Forum Replies Created
Liz,
I am sure you can offer a lot of practical advise to many of the members because 'been there done that' experience is valuable and often hard earned. I hope this forum can add some benefit to you as well to make that next stage easier.
Good luck
GregLiz,
We have all been there, perhaps some of us we not ever cute though!FHOG – first home owners grant, frderal govennment $7k grant for first time home buyers
PPOR – principle place of residence (own home you live in)
LVR – loan to value ratio, a measure of the loan amount compared to the purchase price
LMI – lenders mortgage insurance, paid when a loan is > 80% LVR, a one off fee to provide insurance to the lender
IP – investment property
FTB – family tax benefit, a federal gov't payment to assist families
MI – mortgage insurer (see LMI above)I am not sure that LVOR isn't a mistyping of LVR
I hope that helps.
GregIf you are a long term buy and hold investor, then the DEF issue is not a factor.
My view is that you use a lender that will lend you the funds for the property you want to buy and if you are building a protfolio, you use lenders in the order of lowest borrowing capacity first. How quickly you need finance and settlement needs to be considered as well.
Each lender has their own servicing calculators as they have different assessment rates, different living expenses, different treatment of rental income, negative gearing, assessment of other loan repayments etc. If you get the order wrong, you may well find yourself stuck and not be able to obtain finance for the next IP.
Take care of using a broker that only uses 1 to 3 lenders, many say they have access to a panel of 30 or so but if they only use up to 3 of these, they are not offering a choice or giving you the service you need. I know of some brokers that ever only use 1 lender.
While there are a couple of building societies that use the broker channel, most don't. They seem to target more home owners and want to give you the full service suite of products, some insisting you have a transaction account, salary debit etc.
Generally for an investor who already has their PPOR loan set up correctly with offset etc, an IP loan needs just to be an IO very simple loan with internet access and that all. I don't have an issue with reputable mortgage managers, some are very good.
Good luck
GregWhile the contract date is the date that the CGT is calculated on, if you get the timing right and say sell early July 2010, your tax return may not need to be lodged until May 2012 by a tax agent, so you could have up to 22 months before you need to remit the CGT to the ATO.
Just a factor to consider.
GregHelen,
Why not use a broker that supports and contributes to this site?Depending on the state you are in and whether you want face to face service, for instance just on this topic, Richard Taylor is Kenmore Qld, I am in Melbourne. There are others in other states.
If you need a loan quickly, you may need to use one of the non-majors with quicker turn around times.
Good luck with it
GregKeiko,
As a general guide, CBA LMI rates for a loan < $500k and 94-95% LVR, is about 2.5% plus the relevant state stamp duty.
You could expect $12k plus as a once off fee.
To qualify with CBA you will need to be an existing customer and they define this as 6 months at least.
Nearly all lenders have exit fees but CBA is one of the lower ones, I think $700 if discharged within 4 years.Some MI's will refund part of the LMI fee but it will not be proportional so if you are looking at a quick turnover of the property, expect a large hit.
Good luck
GregIt depends on your long term goals.
If you want to build a property portfolio over time, you take one approach, if you just want to own one IP, then there is another approach to consider.One the presumption you are looking at building a portfolio over time, than for flexibility, get your home revalued and refinanced setting up a separate facility just used for investment, the amount will be guided by your serviceability and you r end goals but > $120k preferably. . Get an offset account linked to your own mortgage.
You use part of the $120k for the deposit and costs and borrow the remaining from another lender (so not to cross-collaterise).
You then use finance wisely to debt recycle to reduce your own interest costs (non deductible) while funding the IP from your new facility.
Good luck
GregWisepearl,
Check with a good tax accountant but my understanding is that you can apportion LMI over the period after it becomes an IP on the basis of 1.5 of 5 is private expense and 3.5 of 5 is an investment expense.If the LMI cost was $5k all up, for the first year you lived in the property, it is not deducible.
The second year, you lived in it 6 months, no costs are deductible, for the second 6 months as an IP, expenses can be apportioned and deductible. You should be able to claim $500 as an LMI cost for that tax year.
For the 3rd year, as a full rental property, claim $1k LMI as a deductible cost etc.The ATO allows you to make adjusted tax returns up to 4 years past, so you could adjust your tax returns and adjust these costs but again, check with a tax good accountant or the ATO itself.
Let me know how you go.Good luck
GregDougie,
There is no one answer.
As a general principal, the answer would be yes but it should not be seen as set in concrete never to be questioned.There are circumstances when you should sell, when the future growth/rental rental returns are not stacking up, better opportunities arise, change in personal financial circumstances, even if a body corporate is just too much trouble or you need to diversify.
If your property portfolio say grows to 10 IP's in 15 years time and you want to reduce debt and perhaps increase net rental returns, you may develop a plan to progressively sell that portfolio down for lifestyle reasons and keep 5 with no debt, generating $20k each in rental returns.
Good luck
GregMel,
Whether it is a LOC or term loan, the loan to value ratio (LVR) is the total loan amount divided by the property value.
A $480k loan on a $600k property is an 80% LVR.It is the overall debt total on the security property that the lender holds.
If you need to access more funds, simply borrow to a higher LVR. Depending on use and on lender, you can refinance to 90% inclusive of lenders mortgage insurance if you can show you can service the loan.Take care as most lenders and mortgage insurers are wanting chapter and verse on what the additional funds will be used for.Be prepared to provide a detailed explanation.
Good luck
GregAre you going to hold the new property or sell it?
If it is a build and hold and then revalue and refinance, whose name it is held in can be determined whether it is short term negative or positively geared and your respective MTR's. Ownership may not need to change depending on what your long term strategy is.If it is to be sold after construction, then transferring into the name of the lowest MT payer may be wiser. Do your sums.
Get the timing right also, transferring or selling at the start of a new tax year and you may not then need to submit that years tax return until May 2 years hence, i.e. sell in July 2010, the 2010/11 tax return could be submitted as late as May 2012. You defer having to pay the actual CGT.
Good luck
GregFrom where the post started to the paths it has taken, there is some excellent points raised about choice and balance.
I work with property investors and I work with seniors, people up in their mid 80's. They are two very different markets but I gain information and education and knowledge from the seniors to see what paths they have taken to get to where they are now.Savings is not enough for most people as only 5% of us are paid extraordinary sums. The old advice of pay off your home and never get into debt is not sufficient to build a wealth base to be able to retire in a degree of comfort. I have seen too many seniors scratching a living just off the pension. They own their own home, paid it off long ago but have little savings and a very modest lifestyle because that is all they can afford to do on a pension. The advice and actions they took was not enough.
To create wealth for most, it is a finance strategy you need to take on, borrowing other peoples money to invest in capital growth and income producing assets. It is about getting your capital to work for you, not just your income, to increase your wealth.
I use property as the asset class because lenders will lend up to 90% in most cases, sometimes more. They believe in it and continue to lend on that security.After that it is about understanding what type of property you need to buy in order to qualify for finance to buy the next property. For many investors property is a buy and hold strategy, for some it is an income replacement or supplement strategy of renovations or developments and you need to understand which it is that suits you.
You certainly need to build in safety nets and risk insurance for protection so you do not have to liquidate or sell unless it benefits you.
Good luck
GregI refer clients to a select and small number of buyers agents in Melbourne. I have met them all, gone through what they offer, what type of properties and what areas they cover and whether they specialise in the investor market or OO space.
I then say to clients, go meet them, ask questions and at the end of the day, it is about the service offering suiting your needs and that you can relate to the people involved and that they can develop into that trusted advisor role.My biggest area of concern is that some will buy a property for you that they have access to now, not necessarily what you need to advance your portfolio.
I know only one BA in the Sydney area, she hosts the InvestEd forum (similar to this site) and anyone who spends that time and committment to help investors, is worth considering.
Good luck
GregRob,
I would agree with getting professional advice but make sure the accountant is an experienced property tax person because I have heard some terrible uninformed advice from many accountants.1. As it is your PPOR you can transfer ownership to your spouse with no stamp duty implications. Trying to sell it and creating loans between spouses smells of tax avoidance, perhaps stay away from that path. If your existing LVR is low, perhaps transfer that to the lower tax payer and when it is rented, it will be a positive income stream.
2. There is a 6 year period re CGT but see your accountant, most know this stuff.
3. see 1 above if it is a PPOR, different story for an IP.
4. I agree with Mr5o1, no, if additional funds you pull out will be used to purchase a PPOR, the use of the funds determines whether it is deductible, so purchasing a PPOR is a private capital purchase and not deductible.You could refinance and pull out equity and use it to purchase or fund the purchase of another IP and then it will be deductible. You then rent for a period instead of buying a PPOR. Perhaps in 5 or 6 years, consider selling your Geelong property, take advantage of the CGT exemption, free up enough equity to purchase your own PPOR outright or close to.
Good luck
GregIt depends on the strength of the deal, how well you are able to show servicing coverage as well as the other factors Richard mentioned. From what you said with a $100k income, you should be able to easily chow service coverage. I recently obtained finance for a Mt Isa PPOR with a client just in the job 1 month.
Even though you have just 5% savings, the FHOG will assist. It will be about selling you the person and deal to a lender, see a good broker to assist.
It will probably need to be with a major lender as the second tier and non banks are restricted due to mortgage insurers and post codes at that LVR.
As to structure, I suggest a 30 year loan with 5 year IO facility and a full offset. Use the offset to build your savings to reduce your interest cost while you live there and when you move away and convert it to an IP, pull out your offset savings for your next PPOR or IP or whatever. Also reduce/pay off c/cards and personal debts.
Good luck
GregCellphone,
You have not provided enough information as to what sort of growth you are after or the gearing or cost of funds or your MTR.
$500k is a reasonable amount of money, it will buy a good apartment in most capital cities where rent yields may get to 5% plus but it will most likely be negatively geared. What is too much for you?In Melbourne, depending on cost of borrowings , depreciation and other costs and MTR, you could be cash after tax out of pocket $9k pa. Buying an OTP in Melbourne, you could be $6k out of pocket.
It may be enough to buy two houses in regional areas, returning maybe 6% yield with perhaps not as strong long term capital growth. It could be a buy in ACT and take advantage of the stamp duty deduction on leasehold. You could look at the NRAS deals where they may return positive after tax cash flow due to the tax benefits. DHA is another option where generally higher rent yields can be obtained. Each have advantages and disadvantages and it is about matching the property type to your needs to be able to build a property portfolio where the property type enhances you ability to obtain finance for the next purchase.
Good luck
GregYou can agree to whatever you both want.
It does not have to have any interest component, just delayed payment terms.
Any interest your uncle's receive will most likely be taxable in their hands, so it will depend on their own financial position. The principal they receive should not be assessable under any definition for either ATO or pension purposes but they should receive their own advice to make sure they have sufficient funds for their own purposes.
The issues include stamp duty on transfer of title and when that will occur, potential CGT on sale of property and pension issues if applicable.
Good luck
GregWelcome to the world of real estate agents of up-pricing to get the deal and then conditioning you down to make an easy sale.
To get a valuation you can try another three or four agents in the local area to do a free market appraisal and/or pay to get a sworn valuation by an independent valuer. It may cost you around $500 depending if they see it as a residential or commercial property.That does not mean it will sell for that, all it means is that it is a valuers opinion of its market value. Combine this with a type of average from the various REA's, you will have a better picture.
Good luck
GregJoshC,
Not knowing your particular circumstances but based on your comments, I would suggest considering:- purchase more negative geared properties in your name now that have capital growth potential – effect to reduce personal tax and have longer term potential to revalue to extract equity. Note most trusts do not allow you to access the negative gearing benefits.
- look at purchasing one or two more positive (less negative) geared or neutral properties in your wife's name and also where you may do a reno/development on in the mid term. When your wife stops working (presuming it is her and not you) in a few years, the properties start to return positive rentals and with lower income, easier to reno/develop to minimise CGT effects.
I had a client recently move to NZ and has existing IP's in Australia. My understanding with the tax agreement with NZ, he is able to take advantage of the negative gearing benefits from Aust against his NZ income. I am not a tax expert but worth following up.
Good luck
Greg,FrugalOne,
It may be a different interpretation in the use of the terms equity and debt here. It is debt you are using as Richard said, it is 100% debt as you are borrowing the funds to be able to purchase the respective properties.
In each case you are borrowing these funds secured against existing properties. The strategy you are outlining is 100% + debt funded and you will be paying interest on these loans.
Greg
