[TheNewGuyParticipant@thenewguyJoin Date: 2014Post Count: 151]

July 16, 2014 - 7:17 pm

Corey and Benny are correct, and I’ll add another benefit of leaving as IO. A common method is to buy a portfolio, have them all as IO. The portfolio as a whole should go up faster than CPI (this is what most people would want), when you start to look at retiring you can sell off property within the portfolio and pay down the loans, which will lower your repayments and start generating a higher income. At this stage you’ll probably be working less so the benefit of the tax deductions is reduced.

[TheNewGuyParticipant@thenewguyJoin Date: 2014Post Count: 151]

July 14, 2014 - 7:46 pm

What ratios or calculations are you talking about? There are a bunch of websites etc that broadly outlines how to calculate costs of IPs, and with that you can use the rent to work out expected income / loss per year.

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July 14, 2014 - 7:44 pm

I’ve never done a sub-division, but my father is currently doing one and I’ve helped him out a bit… not in Melbourne though.

Basically, in the area I looked at, the local council had all their fees outlined on their website. From there you could even call the council and get a better idea of their cost and whether your broad plan would be approved. After that you can get quotes from draftsman / architect / builders / etc to figure out how much it would cost.

• This reply was modified 9 years, 10 months ago by  TheNewGuy.

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July 14, 2014 - 7:31 pm

Right, so my question is, why do you think ‘this property’ will go up more than the rest of Brisbane? If you have $400k to spend in Brisbane, you’d want to spend it in the right place. Some places might go up 15%, while others might go up 5%… that’s a big difference on $400k. It’s more of a rhetorical question than anything, but it doesn’t sound like this is any better than just picking any old house.

I haven’t lived in Brisbane for a while, but I was looking relatively recently. There is nothing wrong with Taigum (which is way closer than an hour from the airport), but there is nothing right about it either. I was looking at Fitzgibbon because it’s at least closer to the train station and eventually will be caught up in the inner city ‘vibe’, but at the same time you have Zillmere which has larger blocks and is even closer. No new infrastructure that I’m aware of, nothing out of the ordinary where you would expect an above average growth. So, you could probably pick a property anywhere within 15km of the CBD and get a similar return.

I’m still very new to this game, but I personally wouldn’t even look at the suburb.

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July 14, 2014 - 7:17 pm

I don’t like the rental return, so i would pass unless you know there will be a very good capital return (via subdivision etc). On a very (and I mean very) basic calculation, if you’re paying $435k then you would want at least $435/wk in rent. So, I guess if I was going to buy it, it wouldn’t be based on the return.

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July 13, 2014 - 8:21 pm

Why do you think that you will get ‘good’ capital gains on the house? Are you working on the assumption that if there are a lot of people building then demand must be high and therefore prices will go up? If that is the case, then I would say ‘no’ that’s not a good enough reason to buy a property. I can’t imagine 50% of the complex being NRAS would help.

Why else would the area go up in value faster than the rest of Brisbane?

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July 11, 2014 - 7:48 pm

While you didn’t mention any specifics, I would say you’re on the right track and he’s just trying to make a sale.

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July 7, 2014 - 10:00 pm

I am not an accountant. But depending on your interpretation of recent ATO statements around capitalising interest, and where you think the property market will go and the rent on your Melbourne property… you could do something like this:

– Move into your parents and live rent free! Yay.
– Refinance everything to interest free loans to minimise repayments.
– Rent out your Melbourne place, which I imagine might be positively geared. Use the cash for whatever you need if positively geared, otherwise it’s a tax deduction and since you just refinanced you have a new account to figure out your deductions for tax time.
– Draw a LOC on your Melbourne property. Put the rent from Brisbane in this account. Pay the interest from Brisbane into this account. Do not touch the account for anything other than investment expenses. Since it’s negatively geared it will slowly go up, but the interest should be tax deductible… again, not an accountant, but would love some advice on whether this is ‘legal’ according to the ATO in 2014.

This should buy you some breathing room, so if you think there is capital growth it might get you through to better times or better job prospects. Definitely discuss with an accountant about whether they think it will fly though as it’s purely based on my readings lately.

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July 7, 2014 - 6:46 pm

I’m not an accountant, but that’s generally how the tax system works as far as I’m aware. Your tax bill is based on your ‘taxable income’, so in this case it would be $13000. So any tax you paid on that ‘final’ $7000 is refunded, but if you’re still in the tax free threshold then there is little you’ll get back. Just like it might be now, say your income is $50000, less $7000 of expenses, any tax paid on that ‘final’ $7000 (from $43000 to $50000) is refunded.

Having said that, if you are on $20000 from income you’ll get a variety of subsidies and the pension, which I think it also taxed so you’ll have something to claim back. But again, I’m not an accountant and I’m nowhere near retired so I haven’t even look at any examples!

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June 27, 2014 - 10:39 pm

Hi MattyC

It sounds like you’re in the exact same situation as me about 6 months ago when I came to this forum and posted a similar post! You could probably find it if you do a search. In the end I went with the BA and I’m happy. I did go through a few other options, financial advisors etc that I found didn’t really align to what I wanted. For me, it was worth the investment. I’ll PM you my experiences.

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June 26, 2014 - 9:07 pm

Hi Yuley,

I’ve got no financial quals, but that sounds like a load of c#$p.

The LOC is held against your PPOR, say $100k. While the IP loan (80% or whatever it is) will be held against the IP. As long as you can service all the loans, you’ll be fine. I have done this in the past, but I’m in a bit of the opposite situation, my serviceability is good, but my equity is not so good.

I agree with Jaime, it sounds like he’s just trying to get more loans, or he’s planning on cross collateralizing your loans.

I agree about financial planners, I get really nervous too. One guy quoted me nearly $10k a year to ‘look after me’, but would barely do more than provide me with a budget! It’s definitely hard, but at least you’re investigating your options, which is awesome.

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June 24, 2014 - 10:32 pm

Hi yuley,

As mentioned above, I would have a goal that I’m aiming for and then try and figure out how I’m going to get there. You have $1mil+ in equity and plenty of people retire with less, so the question is how do you best use that equity to meet your financial goals. Property may or may not play a role, so I would be looking at finding someone to help you meet your goals. These will vary depending on your age, expectations etc.

Just as an FYI, I want $3mil in equity plus a free hold home. On an extremely basic equation, that will give me $100k a year income (3%) that will go up with CPI (3%) while still maintaining the $3mil in equity forever (needs a 6% return).

Before jumping into property, I would have a chat to a good Financial Advisor / Accountant to talk about your options.

Good luck.

• This reply was modified 9 years, 10 months ago by  TheNewGuy.
• This reply was modified 9 years, 10 months ago by  TheNewGuy.

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June 24, 2014 - 10:19 pm

As already covered, if you owe $250k on a $400k house. I would:

– Get the bank to revalue the house.
– Change to an IO loan now.
– Refinance the loan, to something like:
– $250k. IO loan that is 100% tax deductible
– $100k. Loan to use as purchasing cost for new PPOR (deposit etc). Either IO or P&I depending on what you want. Secured against the IP and not tax deductible. Just consider what LVR you want to go to with Mortgage Insurance etc.
– $x. Loan for the remainder of the PPOR. Secured against the PPOR.
– Offset account. All loan repayments from here, all salary into here.

I’m not a financial advisor either, however, this is quite similar to what I’ve done in the past. Even the numbers are the same!

• This reply was modified 9 years, 10 months ago by  TheNewGuy.

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June 24, 2014 - 10:13 pm

Congrats. I wouldn’t worry about the article too much, as hopefully your IP won’t be empty for 5 years!

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June 24, 2014 - 8:41 pm

I would probably rent out both, not just for the reasons above but because:

– It’s an arms length transaction. I don’t really want to be living next door to my tenants. This might work well though if you want to self manage, however, I like to let the property manager handle this.
– If you knock down and build you’ll need to move anyway, and probably rent a place. So you’d only move once…
– The quality, size, build of the house that I want to live in, is not the same type of house I would build for a rental.
– Depreciation would be pretty good, so if you have a high’ish salary you’d receive those benefits upfront, which is probably a good idea if you plan on holding on to the property for a while.

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June 24, 2014 - 8:33 pm

Just remember that the agent is there to get the most money possible, and things like calling you to say that there is ‘other interest’ is a way to help get the sale and increase the price. If the property is only worth $210k to you, then don’t go above it (especially if you already said that you wouldn’t).

I would reply with an email and say, $210k with 60 day settlement, and you’ll come in and sign the contract today. I would state that the offer is valid to Friday (because they will have more open days on the weekend, so you don’t want them to have another showing), otherwise you’ll move on to other properties and the offer will be withdrawn.

My father did the same thing a few weeks ago, and it was rejected. After 4 weeks the agent came back and said they’d accept the offer now, my father dropped the offer by $50k, and they accepted…

• This reply was modified 9 years, 10 months ago by  TheNewGuy.

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June 13, 2014 - 11:02 pm

I would be interested to know the numbers here, because it sounds like quite a variation.

I will add a bit to the discussion about who is at fault.

– There are good and bad brokers, but a bad broker doesn’t mean he’s a (grossly) negligent broker. Just like any other occupation – surgeon, lawyer etc there are variations in skill set. When using a broker you don’t have to know everything that the broker knows, but you need to do your own due diligence to ensure that he is a good broker and the advice given is sound – those are things in your control. In this case, I would be interested to know what your friend did in regards to due diligence to determine the quality of the broker? My guess would be that it wasn’t too much… and that’s likely the root cause of the issue.

Sounds harsh, but I do hope he gets out of it. Going for a reval with the current bank, or moving banks sounds the best bet.

• This reply was modified 9 years, 11 months ago by  TheNewGuy.

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June 13, 2014 - 10:37 pm

I just wanted to add that if you throw in some cash again, to try and get that from a tax deductible source. So if you have a PPOR, pay down a loan and redraw a LOC for investment purposes. In your case you should be getting tax deductible loans for 102% if you set it up correct, which in this case it sounds like you’ll probably do.

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June 1, 2014 - 4:57 pm

Short answer – If your current manager is good, I would keep them.

Longer answer. It really depends on what your time is worth, and how much effort you will put into the property. Take into account the time, increased cost of insurance, the risk you’ll make a mistake and the increased cost of maintenance and it’s probably not worth it. With the increased cost of maintenance, I’ve found that the quotes from my RE have always been cheaper than I’ve been able to arrange. This is because contractors want this work, so they give a good price. I saved almost $500 on a new hot water cylinder through the RE and I tried my hardest to beat it!

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May 31, 2014 - 7:57 pm

My wife gave birth to our 2nd child, so I’ve been getting very little sleep!

Bought another IP through Richard, and that’s going well.

Looks like my father, brother and I will be doing a sub-division of a property. The contract was just signed for a house with a 2000m2 backyard, and we’re looking at a 12 townhouse development and keeping the front. Still very early stages.