[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

December 11, 2003 - 9:23 am

Here’s some;
“Mediocrity – it takes less time and by the time anyone notices it is too late”
“Winners – true winners never quit, but he who never wins and never quits is an idiot”
“When all is said and done, more will have been said than done”

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

December 11, 2003 - 9:02 am

Gday Nathan

Good luck finding development land at a reasonable price now in Perth, there’s no room for development margin (for small players anyway) and all the risk is on the downside as I see it so be careful. Remember your product won’t be available for 18 months, what will the market be like then?
I have been working on a development for 2 years and haven’t even layed a brick yet. There goes my profit eaten up with interest payments. It’s not necessarily the easy money you might think. 1st builder went under so have had to go through all the hoops again. There is a shortage of materials at the moment as well, particularly bricks.
Regarding CGT on developments, assuming you subdivide and strata you have created new land, so there will be GST to be collected and payed by you the developer. This is offset to some degree by the input credits from cost of construction.
As a simplified example;
Purchase land = 210K.
Closing costs = 10K.
Construction of 3 townhouses = 600K.
Interest @ 7% = 28.7K (Total time = 18 months)
Less GST credit = 10% of 600K = 60K
Total cost = 788.7K

Sell townhouses for 350K each = 1.05M
Less GST = 10% of 1.05M = 105K
Proceeds from sale = 945K
Profit = 156.3K

Hope I haven’t put a big dampener on your enthusiasm, just be careful and diligent that’s all.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

December 9, 2003 - 11:29 am

Hello Scott

What’s a good accountant? If you mean one that is proactive and who invests in property themselves (and hence has a vested interest in staying abreast of relevant laws) then I am yet to find one in either Mandurah or Perth. I always feel as though I have to prompt them.
If you live in Mandurah then perhaps we can catch up sometime for a chat. Contact me offline if you like.

Regards

Clive
[email protected]

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

November 16, 2003 - 1:31 pm

Don’t know any websites but you can get a good idea by looking at advertised new house prices in your area from a variety of builders. Better yet phone some builders, quantity surveyors, valuers or even draftspeople.
You didn’t mention house size or fitout quality but here in WA a single story good quality single level home may be $700 per m2 and a 2 level home of similar quality say $900 per m2.
With 2 level houses things like external render finish instead of face brick can add to cost because of extra scaffold time.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

November 15, 2003 - 1:52 pm

A used car with finance company loan at 17 years of age! I have never borrowed money for a depreciating “asset” since. What a great lesson it was.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

November 11, 2003 - 12:50 pm

quote:

---

I think it is something new investors should know about as it could have a big impact on profitability once several properties are accumulated.
Shirley

---

Hi Shirley

A very big impact indeed and the reason for my original post. While having the value of one’s properties grow by 100% or more in a short space of time might give one a warm glow, it does nothing to fund the disproportionately higher land tax bill.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

November 7, 2003 - 3:44 pm

Hi David

It’s a good question. When trying to aquire multiple properties one either runs out of equity or cashflow.
The property you own, is it the place you live in or an investment property?
In order to aquire a second property you would require money for a deposit (or equity in the current property) plus sufficient income to service the loan on the second investment property. Rental income from 2nd property counts towards this.
The way I read the book, Steve and partner were able to accelerate their property aquisitions by a combination of injecting money from their accounting work, by paying down principal with excess cash generated by CF+ properties and from the growth in property values in the area where they invested.
Without knowing all the details of your situation it is hard to suggest a course of action.

Regards
Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

November 4, 2003 - 11:34 am

Gday Keith

As Bill said, not a lot of info given, however my general opinions are;

Interest Only – Pros
Improve cashflow
Certainty of interest and payments
Can service more loans.

Interest Only – Cons
Lack of flexibility
Costs to pay out early
Rely on asset appreciation to build equity.

Principal and Interest – Pros
Flexibility
Pay out early without penalty
Build equity by extra payments
Can be lower interest rate

Principal and Interest – Cons
Exposed to interest rate hikes.
Principal payments not deductible.

For me Int Only has worked well as it has enabled me to purchase more properties (all -ve CF mind you) and maximise my leverage to the growth in values over the last 15 years.
If investing for +ve CF then I would look at P&I as growth would most likely be negligible, at least in the areas I have researched.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

November 4, 2003 - 11:19 am

Gday David

There is in fact a way to set up so that losses from investment properties (or shares) can be offset against the beneficiaries income. I say beneficiaries as I am guessing that is what you meant rather that trustees?
It involves the use of a unit trust set up for the particular property, borrowing money to buy units in the trust, receiving income from the trust via rent etc.
I first got this info from http://www.chrisbatten.com.au.

Regards

Clive Stone

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

November 3, 2003 - 10:43 pm

Gday Kelvin

If it is Karratha or perhaps Port Hedland then it would not surprise me that the rent was that high, given that it is furnished.
Karratha in particular is enjoying strong rental demand at the moment with LNG train 4 on the go, but like a lot of resource towns, it can change. Already a number of mooted projects for the Burrup have been canned. However I still feel quite bullish about the long term prospects for gas and LNG.
If it were me I would either fly up or hop in the car, it will give you a feel for the area, speak to some locals etc. Certainly at first glance the numbers look good.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

November 3, 2003 - 6:46 am

Hello ACTandy

It’s a good idea.
Pooling resources can be very lucrative, people do it all the time via syndicates to purchase commercial properties in the three to 15 million range. Why go for a listed entity? Then it would behave like the stock market in a fashion, not to mention the costs of setting up etc $$$. The only plus is liquidity.
There is nothing to stop people getting together and forming a unit trust in order to access more expensive properties.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

November 3, 2003 - 6:28 am

Hi Deborah

You could always enquire with the tax office.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

November 3, 2003 - 4:19 am

Hi Milla

I have been looking at establishing a hybrid family trust and company trustee structure but for different reasons to yourself.
My advice would be to do some reading up beforehand, although it sounds like you have already, and then consult a solicitor who specialises in these kinds of structures.
This is something you will need to get right the first time to avoid future expense and / or unpleasant surprises.
I do have a whole lot of information but it’s at home and unfortunately i’m not.
Renton has one or two books on the subject, I also obtained some information from Chris Batten, http://www.chrisbatten.com.au I think.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

November 1, 2003 - 2:32 am

Hi Allan

Regards paying off principal vs int only. If one wishes to pay down principal then they take out a P & I loan. Extra payments etc can be made to speed up the process. Remember though that these payments are made from after tax money, so if you are on the top tax bracket then effectively you must earn $2 to pay off $1. Also remember that a dollar today is worth more than a dollar tomorrow or five years time. All of my loans are fixed interest only (all the properties are -ve geared). This gives me peace of mind with rising interest rates. When the loan periods have expired I have taken up a new fixed interest only loan, unless I believe rates are going to fall. This has worked well for me as I have been able to control more property than if I had taken out the equivalent loan amounts on P & I.
With int only, surplus cashflow can be reinvested elsewhere, eg shares, cash management, other property to build up a sinking fund to pay down the balance upon loan expiry.
If property price growth is non existent or low then yes, paying down principal is necessary in order to allow further borrowings. With many positive cashflow properties this well may be the case.

My experience with banks has been that they have tended to want to lend me money on P & I terms, and I have had to insist on fixed interest only products. Conservative managers I think.

Regards the 10.4%, the book doesn’t specifically state how this number was arrived at. My guess would be that after extensive research on a number of property deals that it became evident to Steve that this was the gross yield required to make most properties cashflow positive. As an exercise examine a bunch of properties and see what the gross yield would need to be to make them cashflow positive.

Sorry about the long winded reply, hope it helps.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

October 31, 2003 - 9:54 pm

Quote:

hi there
im new here, i found this site after reading o – 130 properties…

anyways my question is has anyone heard of morgan pacific?

the hanna brothers run it and are multi millionare
property investors..

i work for morgan pacific and i dont really like what i see…

what i mean is that what i think they are doing is this,

they sell negatively geared property to familys
with mortgages….

i was hoping someone knows them here so they can tell me if they are good or bad.

because i dont know.
i dont sell property for them or anything like that so im not sure….

at work i usually have arguments with my workmates about property,
its funny,they always say the same thing to me,
theres a tax break ,theres a tax break,
i then tell them,thats only after a loss(like steve mentioned)and they think im crazy and stupid

i dont know

thanks for the help…

bird – dog
Hi There

I have actually done a couple of seminars with them, one on general property investment and one specifically about developing. They are based in Sydney.
I found them to be quite professional and at no stage did they offer to sell me any property, just information.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

October 31, 2003 - 9:10 pm

Hi Allan

Here is my interpretation

1. I believe To and Put are accountancy terms, double ledger accounting perhaps.

2. Paying interest only loans improves your cashflow, therefore increasing the number of loans you can service and therefore the number of properties you can hold.

Also only the interest component of an investment loan is tax deductible.

You are correct in that the balance will be the same at the end of the loan as at the start.

Typically an interest only loan will be 5 years max (10 years is available at some banks). On a typical Principal and Interest loan you will find that the balance after five years will be nearly the same.

Also the balance in five (or ten) years on the interest only loan will not be worth the same in real dollars due to inflation. Hopefully the investment property will have appreciated as well.

3. The 9.3% is the Cash on Cash Return. That is the return on the actual cash you put into the deal. This is not what the 11 second rule calculates. The 11 second rule is a first pass calculation of gross yield, ie rent versus price.

4. I suppose the 11 second rule is set at 10.4% as this is the figure which should ensure that most properties are cashflow positive after outgoings etc. Also it is easy to work out. If the rule was 11% or 13% then it would probably be the 57 second rule or the calculator rule []

Hope this helps

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

October 31, 2003 - 8:38 pm

Hi

I use software called property manager pro, at least I think that is what it’s called, as I am not home presently. Ordered it online some time ago through API magazine. It was about 89 bucks I think. It does the job.
All purchasing details, valuations, income and expenses are entered and reports generated at end of financial year for multiple or single properties.
This of course doesn’t mean a paperless office, just less paper for the accountant! Still have to sit down and enter the information from various sources, eg bank statements, rental statements, land tax, depreciation, council rates, insurance blah, blah.
I don’t think there is any way out of it unless you let your property manager pay all outgoings or pay someone else.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

October 22, 2003 - 10:42 am

quote:

---

Hi,

I have a question for all you ‘experienced’ investors out there.

After much thought re PI, we’re seriously considering buying a block of land and constructing two townhouses.

The reason for this decision is due to the fact that it is so hard finding an exisiting property to buy with a respectable rental yeild. So, we figured we’d go out and build our own, which seems to be a cheaper option than buying an exisitng property.

We haven’t researched the cost of construction yet (any advice on this would be appreciated!), but we would be looking at 2 or 3 bedroom w/ensuite. Cost of land is about $100k. Rental would be around $180-$210 p/w per dwelling. As it’s a regional area, CG wouldn’t be too great.

If any one can offer any advice on this, we’d be most appreciative.

---

Hi There

My advice is to take time and do a thorough feasibility study before doing any development. I am midway through my first and there are many unforeseen costs involved.
These include the cost of the finance for the 18 months or so from start to finish which is not deductible, plans, clearing, filling, applications, any delays with development and building approvals etc to name a few.
This is not to dismiss your idea out of hand, just be sure to go in with your eyes wide open.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

October 22, 2003 - 6:05 am

quote:

---

Not specifically a property investing program, but we are about to purchase this one:
http://www.mortgagewatchdog.com.au/default.htm
Basically will tell you how much the banks are ripping you off. Cost $200 and has a $300 money back guarantee if you can’t find any overcharging by the bank.[]

We are wondering about getting Rick Ottons Wrap Pack. Has anyone tried this? I tend to be a bit suss about so called property investors who seem to be making more money off their product selling than off their actual properties. [xx(] Don’t mind paying a few hundred dollars for the right advise but once it gets into the thousands I get a bit sceptical. Does anyone know of any good Wrap software? [] Basically we want all the legal forms etc. We already have a wrapee ready to go. Just got to find a property and a good accountant.

Fibejebe

---

Hi There

I purchased the WrapPack some time ago and the best part of it for me has been the $50 financial calculator. Basically you need to spend more after shelling out the $2000, there was an enclosed letter from a WA based solicitor named Jeremy Malcolm who specialises in the contracts required. You also need to obtain a credit providers licence, unsure of the cost.
To summarise, I wasted my money as I feel the strategy is less viable now with even easier crdit available, ie low docs, no deposit loans etc.

Regards

Clive

[showmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103]

October 22, 2003 - 5:41 am

Hi Terryw

I wasn’t looking to avoid land tax, merely avoid the exponential increase in tax payable which occurs as one accumulates properties in the same name. As it stands a cashflow positive portfolio can rapidly become a cashflow negative portfolio.
I have read of people owning rental properties through unit trusts and hybrid trusts, also as tenants in common with say one person owning 99% and the other 1%, then on the second property changing to 98% and 2% and so on.
It is an issue which I am sure many are faced with so I am interested as to how they deal with it.

Regards

Clive