Forums / Property Investing / Help Needed! / What sort of a structure should I use for a newbie property investor?

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Viewing 20 posts - 1 through 20 (of 20 total)
  • Profile photo of aturneraturner
    Participant
    @aturner
    Join Date: 2011
    Post Count: 3

    Hi everyone,

    I am a single young guy with a keen interest in moving into property investment after some not so successful stock investments in the past. I have been doing a lot of reading to further my knowledge in the property market however I am still lost as to how to get the ball rolling.
    I am currently employed full time on a salary of 200k a year. I have savings of 80k and and have no debt. I only have a very small amount of expenses such as phone and internet each month. I do not currently own a house or pay rent as my accommodation is supplied by my employer.
    After reading Steve's books I am very interested in the method of purchasing positively geared property. I have done some extensive research and found some property that meets the criteria. I have made an appointment to see a business banker to discuss how best to structure my purchase. With the high amount of tax I pay every year should I also be considering negatively geared property as well?
    My goal is to buy my first property with the intention to continue to by as many more investment properties as my finances and time will allow. I am not sure as to whether Steve Mckights structure of using a family trust would help me as I have no dependants and nobody to share the profits with?
    Any suggestions on the best way to structure my purchases would be greatly appreciated.

    Thanks :)

    Profile photo of BluegrassBluegrass
    Participant
    @bluegrass
    Join Date: 2009
    Post Count: 73

    Hi aturner
    I am no finance guru, but with your tax levels positive geared is not the answer.
    Granted you get depreciation (on positive geared property), but why would you want to put more money in your account to be taxed more.
    I build investment homes for people and have done so for over 16 years.
    In you position you should be looking for new – to be built house and land that will give you capital growth.
    I would shy away from units unless they are in configuration of duplex, triplex or quads.
    Have a look at the website http://www.raspinvestment.com.au on the page we answer your questions.
    Regards
    Bluegrass

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi aturner

    Welcome to the forum.

    You’re in an excellent position to start investing. A high income with relatively few expenses.

    Firstly, I wouldn’t base your investing decisions primarily on the taxation benefits available. The tax benefits linked to residential property should be seen as a bonus (not the main reason).

    The best advice I can give is to continue reading widely, forums like this are an excellent free resource. Also surround yourself with a team of professional that understand property investing.

    This is going to sound bias coming from a mortgage broker but question your business bankers understanding of investment structures as well. Far too often, we have clients that come to us to fix issues that banks have created. The most common is when the lender cross collaterises their properties – which can be an expensive lesson for the unsuspecting customer.

    All the best.

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of BluegrassBluegrass
    Participant
    @bluegrass
    Join Date: 2009
    Post Count: 73

    Jamie M
    What is the main reason then!
    Bluegrass

    Profile photo of xdrewxdrew
    Participant
    @xdrew
    Join Date: 2010
    Post Count: 479

    Hi aturner,

    You are one of the first people i've seen here for a while who actually has the right placement to do something serious with your possibility for investment. You've got a good job (now) and you got minimal expenses.

    If you're playing it like anyone else who is young .. you will spend it on loose women .. fast cars .. and .. trinkets. And then wake up middle aged … not on such a good income .. an unexpected mistress / lover / baby  and before you know it .. you are trapped in the extended cycle of middle aged regrets.

    If you are on 200k .. work out what your REAL expenses are (barring the reasonable rental situation). Since you got time up your sleeve .. borrow to a reasonable level, buy just investment property .. and buy lots of it. With your deposit you should be able to get a half million dollar investment without question. An 800,000 dollar investment if you push it .. and you fall short of the million dollar invest simply because of the current timing. All up .. that should allow you to get a passive income of somewhere between 25k-50k (risk factors allowed for) for your investment. Thats without pushing it too hard. If its your first invest .. you should push yourself to a level where you can allow for fallibilities and unseens. If you are experienced .. you know what can be expected.

    In these trying times .. your skills with negotiation will be paramount for your success. Grab a book or two on proper negotiation skills and learn how to achieve them. They'll help you work out what makes a good deal and how to gear it to become a better deal. Negotiation is not FLEECING the other party. Its understanding their needs and wants for settling the property and how to achieve win-win outcomes for both parties. An important skill with dealing in property.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    Bluegrass wrote:
    Jamie M
    What is the main reason then!
    Bluegrass

    For me – it’s the long-term capital growth and the ability to add value to the asset. The tax benefits are just a bonus.

    Investing in property purely for taxation benefits is flawed – because reducing your taxable income requires you to make a loss.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of aturneraturner
    Participant
    @aturner
    Join Date: 2011
    Post Count: 3

    Thanks everyone for your comments.

    Jamie M – I will take your advice and also have a chat with a mortgage broker and any other professionals with knowledege/experience in investment properties before I jump in.

    xdrew – a passive income of 25 – 50k sounds great. I will continue to read and my next book purchase will be on negotiating. Thanks very much for your advice.

    Profile photo of WomeninPropMelbWomeninPropMelb
    Member
    @womeninpropmelb
    Join Date: 2008
    Post Count: 234

    Bluegrass and Jamie M- I see a lot of different strategies for investing in property- some people do it for negative gear and some for returns. It is best that someone do what is right for them- not because you have a bias due to the product you sell. IN this case, the young man has a a lot of income and a lot of tax probably as a result. Negative gearing should be a serious option for this young man- but it ALL should be viewed in light of WHAT IS RIGHT FOR HIM.
    Xdrew, I see nothing wrong with loose women and fast cars!!

    Profile photo of xdrewxdrew
    Participant
    @xdrew
    Join Date: 2010
    Post Count: 479

    Without quoting you WomeninPropMelb, I think you are right .. to a point.

    The biggest mistake .. is that everyone aims for negative gearing just before a burst of inflationary pressure takes hold. And thats what the markets and the monetary cycle is geared up for right now. So what sounds like a good option 70% of the time is NOT a good option right at the moment. I would suggest that appropriate and conservative gearing is a wiser move.

    And having had my thrill of both loose women and fast cars .. I agree totally. It is never to be underestimated.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    WomeninPropMelb wrote:
    Bluegrass and Jamie M- I see a lot of different strategies for investing in property- some people do it for negative gear and some for returns.

    I don’t have a problem with negative gearing (most of my IPs are negative). However, I still standby the notion that taxation benefits shouldn’t be the “primary” reason for investing in residential property. I’m happy to be corrected.

    WomeninPropMelb wrote:
    It is best that someone do what is right for them- not because you have a bias due to the product you sell. IN this case, the young man has a a lot of income and a lot of tax probably as a result.

    Not quite sure what was being sold here.

    WomeninPropMelb wrote:
    Negative gearing should be a serious option for this young man- but it ALL should be viewed in light of WHAT IS RIGHT FOR HIM.
    Xdrew, I see nothing wrong with loose women and fast cars!!

    Again, there’s nothing wrong with negatively geared properties. However, just because the original poster is a high income earner doesn’t necessarily mean he should go out and spend all of his disposable income on holding properties that are costing him a fortune to hold just so he can reduce his tax bill.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of WomeninPropMelbWomeninPropMelb
    Member
    @womeninpropmelb
    Join Date: 2008
    Post Count: 234

    Hi Jamie, I agree with what you are saying. An investment should be looked at as a whole approach. It all has to be right for the individual. There are many philosophies on property investing and no one is right or wrong- just what is right for the individual.

    Profile photo of WomeninPropMelbWomeninPropMelb
    Member
    @womeninpropmelb
    Join Date: 2008
    Post Count: 234

    Xdrew- fast cars and loose women- we should be allowed to enjoy life too!
    Maybe just “women” and fast cars though.

    Profile photo of Boo_HsstBoo_Hsst
    Participant
    @boo_hsst
    Join Date: 2011
    Post Count: 8
    aturner wrote:
    I am currently employed full time on a salary of 200k a year. I have savings of 80k and and have no debt. I only have a very small amount of expenses such as phone and internet each month. I do not currently own a house or pay rent as my accommodation is supplied by my employer.

    What are you spending $120,000 on if you only have a very small amount of expenses and no rent?

    In your situation,  I would be leaning towards commercial property. 

    Profile photo of aturneraturner
    Participant
    @aturner
    Join Date: 2011
    Post Count: 3

    Boo_Hsst wrote:
    What are you spending $120,000 on if you only have a very small amount of expenses and no rent?

    In your situation,  I would be leaning towards commercial property. 

    Boo_Hsst – Nothing at all. I'm saving everything. Why should I be leaning towards commercial property? Am I not better trying to find my feet with residential first?

    Thanks for your advice.

    Profile photo of WomeninPropMelbWomeninPropMelb
    Member
    @womeninpropmelb
    Join Date: 2008
    Post Count: 234

    Well aturner, commercial property has some advantages and disadvantages. Residential is something that everyone can get into if you like- we all, well most of us live in something- so we can all relate to residential property. Commercial has some tricks for young players.
    Yes, I am with you- get into residential- just do something with your income.
    Good luck.

    Profile photo of lifestylezlifestylez
    Participant
    @lifestylez
    Join Date: 2011
    Post Count: 61

    Hi ATurner,

    I agree with JamieM you should not be buying property to reduce your tax bill.  Negative gearing only helps to lessen the cash LOSS that you make.  If you buy a property and it costs you $100 a week to hold, that is a loss, negative cashflow.  You would only accept this loss if the future capital gains for the property outweighed this! 

    Then with the benefit of deducting your loss, you may only be paying $60-$70/week to hold instead of $100…but it's still a loss!

    You should always try to get neutral or positive cash flow from your property, but don't do it at the sacrifice of buying in an area that has short and long term capital gain potential.

    Also, instead of doing more reading, I would recommend that you take the plunge and go for it sooner rather than later.

    As you may or may not have heard before, Australia is not one property market, it is made up of many smaller markets.  For example, last year when Sydney was doing well, Brisbane was falling and Melbourne was booming.  There is normally somewhere in the country that has brighter short term prospects.

    I think for your first property, look at the lower price range (eg. 250k to 400k), an area that will be in demand in the future and concentrate on minimising risk.  You're first property you want to be safe so that you've got a solid foundation to build on.  I would avoid commercial property for your first property unless you know someone with alot of experience in that area (the banks require a higher LVR and you can experience extended periods of vacancy – no rental income).

    If you want to research where to buy, try Terry Ryder's "ryder report" which gives you good recommendations about up and coming areas and why they should experience growth in the near future.  It's only about $90 to get the top 10 suburbs for a particular state.

    One last thing to consider is that if your first property is soley for investment purposes, you will not quality for the FHOG and therefore miss out on free government money.  However, if you are willing/able to live in the property for the first 6 months, then you can claim it.

    Hope this helps!

    Darren.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    lifestylez wrote:
    Hi ATurner,

    I agree with JamieM you should not be buying property to reduce your tax bill.  Negative gearing only helps to lessen the cash LOSS that you make.  If you buy a property and it costs you $100 a week to hold, that is a loss, negative cashflow.  You would only accept this loss if the future capital gains for the property outweighed this! 

    Then with the benefit of deducting your loss, you may only be paying $60-$70/week to hold instead of $100…but it's still a loss!

    You should always try to get neutral or positive cash flow from your property, but don't do it at the sacrifice of buying in an area that has short and long term capital gain potential.

    Also, instead of doing more reading, I would recommend that you take the plunge and go for it sooner rather than later.

    As you may or may not have heard before, Australia is not one property market, it is made up of many smaller markets.  For example, last year when Sydney was doing well, Brisbane was falling and Melbourne was booming.  There is normally somewhere in the country that has brighter short term prospects.

    I think for your first property, look at the lower price range (eg. 250k to 400k), an area that will be in demand in the future and concentrate on minimising risk.  You're first property you want to be safe so that you've got a solid foundation to build on.  I would avoid commercial property for your first property unless you know someone with alot of experience in that area (the banks require a higher LVR and you can experience extended periods of vacancy – no rental income).

    If you want to research where to buy, try Terry Ryder's "ryder report" which gives you good recommendations about up and coming areas and why they should experience growth in the near future.  It's only about $90 to get the top 10 suburbs for a particular state.

    One last thing to consider is that if your first property is soley for investment purposes, you will not quality for the FHOG and therefore miss out on free government money.  However, if you are willing/able to live in the property for the first 6 months, then you can claim it.

    Hope this helps!

    Darren.

    Excellent advice….. and not because you agreed with me :)

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of lifestylezlifestylez
    Participant
    @lifestylez
    Join Date: 2011
    Post Count: 61
    Jamie M wrote:

    Excellent advice….. and not because you agreed with me :)

    Cheers

    Jamie

    Cheers ;)  I will try to disagree with you next time so we can at least get some tension going!

    Profile photo of proptymanproptyman
    Member
    @proptyman
    Join Date: 2010
    Post Count: 19

    Hi there aturner,

    you are in a fantastic position. well done.  You have great income and are obviously a good saver. Getting into property should work well for you. 

    Over time I would take the following steps:

    Put at least 20% deposit down on the investment properties and try to make some of these properties move from negatively geared to positively geared. That way, if you lose your job or your income drops substantially, you wont have to find lots of money every month to keep paying the mortgages.  Being negatively geared is fine if you still have some income coming in to make up the difference.

    hope this helps,

    Profile photo of Andrew Lee LawyersAndrew Lee Lawyers
    Participant
    @andrew-lee-lawyers
    Join Date: 2011
    Post Count: 37

    Ahhh good ol negative gearing. If evry1 was negative gearing the govt would be broke.
    I wish my tax bill was 100k. That means I am making loads.

    Young man, go out and enjoy life. Plenty of time ahead of ya. Just buy one prop mayb around 500k, and go from there.
    See the world!

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