Forum Replies Created
CGT does not apply to wraps.
Hellman
Renting’s a super choice
From: By Caroline Adam
October 09, 2005RENTING a home and investing the rest of your money in superannuation makes better financial sense than pursuing the great Australian dream, an industry analyst says.
IBISWorld chairman Phillip Ruthven said that over time, people had been “hoodwinked” into believing that buying a home was the best investment they could make, when this was not true.
“In buying a home, you can expect over a long, long period of time an average capital gain of about eight per cent,” Mr Ruthven said.>It depends on where you buy. Also that average dosen’t include properties that create a rental return (which if it did would increase the average massively). Also it dosn’t inc. the benefits of negative gearing nor the ability to leverage up to 90%+.
“However you have to take off at least four per cent each year to allow for the costs involved in buying and selling the home.”
>If you dont sell I don’t think you would be paying 4% in selling costs… And why would you pay 4% every year in selling costs, when I have seen agents commissions as low 1.5%…..
Costs such as real estate agents’ fees, stamp duties, legal fees and maintenance of the dwelling reduced the capital gain from owning a home to about four per cent a year, he said.
>Okay say I owned a property that costed $1 Million, now I would make say $80K in CGT, but I would have to spend $40K in maintainance… Are u kidding me??? Per Year???? Now you’ve got to be joking! A place that costds $40K per yr in maintainace every single year??? Give me a break!!!!!
“If you invest in super you’re going to earn about 11 per cent a year, in which case you are better to invest in super and then lease your home,” Mr Ruthven said.
>11% – is that before or after fees??? What about insurance to cover if the companies go bankrupt? Wbat no insurance to cover real loss?
“Because by leasing a home, you can lease for about 3.5 to four per cent of its value.
Paying rent was not sending money down the drain; paying interest on a mortgage WAS sending money down the drain, Mr Ruthven said.>Paying interest on a mortgage can mean money off your tax bill if you rented the property out…
If you are the highest marginal tax rate, you could save $,000’s! Of course the only way to claim money off your tax with shares for most uneducated investors (i.e. investors who dont use insurance, margin, etc) is to actually lose money…Home ownership appealed to people because of the emotional security it offered and because it was a form of forced saving, but it had never been a good investment, he said. It was not a bad investment but there were far better things to put one’s money in, such as super, he said.
>Which apparently makes all this money and never loses…. Unlike say a house which has massive swings in price like the stock market and can go bankrupt too (and be woRth nothing!). I guess thats why banks lend so much on real estate.
Mr Ruthven said he was impressed by the number of young people who were choosing to rent a home rather than buy one, because they did not want to spend the next 10 years struggling to enjoy life.
> No, most young people have not invested in property because they couldn’t afford it, not because they thought super was a better choice. In fact many young people who are actualy buying property and renting it out… And if you ask SiS or other young guns the pay off from the hard yards more than makes up for the hard yards – Hay just ask Peter Span (his pay off inc. the latest Ferraris – can I buy a ferrari with my super? O’h only in 35yrs+ When I’m actually allowed to touch it).
Hellman
Imagine if you owned a managed fuunds that had invested in such leading compaines as AMP, NAB or in a high growth company called oneTel (which was backed by the 2 richest Australians).
In fact I had a friend that had invested in AMP and NAB.He probably hasn’t lost money (Oas he had other shares), but rather he hasn’t made any money and when you look at the last couple of weeks (I remember reading in the last few days about how the stock market has some serious falls (or losses).
Also here is an article about the declining share market:
http://www.smh.com.au/news/business/that-sinking-feeling/2005/10/07/1128562999557.htmlSo I wouldn’t want to lock away my wealth while watching! And having almost no control over my money (try asking the manager of your super fund to sell a company in the portfolio because you thinks it’s overvalued!).
In the end I would rather have a house and no super (and live off the equity in the house) rather than invest it in super and potentially wind up with nothing.
In fact I might do a small analysis (just for fun!).
Hellman
leapfrog, about the cost issue. Find out if it’s just okay to have the docs explained by a solicitor, rather than having to obtain a certificate of independant legal advice (which in some States are almost impossible to get), etc. I did this with the NAB and they were quite happy (so it cost me only $110).
Hellman
Guide to CGT: ceasing to be a resident
http://www.ato.gov.au/individuals/content.asp?doc=/content/57252.htm&page=11#P612_59893Hellman
Bankwest offer the best int. rate on savings at the moment, which is 6%.
Hellman
I think Gross is trying to run a competition between the mentors deals and his deal… (and he or us will be comparing the deals to see wether the mentoring is worth it?)….
Well thats what I reckon… I think.
Hellman
I agree with Derek, I’m just telling you what I would do with $250K.
Hellman
Well there are really two options in my opinon, you can either invest in or if you think you can beat the return invest yourself.
I would invest all the money, earn 12% and retire in 5yrs (for those 5yrs you would not be able to touch the money). You would be then on an income of $47K and if you decided to continue to work you would be on $92K.
Hellman
Hay I’ll have a go too. But I’m not being metored…
Also it’s a tad unfair… since u are at a quite advanced level of investing…
But interesting to see what deals these people find.
Hellman
Here is the latest on Rowena Wallace:
(from http://www.smh.com.au)“Pat the Rat is in danger of becoming Pat the Rap, as the Gold Logie winner Rowena Wallace faces a possible jail term after being charged with multiple counts of social security fraud.
Wallace, best known for her role as the nefarious Pat in the TV soap Sons and Daughters, has been charged with defrauding Centrelink and dishonestly obtaining a financial advantage.
A statement tendered to Downing Centre Local Court says that between November 9 and December 21, 1999, Wallace allegedly was paid a disability pension while receiving income from Seven Network and Channel Ten’s Good Morning Australia.
She was also charged with obtaining allowances to which she was not entitled as well as disability pension payments between February 15 and March 14, 2000 while earning income from Beauty and the Beast as well as from Seven Network.”
She has apparently paid $26,000 back….
Hellman
Why not invest in Japan RE? I’ve herd you can find +CF deals quite easier there than in Aust.
Hellman
One of my friends worked for free for his brother in law (he is an electrician). When he went for a loan (self employed – didn’t have the two yrs. of figures, but didn’t have enough of deposit for a full doc) he got his brother in law to issue him payslips, and started to get paid by his brother in law, servicability increased enough to get him his loan. Of course his brother in law pays him (and pays the tax man). So perhaps a part time job can also help servicability. Of course it depends on the lender.
Hellman
I would always inc. a lounge that can be made into a bed and have it made up as a bedroom if selling (4 bedrooms usually sell for more than 3Bdr houses). For a up market/student(perhaps) rental you can always set up a home theatre, which could increase yields.
hellman
Keep the bedrooms carpeted. Most people pefer carpeted bedrooms and floorboards for the other rooms. Also if your bathroom is close to the bedrooms see if you can carpet that path / hall area too, as most people dislike walking on polished floors when wet (slippage and can be cold).
Hellman
Pre-nups aren’t really worth the paper they are written on. They only last for prob. 2yrs maximum (of course thats up to the court), also if your spouse didn’t see an independant solicitor they are torn up too.
But the real problem is if your situation changes. For example if your partner sells their unit to have extra $$$ (and spends it), your situation has changed and the prenup could be torn up.
As for trusts and companies for asset protection, the family court has the right to tear them up and basically say they don’t exist (yes even with proper paperwork).
As a side note the family court can also bar you from leaving the country as well as put you in jail.
So what can you do? Not much the only thing you can really do is have all your properties leveraged /mortgage to as high as you can get them so there is little equity.
But even then if the family court believes you have the capacity to pay, it can simply order you to pay an abertary amount.
So all you can really do is get the best lawyer you can.
Hellman
I tend to agree with brahms with this one. Defaults on your CRA are taken seriously, defaults over $1,000.00 are taken very seriously!
Price in Syd (and other cities) tend to double in 7yrs (from memory, but it sounds about right). Rural areas tend to double every 10-13yrs (roughly). Check out the http://www.abs.gov.au
As for explaining equity to them:
Say that they own a house worth $300K. Lets say they have a mortgage of $150K on the property. Now banks will lend them 80% of the property value (what the property is worth today) quite easily (as long as they have an income (job/self employed) and can meet the repyments).
So 80% of $300K = $240K – the $150K they owe = $90K. That means they can take the $90K out. And they can spend it on anything (such as another property, or a boat, family holiday, etc).
Of course it is better to spend it on assets – property, shares, etc, (where as most people tend to spend it on liabilities – such as cars, boats, etc)
Hellman
1. Can anyone tell me where I can find information such as vacancy rates, auction clearance rates and other sites useful for ‘due dilegence’ work?
>Usually RE agents can give you good information, as well as data providers (RP data and others) and finally A.B.S (http://www.abs.gov.au). As a side note when you focus on a particular area you usually look out for (and find) any stats.
2. Are low socioeconomic/housing commission type areas to be avoided or does anyone have ideas for solving problems such as property damage, rental arrears, potential neighbour issues, etc that may occur in these types of areas?
>This is about risk control. In my honest opinon low income housing is pretty good (it can even be better than high end housing – rich tennants have lawyers!). In the end it’s abouthow your going to achieve your goals, if you can’t afford ‘normal’ houses then you will have to go to lower priced houses or units (becareful of units!), each of these have their own risk factors. The good thing about property is when you learn more and more about it you quickly realise how similar the different classes of property are.
3. I would normally also avoid areas that may flood. Are all problems opportunities or should some be avioded?
>Not all problems are opportunities! In terms of flood zones, I would have a look at the area and then find out how flood prone my house is. By that I mean, as an example, say I was buying in the Western Subrubs of Syd. The whole area is flood plain, but in reality the area will probably never ‘flood’ like New Orleans (which was very obviously going to flood if any of the levys/walls broke).
Hellman
Your probably not going to like this answer but I suggest you get Steve McKnight’s 2nd book.
These days +CF properties are made not bought (though you can still pick +CF properties up, but as you said it’s very hard to find and usually the areas aren’t great).
Learning how to create CF+ will probably also increase your returns as well as you know how to increase your invesment performance.
