Forum Replies Created
The problem with pre-paying interest is the lack of deduction in the next financial year, unless you intend to keep pre – paying interest. (Ask the bank you are with if they have a premium for this privilege- they often do).
Don't get me wrong, it can be effective. DO THE NUMBERS FIRST, DON'T ACCEPT FASHIONABLE STRUCTURES WITHOUT DUE DILIGENCE. Pre-paying for a large corporation is a little different then Mum and Dad investor – sometimes it may be more trouble then it is worth…….
I am impressed that you are thinking like an investor on your first property. I like that you do not want to use your own money.
Yes, you can borrow 100% + costs when you are creative. There are always ways…
Kylee,
Lets clear this up, You do NOT have to move back into your home for the three months. You will maintain the owner occupied status for six years (you may only have one PPOR exempt). The 6 year exemption rule will provide you with the opportunity to get a good feel for investing and creating wealth – it will give you time to absorb the question of will I hold or will I sell (YOU WILL HOLD – WHEN YOU UNDERSTAND THE RULES TO CREATING $$$). Given your income and other details you have disclosed here, you will be in a position to hold this first property and purchase several more. This early stage of your property investing is where you will create the platform for a very healthy life.
I have an advantage that may be used down the track. As you may be aware, SMSF's can borrow via instalment warrants. Although the regulation is not based around zoning, it would be easier to evidence that a commercial zoned property is business real property. Under certain conditions i.e. the property must be used wholly for business purposes to name one regulation, the outcome is: your SMSF may purchase this property from you to free up your capital……
No to battle axe – where possible, I live in a nearby suburb. you asking this question should give you the answer your after. Particularly a small lot size as mentioned.
Re-sale is the major concern?
Sorry Mate, I cannot get a feel for the serenity over the internet……..
You will need to do some real foot work (due diligence) on this one…….
All the best.
Note: If you get stuck drop me an email or like, I could guide you where possible.
Alchemist,
Thats right, Look at the Asset value as opposed to the debt. ASSET INCREASES, DEBT REMAINS. (I/O will increase the available $$$ for the next property, AGAIN ASSET INCREASES ON THE SECOND PROPERTY ETC, Your wealth is correlated to the value of your ASSETS and your CASHFLOW. The tricks are around increasing your cashflow to service more debt, where the debt is the foundation to increasing the amount your assets.
Why pay down the debt when you can purchase further properties? Why would you indulge in the activities that make nil $$$ after you have started so well.
Benjamin Csikos wrote:Anyone can live off equity right now if they really wanted to. It's all relative to what level of lifestyle you wanted.Move to india. They live on 500 bucks a year over there.
…I'm just sayin'.
I live off $500 a year in Australia, and there is nothing wrong with my lifestyle………. join me on a bike ride or run one day and I can reveal all.
Paddyomail, there are lots of ways to provide an income, live off equity etc . Yes you are correct!
Thinking outside the square is the difference.Alchemist,
Your circumstances will always be a little different to the the common response, so get personal advice so you do not cost yourself big $$$, I agree with Sonya. If you live in Qld organise a sitting with someone who has made $$$ such as Richard -They are more then willing to give their time otherwise they would not be writing all day and night on this website. Most guys / gals that write on this site are retired and will give you a formal meeting for (2-3hrs for nil cost) to discuss the pros and cons. Just ask them directly for help.Yet another good argument to take on the roll / responsibility yourself. I get a much better result looking after my investments – no will care like you. Not only care for your property but care for your tenant. The tenant being the factor that can make property investments a good / bad asset class. I have great tenants that all look after my properties well, but the respect is mutual.
The process also puts more dollars in your pocket, long term tenants, nil malicious damage, and a well maintained property,
I haven't got a website for this topic but if I did I would call it "enjoy the rewards of managing property yourself saving you time".Before ruling anything out / in sit down with someone who knows dollars. Have a look on this website to see someone in your area who you can sit down with for 2-3 hours. Make a well informed decision by getting some real education, I noticed several comments at the start of this blog started to direct you that way but the topic went in a different direction. When you are talking about paying your property off I am concerned? Always use I/O , take tax deductions, utilise depreciation and implement other little tricks, and you could be walking away with an investment property for the cost of a case / slab of beer. Not the imported stuff either.
If you live in Sydney, and are interested, I am looking for keen people to work with on a casual or full time basis. If your not looking for work just drop in and I will show you a day in the life of a broker / planner.
I require more detail then is possible here, drop me an email or phone and I will be able to give you some guidance.
WOW, your financial position is fantastic! What a nice place to be, on face value you have plenty of room to be more aggressive – but manage your risk.
Important:
1. Have you taken the equity out of your property in case the market trends backwards? Financially you are in a very good position to have some fun with property, but consider some of the questions below to reach your goals.
2. You need to stop paying off your property and place this money into your offset account.
3. Yes, you can and should invest more (from the numbers you have provided and without taking into consideration your personal needs and circumstances).
The following gives you an idea of the complexities of Financial Advice.1. Plans in relation to health, income insurance, Trauma, Life/TPD (term or whole of life)?2. Asset protection-general insurance (house, contents, Liability, Indemnity etc)?3. Tax Deductible Debt v Non Tax Deductible Debt4. Fee’s and charges charged by banks and other related industries?5. Your own home and tax benefits- Owner occupied exemption, CGT exemptions 6. State and Federal Grants for homeowners.7. Mortgage Broking concerns- interest rates, variable, low doc, LOC, fixed (short v long-15 years), 100% offset, investor loans- tax deductible set up, Records to keep for tax deductions, Consumer credit code, LMI, Capacity to loan.8. Purchasing costs of a home- government search, conveyancing, P&B9. What is capitalising interest? Sub accounts?10. Are you in the property business? 11. Business structures, Sole trader, Partnership, Company and Trust ( Bare, Discretionary, Unit, and Hybrid).12. How does A= L+OE apply to a property business?13. Why would you buy a house in a trust? This is often not good contrary to the latest hype.14. Investment property seminar, travel –interstate, bank charges etc are they tax deductible? 15. The benefits of Holiday homes.16. In who’s name for taxation and capital gains purposes?17. Is interest payment tax deductible prior to a house being rented out? What about repairs after the property has been tenanted for income purposes?18. Land tax- name on title, joint tenants, tenants in common, % effect v taxable income v Capital gains tax19. Joint ventures?20. Expected rate of return v inflation (opportunity cost)21. Commercial v Residential v Public Trusts v Syndicates v Trust22. Do you want to retain your present home/ what are your house plans or areyou planning to move within several years?23. Rent v Buy, Shares v Property24. Employment situation and taxable income?25. Non -Tax deductible debt: credit cards, hire purchase and leases of domestic nature. What effect do these have on your mortgage or loans available?26. Depreciating assets v appreciating assets – What are these?27. Free cash flow- How can I improve this situation? How do you structure yourself to afford more property.28. Income Tax Brackets and Capital gains Tax.29. Age profile and the ability or risk that may be taken?30. Should I pay off my home?31. Mortgage repayment calculator? What can I afford to repay?32. How can paying off my home be accelerated?33. Negative v positive geared, The upside and downside to both of these?34. What is OPM, leveraging, equity, and collateral?35. Where to buy, unit/house, rental yield, new/old, price range, pool etc36. Management issues with properties. How to avoid these? 37. Can someone house share with me to help pay the mortgage?38. Strategies and tricks?39. Co-owners with friends is this a bad idea?40. Depreciation v Repairs v Capital Improvement41. Loan cost write off42. What is the Cost base for CGT and the trigger date?43. How a line of credit can be so wrong?44. Pre-paid interest and variation to PAYG ( form 1515).45. How Lenders Mortgage Insurance (LMI) is of no financial concern.
Sorry, but there is a lot to think about when answering a question you have posted. A question such as the above will get a response that may cover only one of the above topics – If you went away to make a decision based on one, two, or even three of the facts above then you are short changing yourself and the ability to make a valid decision for your future.Summary: Protect your assets with all the cash that is available and then invest the excess.
http://www.birchcorp.com.auTerryw wrote:I would personally still use IO loans with a 100% offset account attached.Because:
– money paid into a loan cannot be taken out without tax consequences
– you will still save the same interest as using a PI loan
– your repayments will be lower meaning you can afford more investments
– your repayments will be lower which will help if you get short of funds
– you can always pay extra on most IO loans if and when you chose to.But if you are temped to spend the cash that will build up in the offset account you may be better with PI
I completely agree…
Banker wrote:number 8 wrote:You may be missing my point?P&I should never be used, hence there is no need to ask the question – I am a Broker an Planner and I do not want to know what banks have the policy that you are describing. All my clients are I/O. If the bank doesn,t allow this, then take your business to another who will. There are many options when you think like the masses, but when you calculate the numbers for what they are, you have limited choices. It is very simple when you know where to look?
Number 8 – how can you say P&I should never be used?
Planners should be working towards the clients goals not their own ideals. Some people may want to reduce their level of gearing as they get older – especially if they have strong incomes. I have a client who has no personal debt and refuses to have investment loans with terms longer than 10 years. Half of his titles are in a safe at his house and he has a company returning him 750k p/a. If you told him he had to keep his debts interest only he would laugh you out of the room.
Thank you for prooving my point………
As you have mentioned you have a client that has a company returning $750,000 per annum (well lucky him) if you couldn,t pay off a home in one year then we all would laugh "rich guy" out of the room – it's not rocket Science for "rich guy" to make money? We are establishing a strategy for the average Australian and I don't know anyone who has a $750,000 income. To use him as an example is ridiculous. As a rule, people do not have incomes of $750,000 or twenty to thirty properties that provide rental returns equivalent to a persons income over a lifetime. One thing I have picked up on this website is how the people giving advice always play the card, "I know a wealthy person that creates wealth like…….." or there is a lot of sound advice based on making money if you have a lot of assets or a very large income……. The real finance game is about making money for and from the income of a Teacher, Nurse, Electrician, Plumber, Salesperson, Photographer, and Banker i.e. the typical Australian. How many typical Australians can pay down a debt like our "rich guy"?
You cannot play this game by starting with the rules on the rich side of the island, you have to play with the cards you are dealt, then you can play with the rules on the rich side of the island. (Pick the father with kids watching Madagascar?) i.e. Accrue the assets first, and to accrue assets you must have cashflow. Once cashflow is excessive ("Rich guy") can then pay down debt and laugh me out of the room…………..
Work with the numbers of the real person and you will quickly see you should NEVER pay down your debt vs purchasing an investment property with the extra cashflow. To re-iterate my first comment, Please read below the statement I made earlier:
What P&I achieves: Smaller tax deduction if the property is to be rented in the future, reduced capacity to pay for another investment property, and money locked inside a loan that you have to pay a fee to the bank if you were after an advance on your loan……………The key theme, is that you then have to be disciplined with your increased cash-flow.
THIS MEANS USE AN OFFSET ACCOUNT – AKA – YOU ARE PAYING THE SAME AMOUNT AS A P/I LOAN ALTHOUGH YOU ARE PAYING I/O……………………..
So before anyone gets excited any further it must be understood that in principle, the same repayment is made but into an offset account………..except there are three great big benefits as mentioned above! Strategies have to help the average person with an average income. Lets face it, half the strategies I read on these websites are for very wealthy people and the advice is generally from very wealthy people with there own interests at heart. I write this as I see Steve McKnight's Advertisement roll over on the right of this page………
James, Getting another 5 year I/O is simple, if not, take your business elsewhere. No risk here!
For the record, just b/c one utilises I/O this does not mean you should take a larger loan. I would never encourage this behaviour.James, if you work on your worst case scenario and the bank makes you pay P&I. You have be doing this in your offset account for the last five years. No risk here!BANKER : Ideals – existing in the mind or imagination. Please do the numbers?????? Sorry but I only deal with facts. I will leave it up to your ideals to show me how paying off one property (P&I) can outperform purchasing two properties using (I/O). Remembering the I/O repayment on the first property increases your cashflow to make repayments for the second property ??????
You may be missing my point?
P&I should never be used, hence there is no need to ask the question – I am a Broker an Planner and I do not want to know what banks have the policy that you are describing. All my clients are I/O. If the bank doesn,t allow this, then take your business to another who will. There are many options when you think like the masses, but when you calculate the numbers for what they are, you have limited choices. It is very simple when you know where to look?
James,
If you are getting into investing there is no need to understand P&I, in fact it should be a dirty word. I have never met anyone who became wealthy by paying their home off. All value / wealth is achieved by allocating any available cash-flow into another appreciating asset. The key question is: How do I increase cash-flow and how do I attain more assets? While answering both of these questions you will find paying money into a loan achieves very little – correction, it gives 99% of Australia a warm feeling when they open their bank statement. But financially it has no bearing on your wealth.
What P&I achieves : Smaller tax deduction if the property is to be rented in the future, reduced capacity to pay for another investment property, and money locked inside a loan that you have to pay a fee to the bank if you were after an advance on your loan……………
The key theme, is that you then have to be disciplined with your increased cash-flow. But you would not be in this game if you have NIL financial discipline.
LOC'S (cash out) and Capitalising interest are done presently and very well.
Deanboy,
I am assuming you are taking about the pest control in relation to domestic cockroaches etc. This is the tenants role – but read on.
When you are taking about the termites and other destructive bugs. Then you should assume this role. I like to do this personally each 12 months with a strong torch and a screw driver………
That being said, never ever be tight on cash when it comes to your tenants or investments (read the numbers for what they are – refer below). My tenants are, and always will be looked after at great lengths. I always look at costs of my rental properties in the following way:
Investment Property value : $400K growth in 10yrs and new value : $800K (assumptions: past performance since 1926 is similar to future performances) Therefore : Profit is approximately $40K p.a.
Pest inspection and spray, light bulb and tap washer (plumber) = $400 + $10 + $140 = $550
Do not pay from your wallet: Borrow this and your cost is only 6% x $550 = 63c per week less tax deduction at the Marginal tax rate of 31.5% (includes medicare levy) Total Cost = 43c per week .
I appreciate there are other costs, but when you look at the numbers and you look at this property game as a business I would say it is not a bad result?????? i.e. You will outlay an extra 43c p.w. to help provide a stable $40k p.a. income.
When doing property investments the margins are not that fine, yet as most investors are Mums and Dads they fail to see the real DOLLARS and SENSE. Think like a business. Look after your tenants…………
