2 or 1< newbie from Japan>

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From: J D


Question:

If I have 400K to invest is it better to split the cash and purchase 2 IP's or purchase one that is more expensive?

While in residing in Japan I have the ability to get a loan offshore at roughly 2.5 % and would like to use to my advantage as much as possible.

any help appreciated,
JD
 
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Reply: 1
From: Rolf Latham


Hi JD

Beware of the exchange rate fluctuations which may result in a margin call equivalent.

I have anumber of clients that have considered using offshore funds, most have decided against the use of Japanese and or HK funds because of the margin call risk, yes the rate is half the local rate, but the LVRs at <=70 % and exchnage risk is too much to cary for many.

This does not answer your question on the vakue of the Ips, how long is a piece of string because we know nothing about the rest of your risk profile, needs or desires, Therefore, I suppose we could suggest 10 properties on Moe instead :eek:)

Some more backgorund data would be great
Ta

Rolf
 
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Reply: 1.1
From: J D


Rolf,

Thanks for the information.

Granted the offshore loan is subject to exchange rate fluctuations. I will be staying in Japan for another 3 years and I can borrow in yen against Australian property at LIBOR + 2 %. Given that I earn yen and can make the mortgage payments here in yen the interest I save outweighs the unrealized exchange risks.
I will only incur exchange rate risk if I move back to OZ and change the loan to OZ dollars, which can be done. Funny enough the bank willing to do this is CBA out of Singapore.

On the IPs.... I am trying to gain as much info. as possible from the net and talking to people in similar positions. Unfortunately, I am not going to have all the time to the quality local research on many properties as suggested in other threads. I will return to OZ for a short time to invest in the IP/s. Due to being an Aussie resident domiciled overseas I am not liable for tax in OZ ( except for withholding tax ). I am of the understanding though, that I can gain tax credits against future income from negative geared property. ( still researching this..).
I am looking to build up a substantial property portfolio over time and eventually retire on the residual income ( not uncommon, hey ;-).
I am considering a holiday unit on the GC on residential around Brisbane. This brings be back to the original questions 2 or 1 ?.

cheers,
JD
 
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Reply: 1.2
From: Always Learning


<p>
If you read any of Jan's books the message is to purchase properties, ( if rated on a scale of 1 to 10 1 being a fibro shack under a railway bridge and 10 being a water front home ) in the 3 to 4 range. Two lower median price properties in general can be expected to give you better returns than one higher end property. And also protects you against loss of tenancy. Having 2 IP lessens the chance of a cashflow crisis since it would be very small chance than both would be vacant simultaneously.
<p>
I believe, that the areas that you could expect the highest capital gains in the long long term, are already quite expensive, Sydney North Shore, Bayside Melbourne. So in some respects you may consider buying a lower than median priced IP for that area (at the extreme end Mosman or Toorak for example I think the median priced house is over AUD$1M)
<p>
Since you have 400K you could potentially purchase much more than 2 median priced properties, even with 80% loan to valuation you can hold about AUD$1.6 ~ 2.0M of IP. It just depends on the risk level you are comfortable with and the ongoing holding costs.
<p>
I also live in Japan. I can say to you there are some excellent tax advantages here. Basically negative gearing exists in Japan very similar tax law to Australia, except the interest portion of the land content is not negatively deductible from income tax. If you purchase wooden framed homes then you have a 20 year deprecation schedule for the house. Other chattels (carpets, HWS, aircon, curtains, kitchens cupboards etc) seem to have higher deprecation schedules in Japan than Australia. If you hold AUD$1M of buildings there is some great potential for some very good tax savings from you Japanese income, just from the deprecation schedules alone.
<p>
I am a newbie myself, just trying to soak up the knowledge and as a lonely IP investor in Tokyo Japan, I would be happy to meet and talk with you anytime.
<p>
I agree with Rolf the "margin call" in the event of falls in property prices or exchange rate fluctuations from NAB make larger investment loans to my mind a little risky. Smaller loans when you have huge equity (70% equity) could make good sense if you understand the risks/rewards. Also understand when you leave Japan, NAB will also make you move your loan (plus losing 1.5% due to there commission on money transfer) to your new country or back to AUD$ with premium interest rates (6.4%).
<p>
<table border="0" cellpadding="0" cellspacing="0" >
<tr>
<td rowspan="4">

</td>
<td colspan="2" align="center">
<p align="left">Investment Laws</td>
</tr>
<tr>
<td align="right" >1st Law:</td>
<td>"What ever you don't invest you forfeit."</td>
</tr>
<tr>
<td align="right">2nd Law:</td>
<td>"What ever you reap is what you've sown"</td>
</tr>
<tr>
<td></td>
<td><p align="right">Jim Rohn;</td>
</tr>
</table>
 
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Reply: 1.2.1
From: B F


There are many advantages and pitfalls with overseas borrowing.

1. 18 months ago it was cheaper to borrow in Aus than Hong Kong, right now as you suggested the rates are less than 3% here. It is pure speculation as to where rates will go in the future.

2. As Rolf pointed out, it is margin borrowing, and you can borrow only to 70% of your security, if you borrow in another currency. I keep plenty of extra security to make sure I don't need to fire sale properties due to currency rate fluctuations. This suits me as I would feel uncomfortable with less than about 50% security.

3. If you are paid in Disney dollars and you expect to be there long enough to pay the loan off, then go ahead and take advantage of the poor A$ at the moment. If you return to Australia the loan needs to be refinanced in Aus. So keep in mind the consequences of the Country you are in, floating their dollar and watching it do the big dive or rocket up. Just be aware you are speculating.

Hope this helps

BF
 
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Reply: 1.2.1.1
From: J D


BF, Alway learning,

Some great helpful information and advice.

I am also just try to learn as much as possible...the learning curve gets steeper the more I get into....but if it didnt it would be no fun right ??.


AL, Would be great to catch up with you in Tokyo. Email me at the listed email address.

cheers,
JD
 
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