Somersoft Property Investment Forums - alexlee

Good time to fix for 2 years now?

alexlee — Wed, 08 Sep 2010 02:30:09 GMT

Quote:

Originally Posted by oracle (Post 709707)

Alexlee, we as humans are very bad at predicting future events. Just when everyone was predicting everything is fine except inflation so rates needs to keep rising we experienced GFC. Just when everyone was predicting the sky is going to fall, interest rates going to zero and property prices are going to crash we experienced a mini stockmarket rally and increases in house prices.

The reason most people end up worse off when they fix, especially for the longer periods, is that they fix when everyone thinks rates are going to go up. The most recent example being 2008. In fact, you would do better if you fix when people are uncertain or expect the rates to fall (I fixed some in 2005 at an average of high 6s), though I missed those low 5 fixes later on..

Quote:

Originally Posted by oracle (Post 709707)

So my point is today most people are predicting we will have higher interest rates in future. Which, I agree but for how long I don't know and I don't think anyone knows with certainty. Especially with what happened in the past 2.5years it would be unwise to make bold predictions IMHO.

Most people are wrong, as the results of using fixed loans suggests. So if you're not making a prediction on rates, go fully variable. If you want protection, fix. My point is that the risks would seem to be in a few years, so fixing 2 years doesn't provide much protection. Even if you fix for 2 and then rates shoot up, you only have protection for 2 years. What happens after that? If you're fixing for 2 years because that's how far your prediction goes, you're gaming interest rates. Which is perfectly fine if you then expect rates to go down.

Quote:

Originally Posted by oracle (Post 709707)

But I agree it is a close call 2years - 3years..the difference in fixed rate is 10basis points. So it's not much higher. But I am just not confident enough to make interest rate predictions 3 years from now. 2 years is the maximum I am willing to bet at this point in time.

Wouldn't that be precisely the point of fixing for longer? Because you don't know what rates will be after 5 years?

I just don't understand your reasoning behind fixing for 2 years. If you expect short term rates to jump, then it makes sense, but it leaves the period after 2 years at risk. Fixed rates aren't below variable, so you don't get any immediate benefits from fixing. If you're not confident about predicting rates in the medium and long terms, shouldn't you be fixing for longer to protect the downside?

Good time to fix for 2 years now?

alexlee — Wed, 08 Sep 2010 01:52:05 GMT

Quote:

Originally Posted by oracle (Post 709693)

I agree it's a strange period. But what I also want is flexibility to re-assess the situation in 2 years time. (Like re-finance / stay variable / again fix for 1-5 years). I want to have options rather than having to wait 3 years to make any significant changes. My experience so far has been once you lock in making any changes (like breaking) is just not financially practical as the break costs are outrageous. Hence, I want to get control back within 2 years but ride out potentially 1.5years of lower rates than variable.

But surely you must have a view on interest rates to be thinking about fixing. I mean, if you expect rates to be flat, why bother? If you expect rates to go up, and they stay up after 2 years, you're going to have to 'refix' at higher rates after 2 years. My point is that to consider fixing for 2 years to be the best option, you're implying that the risk is that rates go up for 2 years then flatline or go back down. Is that actually your expectation?

I understand how you want the flexibility to reconsider in 2 years, but fixing is protection against higher rates, not a bet on interest rates.

Good time to fix for 2 years now?

alexlee — Wed, 08 Sep 2010 01:39:20 GMT

Two years is a strange period. If longer fixed rates are not significantly higher, fixing for 2 implies you're expecting rates to rise in the shorter term but come back down.

The risk of higher rates would seem to be in the medium term.

I'd also consider prepaying and in effect fixing for a year.

Making a Conditional Offer - Pointless?

alexlee — Wed, 08 Sep 2010 01:36:14 GMT

Finance clauses are perfectly normal in Qld, for example. In NSW, everything is built into the cooling off period.

In practice, as Propertunity said, it's unlikely you'll get finance in 5 days. Speak to your mortgage broker first and get an idea of how long it'll take, then change the cooling off period (to 10 days or 15 days or whatever). Get everything done within that period.

If finance isn't ready by then, make sure you ask for an extention of the cooling off, or crash the contract if you're not confident about finance. (losing your 0.25%).

Purchasing property less than 50sqm

alexlee — Mon, 06 Sep 2010 23:29:50 GMT

Quote:

Originally Posted by apartment123 (Post 709112)

like i said at the beginning- this is what i have heard, read and been told through books and seminar speakers- being able to rent out a place that is close to trasport and central to the city is convenient and would attacrt potential renters.

I still ask: why do you think a <50sqm <20sqm would be easier to rent than a 3 bedder 40kms out but with transport?

Purchasing property less than 50sqm

alexlee — Mon, 06 Sep 2010 23:29:06 GMT

Quote:

Originally Posted by apartment123 (Post 709112)

im trying to gauge and figure out what might be the best solution for my situation.

What is 'best' for your situation may not be what you 'want' or are willing to accept. Your solution is either:
1) find the 'best' course of action that you'll actually be willing to go through with, or
2) change your thinking that you might accept something 'better', or at least be able to assess the differences.

Suffice to say that people have made money in outer suburbs.

Outrageous break fee?

alexlee — Mon, 06 Sep 2010 12:09:32 GMT

Quote:

Originally Posted by Belbo (Post 709109)

Yeah, Alexlee, you're right. It must be tough being as clever as you.

Nothing to do with being clever or not. I try to use my time efficiently, choosing battles I can win. Do you honestly thing anything will happen if you complain to the banking ombudsman? What will pulling the rest of your business out achieve? Why waste the effort?

Now, if I were you, I would *threaten* to pull the rest of my business and try to get them to reduce the break fee. Might not work, but at least that would have a chance of success.

Purchasing property less than 50sqm

alexlee — Mon, 06 Sep 2010 12:04:33 GMT

Quote:

Originally Posted by apartment123 (Post 709096)

so in your view, you would look into properties where there is potential capital growth - i was looking at it as a future rental. did not considered that- thanks for that :)

No, that's not that I meant at all.

Why do you think a <20km, <50sqm apartment would be a better rental than say an outer suburb 3 bedroom house? Because you wouldn't want to live in the outer suburbs but would be willing to rent the small apartment?

Purchasing property less than 50sqm

alexlee — Mon, 06 Sep 2010 11:06:28 GMT

Quote:

Originally Posted by apartment123 (Post 709081)

well- its what i've heard a lot of people say and what i have read- (but then i guess they have a used this as part of their stratergy and it has worked for them)

What people? Read where? Has it worked for them? Can you name a person (might be your family, friend, whatever) who said this and is actually a successful property investor?

Just because something is 'said' or you *think* you read it somewhere doesn't mean it's necessary true. Often we create these 'said' things to support our own prejudices. i.e. you can't understand why outer suburbs go up or you're not willing to live there, so you 'support' this by 'hearing' people say this to you.

Like many first time buyers, you're looking for something that *you* would want to live in. But if the aim is to own multiple properties, how many times can you do this? And after you move out, does it matter whether you want to live in it? Even if you insist on wanting the FHOG for this, you only need to live in it for 6 months. Do you really want to insist on your own requirements when you might only live in it for 6 months? When the objective, I assume, is to build wealth so you can live wherever you want?

Purchasing property less than 50sqm

alexlee — Mon, 06 Sep 2010 10:38:14 GMT

Quote:

Originally Posted by apartment123 (Post 709078)

as i keep being told that it is better to stay 20km from the city.

Told by who?

Outrageous break fee?

alexlee — Mon, 06 Sep 2010 10:18:59 GMT

Quote:

Originally Posted by Belbo (Post 709065)

If it stinks it's going to the banking ombudman,

Which will achieve, what, exactly?

Quote:

Originally Posted by Belbo (Post 709065)

and I'll pull my other $1.2M of un-fixed business out of the the rotters just to teach them a lesson.

They must be shaking in their boots. And where will you be taking that business to?

You're a number. Get over it.

What's the lowest yield that you'd settle for?

alexlee — Mon, 06 Sep 2010 00:13:15 GMT

Quote:

Originally Posted by uvelocity (Post 708854)

If you wouldn't want to live there, why would anyone else? Just part of the demand side of the proposition in my view.

Because my requirements, means and preferences do not represent the entire population.

Unit Trusts, IP and stamp duty

alexlee — Sun, 05 Sep 2010 10:40:52 GMT

How does a unit trust offer asset protection?

Business partnership agreement - No ex-spouse claim

alexlee — Sun, 05 Sep 2010 01:32:22 GMT

Terry, would these two strategies be allowable:

1) 'Key person' insurance that benefits the business
2) Right of first refusal by the surviving partner to buy the business at a fair and equitable price?

buying an IP and negative gearing with no rental yield allowed?

alexlee — Sun, 05 Sep 2010 01:24:21 GMT

Quote:

Originally Posted by Cian (Post 708671)

Where you have numerous properties is thre not a situation where loosing money on a property will benefit you?

This is irrelevant. It's not a matter of you wanting to 'create' more losses.

In this context, the tax laws state that expenses are deductible only to the extent that they produce assessable income. There are further rules on private use and renting to related persons, etc. If dagg3r lets his brother stay for free in the property, the interest on the loan (and all other expenses) will not be deductible.

One could argue that many properties won't make assessable income for a very long time, but it's generally accepted that renting out an IP at market rates to an arms length renter means that interest on the loan (taken out to purchase the property), is deductible. Similarly, interest on a loan to buy shares that doesn't pay enough divs to cover the interest is generally deductible.

Can losing money on a property benefit you in the long run? Possibly, if the capital gains compensates for your losses. But there's risk involved, because future capital gains aren't certain. But that's irrelevant in terms of whether something is tax deductible or not.

buying an IP and negative gearing with no rental yield allowed?

alexlee — Sun, 05 Sep 2010 00:26:20 GMT

Quote:

Originally Posted by Cian (Post 708648)

I dont see why not?

Would the property still be neg geared if you had paying tenants?

Cian, what tax rule are you basing this on?

buying an IP and negative gearing with no rental yield allowed?

alexlee — Sat, 04 Sep 2010 22:56:46 GMT

Quote:

Originally Posted by dagg3r (Post 708644)

As I was told it is the purpose of borrowing funds to determine deductability and the property is negative gearing via interest of the bank each month and this property would be my investment in the long term purely by capital gains?

Cheers.

No, you can't. The deductibility rule is borrowing to earn assessable income. With no rent, there is no assessable income. Therefore, the interest and expenses are not deductible.

Trust Problems

alexlee — Thu, 02 Sep 2010 05:51:42 GMT

Quote:

Originally Posted by Cian (Post 707985)

I am all over the place, but this is how i get good at things, dive in and learn as you go.

Not a good idea when correcting mistakes (or just changing your mind) involves stamp duty and potential CGT.

Trust Problems

alexlee — Thu, 02 Sep 2010 04:45:46 GMT

Quote:

Originally Posted by Cian (Post 707957)

I read trusts magic.

Essentially, I'm under a bit of pressure to make the correct decision now before i launch into something. I dont want to put something in my own name only to have to transfer it over in a few years and pay stamp duty again.

As opposed to putting it into a trust and having to transfer it back out again?

I understand wanting to make the correct decision. What I don't understand is why you only emailed your accountant NOW about basic things like interest deductibility (I'm not stating any opinion on trusts, by the way, hybrid or otherwise). These sorts of questions should have been asked well before you created the entity in the first place, and certainly should have been asked before you signed a contract?

Trust Problems

alexlee — Thu, 02 Sep 2010 03:49:38 GMT

Cian, what prompted you to want to use a hybrid trust without understanding of what it can or cannot do?

Trust Problems

alexlee — Thu, 02 Sep 2010 02:41:02 GMT

Quote:

Originally Posted by Cian (Post 707897)

I disagree with your take on asset protection and lack of tax flexibilty. A hybrid trust will allow for the neg gearing tax deductions and its whole purpose is asset protection. However, you may be right re finding finance. I cant say i have had experience on this front.

This has been discussed at length before, but re asset protection: if your trust units are valued according to the market value of the property in the trust, capital appreciation remains in your name.

It is time to out the banks!

alexlee — Fri, 27 Aug 2010 03:57:00 GMT

Quote:

Originally Posted by birchcorp (Post 706261)

Given that FP's are "Not hard to get", I will also allow you to list the independent advisers ( lets hope they can cater for all of Australia!). And when you say, just pay for it.... it sounds like something that is not available to my Mum, Dad and average Australia (they do not have unlimited funds to try 10 advisers). This gets back to the original point of finding independant / transparent advisers that have removed conflict of interest.

Well, if they can't afford it...... you can't take $5 into a bottle shop and expect Cristal.

It is time to out the banks!

alexlee — Fri, 27 Aug 2010 03:17:06 GMT

Quote:

Originally Posted by birchcorp (Post 706245)

If I was to transfer my real estate (my holiday house- encumbered) to my SMSF is this allowed? Should the bare trust and the SMSF have a corporate Trustee and if not, for what reasons? If so, should the corporate trustee be a special purpose company to save ASIC fees? What are the stamp duty implications and CGT, and what can I do to avoid them and under what ACT! Should we use external or internal lending and what documentation is required for this process?

Wouldn't this be something you ask an accountant, or a tax lawyer?

Quote:

Originally Posted by birchcorp (Post 706245)

If you can answer the above, I will await eagerly! Further, do you really think most people have the inclination or time to not only understand the theory but then put this in practice.

Why is this an acceptable excuse? It's not hard to get independent, expert advice: you just have to pay for it. The problem is that people have no knowledge, don't want to learn it, don't want to pay for it but nevertheless want good, independent advice. That's asking too much, in my opinion.

It is time to out the banks!

alexlee — Fri, 27 Aug 2010 01:32:43 GMT

I would have thought it comes down to how the planners would get paid. Tell your average mum and dad to pay x% of their assets every year to a planner to advise on investments, etc. How many would?

Investments don't always work out. The liability would be horrendous.

You're saying we need planners who are experts in multiple investment classes AND who are independent. So who's paying for them? The average 'starter' investor can't pay much, isn't willing to pay much, and they would have to pay enough to cover the ones who use up the planner's time but don't end up doing anything. Rich investors often get the best advice because they can afford to pay for it. If that seems unfair, get the government to put on classes and educate the people.

There has to be some personal responsibility here. Your advisor is only as good as you are. If someone wants to get 'good' investment advice, they have to know how to distinguish the good from the bad themselves.

> Sep 2011 - Buyers Market as FHB's Struggle with SVR

alexlee — Thu, 26 Aug 2010 04:35:18 GMT

I don't know about you, but I was paying much higher rates than now back in Sep08. Fixed rates were around the same level as variable, i.e. in the 8s, at least.

The variable rate now is in the 6s. So if someone fixed back in 08 for 3 years, it'll likely come off fixed into a much lower variable rate.

Where did you get the idea that rates were low in Sep08? The RBA cash rate peaked between Mar08 - Sep08.

Wills?

alexlee — Wed, 25 Aug 2010 13:02:22 GMT

You'd be stupid to structure your will that way. Usually, it states something like 'leave everything to A, but if A is still a minor, I appoint B as trustee of the estate until A reaches the age of 20 (or whatever)'.

Why would you want to chance it?

P&I offset vs IO offset

alexlee — Tue, 24 Aug 2010 02:52:04 GMT

The difference is the 'P' amount. Either it's in the offset (IO) or it's paid off the loan (P&I).

If you turn the property from PPOR to IP and buy another PPOR, then the 'P' portion becomes deductible if it's in the offset, but not if you've used it to pay off the loan. The financial effect depends on the size of the 'P', which depends on how long you pay P&I for. Also funds in an offset are available immediately, while amounts you've paid off the loan may not be available depending on bank lending and your personal circumstances. It makes sense to have as much money immediately available as possible.

However, if you can't save, better to use P&I and force yourself to save.

Danger? Global success trader

alexlee — Tue, 24 Aug 2010 02:38:24 GMT

Quote:

Originally Posted by want2bewealthy (Post 441392)

compounding your profits from week to week, the salesman 'told me' that the barew minimum from $1000 dollars one year later would be $150,000
Its 10k to start a 4 year membership, this sounds wayyy to good to be true, anyone with any experience? btw the profits are tax free.

If they can turn 1000 into 150,000 in a year, why do they need you?

Virginmoney On-line saving 6.75%

alexlee — Mon, 23 Aug 2010 05:55:40 GMT

From the website:

A great variable introductory rate of 6.75% p.a.* for 4 months and a competitive variable ongoing rate of 5.35% p.a.

Young Investor Meetup

alexlee — Sun, 22 Aug 2010 23:25:26 GMT

Quote:

Originally Posted by Steven Fulop (Post 704701)

Ideally, there should be a mix. You would need investors who already have substantial portfolios and experiences to make it worthwhile. Getting people like yourself, Nathan, JamesGG etc.

Over 30, sorry.

Young Investor Meetup

alexlee — Sun, 22 Aug 2010 11:26:00 GMT

Will there be investment experience requirements? If you just get a bunch of newbies together, isn't it just the blind leading the blind?

Uni education a requirement for successful investing?

alexlee — Sat, 21 Aug 2010 12:29:49 GMT

Quote:

Originally Posted by Lil Skater (Post 704443)

I think uni versus no uni doesn't make a lot of difference, it's what you do with the degree (if you even use it) and the money that may come out of it.

If you don't go to uni, you don't have a choice about what you do with a degree, since you don't have one. No, uni doesn't automatically mean anything, but there are a lot of jobs, often high paying ones, that require skills / qualifications that you cannot get unless you have a degree. The degree, in those cases, is a necessary first step.

The question is whether having a uni degree helps you as an investor. Not directly. But to the extent that it means your income is higher, yes, it helps you to invest earlier and faster.

I think your opinions are coloured by how your friends use their degrees. With your attitude and money habits, you'll be more successful than most people anyway, degree or no degree. But don't discount a degree just because your friends haven't made it work for them. A high salary supports investing, and often high salaries require degrees.

Uni education a requirement for successful investing?

alexlee — Sat, 21 Aug 2010 08:08:47 GMT

Quote:

Originally Posted by Lil Skater (Post 704349)

Okay, I'll retreat. Perhaps Uni does give the potential to earn more money, however this is usually in the long term, this I would say is the rule rather than the exception.

And people who succeed financially without uni are also exceptions. On average, people with uni make more. I wouldn't say it's long term. Good uni grads start on 50k+ after 3 years uni. 100k another 5 years after that isn't unusual especially if you train in specific skills.

Quote:

Originally Posted by Lil Skater (Post 704349)

Yes in 5 years time those that I went to school with will have a degree and sure we'll say that they will earn more than myself.

The question is what will they do with the money?

In 5 years time I will have bought at least 3 properties. In 5 years time they might decide to move out of home and they'll have a new car because they can, however it is unlikely they'll think about purchasing their own home or investing in other things until they're 30 and by this time I hope to be retired.

Lack of uni didn't 'teach' you to buy properties. Neither does uni. You can't compare 'uni grad with crap money habits' and 'no uni with good money habits', because uni or not doesn't affect this.

Quote:

Originally Posted by Lil Skater (Post 704349)

So sure, they may earn a higher income than myself because they studied hard, however even Miss Most Likely to Succeed will not reach the same point as myself in 10 year time, if ever.

But what if the person has the same attitudes towards money and investing as you, but makes more in salary? Who will succeed faster? Everything else being equal, the person on the higher salary will likely succeed faster.

Quote:

Originally Posted by Lil Skater (Post 704349)

I know what I want to do and what I will do and even though the career I'm in at the moment will probably never earn me 6 figures I can make it work for me, plus I plan to work hard so I can go into business for myself, in which case the skies the limit.

Which is fair enough. But you assume people who go to uni don't invest. A lot of high salary earners don't, but then, a lot of lower income earners don't either. Ask yourself: would you be able to invest faster if you made twice as much? 3 times as much? Uni grads can also go into business for themselves.

Cashflow, deposit and serviceability are genuine issues many investors face, especially at the start. With a higher salary early on, and the potential to earn more over their working life (even if that's 20-40), one can certainly argue uni helps investing. But the wildcard is the attitude and money habits, which aren't taught in schools.

No more trust streaming after June 2010

alexlee — Mon, 16 Aug 2010 05:02:31 GMT

Say a family trust makes 7,000 in fully franked dividends, and 2,000 in capital gains. Previously, the trust could distribute 7,000 dividends + franking credits to beneficiary 1, and 2,000 in CG to beneficiary 2.

So from 1 July 2010, the distribution can only be proportionate, e.g. one beneficiary gets 80% and another 20%? Or 5,600 fully franked divs + 1,600 capital gains, and the other 1,400 fully franked divs and 400 capital gains? Or whatever combination as long as it's proportionate?

LOE Model

alexlee — Sun, 15 Aug 2010 08:08:29 GMT

Quote:

Originally Posted by landlubber (Post 702531)

I hope not Alex. Because I do know associates who would be considered pretty astute business people & who were solely CIP investors (quite large ones in Melbourne) and lost their houses in the early 90's. When it happens, it's not pretty.

But surely there are plenty of stories about solely resi IP investors who lost everything as well?

Quote:

Originally Posted by landlubber (Post 702531)

To me, this is not "chicken little" as your post may imply. It's educating yourself & keeping you wits about you. It doesn't mean "stop", or even "don't go there". It just means know "the rules" and be aware of the risks.

Now Dazz says "Bollocks to all that, come on in, the water's fine" and, based on his experience, I'm sure he's sincere.
LL

I'm more implying that to someone who does it for real, there are 'built in' risk management (property selection, lease clauses, guarantees, and so on) that non-commercial investors don't know and don't understand?

I would think commercial is not a homogeneous asset class. In the same way as an off the plan highrise in the CBD is not the same as a 350k 3 bedder in an outer suburb?

Basic question

alexlee — Sun, 15 Aug 2010 08:01:31 GMT

I disagree. I think rents rise slower. As an area becomes more dominated by owner occupiers, rents get ignored because owner occupiers don't care about rent. That's why expensive areas tend to have ridiculously low yields. They either turn into owner occupier only enclaves, or more medium density stuff gets developed which 'resets' the yield.

LOE Model

alexlee — Sun, 15 Aug 2010 07:18:07 GMT

Quote:

Originally Posted by landlubber (Post 702496)

Dazz, I've never met anybody who was ... until they arrive. They're like that !
LL

Don't you think this conversation resembles the ones where people tell resi IP investors that they're going to be killed by the coming high interest rates and price crashes?

Basic question

alexlee — Sun, 15 Aug 2010 07:03:31 GMT

Quote:

Originally Posted by bene313 (Post 702498)

If I had the choice Alex, 0% would be the contribution rate. I would prefer the disposable income in hand rather than in super. This is because of my age. If I were older (around 50) my response would be different.

I agree. Age makes a big difference. But surely then it makes sense for younger people NOT to care about super, and in fact to minimise contributions? This assumes, of course, that they are investing it instead.

Quote:

Originally Posted by bene313 (Post 702498)

So yes you're right - for me and many others, super is not best vehicle right now. There comes a time when it is however and should be employed as part of the investing strategy.

The issue is that to have sufficient assets in super, one would need to either contribute earlier (which you say yourself you do not think is a good idea) or transfer assets in later on. If you own a business, that may make sense. But to transfer ordinary assets would potentially involve stamp duty and capital gains tax that wipes out part of the tax benefits of super.

While it might be useful to keep an eye on the rules regarding super, I'm not expecting to ever need it. To make it worthwhile would involve putting in money I prefer investing outside super now, and if the investments outside super fail completely, I won't have enough in super for it to be any help.

Basic question

alexlee — Sun, 15 Aug 2010 02:35:17 GMT

Quote:

Originally Posted by bene313 (Post 702424)

Yes LL no CGT is likely at 60 because of the following:

.......and you would like to stop this rather than take advantage of it?

Bene, I'd still like to hear your thoughts on: you say you only contribute the 9% minimum. If you had the option of contributing less (legally), would you do it? If so, aren't you then implying super isn't the most effective vehicle? If not, why don't you contribute the max extra 25k (or 50k) a year as well?

To me it's always been a catch22 situation. Yes, super has tax advantages, but they don't kick in until you're a certain age which is very far away for me, and you need a significant amount of assets in the super fund, which you won't be able to achieve with just the 9% minimum. But if you invest aggressively outside super, starting in your 20s, then your assets will be significant well before the preservation age.

So the catch 22 is: do you contribute more into super to take advantage of the tax perks at 60+, but in doing so lower your returns, or do you minimise super and invest outside it, in all likelyhood having sufficient assets outisde super that you don't need super at all?

LOE Model

alexlee — Sat, 14 Aug 2010 11:56:41 GMT

Quote:

Originally Posted by landlubber (Post 702333)

LOR might be great if you're portfolio is commercial IPs, AND you have them all rented. But the "risk" with CIP is loss of tenants and the long vacancies periods that can ensue in a downturn. With respect to Dazz, I admit in a boom economy like Perth the risks are possibly less, but in the "rest of the world" these risks are real and can wipe you out. If your portfolio is all resi IPs, you will need many, many years to achieve LOR IMO. If you think you have an XL spreadsheet that dis-proves this, feel free to PM me. I'm all resi & LOE and very happy with that situation.
LL

And resi property also has its risks, especially in times when bank lending tightens. To me, the biggest risk with LOE is that it sails along happily for 10-15 years or whatever, and suddenly the combination of a down market and tightening lending means I can't borrow any more, and at a time when I'm not longer employable.

How long it takes obviously depends on when you start, what resources you have and how fast you can build the assets. Everyone has to make their own decisions on the trade-off. And there are other options besides resi IPs for yield: regional property, dividends and bonds, say. A mix will lower the risk.

Just because you're happy with LOE off resi doesn't mean it'll work for everyone. It depends on age, how much you need / want to live the way you want, and how much buffer you're comfortable with. LOR is less risky, if only because if you're able to LOR, your portfolio would also include a large amount of equity. So LOE becomes the backup.

Basic question

alexlee — Sat, 14 Aug 2010 06:43:38 GMT

Quote:

Originally Posted by landlubber (Post 702173)

Please don't live with delusion. You are in the wrong business if you think you will EVER generate a taxable income of 250K from LOR. DO THE SUMS. Sit down and work out how many IPs you have to own to generate rents ( less 20% expenses) above your interest costs.

While this would be difficult to with the 'standard' 4% net yield resi IPs, there are other ways. Regionals, commercial, shares, bonds.

Quote:

Originally Posted by landlubber (Post 702173)

The concessions are there to fool the population. As long as you accept the whole game is controlled and all you will end up with is a "self funded pension" rather than a gov't funded one, that's fine. Just don't delude yourself that super will make you wealthy. Or "Go on" show me the XL file and prove me wrong.

Having said that, what investors do is to self fund our 'pensions', no?

Super does have advantages as a vehicle. However, to me it has 3 big problems:

1) limited gearing, limiting returns, especially if you start early
2) age limits re when you can get money out of super
3) legislation risk: it's more likely that the govt will fiddle with super rules compared to, say, limiting what family trusts can do

If that's acceptable to you, fine. However, I think a lot of people say 'invest more in super' without enough understand of what these problems mean.

Quote:

Originally Posted by jaycee (Post 702243)

And with limits / changes outside our control re the rules, what comes to my mind is the old "don't put all your eggs in one basket" Perhaps for the concessionas available it is wise to use super as ell as outside of super investments.

There are alternatives to super as a vehicle, especially if you're young. A family trust will give you some of the tax advantages (especially if you have family you can distribute income to) and asset protection without the age limit.

Basic question

alexlee — Fri, 13 Aug 2010 07:03:52 GMT

Quote:

Originally Posted by bene313 (Post 701947)

Alex I agree with most of your post. We get our compulsory super and that's enough while we're young.

No, it's not. Young is precisely the right time to save and invest aggressively.

Quote:

Originally Posted by bene313 (Post 701947)

I can tell you I am not putting any excess cash into my own super fund, just the 9% like everyone else.

Speak for yourself. Though an interesting question is, if you had the option of contributing less than 9%, instead getting that money as taxable income, would you contribute less to super?

It's that time of the Year....

alexlee — Fri, 13 Aug 2010 06:18:45 GMT

Quote:

Originally Posted by Gentle_Chief (Post 701940)

Well I have on purpose not applied for Income Tax variation withheld (ITVW). The main reason being we are managing fine with the cashflow and see this lumpsum tax refund at th end of the financial year as enough deposit for yet another purchase.

While I wait for the 25K back from the tax office, I am lazily browsing domain.com to find the next purchase, while my wifey is looking at stayz.com for a well deserved holiday!!! :cool:

You've just given the tax office an interest free loan, and lost out on like a thousand dollars in interest. Why is that good?

Basic question

alexlee — Fri, 13 Aug 2010 05:59:26 GMT

Quote:

Originally Posted by bene313 (Post 701916)

SOME tax advantages? The tax rate is 15% for super and for individuals earning less than 35k. Once you start a pension you go tax-free. Again... 250k at the top marginal rate? Or 250k at 15% flat, then tax-free?

For me, the tax advantages do not outweigh the age restriction. Once I start a pension? When would that be? By the time I get there it won't be 65. Why would I want to lock my assets away so that I can get 250k income at 15% flat at age 65, when I might be able to generate 100k income at 40, and manage the tax by income splitting to family? The average tax paid by a couple with 50k each and 2 kids with 3k each isn't much more than 15%. I'm willing to pay more tax for another 20 years of free time.

If you focus too much into super, there are some very effective strategies that you can't use. One example is debt recycling. Buy IPs first, then buy your PPOR later, and you may find that you can debt recycle and get rid of the non-deductible debt in only a few years.

The other is arbing the tax rate of a non-working spouse. Funnel franked dividends to them and get the franking credits back in cash. Neither of these can be done if you focus on super.

Quote:

Originally Posted by bene313 (Post 701916)

Yes the restrictions are there but once you reach the age of 50 how heavily geared will you be? Gearing up is ok while young, but then your LVR decreases with age.

The point is that if you START early investing in super, you lose out on the benefits of gearing. If you don't have the option of gearing heavily at the early stages, you won't have enough assets to allow yourself to lower gearing if you want to reach your goals. Besides, you're not talking 50. It's at least 65.

Quote:

Originally Posted by bene313 (Post 701916)

Like the rest of us. All I'm saying is that there should be at least an option to transfer asset holdings to super by the time an investor hits pension age. The tax costs of not having this option are massive.

There is the option, but transferring would involve stamp duty and CGT, not to mention you can't transfer resi IPs into your SMSF. And I'm not saying super is a bad vehicle in all cases, but it's certainly not good for everyone. The older you are, the better super is for you. For a young person who wants to invest..... super is unlikely to be a good vehicle.

Basic question

alexlee — Fri, 13 Aug 2010 03:29:17 GMT

Quote:

Originally Posted by kum yin lau (Post 701824)

Someone in a high income bracket past 45 should REALLY look into super.

For people past 45 NOW, that MAY be a better option. The (in my opinion) inevitable changes to the preservation age is going to hit those who are young now.

Also, I would add even for those past 45, if you're close to a point where you can live off investments, do you really want to then transfer assets into super and lock them away until the preservation age?

Basic question

alexlee — Fri, 13 Aug 2010 00:57:35 GMT

Quote:

Originally Posted by bene313 (Post 701798)

Yes super is for the financially illiterate.

However it is just as much for the financially literate as well. Why? Because it's a tax haven, and because your assets are likely to be safer in super than in any other vehicle.

It has SOME tax advantages, which you might be able to replicate outside super under certain circumstances (if you have a non-working partner, for example). However, it also has a lot of restrictions which you would not have using other vehicles. I would also argue because of the gearing restrictions, you can build up more assets outside super especially if you're young.

Quote:

Originally Posted by bene313 (Post 701798)

None of us can neglect super as a vehicle for investing. We should all have a plan enabling us to eventually hold or transfer the majority of our assets into super at some stage.

I plan on living off investment income decades before the preservation age, so super is useless to me.

Basic question

alexlee — Fri, 13 Aug 2010 00:27:02 GMT

Quote:

Originally Posted by landlubber (Post 701784)

I'm still looking for ANYBODY who has achieved wealth & financial independence via super. It's really designed just to transfer the pension burden from gov't to the individual. It has sooo many restrictions and sooo many admintrative costs and soo many consultants/auditors etc "at the trough" it's really a joke on the Oz. population IMO.
LL

Super is designed for the financially illiterate to save over their working lives because the government can't afford to / won't pay for their retirements. From that point of view, it needs restrictions.

The question I've always asked is: super is designed to try to give financially illiterate retirees a better retirement than they otherwise would have. If that's not your plan, do you really want to use as restrictive a vehicle as super?

Basic question

alexlee — Fri, 13 Aug 2010 00:22:50 GMT

Super is NOT an asset class. It's a vehicle. Like a company or a family trust.

Saying I'm deciding between property and super is like saying I'm deciding between buying shares and using a family trust. It doesn't make any sense.

Is this fraud?

alexlee — Thu, 12 Aug 2010 02:21:10 GMT

Quote:

Originally Posted by Samwise (Post 701514)

Such as?

Interesting anyway. My wife is a lawyer and thinks its tax evasion pure and simple!

Why is it tax evasion? By doing it you're up for another lot of stamp duty when you swap the properties again, and you have to pay CGT. In return you get to deduct expenses, but also have to declare rental income.

One strategy would be to build up a portfolio of IPs first, then buy the PPOR and debt recycle.

Is this fraud?

alexlee — Thu, 12 Aug 2010 01:35:35 GMT

There would also be other potential issues. Say, one property appreciates more than the other. One property has problems, one side has more wear and tear..... lots of issues.

There are other strategies that can be used instead.