Hi
My wife and I are newbies who are looking to begin walking along the road of positive cashflow properties. We have some questions we would like to ask in regards to the various models shown in the book but first I should give you a run down of our current situation:
We bought our PPOR 7½ years ago and have been paying a lot more than necessary off the mortgage to try and reduce it as quickly as possible. We should have it fully paid off in about February. The only downside with that is we have never saved a cent because we have been of the opinion it is better to get rid of debt. We have redrawn on the mortgage a number of times for renovations, o/s holidays etc as the redraw facility seemed like the best way to access large amounts of cash we needed.
After reading the 0 to 130 property book, I saw a chance to really use the equity in our house to purchase cash flow positive properties. I have been doing a bit of research into various areas of Australia, got spreadsheets together to check figures (a little bit more complicated than the 11 second rule!!!!!) and got pre-approval for multiple property purchasing. The problem is that every property I find that fits into the 11 second rule, does not turn out cash flow positive eg. I have found a property in FNQ that is for sale at $65,000 and is rented for $150 a week. The 11 second rule works BUT once you take into account stamp duty, loan repayments management fees etc etc, it ends up costing out of pocket a considerable sum.
I know where the problem lies, we have no cash to immediately put into the deal. We have pre approval for purchasing almost $1,000,000 worth of properties (100% of purchase price plus all other costs) but no up front cash to begin the deal. I know Steve likes to put up to 20% cash into it to start but we do not have it as we are paying off the mortgage quickly. I guess I could redraw the 10 or 20% out of our home loan, but why would we do that? I would have thought it was better to get that to $0 and then start the saving.
I cannot believe the amount of people who are successfully pursuing this positive cashflow idea have all paid off their mortgages. If they have well then good luck to them and I can’t wait until we are in that position. If they haven’t, how are they coming up with the cash for the deposit?
Perhaps the answer to this question is so simple that I am overlooking it – I hope so!
If you could explain to us a solution so we can begin on the road to financial freedom it would be greatly appreciated.[
]Hi Rugbyfan,
Your questions are not that complicated … And yes there is a solution!
But I need to cover a bit of ground first:
you said:
The only downside with that is we have never saved a cent because we have been of the opinion it is better to get rid of debt. We have redrawn on the mortgage a number of times for renovations, o/s holidays etc as the redraw facility seemed like the best way to access large amounts of cash we needed.I hope you were using an offset account!
If you had an offset account linked to your investment loan you would be able to spend the money in your offset accout and still get the tax deductions from your investment loan…I am not sure from your post whether you are aware that you can claim the interest repayment on your interest loan as a tax deduction.
Debt is Good! or should I say the right kind of debt is good…
What you want is to ask your banker or mortgage broker to get a loan that is split (no I did not say a “split loan”!)
Basically they will value your PPOR and have several loans (so to speak) on it. (really it is just different accounts.)
One account will be called PPOR debt.
The other will be called “investment” account.You can then draw down money from your investment account to invest in other properties, and the interest you pay on this investement loan is tax deductable. (the interest on your PPOR loan is NOT!)
So all you need to do is have a chat with a banker or even one of the mortgage brokers on this forum.
But what ever you do use the right structures…
Hope this helps.
Pin
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http://members.freeib.com/?mforum=generalinvesting
General Investing Forum and great investment tips.
ALL welcome!
Yes it is an offset account – can you help?Sure!, and others will contribute as well…
However to get a better picture let me ask you a few questions:
What type of loan do you have on your PPOR and on your investment property and to which loan is the offset account linked?
When you took the money out to spend on holidays etc… where did you take it from?
Also you said:
The problem is that every property I find that fits into the 11 second rule, does not turn out cash flow positive eg.Well they may not be positive cashflow but I am sure they are postively geared!
Have a quick read of this topic to undertsand what I am saying:
https://www.propertyinvesting.com/forum/topic.asp?TOPIC_ID=4437
Cheers,
Pin
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General Investing Forum.
Best FREE general investment information.
ALL welcome!Thanks Pinit2000
After the effects of the wonderful Barrossa Valley Chardonnay wear off (ie. tomorrow) I will get back to you with my details. I did not explain everything in my first post either. We are a one income family now as I have resigned my job to look after our baby while my wife (earns much higher wage) goes to work.
.
Sorry to take so long to reply and I thank you for your patience.
The home loan we have on our PPOR is a standard homeloan from CBA to which we have a $30,000 home equity (offset/line of credit) where the salary goes into.
The IP’s will be bought using the same type of loan.
So how do we make the interest repayments tax deductable?
P.S. Sorry for the dumbass question
I think i might be misunderstanding something here pin, but ppor loan isn’t tax deductible.
I dont think rugby has an investment loan yet??? am i right rugbyfan?
Josh
I have an investment loan set up and ready to go with approval for almost 1 mill.
you said:quote:
The only downside with that is we have never saved a cent because we have been of the opinion it is better to get rid of debt. We have redrawn on the mortgage a number of times for renovations, o/s holidays etc as the redraw facility seemed like the best way to access large amounts of cash we needed.I hope you were using an offset account!
If you had an offset account linked to your investment loan you would be able to spend the money in your offset accout and still get the tax deductions from your investment loan…that sounds like you are redrawing on you ppor loan which the interest isn’t tax deductable.
If you use an offset account with your investment loan and withdraw against it for non investment stuff like holidays, it can affect the ‘intent’ of the loan and the tax office does not like this. They can stop you from deducting all of the interest.
Josh
If this prop costs 65k, rents for 150, and if your repayments on, say 70k to well and truly cover all your other costs are $102 per week (at 7%), what other costs have you calculated for a week to week basis apart from rates, insurance and management fees? There should be a positive cash flow out of this property unless it’s got massive body corporate… is it a unit? house?
Cheers
r
I have an investment loan set up and ready to go with approval for almost 1 mill.Perhaps I am doing the figures wrong but if for example I bought a place for $17,500 which rented for $75 per week this only returns $5 per week to me.
Income
Rent $75 x 52 = $3900
Outgoings
Repayments $30.90 x 52 = $1606.80
Stamp Duty (1st yr only) $425
Council rates $200
Legal Fees $400
Prop mngmt fee(8%) $312
General Expenses $500
Insurance $200
Total outgoings $3644
Difference $256 or $5 per weekAm I doing my sums correctly?
Thanks (a very confused Newby)
sorry I forgot to write that that is what pin was writing about.
With finding pos cash flow it will depend on how much cash you put in. ie If you bought an ip and paid it all in cash it would be cash flow pos from day one.
With the 11 sec rule the rent is roughly yielding 10%.
If you want to borrow all the money from the word go you basically need a higher yield to be pos cash flow from go. After all costs you can work out what yield you need, perhaps 15%.
I think steve did the 11 sec rule so that he wouldn’t have to carry a calculator aroung with him to work out whether something had a 10% yield or not.
Josh
5 bucks is still pos cash flow, If you are looking for a higher return then finding a better ip iss the only way to go.
The only question is that finding them might not be easy.
Josh
Excuse my ignorance but does everyone who is on these boards and have purchased positive cash flow property either:
1. find property with 20% yields or better
2. Have no mortage on their PPoR
3. Have a lazy $5,000 – $20,000 lying around to use as a deposit.If 1, then lucky them, I will have to look harder. If 2, then good on them, we will be there soon (Feb I hope) and if 3 then I have to envy them very much!!!
Excuse my ignorance but does everyone who is on these boards and have purchased positive cash flow property either:
1. find property with 20% yields or better
2. Have no mortage on their PPoR
3. Have a lazy $5,000 – $20,000 lying around to use as a deposit.If 1, then lucky them, I will have to look harder. If 2, then good on them, we will be there soon (Feb I hope) and if 3 then I have to envy them very much!!!
Rugby fan,
if you structure your borowing the correct way, then having a lazy $5,000 – $20,000 is easy.
Kind regards Steven[email protected]
http://www.mobilemortgagemarket.com.au
Ph: 0402483216Steven
Perhaps we need to be talking to you on a serious level. I guess I can’t get my head around where this $5,000 – $20,000 magically appears from.
Hi Rugby fan
your figures were not correct have a look at this.
you said
“I bought a place for $17,500 which rented for $75 per week this only returns $5 per week to me.Income
Rent $75 x 52 = $3900
Outgoings
Repayments $30.90 x 52 = $1606.80
Stamp Duty (1st yr only) $425
Council rates $200
Legal Fees $400
Prop mngmt fee(8%) $312
General Expenses $500
Insurance $200
Total outgoings $3644
Difference $256 or $5 per week
Am I doing my sums correctly?”No you have included some capital costs in your cash flow assesment
Legal fees are capital costs as is stamp duty
so try income 3900
less expenses
interest on loan (note only interest not payments off the principal) $17,500 + S/D $425 + legal $400 = $18,325 @ 7% interest = $1280
interest $1280
Council rates $200
Prop mngmt fee(8%) $312
General Expenses $500
Insurance $200
Total expenses 2492
Balance $1408 27pwa very good deal[
]
westani got around $1400 per year repayments at 7% on borrowing $17500. did you calculate on borrowing more money? you dont want to include the stamp duty and legal fees in your numbers to work out yearly cash flow. these are one off costs that come out off your pocket at the start. without these it is more like $1082 per year or $20 per week. if you uesd a 20% deposit cashflow would be good.
if you think this property does not make enough money you could always pass on the details to me.
keep playing around with numbers with a deposit and see how you go.paul..
Hi RugbyFan,
I am allways willing to help anyone,
give me a call or e-mail anytime.
Kind Regards
Steven.[email protected]
http://www.mobilemortgagemarket.com.au
Ph: 0402483216Thanks guys, I new I was missing a key ingredient in my spreadsheet.
Perhaps I am destined to have the ‘brain of a rugby forward’!!!!
this property is just an example isnt it? the one you mention earlier in FNQ sounds interesting. do some numbers on that without stamp duty, legal fees, and other buying costs and see how you go. should give some good figures. 12% yeild isnt it.
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