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Spot on :)
Simon Plummer | SP
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I company by the name of SMATS do a lot of work with foreign income. Mainly non-resident expats living abroad.
Simon Plummer | SP
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The All Ords is just an index and to beat it you could buy all shares bar a couple that have poor outlooks. Out performing the market can be done in share investing if you diversify less. This however increases risk or so the theory goes.
According to the theory, buying a $300k property is going to be on the high end of the risk/reward scale. You have basically all your cash plus say 5 times that in debt resting on one asset. But to me this is less risky than getting an 80% loan and buying one company’s shares.
I guess I think this as property prices tend to slowly grow (mostly) where shares prices are a little more erratic.
Volatility in a share price is generally considered risk which is why I kind of think that property provides an asymmetric risk/reward profile.
Simon Plummer | SP
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30 years!! That’s crazy talk! :)
That would definitely make life simpler.
Simon Plummer | SP
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Thanks for your comment Andrew.
This is generally the strategy used by billionaires like Carl Icahn, Warren Buffet, Jack Bogle, David Swensen etc. Albeit more sophisticated models but in essence a huge amount of diversification to optimise this risk/reward profile. This is also quite a common methodology in the US for individuals seeking Financial Freedom.
I am not unfamiliar with the financial markets so my question isn’t a matter of me confusing myself. I am interested to hear from people who have a reasonable understanding of these theories and still choose to invest in Australian Property. Or if they choose otherwise.
Close to 100% of my investments are in property purely because I see higher returns for less risk compared with shares. If you can achieve lower risk and higher reward than a diversified share portfolio then this is going to be the more efficient option.
Simon Plummer | SP
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Thanks for your comment Redom.
My investment horizon is a lot longer than the 5 or so years lenders will generally fix for. I guess I am more interested in a hedge which is not limited to a time frame like this.
Simon Plummer | SP
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Hi Richard,
Quite interesting I must say. To complicate things a little more I have been a non-resident for the past two years while working overseas so this may hinder also. These things seem to stack up negatively and it becomes harder and harder to obtain finance.
Good fun trying though!
Simon Plummer | SP
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Thanks for your comments guys.
I think it might be best to get some structuring advice on this one. Once we have a structure which protects both of our interests then I’ll be able to clearly see the options with regard to future finance.
The majority of my wealth accumulation is coming from property so if the venture compromises this then it may not be worth proceeding.
As Terry mentioned maybe it would have to be a side venture initially.
Simon Plummer | SP
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Thanks for your comment Terry.
Another option I thought of would be to buy in to my business partners entity (50% share) which will of course provide me with two years of tax returns.
If this were to occur, would a lender consider 50% of the after tax profits to be my net income? Or is there a more complex way of calculating?
Simon Plummer | SP
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Do you already own the property?
In NSW at least I’m pretty sure you need to pay stamp duty when making ownership changes like that which generally negates the benefits.
This is declared at purchase time.
Simon Plummer | SP
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I used credit cards when starting out to get a foot in. Instead of cash advances though, I used them for most of my expenses so I could save my salary. I would then balance transfer it to another card. Then when that interest free period expired, I’d do another balance transfer. You can keep doing them until you run out of banks really.
Although I paid very little by the way of interest it’s hard to say whether it was the best thing to do as opposed to just save. I guess it got me in the market so no complaints there. Only issue is that it took a few years to pay off and reduced borrowing power.
Other than making deals with the vendor the only option really is to borrow it. Private investor, family, friends or a bank.
Simon Plummer | SP
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Definitely sell the car.
If you can sell your old car also and upgrade to one that suits your needs better for $5k, you’re going to be $45k better off and have a car that suits your needs. In 5 years time you’re going to end up with a not brand-new car anyway so you’d rather be $45k closer to financial freedom.
Once sold, get rid of that $30k debt. You’ll then have $28k savings. Then put the head down and keep saving.
I would err on the side of buying an IP. It sounds as though you have a comfortable living situation and buying your own place would be more of an upgrade than an investment decision.
Realistically, now is the time for your to delay gratification. Preferable now that when you have a baby on the scene. Use this windfall wisely.
Simon Plummer | SP
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Is your mum even going to be entitled to get the government pension?
I don't know a huge amount about the criteria but I can only assume that someone with a $500k house/unit mortgage free, $2,000/month passive income for the next 20 years plus $500k in the bank isn't going to be entitled to a whole lot. If the $500k is earning 5% she'd be looking at having a passive income close to $1,000/week.
I think the pension is meant for those that chose not to invest for retirement.
But yeah, as Richard said, best to get some professional advice.
Simon Plummer | SP
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A Strata Company (Body Corporate or Owners Corporation in other states) is just the collective of all the lot owners. I'm not sure what the agent means by none exist. Perhaps he/she means there is no Strata Manager.
You would definitely need majority (if not unanimous) agreement from the other lot owners to develop. This would need to be fully minuted from a general meeting with a quorum. I would assume once agreed there is no way for them to renege if the lot was sold. I can't be certain though as it would depend on specifically what they have agreed to.
Simon Plummer | SP
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Hi cbarry,
Welcome to the forum.
It's a bit of a tricky one to do a buy and hold in Sydney if you are looking to purchase something else in the near future. Doing so would somewhat stifle your ability to borrow again as your serviceability level would deteriorate with the negative gearing. It'd also be harder for you to save for your next deposit due to less net income.
I've invested in units in the Redfern/Alexandria area and whilst some good capital gain have come, it has been a slow road to building a portfolio due to poor loan serviceability. A lot was to do with a limited employment income.
As an alternate strategy, you may want to look at picking up a positively geared property first, perhaps in a regional area. Something that nets you say $4k per year. You may need to put $20-30k down or less if you want to be creative. After this purchase, then use your remaining $100k as a deposit for something in the Sydney metro area. This will leave you with a potentially neutral cashflow but still with good exposure to any capital gains that comes from the Sydney market.
Also, don't necessarily rule out 1 bedders. Generally they have a better yield and in my experience grow at a similar pace. Choose carefully and keep away from the small ones though.
Best of luck.
Plummer
Simon Plummer | SP
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Keep in mind that you will possibly need authority from your Owners Corporation to polish concrete as it may form part of common property. Also, there may be an obligation to lay some sort floor covering to limit noise to neighboring lots.
Simon Plummer | SP
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In my opinion I think there are some benefits in doing your own tax. If your returns are simple of course. For me, I feel I have learnt in detail the way our tax system works and how to strategically use the rules to my advantage.
I think if I had refrained from learning this type of stuff and just left it to a Tax Agent then I would have made some decisions from a less informed perspective. I have friends who just 'dump' statements with their Tax Agent every year without ever understanding the rules. I see this as a disadvantage for them as they don't strategise in this respect.
The deals I have been involved with are simple though and no doubt if they became complex I would use a Tax Agent. As said above, its going to be cheaper in the long run to get them right the first time!
Simon Plummer | SP
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Hi Hiruni,
Plant and Capital Works is in the individual property section of the 'Rent' income part. So where you claim all of your normal deductions for each individual property.
There is a LVP section within the Deductions part.
Simon
Simon Plummer | SP
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Hi Luke,
Good to see that you are thinking about sustainability.
My suggestion for you is to consider being creative with your property investing. If you have bought one property then you know how the purchase works. The next step is for you to learn how a more advanced type of strategy works like a reno or sub-division. Maybe find something that could be a reno however also suffices as a buy and hold. Something where you at least have the option of adding value.
Properties in the inner-west imo will have steady growth over the coming years so it's not a bad option. You can also find good deals out west if you do your research well but only time will tell which will outperform the other.
Have a look at some other cities that have cheaper properties where councils encourage development. You might find something that interests you which will get you a much better return but more importantly will teach you about a new investing technique.
Good luck and make sure you post back in this thread once you complete your purchase.
Plummer
Simon Plummer | SP
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G’day Robert,
Congrats on getting a potential strategy down in writing – this means you’re motivated to pull the trigger!
Your investment strategy seems sound to me and appears to allow for learning the process along the way i.e. doing a buy and hold prior to jumping straight to a sub-divide and build.
Just a comment on your mortgage proposal however. You note that you wish for your PPOR to be an IO loan and your IP loan to me P+I. It is usually best to do this the other way around. The main reason being is that the interest on your IP is tax deductible however the interest on your PPOR is not. This means that it will be more tax effective to pay down your PPOR mortgage rather than your IP mortgage.
You have some seriously good equity available to you with your PPOR so borrowing against this to get a 20% deposit plus closing costs may be a good way to go unless you have other cash as savings. Then you can get an 80% loan for the IP, do the reno’s you would like and hopefully end up with a not too burdensome cashflow. Keep in mind that if you borrow money from your PPOR mortgage and use it for an IP then the interest from this portion of the mortgage becomes tax deductible. Interest is tax deductible based on what it is used for rather than what it is secured by.
If you haven’t already, get in touch with a Mortgage Broker as sorting out the finance side of things is going to be your first step.
Good luck and don’t forget to come back and report your progress!
Plummer
Simon Plummer | SP
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