G’day,

As I understand it in NSW, unless you have exchanged, anything can happen.

Ring up the REINSW and have a chat with someone to confirm.

Perhaps in the future have a clause in the contract that if the purchaser fails to exchange then your costs can be reimbursed.

Please let us know how you get on!

Bye,

HI knovak,

Thanks for your post. I’m not sure about the notion of having your old house become an investment property just because you used to live in it.

It sounds to me, unless I have misread your post, that you are thinking along these lines for the sake of finance convenience rather than investing merits. If I’m wrong then apologies for the error.

Remembering that any profit on your PPoR should be tax free, and given that you are moving, what is the disadvantage of selling other than sales costs?

Perhaps it is a good time to set and establish an investing plan that includes a time and money goal, as this will give perspective to your property investing. Also, it is critical that you do the numbers.

For instance, I would expect renting your home would be quite -ve cashflow. Adding this to any non-deductibe extra debt (???) on the basis of your home upgrade, you might suffer quite a drop in cash in your pocket.

If you don’t know how to do the numbers, be sure to see an accountant to help you create a financial model.

Cheers,

Wow Duckster… I hope you get a mention in the bibliography for your help!

REIA has data that could help you as they track median house price movements and also average rents. You will need to extrapolate the data, and as such there will be some statistical errors, but it will at least be something.

You may also be able to get data from something like homevalue.com.au

Good luck with your assignment. Perhaps you could post it online so we could all benefit!

Hi Cadan,

Aussie Tax Law requires that there be a nexus (connection) between the earning of assessable income and the incuring of an expense.

Please confirm this with your accountant, but you may be able to start claiming depreciation from the date the property became available for rent, as opposed to the first day it was rented.

Certainly, the ATO seems to concede that a business can start claiming expenses once it is set up, which may be when an ABN is issued or when a bank account is created.

As you would expect, you won’t be able to claim depreciation prior to owning the property, during the settlement period, or while any renos were being done that meant the property could not be rented.

I would expect that this timing principle can be extended to all property related expenses (inc. interest).

Again though, pls confirm with a tax accountant.

All the best,

I agree. Give the money to the vendor’s solicitor.

I would have thought that the vendor as specified in the contract ought to be the owner of the property as recorded on the title.

If the vendor’s don’t have a solitior, give it to your solicitor to hold in trust for the vendor.

Cheers,

Hi DanielKTan.

Thanks for your post. That site has been in the news for a long time since Kennett sold it off many years ago.

There is no doubt that the site is in an excellent location – clost to town, transport and parks.

If looking at the site for a residence, the key issues I can see are:

1. Affordability
2. Abiliity to borrow
3. Is it where you want to live for your lifestyle

A common misconception is that a home is a property investment. It’s not. A home is a lifestyle choice, and so any financial gain is a bonus as opposed to an expectation.

That doesn’t mean you should be ignorant to the financial perks, just understand that a home needs to suit your lifestyle needs first.

Finally, remember that interest on a loan used to purchase a PPOR is non-deductible. Therefore, assuming you buy a $1m site, build a $500k house and finance the lot on an 80% loan at 8% interest, you would pay $96,000 a year in interest.

Assuming you paid an average of 35% income tax, in pre-tax dollars you would have to earn $147,700 just to meet the interest cost (and that’s before loan repayments).

Food for thought!

I look forward to seeing more of you on the forums.

All the best,

Hi Neville,

Thanks for your post. You ask a great question!

When weighing up whether to proceed or not, there are two questions I would consider:

1. How much of the cost will be recouped through a higher end sales price? That is, what is the price differential b/w selling ‘as is’ and ‘selling fixed’? Your real estate agent should be able to give you some advice here.

2. Will doing the work help to sell the property faster?

Although #1 is straight-forward, #2 can actually help by cutting down on the interest on any property loan since the property will hopefully sell quicker.

My gut feel would probably be to sell ‘as is’ but be happy to negotiate a discount on the asking price as a contribution to the works for the new owner. This way you don’t have the worry or cost, and the risk of the restumping causing other problems (cracks needing replastering etc.) is avoided.

Finally, you could always try to sell ‘as is’ now and if it doesn’t sell, do the works and remarket in a few months time at a higher price.

All the best,

Hi Ryan,

Interesting question.

I like to keep my home as debt-free as possible on the basis that if all my property investing turns pear-shaped, at least my home is debt-free (and in my wife’s name).

However, as a concept, you will be be ahead if the after-tax return achieved from your investing exceeds the interest payable on the portion of your home loan you have refinanced to invest in the first place.

Note: you should use after-tax, not pre-tax, returns.

Cheers,

Hi,

In the past I have had success in finding potential vendor finance clients by running classified ads in local papers.

I’m not aware of anyone who ‘finds people’ for vendor finance, but if they exist I would want to make sure there was careful due diligence over the selection / qualification process.

In recent times, VF has come under rightful criticism from people who claim that there are some investors who only seek to capitalise and profit from hawking the Great Aussie Dream.

While I suspect only a minority, the reputation of VF was called into question.

I think the concept can still work well, but you MUST make sure it is a win for all parties involved, and the cornerstone to doing this is:

1. Full disclosure of how it all works; and
2. Making sure that the wrap client can comfortably afford the repayments

Just like in bird-dogging, I would be very cautious about just buying a deal as when it comes to investing, more money is made during the management phase than the buying phase.

Happy Easter,