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June 3, 2012 - 7:57 am

emma171 wrote:

Naughtyj…. ZERO question – in the US – no harm no foul on a primary residence… off you go, default away and 2-3 years later, with a bankruptcy AND a foreclosure you are right as rain to get a BRAND NEW FHA LOAN AT 4%!!! YAY!!!!

In Oz… get real… no chance you can walk away

However, dear US investors PLEASE be aware that the start of this plummet was 2009… so yes dear friends…

YOU ARE NOW COMPETING AGAINST ( OR SOON WILL BE ) ALL THOSE STRATEGIC DEFAULTERS who have in the interim, lived with Mummy and Daddy, pooled their money, followed their attorneys advice and are starting all over as brand new borrowers with 20% down…

Aaaaah,,,,, oh don't we wish in Oz all that was possible.. I mean, why pay a 500k mortgage if you could just walk away and 3 years later start up again if the asset didn't quite improve to the extent you had hoped for..

Exactly. A friend of mine told me how some people he knew bought a place in Florida for around $200,000 (investing $50,000 and borrowing $150,000) and each and every year kept getting it revalued and drawing out the maximum the bank would allow.

After years of rising values (and generous valuations and constant equity withdrawals), they had a property valued at $800,000 with $700,000 owing (I think they’d invested the $500,000 equity they’d saved over the years up in the share market).

At a strategic time, they handed the keys back to the bank and walked away from their $100,000 equity in the property (AND the debt).

What did they do with their $500,000? Bought another (bigger) house outright – with no loan.

His comment was that at the time they did this, this was legal (albeit very unethical and IMO pretty dumb for the bank to let them keep pulling out equity of the home when they could walk away at any time).

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June 3, 2012 - 3:03 am

jayhinrichs wrote:

DO You not have any foreclosures in OZ??? Does every single borrower pay as agreed, does no one get divorced? Or die Intestate???

JLH

I’d argue the primary reason we don’t have anywhere near the levels of foreclosures as the US (and likely never will) is that our loans are recourse loans whereas US ones are primarily non-recourse.

In Australia, the borrower has a HUGE incentive to muddle through the downturn and not walk away from the loan as they are responsible for any and all costs associated with the loss in equity. They can’t just hand the keys back and not expect to be pursued for the outstanding loan.

Even with divorce, it’s still in the interests of both parties that the house is not sold for a loss as both parties to the divorce will still carry liability forward (and it’s likely that one party will keep the house even though they might have negative equity at the time of the divorce).

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July 12, 2011 - 12:17 am

Has anyone got any feedback on this? Curious as to how useful people have found it, etc.

Thanks in advance.

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July 11, 2011 - 4:01 am

Actually, if the property is located in the ACT (Canberra), I believe the stamp duty is deductable in the first year of purchase, so depending on where hsingh10 is purchasing the property, it might be worth talking to his tax person about.

All I could find was a Defense Housing Brochure to confirm this, but both IPs we've bought, the accountant has managed to get it deducted without objection from the ATO.

From the brochure:

Property investors are also attracted to Canberra because of its taxation benefits. When you buy an investment property in the ACT, you may be able to claim stamp duty as a 100% tax deduction in the first year*. That equates to a $20,500 deduction where the purchase price is $500,000!

The Australian Taxation Office produces a number of publications and guides on taxation related matters. Most are available on their website or by calling 132 861.

Why is this deduction applicable to ACT properties?

The ACT has a leasehold system of land ownership, which means you don't purchase property and land outright, you obtain a lease over the land for 99 years (Note: to date, expired leases have been renewed by the Government for a further 99 years). This means acquisition costs, such as stamp duty and legal fees, paid in conjunction with the purchase of an investment property may be claimed, in full, as a tax deduction.

© Defence Housing Australia 2009 Page 1 of 2

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July 6, 2011 - 6:28 am

Hey, if interest rates dropped to closed to zero, I'd be looking at taking out interest only loans on all of my IPs. *grin*

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July 4, 2011 - 7:24 am

This is just a guess, but I'd say you probably could.

That being said you'd probably need an agreement that's signed off by a solicitor.  And, your parents would also need to declare the money they receive from you as taxable income (after all, it's income received from an investment).

The only thing that you might also need to take into account is that if they loaned you the money when the place was your PPOR, why they weren't declaring the money they received from you as taxable income prior to your changing it over to an investment property?

Just my 2c – all totally uninformed and completely non-legal in nature

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June 20, 2011 - 3:35 am

Quick comment – and this is uninformed, so if someone does have better info, then please reply.

Firstly, I am assuming that you've only relatively recently purchased the property (reason being you would have been claiming depreciation beforehand).

As others have said, if you have internals, then a QS probably will pay for itself in the first year alone.  Things like curtain, stove etc probably has some value now that you can claim – sometimes you can get pleasantly surprised at what you can claim.

IF you're just after the building depreciation (and you have only recently purchased it), it's (AFAIK) based on the cost of the building when it was put up 13 years ago – have you tried contacting the previous owner to see if they have kept the figures from when they owned it?  Building depreciation shouldn't change over the 40 or so years you can claim it for, so you could probably just submit their numbers to your accountant and have him (or her) work on the basis of those figures.

As I said – not an expert, so if someone does know better, then more than happy to be corrected.

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June 17, 2011 - 5:53 am

Again, I'm no expert, but I was listening to an interesting piece by Paul Clitheroe on the ABC the other day.  He made the comment that (in his opinion) house prices will slow, but on the other hand, they won't.  It depends on HOW you look at it.

The example he gave was of a $500,000 house.

Assume that the market goes nowhere for the next 5 years.  If that happens, then the house will still be worth $500,000 in 5 years.  The question he had for the presenter was this: Has the house lost value?

He then went on to say that most people would say no.  They still have a house worth $500K and they've lost no money whatsoever.

But – to an economist, if CPI is running at 4%, the house *should* be worth around $610,000.  So, houses have actually lost 20% of their value in the 5 year period.  It just depends on how you look at it.

Personally, I think house prices will stagnate or come back and slow for a while.  But, capital growth will come back over the long term – if you buy decent properties in good locations.

In Canberra when I first bought my PPOR, I paid $130K.  Two years later, it was worth around $105K, maybe $110K if I was LUCKY.  For 2 or 3 years after that, I hardly saw any growth.  It was about 6 years before the house got back to what it was worth when I originally purchased it. But then we got a sudden growth spurt and 20 years after purchasing it, it's worth around $500K.

Annual compound growth of 7%.  If I'd chosen NOT to buy, I could have saved money – but had I waited until the "bottom" two years later, I would not only have risked missing buying at the bottom, I might not have been in a position to buy it.

Anyway, that's just my 2c.

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June 16, 2011 - 7:48 am

That's kind of what I was thinking Terryw.

I'd heard Paul Clitheroe talking about it on the radio and was I wondering about the lost opportunity cost.

Plus, the point you make about next year being postive income unless you do it again is also something that you'd definitely need to consider before doing so (and obviously talk it through with your financial adviser/accountant).

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June 16, 2011 - 6:51 am

Not after financial advice – I'm just curious is all what people's experiences have been (and it's the reason I posted it in the General section of the forum) and if it's the bank that generally benefits by getting the 'extra' interest by holding the money ahead of time.

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June 9, 2011 - 7:38 am

Given you're in Queensland, this is probably of limited use, but we have two properties (in Canberra), both of which are with different agents.  Both agencies are charging 7.7% management fees (including GST).

In the past, we've had both agencies try (on occasion) to tell us that the price is too cheap and they need to increase their fees (about 5 years ago one of them said that because of increased costs to them it needed to go to 9.9%).

Whenever they've tried this, I've simply agreed with them and said that we'd move their property to our other agent if they couldn't meet our needs.

The first time they came back with the argument "no agency will be able to do it that cheaply". I simply told them the name of the other property manager and asked the agent to phone her and confirm that we were clients.  Amazing how quickly they were able to find a way to do it for 7.7%.

In the last 5 years, they haven't even bothered to negotiate.  Both have also said that if we'll get the same fee for any new property we bring to them in the future too.

So – the point is: if you do have more than one property, it might be worth going to two different agencies to keep them both vying to keep your business over the longer term.

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June 8, 2011 - 12:43 am

DetroitDan9 wrote:

NaughtyJ, LOL I had to laugh at your post. People can spend way too much time reading articles and less time actually doing it themselves. The best way to learn is to jump in, instead of having paralysis by analysis! I often see this with a lot of people who "want to invest in the US" they want to get involved, but have to read some more articles to feel fully confident! It either makes sense to you or not, reading 100 articles will not influence that

Absolutely.  You can do all the research you want in the world and at the end of the day still do nothing. At some stage, you do have to stop reading and take the plunge into whatever investment you're planning/hoping to undertake (or rather CONTINUE reading, but take the plunge anyway – even after you invest, it's a good idea IMO to read as much as you can if possible and keep expanding your knowedge).

I just thought that anything "nuggets of truth" this guy might have had to say was (again, IMO) "spoiled" by what was clearly bitter personal experiences (kind of like a "I couldn't do it, so neither should you" mentality)

Personally, I think the US has a lot to offer Australian investors – as long as they do due diligence beforehand and go in understanding and appreciating the differences between the US and Australian markets.

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June 6, 2011 - 2:29 am

Not sure if this relates, but I am looking at purchasing a place that has solar panels on it (connected to the grid and drawing a feed-in tarriff).  Net result is that the electricity bill comes to around negative $23 per year.

I spoke to the realestate agent who handles our rentals and she suggested that the easiest way would be to put the electricity into my name, pay for the electricy each quarter (which, with current usage is approximately zero) and then bill the electricity back to the tenants (similar to how we do it with water usage charges in the ACT).

Her logic for this was this:
 
1.  We don't appear to have the rent high compared with other rentals in the area.
2.  We get the benefit of the rebate and don't have to stuff around ACTEW AGL with changing it later if tenants change.
3.  Usage is done this way anyway with water and tenants are used to paying their own water charges so it wouldn't be
4.  If they do decide not to pay the charges, it will only be the last quarter anyway and given the net usage cost is zero, it's not like we will actually lose anything.

And, while I'd keep the rebate, I'd be likely to offer to pay their supply charge anyway as a way of making it win/win for both me and the tenant (and it saves them a hundred bucks a year or so).

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June 3, 2011 - 1:21 am

You know the thing that really struck me with that article?  The racist vitriol pretty much negated all of the other possibly "factual" and believable arguments that the writer put forward.

By itself, statements such as "American sewer pipes are 2 inches, not 4 inches. Expect to be fixing blocked toilets every so often"  seem reasonable until you read the bits about how all the non-white races will destroy your property.

He could have shortened the entire article to "before you decide to invest in the USA, do your due diligence and make sure you have an accountant who is familiar with US tax law"

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May 27, 2011 - 7:30 am

Thanks.  Kind of figured as much, but it never hurts to ask.

Subsequent question:  I'm figuring that property prices won't move upward much in the next 12 months much, and I will be getting a current 2011 valuation on the property in a few weeks.

Would that establish the basis for its "cost" value when I move out and use the difference between that and the final price as the CGT? Or would I simply use "sale price less original purchase place" x percentage of time it was rented?