Hi Daryl,

Do you have a specific need for someone local?

When it comes to tax and accounting, the laws are such that you should be able to use a quality adviser from your non-home town and still get a very good outcome.

I’d encourage you to have a look through the Tax and Accounting forum, which is where I have moved this post.

Good Luck!

Steve McKnight

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Remember that success comes from doing things differently.
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Hello Techhowse,

Hmmmm – I see your dilemma.

As a parent, you don’t want to see your child make a mistake and as such generally advise the ‘safer’ road.

Having said that, this is your decision since you are an adult and are now more than old enough to understand the responsibility associated with making independent decisions.

My recommendation is to sit down and work out some kind of five year plan and to then look back and see which path will bring you closest to achieving your goals.

What I mean is that you would be wise to look at the consequences of either decision rather than the actual decision… does that make sense?

For example, deciding to leave Uni may give you more time, but you may then lose out on some key skills that you actually need in two year’s time. On the other hand, leaving work may mean that you cease having income which is critical to your investing needs (both in terms of deposits and also being able to borrow money).

Is there no way to stay at Uni and at your job (perhaps in a different capacity) and also start investing? For example, perhaps you could take your annual leave during school holidays and give investing your best shot for a month and see what happens…???… That way you could test the water without having done anything to radical up front.

All in all, keep thinking through the decision but have enough faith to trust your gut instinct as it is through refining your intuition that you will ultimately become a better man and a better investor.

Regards,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

It’s important to understand the difference between an investing and a lifestyle decision.

Unfortunately, it’s not a clinical or easy decision when it comes to choosing whether or not to buy a home.

Having said that, I would encourage you to treat the thought process of buying a home and buying an investment property as two separate decisions.

Speaking from a financial perspective, wherever possible I’d encourage you to defer buying a home as the interest and ownership costs are not tax deductible, and as such need to be paid from after-tax dollars.

Practically, this makes it very difficult to be able to afford both home repayments and also save enough to pay the deposits and closing costs on investment property.

To get around this issue, some think that they will be able to use the equity in their home, which is accessed via refinancing, as capital for investing. While this may be the case, the problem with this approach is:

1. There is no guarantee that property values will rise
2. You will only be able to borrow a percentage of your equity (usually 80%); and
3. The more you borrow the higher your debt and also exposure to adverse interest rate movements.

One of the principles of the MAP was ‘Cost = Sacrifice + Delayed Gratification. Steve, the issue you raise comes down to this saying. In my own case, my wife and I rented from 1997 until 2004 while we saved an invested with the view of then paying cash for our house.

Perhaps, in hindsight, we would have been better to buy something cheaper as values have skyrocketed, but to do so would have meant less investing capital and as such would have slowed down the success of our investing.

In the end, the answer to your question needs to be “do whatever brings you closer to your personal and investing goals”. To the extent that you can’t have both, all I can say is that delaying gratification has worked very well for me.

I hope this has helped.

Bye,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi again Mandy,

To answer your questions:

Funding Growth

The three ways to fund growth are through (1) Savings, (2) Debt and (2) Realised Gains.

If you use debt then you may find that you reach a glass ceiling. Dave and I saw this limitation from the start, so we used savings (surplus of income over expenses) and realised gains (multiplication by division) to fund our growth.

That is why, although we have bought around 200ish properties over the past few years, we currently own around the 80ish mark. As a general rule, we only borrow 80% (max) of the purchase price and look to repay debt quickly (funnel +ve cashflow to repay debt and also use a P&I repayment basis).

I’m worried for people who have use/are using debt as it may leave them open to problems should interest rates keep rising or else costs of ownership increase.

Mandy, be very careful about funding further purchases from debt. Good on you for getting in the market, but don’t leave yourself open to unforseen risk. Do your sums based on +1/+2% interest rates to see what impact that has on your affordability.

As we are no longer in a growth market cycle, my thoughts are that it is better to go slower but using a sustainable system, than it is to ramp up using debt.

Finally, make sure you have a plan for your property. Don’t just let it plod away… the skill of investing isn’t just getting a return but rather maximising your opportunities.

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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You got in John… that way you’re not second guessing the market.

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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Hey,

The fatal flaw in your theory is that these are all things that you think might increase then rent.

Personally, I do it differently… before letting the property interview the prospects and offer them:

1. A base rent ($160 per week)
2. A list of improvements and the additional weekly rental cost.

For example:

Weekly Rent (not negotiable): $160

+ Tick which combo offer you would like:

[ ] Movies at Home <Pay TV> (+12 per week)
[ ] Secure garage (+20 per week)
[ ] Breezy Comfort <Ceiling fans> (+$5 per week)
[ ] Speedy-Net <Boradband Internet> (+$10 per week)

etc etc

That way you spend your money in a way that will increase the rent according to what the tenant (rather than you) wants!

Remember to sell the benefit rather than just the feature. E.g.

Be cool in summer <new air con> (+10 per week)

etc etc

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

This is quite a complex inquiry, so I will try to break it down into components. This is just my opinion – you would be well advised to seek proper legal and accounting help for this one!!!

Right then:

Okay – first point… be very careful when you combine an investing decision (property) with a lifestyle decision (home). The former needs to be based on fact whereas the latter is mainly opinion. Personally, I think you are on dangerous territory when you blend the two as you can end up with a hybrid result that is less than the best of either.

From my limited knowledge, your daughter’s name would need to be on the property’s title (as a co-purchaser) in order to qualify for the FHOG. I’m not sure what the rules are about co-ownership (in the case of flats and a main house), but the non-negotiable aspect is that she would need to live in one of the dwellings as her PPOR soon after buying.

While it would be wise to call the SRO, my instinct tells me that to qualify your daughter would have to be the only purchaser rather than being in joint-names (unless all the joint owners are eligible for the grant). Having the property solely in her name may cause some problems – mainly with the lenders, but this may potentially be overcome through guarantors.

Link to NSW FHOG

I would expect that, provided the transaction was at arm’s length, you would be able to claim the interest on the loan and other normal rental property deductions. On the flip side though, there would also be CGT when sold.

It could be. Unfortunately, you will need to see your accountant for this one. Ultimately, you need to blend asset protection and tax planning with cost effectiveness.

Getting back to my original point then, I’m wondering whether or not the two are compatible… if you want to help your daughter out then another option is to provide her with a low/no interest home loan as a help for a deposit. Remember, the FHOG is only $7k, and in the scheme of things is incidental to the transaction. That is, it’s better than nothing, but I wouldn’t especially do a deal to access it.

Hmmmm – watch out for emotion as this causes normally sensible people to pay too much. Be sure to do a thorough due diligence – especially on the numbers so you know whether or not you can afford the property should interest rates rise a couple of percent.

My final warning is a general ‘heads-up’ about mixing family and investing. It’s great when things turn out well, but it can be terrible in other situations when what started off as helping becomes a financial millstone for all involved.

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi Geoff B,

Thanks for making your post.

So… if you can, would you (and others) like to share say up to three insights you have when it comes to investing in general?

Mine would be:

1. Luck is hoping to profit whereas skill is applying a known strategy with a specific outcome in mind, by a specific pre-determined time, prior to beginning

2. Speculators buy on opinion, investors buy on fact

3. Investing has at least three phases: The Buy, The Manage and The Sell.

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi Francis,

The current and prior bills relate to the conveyancing costs associated with the purchase and sale of real estate. When you enter into a property transaction you need a legal representative to review the contract as well as deal with mortgage and title issues.

Exit strategies are the ways that you plan to realise your investment profit, or else exit the deal in a worst-case scenario.

For example, when you purchase a property on a buy-and-hold strategy the normal exist strategy is to sell it. However, more sophisticated investors develop this strategy by nominating a required return on investment and also a minimum purchase price (prior to buying) that they will accept should they need a quick sale.

Another example as an exit strategy for a B&H might be to wrap it, or offer more creative financing on sale such as offering a 2nd mortgage.

Hope this has helped.

Bye,

Steve McKnight

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Remember that success comes from doing things differently.
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