Hi all,
This will be a fairly long post so please bear with me.
My wife and I have just been offered quite a nice deal. The in-laws have offered to give us $20,000 towards a property as long as it is for our residence (not an IP) and as long as we have saved up the deposit. This offer combined with the first home owners grant is an offer to good to pass up.
Our current situation is this: We rent in Sydney, have two young kids and I earn a modest income (single income family). My work requires that I live in Sydney so that is where we will be looking for our new home.
Our future goals are not quite clear cut ATM. We have two possible goals in mind for the mid term future. One is that we pack up and move to Germany for a few years doing the same work as I am now while being able to travel and see the sites of Europe. The cost of moving and emergency money to get back (if needed) has been calculated at around $40,000. The second possible goal is that we start our journey to financial independence and purchase a myriad of investment properties.
My investment entry strategy is as follows: We are planning on saving a deposit for a residential home within the next 12 months. Then we would like to take advantage of the First Home Owners Grant to help us with our purchase. We were hoping to do enough market research to allow us to acquire a property that will produce significant capital gains within the first 1-2 years. Next we would gratefully place the $20,000 from the in-laws into the loan while we continue to put as much of our money into the loan as possible. After staying in the property for at least the mandatory 12 months we were hoping to refinance the property to give us access to some of the appreciated value and either place this money into investment properties or to ship us over to Germany as mentioned above.
As mentioned earlier, we have not decided on which of these goals will take precedence. My hope from this post is to gain some insight from the forum users as to whether my investment strategy is viable or full of holes. I would also like to hear any other strategies that might be a better option that the one I have put forward. I really want to maximize the $20,000 as I am sure this is not the sort of opportunity that comes around often.
Regards
Zyleth
hi zyleth,
nice in-laws!!!
If you are looking for quick CG then i would not be looking at sydney.
my advice to you is if you want to get into to the IP game then continue to rent while putting all possible cash from your income into positive cashflow property, if your goal is financial indepence a trip to europe thats going to set you back 40k will not really help things!!!
Travel europe in comfort when you achieve your financial goals!
all the bestHI Zyleth,
Can I ask a question?
Why will the family lend you 20k but not for an investment property.
Cheers
Don
D&L Property Projects NZ Ltd
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Originally posted by andyperry16:hi zyleth,
nice in-laws!!!
If you are looking for quick CG then i would not be looking at sydney.
my advice to you is if you want to get into to the IP game then continue to rent while putting all possible cash from your income into positive cashflow property, if your goal is financial indepence a trip to europe thats going to set you back 40k will not really help things!!!
Travel europe in comfort when you achieve your financial goals!
all the bestThe +cf path is the one I would prefer to take but the inlaws are only offering the money if it is for a PPoR.
The main reason for wanting to travel europe early is to give my kids the opportunity to grow up with another language rather than to have to learn it further down the track. Going later in life is still on the cards as an option tho [biggrin]Originally posted by DLPP:HI Zyleth,
Can I ask a question?
Why will the family lend you 20k but not for an investment property.
Cheers
Don
They don’t see any point in us paying for someone elses IP while trying to get our own. The would prefer us to be paying off our own home then get our investement portfolio going.
Originally posted by Zyleth:
They don’t see any point in us paying for someone elses IP while trying to get our own. The would prefer us to be paying off our own home then get our investement portfolio going.Aaaahhhh, they are from the ‘Old country’!? [bonjour]
First of all, if you buy, you only need to stay in it for 6 months within the first year to be elligible for the FHOG!! [party]
Second of all, do they know that you can improve your Tax situation with an investment property? Effectively giving you more ‘bang’ for your buck’ ?? So they don’t understand that a PPOR takes money OUT of your cashflow (as it is NOT Tax deductible debt and then especially since you are a one income family, IN NSW, no less) and that you’d be better off with an investment property that’ll put money back into your cashflow (even after Tax)????? [hmm] [hmmm] [jealous]Interesting….
Cheers
C@34Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
– Thomas EdisonDon’t let reality be the benchmark for your Dreams
[medieval]
Great post Calvin.
Methinks the folks are well meaning but may from the old country or at least thinking old I’d say.
Zyleth it sounds like there are 2 conflicting agendas here. The folks are angling to keep you in OZ while you want your cake and eat it too! (sounds like myself)
Is my radar working here or am I way off? Am I being too blunt about the family dynamics? Or too wayyyy wrong perhaps…..[ohno2]Giddo
http://www.standrewsplace.com.auKNOWLEDGE IS POWER
@ Calvin
Thanks for the info, although I don’t think I am 100% clear on the mathamatics behind your response. If I am spending $370 pw on rent a week (damn sydney [glum]) and get a +cf house earning me a little extra a week, how does this compare to owning my own house with hopefully lower repayments than $370 and then using the equity in the PPoR to then buy +cf investments???
I have been wondering about this theory for a while so I am interested to see how it all comes together (maths has never been my strong point [biggrin])
Originally posted by giddo:[medieval]
Great post Calvin.
Methinks the folks are well meaning but may from the old country or at least thinking old I’d say.
Zyleth it sounds like there are 2 conflicting agendas here. The folks are angling to keep you in OZ while you want your cake and eat it too! (sounds like myself)
Is my radar working here or am I way off? Am I being too blunt about the family dynamics? Or too wayyyy wrong perhaps…..[ohno2]Well first of all, I most certainly want my cake and to eat it too. I like cake, cake is yummy [biggrin][thumbsupanim]
I hadn’t concidered the idea that they might be trying to keep us in OZ, now that I have, I spose it is a possiblity. I can say that now that I have put it down in writing I am not so sure about the Germany idea. I think I might just put that idea on hold while I increase my investment portfolio (although I am always happy to hear ideas that will get me both [biggrin]).
I did get a spanner thown in the works today. I contacted a morgage broker to see what sort of money I could borrow. Because of the 2 dependants and single income I am only able to borrow around $250k. This is going to greatly reduce my house hunting ability in sydney I think [glum]
Originally posted by Zyleth:@ Calvin
Thanks for the info, although I don’t think I am 100% clear on the mathamatics behind your response. If I am spending $370 pw on rent a week (damn sydney [glum]) and get a +cf house earning me a little extra a week, how does this compare to owning my own house with hopefully lower repayments than $370 and then using the equity in the PPoR to then buy +cf investments???
I have been wondering about this theory for a while so I am interested to see how it all comes together (maths has never been my strong point [biggrin])
I think I might just put that idea on hold while I increase my investment portfolio (although I am always happy to hear ideas that will get me both [biggrin]).I did get a spanner thown in the works today. I contacted a morgage broker to see what sort of money I could borrow. Because of the 2 dependants and single income I am only able to borrow around $250k. This is going to greatly reduce my house hunting ability in sydney I think [glum]
Big Z,
the maths isn’t that complicated, if you pay $370/ week on rent = NO TAX DEDUCTION!
if you pay $370/week on your Mortgage = NO TAX DEDUCTION!
BUT
if you buy an IP adn the mortgage is $370/week ALL bank fees and charges related to the investment as well as the interest accrued on the mortgage IS TAX DEDUCTIBLE! Meanwhile you rent a house and pay (up to $370/week) =NO TAX DEDUCTION!
However your cashlfow now looks a little different:
$ 370 going out for rent – no change here!
$370 going out to pay the mortgage – oops your down $370!
$370 coming in as rental income – woohoo back in neutral teritory!
Now your Taxable income is bigger therefore you’ll pay more Tax – oops loosing money again!
Now all the interest you pay, the fees and charges + Depreciation all come back to you at the end of the Financila year!Now I have over simplified this, but any good Mortgage broker/ Accountant will show you how this will apply to your case. Depreciation Schedules are done by professionals and you’ll find all of them represented here on this forum!
Even if you come out neutrally geared (income = expenses) you will be in front in the long run!Now about you waiting for equity to grow, from all of the posts I have read RE: NSW, you wont see any CG in the near future as the market is going thru a slow down (correction if you will) and itll take some time for the market to pick up again – just be aware of that!
All honesty, read, read some more, learn all that you can and in the mean time save a deposit ,together with the $20K from your family (that’s $20K more than most of us had!) you’ll be in a prime position to buy when you come accross THE property.I did get a spanner thown in the works today. I contacted a morgage broker to see what sort of money I could borrow. Because of the 2 dependants and single income I am only able to borrow around $250k. This is going to greatly reduce my house hunting ability in sydney I thinkAny chance your wife can pick up some work – even if you only use it to save for a deposit? This’ll greatly asssit in fast tracking your investment progress!
Hope this has helped some?! See what you think.[biggrin]
Cheers
C@34Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
– Thomas EdisonDon’t let reality be the benchmark for your Dreams
Hi Zyleth,
If you end up purchasing a PPOR and plan to make it an investment property in the future make sure you take out an interest only loan with a 100% offset account. If you don’t do this it will cost you significantly in trerms of taxation benefits when you come to purchase another PPOR.
With regard to your lending capacity, i suggest you get a second opinion. There is a marked difference between what different lenders are prepared to lend and if the broker you met with is not particularly good then you may find you can in fact lend a lot more than you think.
Regards
Alistair PerryJust reading this again, you’re getting a lot of advice about doing IP for tax purposes. But this guy (sorry if girl) has two dependant kids and is the single earner in the household. He’s only got enough income to qualify for $250k loan. I’m thinking tax deductions are the least of his problems.
IMO tax minimisation strategies only start to really be worth the financial engineering when you are deep into the top marginal rate of 47.5%. And you can bet on a change in the threshold level of this rate come next years budget anyway (or at least before the next election). Remember, you can only defer tax, not avoid paying it altogether. If you claim deductions on interest cost you pay CGT. If you live in the place you get CGT free. You can’t avoid tax, just move around the time when you pay it.
A property is an investment whether you live in it or not. As long as you are paying about the equivalent of your $370 a week in interest payments instead of rent you are about even but have an upside in being able to do improvements to the house and increase teh value. Sometimes a bit of gardening and painting can make a big difference.
If I were you I’d be planning to get that $20k and $7k FHOG while the money is on the table. Things change so make a plan to access the cash NOW. If someone was going to give me $20k but said I had to live in a pink house, I’d be down at the hardware stores picking out the particular colour shade. If they want to give you the money and say its for a PPOR, then that’s what you should get. You can moan about having conditions attached to the cash, but it is their money so take it or leave it, but it would be rude to try and negotiate with them.
Find yourself a good house with good rental potential, something a bit untidy that needs some minor work. Something that has been a renter and is now ‘tenant worn’ might do the trick. Buy it, move in, and do some touching up and fixing up. Stay there for 12-24 months, then either:
– rent it out and buy another PPOR
– rent it out and go to germany
– stay there, revalue it and use the equity and buy an IP.Either way you have got the money from the in-laws, you’ve got into the property market, you are building experience and most importantly YOU HAVE TAKEN ACTION. Nothing happens until you start.
Forget tax manouverings until you are bringing in the cash in big lumps. Even then do it as the icing on the cake, not the cake itself.
_____________________________
We all need somewhere to live – but do we all need a CBD apartment?@ calvin
Thanks for the math’s tutorial. I see what you mean now. This is good advice and now I have added it to my ever growing R.E. Investment arsenal [suave2]
@ APerry
Thanks for this information too. I hadn’t thought about the different financial chooses I could make until your post so now I will put a greater emphasis on learning about the different loan types.
@ brc
Both my wife and I enjoyed your comments very much. What you posted was almost exactly what I had in mind. The part about being rude to try and negotiate with the in-laws was a bit of an eye opener as I hadn’t actually looked at it that way b4. Now that I have I will most certainly be trying to get a PPOR first and then somehow leveraging that to get some IP’s.
Thank you all for your replies, but please don’t see this as a finalizing post. I would still like to see more comments about the different strategies I could use.
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