow steadily though somewhat slow but I don't want to get short term shocks / sharp decreases.
2. I like to have a lot of buffers – I like to have approx. 6 months worth of cash. I currently have a little bit more than 1 year buffer.
3. My investment is for long term ie. to generate retirement income. So I keep what I have and add more, rather than swap what I have for bigger ones. Besides the costs are so high (stamp duty + solicitors fees + agent fees, etc etc) why bother swapping? Just get more new ones.
4. Quality is important, but quantity is definitely desirable. So rather than have 2 big houses in say Kensington and Vaucluse (blue ribbon suburbs), I'd rather have 1 house in inner west (still very good but much more affordable) with apartments in various blue collar and white collar suburbs.
5. I like a simple life. Simple also means flexibility. Bells and whistles usually comes with higher fees and difficult to monitor. So I do not cross collateralise, etc. The only bells and whistle I have is 100% offset facility. Everything else is simple and cheap.

Income is $110k. Total purchase price $1.5mil, bought between 2002 – 2007, never been refinanced ie. I've never dipped into the equity. LVR at the moment is 72%. Last year I got $21k tax return and this year I am struggling to get the same amount though income has been static.
I do have 100% offset facility, Landlord insurance but not income protection. This is because I have 1 year buffer ie. I can not work for 1 year and should still be able to pay off my dues.

So the way I see it, I am too liquid and need to invest again. I'd be very interested to know if you think otherwise. 

To answer Jamie's question on negative gearing:
Yes, I am losing money, but only part of it.
My cash flow analysis show that on average, I pay a third of all costs, tenants pay the other third and tax return funds the last third. Yes, I am losing money, but I hate paying too much tax. And too scared to do any tax fraud. So I am honest, just taking what I am entitled to.

Any comments is much much appreciated.

Catts

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

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June 11, 2012 - 12:38 pm

Noob,

A strategy is a very special thing, you need to develop it your self. Be very wary to get it from somebody else even if they say they tailor made it to your specific needs.

A strategy needs to accommodate your long term goal, your risk appetite, your income, your savings / spending pattern, etc.

Having said that, I cannot give you the fool proof strategy. But here's what I'd do if I were in your shoes ie. if I have that much spare cash… u lucky thing!!

My personality:

1. Risk averse – after all I am an accountant and work in a Bank. I understand the risks associated with Banking, gambling shares, etc. Hence, I like to see my wealth grow steadily though somewhat slow but I don't want to get short term shocks / sharp decreases.

2. I like to have a lot of buffers – I like to have approx. 6 months worth of cash so that if I can pay my dues for 6 months without working. The ideal, apparently is 3 months.

3. My investment is for long term ie. to generate retirement income. So I keep what I have and add more, rather than swap what I have for bigger ones. Besides the costs are so high (stamp duty + solicitors fees + agent fees, etc etc) why bother swapping? Just get more new ones.

4. Quality is important, but quantity is definitely desirable. So rather than have 2 big houses in say Kensington and Vaucluse (blue ribbon suburbs), I'd rather have 1 house in inner west (still very good but much more affordable) with apartments in various blue collar and white collar suburbs.

5. I like a simple life. Simple also means flexibility. Bells and whistles usually comes with higher fees and difficult to monitor. So I do not cross collateralise, etc. The only bells and whistle I have is 100% offset facility. Everything else is simple and cheap.

So given $8000 per month disposable income I will:

buy 5 properties one of which must be a house in a area with capital appreciation (north shore or inner west of Sydney)

the other 4 can be where the rentals are good, however wouldn't hurt to get to areas with good capital appreciation as well, like Potts Point, Elizabeth Bay areas.

I'll pay attention to my land tax – most likely 4 properties will exceed my Land Tax threshold. So I'd be considering looking at Victoria or Qld or Adelaide. Currently I'm interested in Frankston in Victoria.

I say 5 properties because I currently pay only roughly $6000 for my properties. With $8000 + negative gearing, you can get at least 5.

Good luck mate – you lucky lucky thing….

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

[CattleyaParticipant@cattleyaJoin Date: 2008Post Count: 121]

June 11, 2012 - 7:08 am

Hello

I have been thinking about this as well. It's never too early to start preparing.

I bought a house near a busy road where restaurants and supermarkets are. Retirement plan is to convert the house into a (Gloria Jeans??) cafe and sell bits and pieces on the side too.  The bits and pieces would be mementos I bought during travel or ethnic souvenirs, ethnic clothings, arts, curios etc. This is so I can travel and buy things for business. And obviously these will be tax deductible.

Be interested to know your plans as well.

Thanks,
Catts

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

[CattleyaParticipant@cattleyaJoin Date: 2008Post Count: 121]

June 11, 2012 - 7:02 am

Hi Nooob,

Wow… your finance is really awesome. Am green with envy.

I agree – never get financial advisors, they are just waste of money. Same thing with tax accountants and accountants in general. But then again it's my personal opinion and plus I know most of the things they know. I work in Banking and am an accountant. I do all my taxes and my investments myself. I only hire lawyers and building inspectors because obviously they know bits I don't.

Having said that, if I were in your position I will do:
1. Buy 2-3 IPs, not just on2. Claim as PPOR the one which is more likely to appreciate in value.
The IPs should be 'diversified' into high rental and high value appreciation (which usually mean big cities)
High rental can also be high demand (which can mean around low to medium market / blue collar or student accomodation) and high rental $ (which means near the city / white collar area)

2. I buy properties for future source of retirement income. This is because rents are inflation neutral – you are hedged for inflation. Unlike say savings, etc. Also you can insure your rental income – you cannot insure dividen. Which means your cash flow in retirement is secure.

Anyway – lots of things to talk about. I don't even know where to start. Maybe ask more questions so I know what else to say.

Thanks,
Catts.

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

[CattleyaParticipant@cattleyaJoin Date: 2008Post Count: 121]

February 17, 2010 - 5:16 pm

Thanks, Terry.

Much appreciated.
<br /:)” title=”>:)” class=”bbcode_smiley” />
co

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

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November 6, 2009 - 5:58 pm

Hi Cana05,

The ultimate objective of property investing is to have positively geared properties. Besides, all properties will end up positively geared unless you keep increasing the mortgage. When your property becomes positively geared and you still want to be negatively geared, then it is time to invest again. Plenty of options – maybe buy another property or shares or topping up your super or any other types of investment you want.

I agree with previous response, increase the rent if you can.

Hope this helps,
co

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

[CattleyaParticipant@cattleyaJoin Date: 2008Post Count: 121]

January 19, 2009 - 1:50 am

Hi Terry,

Yes I could do that, unfortunately my equity was not enough to cover the 20% deposit + expenses. So I had to borrow the rest. But I'm back below 80% now…  phew….

Hi Tim,

Thanx for calling me crap. I know I was 'creative' but I challenge your claim that it was illegal. There is no law saying that you have to disclose everything to the bank. There is only a statement in mortgage application form saying you have disclosed everything. And because you sign this, it becomes legally binding.

Now, before you jump on me… this application forms are drafted by the banks. THEY established all the rules and we are forced to abide by it. Anyway… good citizenship says you should play by the rules. But I'm not willing to give up $23000 for nothing… and for the greedy banks too.

I can understand why it is in your best interest to scare the public into succumbing to the Bank's rules because that's how you earn your living.

sing with me will you…

Regrets, Ive had a few;
But then again, too few to mention.
I did what I had to do
And saw it through without exemption.

I planned each charted course;
Each careful step along the byway,
But more, much more than this,
I did it my way.

Yes, there were times, Im sure you knew
When I bit off more than I could chew.
But through it all, when there was doubt,
I ate it up and spit it out.
I faced it all and I stood tall;
And did it my way.

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

[CattleyaParticipant@cattleyaJoin Date: 2008Post Count: 121]

January 18, 2009 - 9:35 pm

Hi Richard,

Thanx for the input.

Westpac may have seen PL inquiry at Veda but inquiry is just inquiry, not necessarily materialise into a loan. If they had followed up with Citibank they would have known about the PL. So it was a calculated risk.

I paid off the PL as quickly as possible because I want to get down to 80% asap. Besides, I like to have my finances nice and simple. Having a PL loan was an additional chore to keep up with. So paid it off furiously and now I'm back with only IP mortgages.

Still paying off furiously… all my mortgages are principal and interest payments. I know paying off principal is one of the mortal sins of investing… but hey, why not.

Many thanx.

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

[CattleyaParticipant@cattleyaJoin Date: 2008Post Count: 121]

January 18, 2009 - 1:28 am

Hi Carlin,

Don't really understand your position: so you're saying your equity in your existing PI or PPOR is 65% and you are buying another PI of $180k. Probs is, the lender may slap you with LMI?

I'm not sure whether you think the hassle associated with getting a PL is worth it. I'm sure you're also very good in money matters.

Given your time frame and the fact that your mortgage lender already logged their search with Veda Advantage, it'll be trickier to get a PL… this is because your PL lender will know that you've been shopping around for a mortgage. And if they're diligent, they'll contact your mortgage lender. Which means your serviceability in the eyes of PL lender will be diminished. 

But should you decide to do a PL… let me introduce you to another potential hazard    sorry, don't mean to scare you away.
If you decided to get the PL, make sure the mortgage lender doesn't know anything about it. ie. proceed from PL and monthly installments should be hidden away from the mortgage lender.  In my case, the proceed from citibank went into my acct with bendigo bank and I transferred it into my westpac acct. Hence westpac didn't know I had a PL with citibank, otherwise they would have reduced my serviceability.

Good luck.

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

[CattleyaParticipant@cattleyaJoin Date: 2008Post Count: 121]

January 17, 2009 - 12:45 am

Hi Carlin,

I was able to show my accountant that 100% of Citibank loan went into the mortgage as suppose to paying lawyers fees, stamp duty etc. He let me have it as a deduction. He says it doesn't matter what loan you have, as long as the purpose is for investing. If you are "stupid" enough to invest with the more expensive loan…

The catch is, you must not tell the bank or they won't let you, they'll insist on LMI. It is also about timing:
For mortgage pre-approval, bank doesn't need proof of 20% money sitting in your acct for 3 months
The 3 months proof is only required when you already have the property and about to sign the contract.

So I took the citibank loans when I was still looking. The money was sitting in my saving acct whilst I continued looking for the property. Lucky I found it a few weeks after citibank loans and arrange for contract day to be a few weeks after the 3months citibank date… just to be safe. 

Because my savings acct was with Westpac, the lender looked into my acct himself and was happy to sign off the final mortgage approval.

So the key is timing and planning… good luck!

PS: I hate mortgage insurance because it is for the bank's benefit, not me.
Purchase price is $950k. If I go bankrupt, the bank sells my house..  say for $890k. The remaining $60k they claim from the insurance company while I get nothing.

So it benefits them, not me. Honestly, why cough up $23,000 of your hard earned money just to safe their b***??!

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

[CattleyaParticipant@cattleyaJoin Date: 2008Post Count: 121]

January 14, 2009 - 1:21 am

Hi Carlin,

I did this and it was sweeettt………  Was buying IP worth $950k. Borrowed 80% from Westpac, borrowed 20% as personal loan from Citibank.

Interest rate on citibank loan was obviously much higher than Westpac. I furiously paid off the citibank loan. Just finished paying citibank off 3 months ago. In total, LMI would have been in the vicinity of $23-$25 k. Instead I paid only 3% (the difference between citibank and Westpac rate) of 20% of 950k.

Beat the banks at their own game!

Hope you have the same luck 

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

[CattleyaParticipant@cattleyaJoin Date: 2008Post Count: 121]

August 25, 2008 - 9:30 pm

Hi Terry,

Thanx for the reply.

The 1 day bit is interesting, because apparently it is 6 months for FHOGs or they have to give the money back.

Another question though, how do I evidence that I have lived in that property? Bank statements come to mind, but mine are all electronic statements now. Same goes with utility bills.

Thanx again Terry,
Catt

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

[CattleyaParticipant@cattleyaJoin Date: 2008Post Count: 121]

August 25, 2008 - 3:18 am

Ummester:
As far as I know (could be wrong) you cant. But usually in the contract there's a subject to finance clause?

Dgabriel,

I do think it is risky to borrow 100%, unless you are very very confident with your cashflow. However, if you can stomach the giddy feeling: I did use the facility with Westpac. My case: I only had 90%, so I needed another 5% to bring it down to 85%.

Rather than trying to get better valuation, I borrowed the 5% from Citibank personal loan at 11%. Sure it was much more expensive than the 8.5% mortgage rate, but I reckoned paying 2.5% (difference btw 11% and 8.5%) was much better than LMI. I made sure I paid off Citibank loan as fast as possible.

I have paid my Citibank and I still have 85% to go.

Good luck,
Catt.

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

[CattleyaParticipant@cattleyaJoin Date: 2008Post Count: 121]

August 25, 2008 - 2:16 am

Well,

As far as I know you can only get FHOG on your first property and that property must be your PPOR. Otherwise you don't get FHOG.

Whether LOC is the best option depends on your circumstances and investment strategy. I personally don't like LOC as it is providing bells and whistles I don't need. Unless you have lots of IP that managing your normal loans is overwhelmingly confusing, it may be a good idea.

Another point though, not all LOC is the same. So you really need to know what you need and negotiate with your lender. Just incase they provide you bells and whistles for pooches and you actually need the ones for felines…. figuratively speaking.

Cheers,
Catt

Cattleya

Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.