Well, I normally do much, much better trying to buy at a fair price, rather than a cheap price.

A couple of times I have bought a bargain, usually because the property has been mis-marketed, its potential not understood, or just lucky. For instance, I once bought a property the next business day after it went to auction with no buyers making a bid. It was a mortgagee sale and the bank signed it over for a song.

I nearly bought a property with a letterbox drop, but after much back and forth, they took it to market.

Never bought via a sheriff sale.

– Steve

Oh golly. Now you are plumbing the murky depths of my memory.

I looked at this long, long ago in the hope of maybe picking up a cheap property, and here’s what I found:

a. Most of the things sold are personal effects (cars, household stuff, not real property)

b. I believe they must be auctioned, not sold privately

c. Auctions used to be advertised in the classified ad section of the paper (I told you it was long ago!)

d. The buzzards and opportunists come out at sheriff sales, so it is not necessarily bargain hunter’s paradise as prices can be bid up

e. It is BIG TIME buyer beware! I forget… does the sale extinguish first mortgage interests? Hmmmmm. I would want to check and check again with my lawyer.

– Steve

Hi Benny,

Thanks for making the post.

Can I sit on the fence a little bit and suggest median house price information is ‘interesting noise’?

The challenge is understanding what median house price represents as a statistical measure (i.e. median vs. mean), and how the data is collected and analysed. As they saying goes: garbage in, garbage out, so the data being reported is only as good as the data being captured and analysed.

The difference in approach accounts for how different data series can provide different values off the same raw data. You really need to be a trained statistician to understand the integrity of each approach.

What I do is pick my preferred data series, and look at the trend over time, rather than a value in time. The trend provides guidance on how the middle of the market was behaving, as some guidance to how the market is behaving, and how it may behave.

A relative number in the same data set is useful to make value comparisons: city v. city, city v. region, region v. region, etc.

However the number, like any number, is just a ‘reading’ on the instrument panel of a property investor’s cockpit. Interpreting what the number means relative to the other dials and levers is where investing skill comes in.

Another analogy is that median house prices is the view in the rear mirror. That’s helpful. But even more important is looking out the front windscreen and taking notice of what is happening in the market now, and what’s coming over the horizon.

All the best,

– Steve

Yep – this old chestnut!

I suggest you search though the forums as plenty has been written on it.

Highlights:

> If you have maxed out your borrowing in your own name then you won’t be able to leverage your borrowing ability elsewhere. Maxed is maxed.

> As Terry has said, Trusts cannot borrow in their own right (they are not separate legal entities as such), but the Trustee usually can (see Trust deed permissions)

> Trusts cannot distribute losses, so buying -vely geared property in a trust has limited benefit as the loss is ‘locked’

> -vely geared property in a trust will require personal guarantees from the Trustees if individuals, or directors of corp Trustee (if company), so this will still hurt your personal borrowing ability

> Only +vely geared property that has sufficient cashflow and credit standing meet the serviceability requirements of the loan will meet the requirements I mentioned in the book. And then only if you have someone from the lender / mortgage broker who knows what they are doing.

Example: I am about to buy a $1m commercial property with $100k net income. if I buy this in a new trust, then the loan will either not need a guarantee as it can stand on it’s own, or if it does, there is no impact on my personal borrowing ability as the property is self-liquidating (i.e. loan repayments fully met from income).

Need further help? Make an enquiry and speak to Chris Berry: http://www.propertyinvestingfinance.com

Bye,

• This reply was modified 4 years, 1 month ago by  Steve McKnight.

G’day Jaxon.

Hmmmm. Seems like you are after a manufactured growth strategy.

Well, there are lots of them on offer, but the question is how many of them make profit at today’s prices, rather than rely on continued growth?

The best advice I could offer you is this: What will make you the most money, in the quickest time, for the least risk, and lowest aggravation… within your available time, money, skill and risk thresholds?

The answer to this question will be different for everyone.

Bye,

– Steve

Well, let’s agree on what we agree on: that accountant’s cannot give legal advice.

As for the rest: lawyers, in my opinion, usually run good legal practices (small businesses), but otherwise make poor accountants, business advisers, and financial planners.

Just look at government: beset by ex-lawyers who argue for the sake of arguing, while the rest of us get on with the job.

That said, accountants stare at numbers too much and often make decisions from ivory towers.

People just need to find an adviser they feel they can trust, and go in with their eyes open. Hence, I think our discussion has been useful in achieving that goal. Thank you.

I think we’re just going to have to disagree on this one Terry.

Regards,

Steve

Amir,

Thanks for clarifying. If you go into a project with the intention of ‘turning it’, say a renovation or subdivision, then it is unlikely to qualify for a CGT discount, as you may hold it for <12 months, and even if you don’t, your intention is not to hold it for long term gain, but to buy-improve-sell, and so the profit is likely to be an ‘income’ profit rather than a ‘capital’ profit.

Just on a point, you can’t make a (real) profit and not pay tax on it!  Or, if you want to defer your income tax on your salary income via real estate losses, you have to make a real loss against an unrealised profit (i.e. the negative geating strategy).

So, back to your situation… as I see it:

1. You want to do value add projects for quick-turn profits

2. You expect to make a profit from improving the property, as opposed to a long term hold

3. You may lose money in the short term holding it, but your intention is for the improvement profit to exceed those holding costs

4. You hope to use those near term losses to offset your other taxable income (i.e. salary income)

5. You want to distribute the profits to your parents as part of an income splitting plan

Give the above, if you buy in your own name you can do 1, 2, 3 and 4, but cannot do 5.

If you buy in a trust you can do 1, 2, 3, and 5, but not 4.

Therefore, it’s up to you to figure out what combo of options you want more.

In respect to capital gains, as I said, it is more likely the profit is not capital, but rather income. Regardless, if you think it could qualify for a CGT discount then this would be available (subject to meeting the eligibility requirements) both as an individual, and distributing trust income in the form of capital gains to individuals (i.e. trust distribution).

It can be hard finding an accountant to assist. First, get clear on your strategy, then seek an accountant to support. That is, make sure you ask the right person the right question.

– Steve

Amir,

They are right! You cannot distribute a loss from a trust, so to access the (so-called) benefits of negative gearing, namely to offset the income loss from the property against your other taxable income, you will need to buy in your own name.

Are you wanting to negatively gear?

Bye,

– Steve

It will be a revised edition of Wealth Guardian, so a product for sale on the website, rather than a book in bookstores.

– Steve