- MichHParticipant@michhJoin Date: 2017Post Count: 1
Thankyou! so helpful to get some direction on where to start. I feel like there’s three lifetimes of reading material on this forum! hehe. Really helpful :)
A member has questions around “What to do” where one has a PPOR that was (nearly) paid off, became a rental, and they now live in their new PPOR. Do they sell the first PPOR (now a rental), or keep it? Can they borrow against that first PPOR to pay down the new one and make the Interest deductible, etc.
This thread was asking those questions of the forum, and @terryw came up with this:-
11 Strategies for when you move out of the PPOR and keep it
Click this link to read all about it.
For those not even in that situation yet, Terry also has some ideas for “before you buy your FIRST PPOR – just in case you end up moving to another one later and renting out the first one”.
Onya Terry !!
PS For new readers, PPOR is “Principal Place of Residence” (i.e. your home) which is a personal asset (non deductible, until you move out and rent it) and also Capital Gains Tax exempt (with some conditions around that, so check it out).
Have you been approached by a company wanting to sell you an OTP (Off-The-Plan) property (i.e. it is not built yet, but is soon to be built)? Did they cold-call you? Did they suggest that “The Tenant and the Taxman can make you rich, and help you send your kids to Uni, etc”? And, they likely also asked if you have had your PPOR (your own home, or Principal Place Of Residence) for long?
BEWARE !! You could be being set up. Alarm bells ring when some companies follow a particular script. Read up on these so that YOU don’t become one of the victims.
If you tell them you have very little Equity in your PPOR, note how they will immediately close the call, telling you they can’t help you. But if you DO have equity, watch out – ‘cos they want some of it !!!
An interesting one has been discussed recently – someone asked about the benefits of buying a unit in a retirement village. Lots of thoughts were passed around over this one.
On the plus side, the returns looked mighty good – initially. Was there to be Cap Growth into the future? Would Banks even lend – this was low priced, but also in low demand – or was it? It is an interesting exchange that could well turn on a few lightbulbs here and there.
Check out the conversation here:-
A recent discussion re whether going from an IO loan to a PI loan would help serviceability led to some interesting learnings. From a MB’s perspective, it seems that a lender will only approve an IO loan by calculating it as though we were paying PI (Principal and Interest) and at a higher rate (Qualifying Rate). i.e. The lender needs to KNOW that you have the spare funds or income to cover the higher repayments of a PI loan before the IO loan is given. All “as expected” – but wait, there’s more……
First, go here – https://www.propertyinvesting.com/topic/5048770-will-moving-some-investment-loans-from-io-to-pi-reduce-serviceability/#post-5048803 – then read up and down from there to get context around the whole discussion.
You see, despite the words that said “your serviceability will improve by changing to PI”, I see there is a lot more hidden beneath those (no doubt true) words. The link summarises my thoughts. And to me, the big takeaway from the whole topic is to “Be very sure you KNOW what the new numbers will be BEFORE you go changing from IO to PI!” If you don’t, I suspect you may get a very rude awakening (and possibly even rock the foundations of your portfolio).
For me, “run the numbers” took on a whole new look after thinking that one through. Though the final outcome was nowhere near the 45% increase in cost that I had first thought it might be, it was still going to be a 26% increase (going from IO to PI) – which is still a substantial increase, and needs to be known before taking the leap.
Compound Interest is great – but what effect do yearly expenses play on your compounding investments?
I stumbled over a post from a year or so back – it shows just how well compounding can work. But this time, it has a twist…. It ALSO shows how much damage can be done when the compounding is accompanied by expenses along the way (be they admin fees, taxes, other costs, etc).
Be prepared to be surprised – I was !! Like, I was already aware of how GOOD compounding can be, but I was unaware of the massive effect of those regular expenses.
It starts by showing how, if you take $1 and double it 20 times, you end up with a little over $1m. Nice !! And I was not overly surprised by it, as I was already aware of the power of Compound Interest.
What surprised me was what happened if you take out 30% each year as you go (for fees or whatever)…. now THAT result surprised me. I thought it might halve the end result….. but I was WAY wrong.
Then try it again with only taking 5% out each year – think about what the result might be, then calculate it out. Again, surprising !! There has to be a big lesson in that – re watching expenses, Interest rates, taxes, etc.
BennyAngalfariaParticipant@angalfariaJoin Date: 2019Post Count: 17
I am a newbie here, but severely, I am enchanted to see you. Thanks for sharing a lot of valuable thread in the same place.AngalfariaParticipant@angalfariaJoin Date: 2019Post Count: 17
Everything is here don’t need to go to another place. Thanks, Benny for a bunch of post with together. I just thought, how can you do this? You are generous Benny.freedom-in-outParticipant@manojhmaliJoin Date: 2019Post Count: 3
Where to find the “The BIG PICTURE Index” & pages you mentioned in your post ?
The links to the topics are not clickable. ? let me know If I am missing something.
The links to the topics are not clickable. ? let me know If I am missing something.
You are quite right – the Index references are not clickable (maybe one day when I have some spare time….. ;) so use the Index much as you would in a book. i.e. You look for a chapter title that sounds like what you want, then look for a page #, then look for the page within the book. In this case, use the date of an interesting post as your reference – then scroll on through until you reach that date (and of course, it might be on another page, so select the correct page before you scroll).
Look for the Index on page 1 – (or click link below) :-
Read down in that first post to get to the Index. Once there, note the item you wish to check out, log the date, then scroll down to find that date. It might be on page 2 or 3, so click the page button accordingly.
NOTE – the boxes that allow you to change the page you are on appear at the very top of any page, so, after recording the date of a post you want to access, and noting what page # it is on, scroll right to the top of the page. Once at the top, at right you will see 3 small boxes with numbers 1, 2, and 3 in then. These are the pages mentioned in the Index. You will be on page 1 when you read the Index. Select which page # you need to get to the report you want. An alternative is to scroll down just past the last post on each page – again at right you will see the 3 boxes that show the page #. These are seen just above the “Reply” box near the bottom of each page.
Or, simply scroll through and read them all – there is a host of useful info hidden within these replies….. And thanks for your question,
A recent foray into Steve’s book “Millionaire” led me to a brilliant discovery. I’d written “Gold!” in the margin of the book (it’s on page170) right by the lesson in the last two paragraphs. Steve had said, ask for a discount if you can leave a 50% deposit when purchasing. The beauty of such a large deposit is that finance is pretty much assured at any bank, thus giving the contract a much more solid grounding. So,ask the vendor or RE agent “If I left a 50% deposit, what discount could I get on the purchase price?” and he went on to explain that doing so would be a much better ROI than having a heap of lazy cash in a term deposit at 3%. Steve then showed how well a 10% discount plays out (see below).
You might be thinking “Why would a vendor willingly provide a further discount on a sale?” The answer lies in what their situation is. Steve suggested “They might have already had two failed contracts, they NEED to quit this property, and they want assurance that this one won’t fail.” By providing a 50% deposit, you’re showing a healthy ability to go ahead from the finance side of things – any lender would bend over backward to finance you if you’ve already covered 50% of the value in cash. The simpler finance (no LMI, and an LVR at 40% or less) should speed things up immensely. This allows quicker settlement times. Maybe the vendor would relish a 30 day contract, and will discount the price even more to make that happen instead of waiting on a 60 or 90 day settlement.
As an example, I then expanded on Steve’s thoughts by considering the purchase of a property for $400k. Assume a 10% discount if we put down 50% deposit on contract. So, we put in $200k cash on a $360k purchase – and it immediately returns $40k (the discount) on that $200k – that’s a 20% return on paper. Nice !!
But wait, what if we refinance later on:-
We take out an 80% loan on a $360k value – $72k is the 20% deposit, so $288k comes back to us as cash – this repays our original $200k, giving us $88k profit, and our tenant then pays for the new mortgage via the rent they pay us.
So, didn’t we just make a 44% return on our $200k in a matter of months? Isn’t that GOLD? Thanks Steve – an awesome thought that became a catalyst for more thoughts.
But wait – there’s more….
OK, what if you can only get 5% discount? It is still way better than 3% in a Term Deposit, but there is so much more too. Like, the above example didn’t entertain the idea that:-
1. We bought the place to renovate then rent, so the VALUE jumps way above the $360k we’ve paid.
2. We were expecting $400/week rent, but were able to get $500/week after renos.
Doing it again then, we buy a place for $400k, but then we get 5% discount for a 50% deposit – so paying $380k with a $200k deposit. We also spend $60k to renovate, lifting its value and renting for more. The fact that we bought a discount gives us a $20k profit on our initial $200k (or 10% return on paper). The renovation also adds $100k value to a $400k house, so now valued at $500k. (Our spend of $60k generated $100k more in equity on paper).
So a few months later, with the house now renovated, we refinance at 80% LVR with a lender. This gives us back $400k to reimburse our initial $260k spent. So, $140k profit on a $260k spend is over 50% return – perhaps in just 3 or 4 months. Is that better than 3%? Are there other costs in there? Sure, but there’s quite a bit of cream too, right?
What if we did 2 or 3 of these per year? ;) Good hunting.