Forum Replies Created
Are you going to move into the new dwelling as your new PPOR?
Since you bought the unit pre CGT, if you think there is still likely to be growth it can be tax free growth.
If you have much debt on your new PPOR then selling the townhouse, paying off debt and borrowing using your new home as security for LOCs might have advantages.
Is the rent figure including or excluding GST?
There are a number of issues you will need to consider in your due diligence:
1. Is there a managing agent in or near the town? If yes, how competent is that agent?
2. Long term rental demand in the community.
3. Will you need to spend much to keep the property up to scratch so that it will attract good tenants
4. 15% may sound good, but budget very realistically eg house $40K, rent $120 per week. Rates, insurance, interest, managing agent, – it’s not going to take much to go on a cashflow loss with repairs.
5. If you need to cash out, how long can you wait for to sell? It’s not going to be a quick settlement unless you are very cheap.
6. If the returns are so good, why are the Vendors selling. Can be understandable if locals/ex-locals leaving or building or winding up an estate, or are they long distance investors who have found problems
I am happy to invest in small towns, but you need to know the town well and see a way to add value.
Maybe the Medicare levy 1.5c/$ $468.00 on $31,200
Also bear in mond that there is for most people an extra pay day this year if they’re paid on a Thursday or Friday
You definitely need to check whether it is going to be possible to strata title that particular block. Depending on the age, a strata conversion might require substantial money to be spent to put the building in a condition where the council will permit strataing eg soundproofing, fire regulations
Would your parents consider either giving a guarantee or lending you the deposit.
Assuming the property is in NSW you could:
a. make the contract subject to issue by Council of a building certificate
b. there is also the possibility that even without that the combined effect of S 52A(2)(b) Conveyancing Act and Clause 19 Conveyancing (Sale of Land) Regulation 2000 could in effect give you a right to rescind a contract if a building certificate could not be obtained. Get legal advice on this if this is the way you decide to go.
From my perspective if a. is agreed to in the contract everyone knows where they standLook at the lease. Don’t make assumptiosn about its contents. Most leases have rent reviews.
Your risk if the tenant renews is that if the rent has been going up by a ratchet amount, it might be above the market rate.
Commercial/ retail is only as good as your tenant ie if your tenant is running out of money you can still have an empty shop before the lease expires. To minimise vacancy risk your building should be able to be used by other businesses and be in an area in demand. One-two hundred metres away from a good area might be a poor retail site.
Obviously pros might be a better return, cons could be greater risk.
Stamp duty on the purchase, tax on your profit. Is the agent going to want a drink as well? Sounds like a very meagre gain for the effort you put into selecting and negotiating a property which appears to have been vindicated by this offer
Bear in mind that while if you refinance and use the money on one of your existing IPs the interest will only be deductible while the purpose of that existing IP is to earn assessable income, ie once it becomes your PPOR the interest will not be deductible
The main issue with trusts, is that losses are not distributed to the beneficiaries but remain in the trust and are carried forward and applied gainst future profits.
A similar issue could apply to companies where there is no other income and you are practising negative gearing.
ie when you are negative gearing or relying on non cash deductions such as depreciation or building write off to make the investment positive (in Margaret Lomas’ system) you need to have a taxable income that the expenses can be applied against
There are probably some truisms that exist in lending. One of my friends who was a rural bank manager reckoned there was a lot of truth in issues of serviceability if total indebtedness exceeded gross annual farm income (before expenses) for farmers.
No doubt there are cycles of restriction and liberalisation as the corporate memory fades.
Ultimately, a borrower has made the choice to borrow and should not kid themselves about their ability to repay.
Find the property, then look for an accountant
You have a complex situation because each property is owned separately, there could be cgt implications etc etc
Selling up a property where there may be cgt and where there will be selling costs eg agents does not necessarily make much sense if all you want to do is free up $26,000. However, if you top up and extend your mortgage the extra 5 years your total additional payments could be over $70,000.00.
If you increased your mortgage payments when you got back so that you paid the $26000 off quicker that might make better sense. Maybe you could do this by making the mortgage on your place Interest Only if it is not already IO.
I would suspect that this is because Victoria where a building is only partly completed will charge on the value of the land plus percentgae of building works
try a search on http://www.sro.vic.gov.au
Isn’t it about working out a strategy that suits you (interests, skills, risk management) rather than one that everyone else is doing.
I agree with you that CG is often questionable in many country towns. In the last three- four years there have been a number of factors contributing to CG in country towns:
a. availability of information through the internet;
b. other finance sources because of the growth of mortgage brokers, and other productsAssuming a number of people invested because it was the ‘in’ thing to do, this money could leave the property sector and possibly has as opportunities are seen in other property markets, or other investments.
So possibly what has occurred in many country towns is akin to an arbitrage where people have spotted a mispricing which has been reduced or eliminated as more people participate.
Assuming better opportunities will occur in cities, coastal, larger regional cities, even if prices in small towns increase the increase will be lower relative to other markets.
I’m comfortable investing in some small towns where I have a good local knowledge and am confident I can handle the risks. But as I have said before i can identify properties that are now listed at 15% or more less than they were 12 months ago.
Just bear in mind that with trusts, in nSW, they are taxable from $1 in land value, but the rate of tax is the maximum rate of tax, ie there is no tax saving from multiple trusts although there might be other benefits eg asset protection
No problem, it’s done quite commonly and your reason for doing it is not just the tax advantage, but to build up assets etc.
Just bear in mind as 84K is currently owing that if the house is worth 400k, the amount you will end up with is 158k (200k – 42k)
If you haven’t done so already the Bed & Nreakfast and Farmstay Assoc might be a good starting point
