Forum Replies Created
Hi, there might be a way around it.
Apparently, you can now borrow as an individual and lend it to your smsf. The rent [which your business pays] is used to pay the interest on the loan.
If it's an undeducted contribution to smsf, the interest is probably not tax deductible.
You might also be in a position to 'salary sacrifice' a large portion of your income to get the tax benefit. This can be very significant.
It all depends on your financial position and your serviceability. Worth looking into.
KY
Hi Carpe, a couple more points to consider [as though you don't have enough to think about!]
Just something I've observed : 'best' time to build seems to be near the end of a recession – our recession is just beginning so your idea to wait & learn all the necessary steps while waiting seems sensible.
Another point is Canberra has peaked after a rather dramatic few years of sharp increase. It has to settle into a plateau before it goes up again.
By the time you're ready, hopefully valuations are reliable and therefore your calculations will be accurate.
The cost seems big but by devt stds, it's only a small devt [based on cost of houses/apts] we used to think 1M was huge but high housing prices have shifted the parameters.
KY
Hi Rudra, if your IP is costing you $200 pw then it's costing you $10000+ per year. Couldn't you have found a property on realestate.com for that money? Plus if you put in 20%, then it's costing you more than $10000 p.a.
Your IP better have good cap gains.
KY
Hi, also holding costs = 7% x $1M = $70000
Your end values might hold up [can't see 2 storey houses less than $550K] but S Hales brought up really pertinent points.
Also GST on sale = 10% less construction costs.
You do have a margin but do factor in a large contingency cost.
Good luck,
KYHi, you might be alright borrowing off the end value of the devt. I reckon 10×1 might cost 1.5-2M to build? and you might end up with 8-10 apts with end value 3-5M
Once DA is approved, the banks will provide funding. I borrowed close to 1M for building and the bank released it as and when the builders asked for payment.
Always borrow more than you need. You pay interest only when it's drawn down.
The 'danger' period is when the building is almost done but hasn't sold. Your interest cost will be way way up there & the pressure to sell can be quite horrendous.
Can you do a mix of 1, 2 & 3 BR apts? Or maybe just 1 & 2BR ones? There's no need to have them all uniform.
That's the part I like about building & 'devt'. Creating the best mix for your land is a very very satisfying exercise.
Good luck,
KYHi navyboy, that was what I thought to do with my last subdivision. As it turned out, I never lived in it but sold it and paid CGT which I then used other means to offset.
Made quite a handsome profit even without building and the person who bought it from me will make a substantial profit after building as well.
Quite a few small investors do this in Adelaide. But you have to be careful about the price you pay for the property initially and if the property market doesn't move upwards in the building phase, the profit may not be very big.
Surprisingly, the old house sells for about the same price even after the back yard has been chopped off!
With some external paving, fencing etc, you can get the original price back and then your new house will be far cheaper to own.
Good luck,
KYHi Beth, I can endorse the invest in recession strategy. Have done that several times over.
Old enough to live through 18% interest, last year I paid 10.79% [total monthly interest close to $10K at one stage]
Borrowed $170000 more in February @9.5%, ivested $10000 on shares & made $2700. Too chicken to spend the other $160K
Looking to borrow $440000 to pay off the $170000, leaving roughly $380-390K to invest in FY10 [from July 1]
Think I'm not nervous? I am, very. It's normal to be nervous.
Stick to your convictions. If you think you can, then DO IT.
You have a good head on your shoulders. A tip for you: check the past posts of the people who have responded. Draw your conclusions.
Good luck,
KYHi, buy 2 BR.
$220000 + costs = $233000 less $67000 = $166000 @ honeymoon rates yr 1 = $10 – 11 K living costs = less than rent
Rent out 1 BR if necessary say to a mate @ mate's rate of $80 pw = $4160 [let's say you get approx $3K]
If your job is stable, pay $20 pw into the offset/savings/loan acct
After 1st year's sustained 'hardship', next few years will progressively get easier.
It's EXACTLY how the rest of us started.
Good luck
KYHi, can't you sell PPOR and move into the new house? After 5 years, you don't have to pay GST nor CGT. Can be quite substantial because GST is at least $13000. Your old house will not have GST.
Meanwhile, you have time to look around and pick the house of your dreams and probably pay less than normal because you're not pushed by time constraints.
KY
Hi, have you read Rick Otton's article about Aussies buying property in USA?
It's scary.
KY
Hi Vicky, yep.
Hi Vicky would you be interested to give me an update of resi property in NZ? I have 5 student accom units that have now stabilised & returning $1000 pm +ve cashflow.
Thinking of getting a couple more properties [resi easier though my preference is commercial except that funding is difficult]
My loans are with Westpac.
KY
BTW I'll be happy to use a Buyer's Agency if the property suits me. I did a quick reki & like Wellington & Christchurch
Hi, I am sincerely puzzled.
Why can't I borrow $500000 and buy a house & place it in SMSF if I have the equity?
Say I have an unencumbered property, a house. I can get a bank to lend me $500000 which is the upper limit of what I can place in SMSF.
I place the funds in the SMSF as cash.
Then the SMSF buys a house to the tune of $495000. It rents for whatever & I report that as SMSF income.
Meantime, I pay off the loan with income that's outside the fund.
I don't think it's worth doing, just that it's theoretically possible.
KY
Hi, great place to learn is to attend open inspections & auctions. Doesn't cost much unless you put your hand up.
For years I did that, walking from bus to train to open inspection. See, it gave me time to take in the feel of the place, the looks on the faces of people there, the vibes and ebbs & flows.
Very soon, something will say 'this looks good' and then one day the little voice literally screams from inside 'buy, buy, buy'
I am woman, don't need logic.
KY
Hi, I sold and was totally debt free. Didn't work. Been kicking myself ever since.
But I bought a book by George Allen [American] and found that what I did was uncannily similar to his graph so I suspect that a number of other people might have done the same.
It appears that people on retirement cash out and then just live on whatever income is derived.
By cashing out, our borrowing capacity changes.
For instance, on a $500000 loan, I couldn't borrow very much more.
After selling those loans were zerorised and suddenly, I could borrow more than a million.
My character is such I borrow first and worry later. After I signed on the dotted line, I scurry around to make it work.
Worked like a dream.
KY
Hi, sounds quite simple. You've done really well with IP 1. Don't need to do anything – yet. Appears to me you're suffering the uncertainty after doing something.
Have you looked into depreciation benefits? Throw in whitegoods & furniture & increased rental or even same rental with depreciation & -ve gearing will bring IP2 to a better position. The cashflow from IP1 balances the deficit from IP2
I'm sure you can do the sums yourself & come to a decision that best fits your own needs.
No need to be jittery 1 month after buying. If you like IP2 well enough to make it your home, save enough [an offset account is best] to balance repayment with what rental you're currently paying then your financial position is no different from before.
This is what I always thought was a good way. Buy IP for future PPOR, renovate/improve [claiming expenses/depreciation while it's a rental] then some years down the track [after milking depreciation & -ve gearing benefits], take it back, clean it up & live in it.
Sounds simple, in practice maybe a bit harder.
Good luck
KY
Hi, Elliequinn, I'd like to say that you're doing OK. Getting back on your feet & knowing you need to put together a deposit to start again is not bad.
And to give some balance to Unmester's comments, property is SO NOT DEPRECIATING.
Unmester, if your properties have depreciated, then you must have bought badly.
My properties certainly have not depreciated yet.
And I'll bet as many on this forum have properties that have held their value and more.
When will gold reach $1500 USD?
KY
Hi, simple enough really. Save up more borrow less. Or if you think the timing is right when you have 20% deposit, at least make sure that your income is more than sufficient for you to pay down the loan i.e. pay P&I rather than IO that way you make inroads into the debt.
Fear is good in that it gives the check & balance to the deal.
It's also normal to be afraid.
It's also normal, almost a given, that our 1st investment is stressful. Even seasoned investors may make mistakes. My 1st house was a disaster and my NZ investments aren't very good. [they're 20 years after my 1st house] but as I get more experienced, the less good investments are balanced by the really good ones.
They say: out of 10, expect 2 high flyers, 2 dogs and 6 in between. I find that if I try to avoid the dogs, I will miss out on the high flyers.
Your present situation argues for staying safe in the mean, a conventional investment bearing ordinary yields of around 5-6% that allows you to pay down and in time, give you a stable platform to move forward.
Hope to hear good news from you in future,
KYmrs p, you might be interested in this. This afternoon I walked my niece through her options. Sell as is – make $200000; subdivide & sell after building; subdivide, build & live in one as PPOR; keep for rental.
Even I was surprised that she'd come through with -ve gearing [around $2to 4 thousand a year] but with depreciation & -ve gearing, she is in that corridor of -ve gearing but +ve cashflow.
We didn't use hopeful numbers. I insisted she put in the correct land value price. What I think is that her construction cost might be too hopeful. I also insisted on a very conservative number for expected rent.
So buying a block of land to build either PPOR or rental property is the 'simplest' way to get some advantage even in a place that has seen a lot of growth & may be flat in the next few years.
Run the numbers yourself. You might be pleasantly surprised.
KYHi Harb, no matter what logic you use, Scamp will cling to his 50% drop.
Your point about the cost of materials is the most telling. Add to that 10% GST and we can see why the basic cost base of a house cannot fall below a certain level and that level is double or more what it was 10 years ago.
Further, add stuff like there's only one Doublebay, Harbourbridge and Point Piper [hope I got the last correct, I'm not familiar with Sydney]. Further, houses of the past were built with different labour costs, skill and materials. Bluestone is well nigh impossible to find now. An old house was demolished to subdivide and guess what? The old bluestone sold for tens of thousands of dollars.
Many federation style or return verandah/ bullnose or some with small red bricks [used to be master builders' houses] can NOT be replicated. Many have decaying or oldfashioned plumbing & internal wiring etc that costs HEAPS to renovate. Therefore, after the old houses have been given the new lease of life, they're going to cost antique value. Anyone hoping for a 50% drop is wishing for the impossible.
If prices do tumble, I'll go shopping for one of them old solid brick master built houses that have been rewired and replumbed and loved by whoever did it.
KY
