Capital Gains Tax (CGT) is a complicated beast !!
There are some “well-known” good bits (e.g. your PPOR remains CGT exempt for up to 6 years after you move out of it – BUT there are some conditions around that, so check first).
And, when buying, there are little gotcha’s that might trip you up – so read up, or ask away, BEFORE buying your PPOR.
Even if you THINK your current adviser might be missing something, or their advice doesn’t sound quite right in some way, ASK someone else (e.g. ask the forum!!)
Here is a thread started by one member who had some doubts over advice he had received :-
In the end, his “$60k mistake” should end up being a MUCH smaller mistake than that !! And he saved that $60k by ASKing on forum.
BEWARE – do note that the answers shown are not geared toward YOU and your situation, so don’t take these answers as “gospel” for your situation.
DO ask your adviser to recheck your situation (using information from here to guide them) if they seem to be steering you wrongly. The $$ you save can be massive – so ask away !!
PS This next link
goes into more detail re the assigning of your PPOR for CGT purposes. Good answers from Terryw in helping a member whose parents had moved out of one home into another, and leased the first as a rental. Questions re “acquiring a valuation after the fact” among other things…. Well worth a read for more knowledge re the “PPOR and CGT” arena.
PPS Added 15Nov17 as more info comes to light.
Once again Terryw steps up with even more interesting points re PPOR’s and CGT calcs. Read from this linked post on down a few to where Terry shares some intriguing possibilities (including choosing to PAY a small amount of CGT to save having to pay a larger amount in the future). The main takeaways for me were
1. That Terry shows an example of two properties that have been lived in, thus both COULD be PPOR’s, but that the nomination of the PPOR occurs ON SALE of one of them (and not before).
2. The example shows someone having two possibilities as PPORs, and extending the option for both of them before 6 years is up by going back to live in each one once again. He then looks at selling one near the 12th year of ownership, and CHOOSES (at that time) which one is his PPOR at time of sale AFTER calculating just which way is most beneficial from a CGT aspect (including perhaps PAYING CGT on one to keep the other as his PPOR and minimise/eliminate CGT on that house into the future).
3. Fed PPOR nomination and State PPOR (for Land Tax) are two separate nominations, and CAN be at odds with each other (one of the links above dealt with that one – mentioned here for completeness).
“Capital Gains Tax (CGT) is a complicated beast!” Well, it was, but thanks to Terry, it is becoming more tame than ever before !!
:)RickParticipant@rixterJoin Date: 2003Post Count: 15
While composing a reply to the age-old question “Is NOW a good time to be buying property?”, a thought struck me, and I went looking for an Article that held the info I was wanting to share. It was about the property “cycle” and the best/worst parts of the cycle to buy or sell.
Instead, I found this one……
….. and I liked its completeness around the subject of “a new person wanting to know when they should buy a property” that I decided to add it to this thread.
It is not the one I was originally looking for, but I will add that one’s link below once I do find it.
Much later…. I still haven’t found that graph – the one I was wanting to add shows how the Yield and Price curves are the Inverse of each other. e.g. Yield drops as Price increases, and yields will increase if the price drops or rents increase. Yield as a percentage will go lower, even though rents remain the same, if the Price goes up.
At its most basic, Yield% = Rent per annum X 100 divided by Price (e.g. $15,000 x 100 / $300,000 = 5% )
Now think of it like this – as buyers see that rents have gone up while Prices have not (they may have even dropped), they become drawn toward owning property instead of paying a higher rent. In the reverse situation (rents become relatively cheaper than owning) they don’t buy, thus impacting on prices even more. As time passes, rents rise, and so do yields thus making owning a property more attractive than renting – so prices rise, yields drop, and the cycle continues.
Look to buy when yields are (relatively) high and prices are still (relatively) low. The “Property Clock” offers a much more detailed look at this – buying at the right time in the cycle leads to better gains for you.
- This reply was modified 4 years, 2 months ago by Benny. Reason: Adding extra notes re "Yield vs Price"
After a recent poll asking “What condition of property makes a better IP (Investment Property)?”, the results were not unexpected, but the comments were worthy of consideration (especially from those who did NOT vote with the majority !!). By condition, we were considering whether to buy an IP new, renovated, or un-renovated.
What would have been your choice initially?
Did the poll and/or its comments change your mind?
Does seeing this poll help to guide your path as you step into the field of Property Investing?
If you want to comment, please do so on the Poll thread (not this one – thanks)
Today I wanted to direct you to a thread that has so many good posts, all to do with HOW to gain finance to allow someone on a modest income to grow a serious portfolio of IP’s.
The thread itself is called “30 properties before 25, finance???” and its link is here:-
As expected from the title, there are many posts re the financing of such a venture, the pitfalls, the “how-to’s”, etc. Well worth a look to help gain more background knowledge re financing IP’s. Who knows, it could be the catalyst that sets YOU on the road to financial freedom !!
One post in there is from Nathan Birch who has made an art-form of buying properties that need love, doing them up, renting them, then going again – this post is a depiction of how someone can approach the building of a similar portfolio, and the likely outcome(s):-
As Nathan so aptly reminded in his opening remarks: This may not work for you – it is simply an example of how it MIGHT work for someone. Everyone’s situation is different.
The basic theory behind his words is worthy of discussion though, hence the reference to it. I hope it holds some benefit for you !!
One more recent read is a succinct post by BuyersAgent. In it, he talks of HOW to keep a portfolio growing. Useful comments re DSR, LVR and the balancing of the two.
Here is a teaser from it:-
Overall it is a balancing act between LVR and DSR. You want growing equity (LVR goes down) and growing income (DSR goes up).
If you can balance these two with every purchase, you maximise how many you can buy.
More in there, and all good – go click the link. In fact, the whole thread is called “How do people buy Multiple Properties?” so there are other useful snippets sprinkled throughout.
PS – for the newer reader –
LVR is the Loan to Value Ratio (how much you owe on a property divided by its value) e.g. Owe $300k on a property worth $400k and the LVR is 75%
DSR is the Debt Servicing Ratio (the percentage of a borrowers income that is available to cover loans). Note that DSR includes car loans, credit cards, as well – over-use those and a house loan might be hard to get. Talk to your Broker for more detailed information.
Aside from all of the number crunching, fact-finding, pavement pounding, and deal finding related to property investing, there is another HUGE side of the equation – the emotional side of property investing.
For those starting out, it is COMMON for well-meaning family and friends to WARN against something that is foreign to them, or of which they have heard bad stories. Who HASN’T heard of marketeers who fly potential buyers from Sydney or Melbourne to the Gold Coast for FREE – yer, right – to buy the “deal of a lifetime”, only to have them unload an over-priced, poorly built, new house in the back of beyond – and then call “Next!” while that buyer licks their wounds?
Emotional responses can help keep you out of trouble, but then they can also take the wind out of your sails as you endeavour to chart your own property investing course. Not their fault, nor yours – but this emotional side of things deserves a whole new look.
Can you add to this conversation where a poster asks about that very thing? Post your reply in that thread….
Some might think my “big picture” has been formed backwards – this post should perhaps be #1. Ah well, like Topsy, this thread has been “just growing” as thoughts pop up and get added. I hope it is of value to YOU !!
Tonight, Corey posted a thread on a VERY important subject for all investors – but especially for NEW ones. And it has to do with “Where are you wanting to go” so you can then plan “How you can get there”. Corey goes into discussion on setting goals – here:-
And WHY set goals? Well, if you don’t know where it is you are heading, how will you know “how much further to go”? Or, as my reply to Corey states “If you don’t know where you are going, any road will get you there”.
But you don’t want to take “ANY road” if you are wanting to invest successfully – hence you should check out Corey’s thread.
It struck me today that many who are just starting out can struggle to comprehend just how well an investing path can go. Unless we are taught to work in “large numbers”, many of us (or our partners) can have a really hard time just “seeing it like it can be”.
A while back, I posted a scenario where someone buys just two properties, then sits on them for ten years. For simplicity, rent rises are not considered – but then, I also didn’t include Interest Rate rises. I also don’t include inflation. I do mention Tax relief and take a punt on a possible (conservative?) yearly return from the ATO.
I was originally only looking at Equity growth, so no thought went into actual costs” – rates, insurance, etc. Allow $1000 a month expense for that, and the final results still look pretty darn good !!
So, how did it all end up? Well, it surprised me at the time, and it may well surprise you too. The person I was responding to had some extra (unused) $$ that they were able to be put into the Offset account (about $2k per month). So the final figures include a quarter million of their own money saved. But LOOK at the final outcome…..
To summarise, about $90k per annum over ten years. You could say their $2k a month ($240k over 10 years) returned $900k conservatively. I know, I know – Inflation !!! But hey, what if the $240k was in a Bank instead? What would the return have been then?
Well, this post impressed me from the day that Xenia posted it. The title is eye-catching immediately, and was already known to me from an NAB advert (I rather liked the advert because of the thoughts held within that phrase – “Ships in a harbour are safe – but that is not what ships were made for…”).
And today, thanks to Xenia, it has us look at WHY we might choose to invest – and even why we SHOULD.
Xenia shares a bunch of interesting information in the post. Though there are several great thoughts within it, the standout for me was this one :-
The old model of being employed within an organisation that someone else created and standing there waiting for them to do the right thing by you has never worked and never will.
I watched a lot of that happen around me (40 years to get that gold watch…), and had even tended to do it myself. I loved what I had chosen as my career – and enjoyed going to work each day.
It was thanks to the book “Rich Dad Poor Dad” (Kiyosaki) that I even became interested in property and the possibilities that it presented. That then led me to seek out authors who had written about property investing – enter Steve, Jan Somers, Dolf de Roos, Bruce Davis, Peter Spann, etc. My ship was being built through 1999, and the champagne bottle was finally smashed on its bow later that year.
Let’s see how Xenia’s words impact you:-
A new investor (@markae) was using the forum as a sounding board, putting his thoughts “out there” about what he was planning, and seeking responses from more experienced investors.
BuyersAgent (@knightm) responded with a very useful and considered answer, and here it is:-
The beauty of a forum such as this is that people of mixed experience levels can swap ideas, sound warnings, tell stories, ask for advice, and basically SHARE this wide subject of Property Investing. I hope sharing this story has been a help to you !!
Top post, @knightm *applause*
Equity is the amount of value in a place that is yours once all mortgages or other costs have been repaid. As an example, if you have a $300k mortgage on a $400k house, then $100k is your Equity. Of course, if you sold to have cash in hand, the cost of selling would itself reduce the amount of $$ coming back to you.
Equity can be grown – by adding value (renovating or developing), by buying well (buy below market value), or simply by holding on in a pocket where values climb over time. Some people “harvest” the Equity to enable them to buy another IP (use the increased Equity as Deposit and Costs for a further IP).
People tend to think in terms of “borrowing up to 80% of their Equity”. Now, if you have a house with NO mortgage, then Yes, that is quite possible. But, having borrowed once, and there is some Equity left over – without time passing (and values increasing) it is pretty close to impossible to borrow again.
In the first paragraph we talked of having $100k of Equity. To be able to borrow 80% of that Equity, we must look to finding a lender who will loan up to 95% – or trim our requirements to suit.
Anyway, examples can tell a better tale – so check out this post :-
The subject today is Asset Protection !! A thread asking about this, and receiving some really good information in reply is right here :-
Have a peek and make comment (if applicable) within that thread. That way, the posts in reply stay relevant to the thread (i.e. DO NOT reply in this thread !!) ;)
Another common question is this one – “In whose name should I buy my IP’s?”
Or, where new to the site, and with a few IP’s already in your name, you might ask “What should I do from here? I have three in my own name. Do I continue to buy in my name, or some other way – e.g. in a trust, in my wife’s name, a company name…..” What is the way forward?
Well, a number of answers to the above are spread throughout THIS thread:-
The fear of litigation can stop you in your tracks, so DO read up on this subject (go on – it may not be as dire as you think). Get the FACTS so you can move on in a measured, thoughtful way…….
BennyFredWisleyParticipant@fredwisleyJoin Date: 2016Post Count: 12
Benny, big thank you! I think it will really be useful for the newbies
A new member was considering the purchase of a 1 bedder apartment, and asking for ideas surrounding this, whether good or bad.
Sam already had some reservations but wanted to hear thoughts from others – and what a good move that was, with several good answers, each adding more value to the discussion.
So much was covered that I decided to add it to this “big picture” thread, to point out the many limitations of buying small apartments, new or OTP. Even if second hand, several of the limitations still apply, a major one being financing !! So caveat emptor with these small units.
Later in that link above, I on-link to an article that Jason wrote – it takes a seriously hard look at “Buying Off-The-Plan” or OTP. The OTP market serves some purpose, but it certainly has its drawbacks too. DO have a good read of the thread linked above, and find my reply with the on-link. You’ll be glad you did (it could save you tens of thousands of $$ – truly).
And Sam, thanks for kicking this discussion off. It produced a very useful string of information about a common subject.
Today, I came across an old “GOTCHA” – so I wanted to add a post to this string especially for these traps. As each gotcha is added, I will add a quick spiel, then the link.
The first GOTCHA is to do with my old mate, the OFFSET ACCOUNT. But, it could be about any other Account too – so do read it, even if you don’t have an Offset – and relate the thoughts to your account (savings, redraw, whatever). Here we go:-
The first GOTCHA relates to how Mixed Loans can be created by not thinking about HOW to refinance. Or by withdrawing both deductible and non-deductible amounts from any existing account. Once a MIXED LOAN is created, it becomes more and more messy – so better to NOT make it messy in the first place. Go to the link below to read more – @terryw shares some REALLY useful and important information:-
The second GOTCHA regards Landlord Insurance – a member warns of how his Insurance Policy had a weasel clause that negated the value of his claim for “malicious damage by tenant”. The clause in question was hidden in plain sight (i.e. it was on page45 of the company’s PDS for Landlord Insurance) and it effectively limited any claims for damage via a malicious tenant to $10k. His claim required much more than that after his house was wrecked…. Ouch!!
Time to get out YOUR PDS and check your policy?
- This reply was modified 3 years, 1 month ago by Benny. Reason: Adding a further "gotcha" - Oct16
Though related to some of the earlier threads, one question often asked is “Should I purchase my IP’s in a Trust, and if so, Which One?” Now, I am not an adviser, so take this post as simply “one more opinion to check and/or discard” – NOT as advice of any kind.
The linked post below is from someone who has already bought three IP’s, but are now thinking they perhaps should “Move them into a Trust”, and are asking the forum for ideas. Have a read:-
Major points are :-
– moving IP’s title from one name to another (from your own name into a Trust name) will trigger a CGT event, thus it “could” cost you quite a bit to do it – seek advice BEFORE doing so.
– if leaving them in your own name, keep them fully mortgaged – thus your equity in them is minimal, and, after any selling costs, there is little left to pay any aggrieved litigants with. They may well decide it is “not worth it” to pursue you….
– most Mum’n’Dad investors have little need for the protection provided by a Trust. But if you plan to build a large portfolio, by all means prepare for this by checking out HOW to protect a large portfolio.
More recently, a new poster asked about using a Trust for better borrowing (as espoused by Steve) – my reply came straight out of “From 0-130 Properties” book – click here to read that reply:-
The discussion preceding that post is also useful to gain context, and then read what came afterward too – some good learnings from Steve were covered in there.
Also, check back a post or two for other threads on this subject – look for “Asset Protection” and “In whose name should I buy?”
- This reply was modified 2 years, 9 months ago by Benny.
In the big world of finance, some members may prefer to “sit down in front of a new adviser” rather than using phone, email, etc to discuss financial things with someone they have never met before. In that case, knowing just WHERE a Mortgage Broker is based would be useful….
So, WHERE are the MB’s on this website based?
Check this thread for info on several of ours :-
Hope it helps,
One of our members with vast experience in the world of Insurance shares his thoughts and warnings. Some of the comments that Brett shares will have you aghast (for mine, check out his point 11 – it had me scratching my head).
This is required reading for anyone who is planning to use Landlord Insurance. The “reasonable man test” doesn’t get a look in with Insurance Companies. You must KNOW how they play the game if you want to keep your risks low. Given that Insurance is part of your risk minimisation plan, you had better know just how risky your Insurance policies actually are.
Have a read, but take plenty of notes – then ring around your Insurance Companies with all of the questions that this article puts in your head.
Thanks heaps, Brett !!
PS This article from Brett was requested as a direct follow-up to the “Gotcha #2” mentioned a few posts earlier in this thread. I have cross-referenced each of these to the other, as they really do go hand-in-hand. On the one hand, this article warns of 12 of the more common traps, while the other has a specific example that cost one member PLENTY – they thought they were covered, but their Insurance Company saw it differently.
To read that “Gotcha” story, go here:-
Onya Brett !!
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