[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 24, 2009 - 12:06 pm

Hi DrSupachicken,

I should have provided more detail in your other post regarding yield.

Yield is calculated using your rental income without factoring expenses… there are two more formulas you can use to determine accurate results:

Yield = (Annual Rent / Purchase Price) x 100
ROI = (Annual Cashflow / Purchase Price) x 100
CoCR = (Annual Cashflow / Down Payment) x 100

Yield is simply the rate of income per year. ROI (Return on Investment) is the net return you get from the investment, very similar to Yield but puts expenses into play like repayments, repairs, management etc. Finally, CoCR (Cash on Cash Return) is the return on the money you have actually used from your own pocket to purchase the investment, the down payment.

Note: Cashflow is the net position after expenses.

Cheers

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 24, 2009 - 7:11 am

Matt,

Yeah, I remember that part clearly, which is why I'm confused in the first place.

If timing the market is key, then why invest in positive cashflow property now? Prices have great potential for a huge drop all the while interest rates are temporarily low – it's not going to last forever, so why is cashflow so worth it now?

I am under the impression the Forster example was to demonstrate good deals in the current market. That deal is good now, but for how long? When values decrease and interest rates increase – you're stuffed!

I do understand that it was to demonstrate the 1% rule, but was unsure whether or not it was a form of encouragement for present day investing.

In saying this, I've probably already answered my own question… the result of a Monday night seminar I 'spose

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 24, 2009 - 5:28 am

Great idea Matt,

I'd like to ask a question in regards to focusing on positive cashflow while the window of opportunity is open (low interest rates).

If property prices drop as many suggest, then what happens when interest rates go back up? You'll have -ve equity and -ve cashflow. What's the exit strategy in this scenario?

Perhaps it's better to wait for the bottom of the market before looking at cashflow and growth.

I did enjoy the content of the seminar, and mean no disrespect. But this is concerning for me.

Cheers

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 24, 2009 - 1:13 am

Hi DrSupachicken,

Your yield is calculated by dividing your annual rent by the purchase price and multiplying the result by 100, i.e:

Yield = (Annual Rent / Purchase Price) x 100
Yield = ($20,280 / $300,000) x 100
Yeild = 0.0676 x 100

Yeild = 6.76%

Sounds like a good return to me considering the 5.81% interest rate.

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 19, 2009 - 11:15 pm

Well done Melanie,

All the best for a good sale

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 11, 2009 - 5:59 am

Thanks for sharing Terry 

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 11, 2009 - 5:53 am

Hi Tuboo,

– Lender's Mortgage Insurance (LMI) insures your lender in the event that you default on your property loan.
– You will need to pay LMI if you borrow more than 80% of the purchase price.
– LMI does not offer you anything.
– LMI is a once off fee that you pay to the lender.

Cheers

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 9, 2009 - 4:00 am

Well in Dolf's case he refinances his properties to purchase depreciating assets (a.k.a liabilities) like his PPOR(only an asset once sold and if it makes a profit)/Cars/Other luxuries – This is how he 'realises' his gains. If you've read Steve's book '0 to 260+ Properties…" you'll find that this technique can become dangerous if you're not careful with managing your debt as I mentioned earlier.

You did raise a good question though about tax loop holes. You can limit the amount of capital gains tax you pay to 30% in the dollar if you purchase your investments through a discretionary trust or company.

You can learn more about Trusts through this post: https://www.propertyinvesting.com/forums/getting-technical/legal-accounting/4326640

This article is a great read too: http://www.propertyupdate.com.au/articles/149/1/Trusting-Trusts/Page1.html

If you have any questions regarding structuring your investments (i.e. using trusts) then there's plenty of help available here. Just ask away!

Cheers

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 9, 2009 - 3:10 am

Blai,

Refinancing is when you borrow against the current value of the home if it has gone up in value. Dolf chooses not to sell because he'll lose his positive cash flow property and a large chunk of capital gains in tax. If he refinances on the other hand, he keeps the property and is able to use the equity to invest further without being taxed for his gain – since this is borrowed money.

You need to be careful with this approach as it is more applicable in an up trending market. You also need to consider how much debt you can effectively manage before you go nuts refinancing every property that has gone up in value.

Keep in mind that you will only be able to refinance up to 80% of the properties current value.

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 3, 2009 - 11:16 pm

Hi RubberduckyAU,

An option is an agreement between you and the seller. I'm positive you can negotiate subdivisions within the option clause, but I doubt you are able to do so without the owners consent (without him knowing). It will remain the owners property until you 'exercise' the option.

I'll just write up a quick example:

You find a property with development potential, the vendor is looking to sell at $150,000. You however, decide to offer the vendor a 24 month option to purchase the property at $200,000 (Let's assume that the market is trending upwards at the time and you want to make the deal sound fair for both parties as you may take up to 2 years to purchase it).

You state in the option clause that you will be granted entry during the 24 month option period to do all the appropriate work –  the subdivision. So in this case you have plenty of time to complete the job and save money since you're not paying for any holding costs. Once the job is completed you can exercise the option at any time you like during the specified 2 year period.

If, however, the deal turns sour and your subdivision will not produce your expected profit (which will need to cover the sale price of $200,000) you can simply walk away from the deal by letting your option 'expire'. In this case you lose the option fee which may be a few thousand dollars and the cost for the subdivision. The vendor keeps everything and you walk away a little broke but a lot smarter.

If you're interested in options I highly recommend you get some thorough educational material and seek competent advice on the topic as there are many avenues with options.

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 3, 2009 - 2:04 am

You could purchase an 'option' with the same clause, which can also act as a deposit (if specified) but you have more control ie, a long option period, set price, etc.

Options give you and only you the right to purchase the property at an agreed price within the specified option period. If you choose not to continue with purchase, the option expires and the owner is free to sell to anyone (they will keep the option fee though).

Seek some professional advice on this, if it seems the right way to go.

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 3, 2009 - 12:11 am

You never pay capital gains tax when you sell your PPOR. But since it is now an IP, you will need to pay CGT on sale. If the property is owned as an IP for longer than 12 months you will be entitled to a 50% CGT discount.

I suppose the capital gains will be calculated from the exact date it was converted to an IP to the day you actually sell it – not exactly sure though

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

March 3, 2009 - 12:03 am

Hi Shellb78,

Don't forget when you sell the investment property you will pay capital gains tax (you'll have the 50% discount though since you've owned it longer than 12 months). It might be more effective to use the equity in the home to help purchase your new one or at least provide the funds for a down payment.

I wouldn't be worried about land prices jumping in value in the near future. There's still plenty of recovery to be had.

Cheers

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

February 12, 2009 - 4:09 am

Thanks again, Plastic. You've been very helpful

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

February 12, 2009 - 4:00 am

ErikH wrote:

Thanks for you comments on the site, if you ever have any suggestions / comments on how to improve or what to include, please let me know!

Sure! I think your search bar should be placed at the top on all pages (like PI.com) as it's a convenient place to have it. Most users when they can't find what they're looking for won't bother scrolling all the way to the bottom of the page to find a search bar.

I'm not sure if you're planning on putting any content in the "Property Investment" & "Retirement Planning" Tabs other than the secondary menu on the left. But It would help if you introduce the topics like you have done on the home page. Internet users can be impatient, so it's important you show them what they can do straight away, rather than expecting them to venture further than necessary.

Other than that, your content is great, and I expect to be a regular user in the near future.

Always keep in mind that a users experience is at their fingertips, if they don't like what they see instantly or have trouble navigating, you'll be sure to lose your 'customers' as quickly as you found them.

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

February 11, 2009 - 10:59 am

Hi Erik,

Good on ya for sharing some nice pointers. And thanks for sharing the hot spotting site! – I should mention it's http://www.hotspotting.com.au/ and not hotspotting.com as this directs you to ebay (for me anyway), go figure.

By the way, I had a look at your site recently, it's coming together nicely

Cheers mate

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

February 10, 2009 - 9:29 am

Reistar,

Is it just me, or do you reek of spam? Every comment you have made in the past hour is just to advertise you "hands free" deal attraction method.

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

February 10, 2009 - 8:18 am

Thanks for the motivational feedback Plasticscalpel

Would you be willing to mention the buyers agent and renovation companies you use?

Cheers

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

February 10, 2009 - 4:55 am

Hi Terry,

Took me a while to understand everything considering the large amounts of legal jargon.

Seems as though this case is bringing about a lot of change.

[freelanceMember@freelanceJoin Date: 2008Post Count: 93]

February 9, 2009 - 10:44 am

Hey Linar,

Yeah, good advice is key. I'm forming a solid idea of what I want in terms structuring my investments. It'll save me a lot of time and heartache finding the right lawyer & accountant once I can clearly identify what I need.

I am leaning towards keeping several properties within certain trusts depending on their suitability as you have mentioned.

Cheers