Forum Replies Created
No, You do not own the property until settlement. Have the building insurance set for settlement day… Congratulations anyway!!!!
Yes, it iis time to make real money with property. Your $15,000 will look insignificant in contrast to what happens after several property cycles…..
As above, property allowed me to retire at 33. I now give advice on a part time basis. i.e. I work as is required. No 9-5 thank you to property investments.
Building Insurance as an obvious one, but the I will assume the reno is cosmetic….. Nil insurance required.
Interest expense used to pay principal is not deductible… call it what you like. I would ask for a private ruling on this one if this was your intention.
What is the zoning for the area? What are the height restrictions? Can you acquire the neighbouring block? What will a new unit your area sell for? Think before buying what may never be a good development opportunity….
Asbestos is part of buying a home that has a little age, Out of 9 of my properties, 3 do not have asbestos. So your options are sit on the sideline or accept that this is what people used to build homes prior to the "80's". The value is in the land not the property. The land is what makes you money over the long term. As mentioned above, just take care when renovating or like.
That is correct, I have just completed an SMSF purchase for myself with a 100% loan. By completing internal lend, you can loan your SMSF what you please. The benefit of this is that you can also loan your SMSF at home-loan interest rates. This is a simple process of drawing up a loan agreement with your SMSF.
The investment strategy will require you spread your risk across many asset classes, you will find this is a little un-realistic when it comes to a large purchase such as real estate. I am personally full of property with any extra money in an ANZ transaction account attracting 4.5% interest (hence cash). This is a grey area.
Now let's look at the real costs,
$1500-$2000 is a little light,
You will require:
1. SMSF (set up may be $200, include set up of Investment strategy, ABN andTFN)
2. Corporate Trustee x2- $1100 (ASIC fee is $440 x2 ). I.e. The Bare trust will also require one as per bank instructions and flexibility and so as not to contravene super laws.
3. Bare Trust $800 – holding the asset on trust for the SMSF.
4. Bank application , vetting of the deeds and other administration costs – $2500
5. Solicitor that understands this process, if you process this incorrectly this may have further stamp duty and CGT complications. $1500
6. An accountant or in many cases (bank requirement) a Financila Planner must sign off on the deal- They will also navigate your way around this complete process- $3000
7. On a $250,000 property you will require 28% deposit as per STG, This is only for residential property, as you would expect commercial property the LVR is lower. This is $70,000 deposit.
8.If it is commercial property, the fund will need to be registered for GST. The fund must have this money up-front.
9. I would say $10,000 as a buffer in case of no rent or a negative factors prevail. i.e. you would not want to have no money in your fund to watch it sink in the first year.
10. Auditing and Acounting of the fund + ASIC fees p.a. = $2000In any event for a purchase of a property costing $250,000- You require a minimum of $91,100. Please note I have taken the cheapest of costs that I have found for these acquisitions. You will find the real world market is not so forgiving.
All the best, but it is not as cheap described above….once you get in the door prices will increase and be more evident.
Refer to part iv(A), the anti – avoidance rules for income tax. This may be a concern when looking at your scheme (i.e. the circularity of money without a purpose). There is a grey area….. proceed with caution.
This depends on what reason you are selling the property, if for a tax deduction it will come under Part IVA. If you sell the property to your wife because your wife believes it is a good investment and you do not wish to hold the property, I have also known people to sell properties to a trust for asset protection purposes (in both these cases a tax deduction may be allowed on the refinance of the loan of the investment property).
In any event it will depend what state you are in whether or not stamp duty is payable.
Capital gains tax may also be an issue if the property was ever leased.
Seek professional advice on this one to see where you fit as there are many variables that surround a complex decision such as this.
It is not about the $1440 in saving. It is about the respect and relationship that is built with your tenant. While they are looking after your investment ($500k property returns $50k p.a. on historical records). You should not worry about the small expense. My reasons for self managing is not dollars, they are for the listed reasons: flexibility, peace of mind, confidence and the ability to ensure my tenants are provided with the care and attention they deserve.
I am concerned when I read comments as shown below……
"If you are prepared to deal with the tenants, maintenance and rent increases. Then the only reason you could not be as successful as your local estate agent will be when it comes to finding a new tenant. If it takes you two more weeks than an agent then the saving will be lost. This is where my business could help you. It is critical to advertise on all the top industry portals to make sure you find the best tenant who will pay the highest price in the quickest time"
Given this is a plug for the industry portals as mentioned, this comment has value, but if your margins are only two weeks and you require the highest price than purchasing an investment property may not be the right decision for you. Becoming a Property investor is a mindset that is developed over many years. It is not about screwing the tenant for a dollar, or positive gearing, or receiving the most rent etc. It is simply doing the math and applying common sense to your strategy, allowing for expenses such as vacancy, being selective and being the best landlord in town.
Further, I am never tight on cash when it comes to my tenants (read the numbers for what they are – refer below). My tenants are and always will be looked after in at great lengths. I always look at costs of my rental properties in the following way:
Investment Property value : $500K growth in 10yrs and new value : $1M (assumptions past performance since 1926 is similar to future performances) – Profit = $50K p.a.
Buy the tenant new fly screens for windows and a letter box- Do not pay from your wallet: Borrow this and your cost is only 7% x $550 = 74c per week less tax deduction at the Marginal tax rate of 31.5% (includes medicare levy) Total Cost = 51c per week . In fact, if you buy items that have depreciation allowance in the first year (i.e. As a small business I receive 100% depreciation allowance for items under $1000) than you will receive $173.25 back in your pocket. This will cover your $550 for six and half years, not that, 51c a week is much to worry about. Note: I do not have a problem spending $2-4K p.a. on gifts for my tenants. $50k- $4k = $46k. Not bad for a years work (well several hours per week anyway). I call this not being greedy or giving some of your $50k back to the people who make you wealthy.
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? Outlay an extra 51c to help provide a stable $50k 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…………
I use the local paper, For $30 or so I have up to 10 perspective tenants. I had a client last month that used the local community board and McD's and claimed his phone rang hot.
We have come a long way in this space, I am exchanging on an office purchased for my company by my SMSF today. What a great vehicle for both wealth creation, not to mention a place for your business to occupy. You may also buy a property that you may occupy in retirement.
The process is a little complicated, but the help/ guidance from Accountant's and Financial Planners is improving across Australia every day. Advice used to be about $15,000 but has come down to as little as $3000 from an accountant or Financial Planner, this would be to set up and structure the acquisition and to sign off on the strategy as is required from the banks. The banks charge about $2000 over and above a normal loan, and the SMSFTrust deed, Corporate Trustee (2 companies), and Bare trust is approximately $2750 (Inclusive of GST).
In the long term this $7750 is made back in year one. i.e. A property of $300k value returns $30k p.a. on historical values (10% p.a.). While the laws remain the same we also have nil CGT in the pension phase. Further, if the SMSF has a shortfall of cash as is typical with negative geared properties, this may be solved by your compulsory super contributions by your employer or salary sacrificing as is required.
I self manage 10 properties: I cannot and would never use a managing agent. Several reasons include:
1. Selectivity of tenants. I know better than anyone, the type of person or family that would be suitable for my properties. i.e. I know a large family would not be suitable for a particular property due to the small bathroom etc. This stops the constant change of tenants. I also like to have a chat with the perspective tenants. From this I learn plenty.
2. Open communication, this is in fact a positive. When my kitchen sink is leaking into the walls, I want to know today not in one week, when the weekend has passed and John is back from sick leave.
3. The reduced cost can be given to the tenant. You than have the best looked after tenant in the neighbourhood.
4. While you are not paying for the first two weeks rent on change of tenants etc you have extra money to add towards the property. I call these gifts to the tenant.
5. Property inspections are completed by me as is required. I find that the tenants I select no longer require a property inspection. It is more of a respect thing that builds up over time. From the tenant’s point of view, they do not want big brother over-seeing. I often find it strange that you can say I trust that you can live in my house, but I have to check up four times a year for the rest of your life. This is an insult to any adult. I am not saying do not inspect. But there comes a point, where you feel comfortable with your tenants.
6. While you have a good relationship with your tenants it is easier and more efficient to complete repairs. e.g. let’s go with the worst case scenario. I receive a phone call on a Sunday afternoon while I am at a BBQ. The tenant says "Leigh I have a toilet that while not turn off". When you do not have a relationship. An afterhour’s plumber enters the building and fixes the problem at Sunday rates for $400. When you do have a relationship. I ask how much damage is it causing, can they turn of the tap behind the toilet while they are not using. And when is the best time to send a plumber? As they are happy to help me out with dollars they suggest Tuesday around 10:30, I organise and it was a washer and a call out rate of $80.00 = $95 in total. While people tight for $10 extra rent, I just made $305. Further, I often find it something that it completed by the tenant or I can fix in minutes. It all comes down to communication, openness and honesty. What goes around comes around! I once had a complete picket fence built for me by a tenant (Free- They want to live there for life). This relationship is generally not built with managing agents.
7. Increasing rent is easily resolved; it is a simple letter and can be mirrored with the CPI or like for any uncertainty (This can all be outlined at the start of the agreement).I am not suggesting this is for everyone, but for those positive, open minded people, it is definitely a very sound concept that I have built my fortune on. You could also throw in this mix Pro-active.
Oh that's right one further. It may allow you to become a property partnership (a real business)! What another nice little perk!
Self managing properties are highly recommended by me, although not essential.
Now put that same $1000 to an IP and do the calc's, that's how you make real dollars!!!!
I did a re-spray on the tiles in my shower area and bath ten years ago, still perfect today. I was a bit of a sceptic, but have since taken a new outlook. It was a professional group/ company that did this, not DIY.
No, it is not a business. You can become a property business if you own properties that you manage yourself. There are other requirements that you must also meet within the guidelines of "are you running a business".
Question,
You will never be able to predict the future- I hear you say correct!
So if you buy a property today whereby you are not spending beyond your means (i.e. if property crashes you will still be in a position to afford another). Then you do not have to lose sleep over the peak or bottom of the market. Another question, what is the market you are referring? Do you have 8 years or a life time. If the later is your response than I am happy to go on record stating you will not be buying at the bottom of the property market for your life. Property is a long term vehicle that has some good and bad periods. The winners will prepare for a downturn and ride out the bad periods….This is where you want to be!
If the market happens to trend forward, even with inflation, can you keep up the pace? e.g. If you have a portfolio over $3M and your property trends with inflation (you return $90k p.a. @3%). Can you save this much after tax? Remember this figured will compound and the future growth will be larger (not to mention rent).
I do not suggest making a bad decision for the sake of investing, but I do not encourage sitting on the sideline. I also live in the Hills and I am happy to discuss investing further, at your discretion.
Cyndre,
No reading on the above (and definately nothing to do with the banks), it is simply a strategy I use to pay for my insurances throughout my life. At the moment it is saving me approximately $2500 p.a. Be careful of the FP you use to do this, don't allow them to charge you for the advice.
