Advice needed! Analysis paralysis Delemma. Help!

Hi all, It's been awhile since I have come to seek advise from this forum.
I am a sole incoming earner with a young family. My husband is self employed but it has not been easy to keep things afloat. So it took us a long long time to save and decide the next step for us. We finally made the plunge in purchasing a PPOR Jan 2014
It's been almost 1 year since we sign the dotted line. Intention was to buy under value with potential to manufacture some growth via minimum cosmetic improvements.
We are uncertain of the current value yet as houses sold in the area seems to not appreciate with the market value ( we live in the northern corridor between Brisbane and Gold Coast) and it doesn't help when this area is still showing a high supply of new homes being built.
I am uncertain what I could or should do next. My initial plan was to buy an IP(unit) of the plan in Brisbane and with late settlement( end 2015) allows me to save more and have a bigger deposit for another IP purchase. Hoping for some capital growth, I can access into the equity from both PPOR and IP, I can successfully grow my investment portfolio.
The problem I have now is I am suffering from investors analysis paralysis! We have been researching and understanding more of the market and where there is still capital growth. I know more knowledge than I knew a year ago but I can't seem to take the next step.
I earn about 105k putting me into a high tax bracket. Frustrated, I wonder how much difference will it be if I had an IP to help with the tax deductions. I am no accountant but I believe it would alleviate the the amount of tax I would need to pay. Also, I am keen to move out of our PPOR and start renting again. I never thought I would rent again. :eek: But with knowledge and some personal mistakes made, I NOW understand why it's ok to rent and not have a PPOR. :rolleyes:
I wonder if anyone of you with similar experiences. What would you do from here and how can I accumulate property wealth in a short time ( I just hit 39 years this year)
Some info about us, only savings are in offset account $35k. Combined super with husband $100k. Ongoing savings $1k/mth. House loan 350k interest only, house value est. $380k.
I know when it comes to investments, there are no such thing as a guarantee safe plan. In my financial situation where I can't afford to make a wrong or risky move with a young family.
Any thoughts, advise or share of experience would be greatly appreciated! Thanks In advance.
Cheers!
cathaygirl.
 
Who owns the PPOR? if your husband is a part owner then if you rent it out and it makes a loss, you can only claim part of the loss in your tax return. Losses on investments also can affect your Family Tax Benefits. Depreciation and Building Write Off may make it easier to handle.

It seems to me that from the limited information you have given that you need to look at managing your risk if you cannot work for some reason.

Look at what insurance you need.

Don't buy an investment focussing on the tax benefits. You need to decide whether it is a sound investment first. Tax is an after effect. Remember the money in your offset a/c if your mortgage is at 5% interest is effectively giving you an 8% pre tax return so saving hard and putting money in the offset could be worthwhile while you think how you want to invest. Salary sacrifice into superannuation would also give you tax savings although you can't access these for several years.
 
Hi Cathy

Have you considered establishing a SMSF and buying the property thru your Super Fund ? Certainly finding it very popular at the moment.

At 105K per annum you are only paying Tax at 37 cents in the dollar over $80,000 so not particularly onerous.

With the right lender your SMSF borrowings will not effect your personal serviceability.

Cheers
 
Also with buying a unit OTP, when it is finished you will be competing with all the other units to find a tenant.

Which means you will need to drop your price to secure an early tenant or get no income until you lease it.

Also if you have a tenant on day one with most leases being 12 months this would mean that if the tenant decided to move on and same with other in the complex it again will become a price thing.
 
You talk about buying an OTP unit for tax purposes. As another poster here said, and as many (possibly most) on this forum will advise, buying for tax reasons is one of the last reasons to buy property. Certainly comes into the mix, but isn't one of the main reasons to choose a property. Search OTP or off the plan or new properties etc and you'll find many searches for this type of strategy/property.

With your husband being self employed, a good accountant will be able to manage tax between you both to optimise your incomes and situation.

The title of your post is Analysis Paralysis and I'm sure you'll shudder at this suggestion (I certainly did when I first read it) but do plenty of reading - here, other forums, books to work out your long term strategy. Once you understand your longer term strategy, you will know what info to look for, reducing the analysis paralysis. You mention how to accumulate wealth quickly; do you know how each property fits into your strategy and what your strategy is to accumulate your desired levels of wealth within your desired timeframe?? If you've got a longer term strategy, why not post it here and others can comment on it, understanding your financial and personal circumstances.
 
Thanks to everyone for your replies and sound advises.
As many of you had the same sentiments, I did a search on OTP and it does put things into perspective why it can be very risky. Why OTP seems appealing, I do a lot of travelling for work and it seems to make logical sense to buy something with minimal stress and low maintenance.
I don't have specific strategies except to get my act together ASAP.
I am so inspired with the many stories I read in this forum and how many of you succeeded in investing and living the life as you so richly deserve. That is our dream, to have a investment portfolio to fund our retirement but it seems out of reach due to our late start.
-I have looked into income protection and will get that organise. Can anyone suggest a good one to recommend? Currently, I do have good insurance coverage provided by my company but don't think it includes income protection.
-Am keen to invest through my Super but it's seems lengthy and complicated and expensive to run. Is that corect? With super, is it safe to buy OTP, or the risks are no different?
-Should I move out and rent my PPOR out? Will that'd make any difference tax wise?

Again a huge thank you for those who replied and take interest in my story and I do appreciate any comments. Cheers! Cathaygirl
-
 
-I have looked into income protection and will get that organise. Can anyone suggest a good one to recommend? Currently, I do have good insurance coverage provided by my company but don't think it includes income protection.
-Am keen to invest through my Super but it's seems lengthy and complicated and expensive to run. Is that corect? With super, is it safe to buy OTP, or the risks are no different?
-Should I move out and rent my PPOR out? Will that'd make any difference tax wise?
-

these are broad focus questions that are coming up for you because you havent yet managed to define what your mid to long term financial goals are.

Once you have established more specifically what you want to do and WHY you NEED to achieve those goals, your questions will become much narrower.

ta
rolf
 
-I have looked into income protection and will get that organise. Can anyone suggest a good one to recommend? Currently, I do have good insurance coverage provided by my company but don't think it includes income protection.

-Should I move out and rent my PPOR out? Will that'd make any difference tax wise?

-

Your post made me think of a couple of things, none of which may apply to you, but just as a brainstorming idea...

1. Investigate whether selling half of your PPOR into one name (one or the other would then have it in their name - could help tax-wise). You would likely have to pay stamp duty, but the tax savings could be worth it. Check this out carefully with an accountant who understands such things, and also one of the brokers on this forum.

This may not be of any help to you, but it is worth checking, especially if you turn your PPOR into an IP and rent somewhere else.

2. I've given the name of the insurance broker we use on this forum recently and it appears two people have been happy with him. He is based on the gold coast, and before he took over our business, I never met the broker I had been dealing with over the phone for probably 15 years or more. Jason came to Brisbane to meet us as part of his taking over of the business, but it would have been just as easy to have "met" him over the phone.

A couple of things about Jason I've learned since meeting him... he stopped me from accidentally cancelling the wrong policy. I was about to pull the pin on a very good income protection policy for my hubby by mistake. Thankfully I called him to check I was cancelling the correct one :eek:. This policy seems to be a Rolls Royce policy in that hubby is not actually employed but the policy covers him 24 hours a day if he injures himself and cannot work. His cover is based on the income he was on when he took out the policy. I've checked this with the broker and he has checked with the company, and it seems odd to have cover without being actually employed, but right now with a very active hubby who upkeeps several properties and therefore is of value to me personally and financially (and of course emotionally), and with a townhouse build (hopefully) that will mean we need him able to go back to work if things go pear shaped, we are happy to continue to pay the premium.

Check also that whatever income replacement policy you take covers you until you can go back to work in the type of job you are in now. Some policies cover you only until you can work "in any capacity". If you are an engineer and injure yourself but the policy says you are well enough to work as a checkout chick, they will cut your money off. This is very important.

Jason recently arranged for our life cover to be tallied with our life situation, debt situation, level of risk etc. We will review this as our townhouse situation changes, but again, right now, we need the cover as our risk is high.

I have no affiliation with him except for being impressed with how he has understood our risk profile, our actual risk and need for different insurances. You could call him or any other broker. I believe a broker is a better fit than calling insurers direct. That takes time and they won't tell you where their policy is less suitable than another company's policy, which is the job of a broker.

His details -

Jason Nairn | Financial Adviser/Director
Linked Financial Services (ABN 27164559951)
are Authorised Representatives of AMP Financial Planning Pty Limited
Suite 5, 211 Ron Penhaligon Way, ROBINA, QLD, 4226 | PO Box 711, Robina, QLD, 4226
T 07 5593 0561 | F 07 5593 0103 | M 0432 918 214
jason@linkedfinancial.com.au
 
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I believe a broker is a better fit than calling insurers direct. That takes time and they won't tell you where their policy is less suitable than another company's policy, which is the job of a broker.

Great and comprehensive post by wylie.

Certainly agree with using a good broker (across a number of fields where there's competition in the marketplace). The companies themselves will say that their policies suit you but a broker will look across all the different coverages and pick the most suitable. I have also found that you can ask brokers 'why are you recommending x' and in response, they usually show you the other policies and explain the differences - can't get this when approaching individual companies.
 
I can comment on the PPOR issue.

I lived in a PPOR that was only 5 years old, it was a massive waste and over capitalisation, more than I needed.

Once moving out and renting, I had at least 20k deductions on my tax return. Also renting gave me these benefits:
-better location more suited to me, that was in a city area I couldn't buy. However was a low yield area so cheaper to rent than buy.
-better serviceability to the banks, so I could afford to buy several investment properties
-lower maintenance worries as my PM would take care of things.
-long term tax deductions. I have another 30 years of Depreciation deductions to enjoy on that property.

Consider the positives of a PPOR though as well, with a family you may feel more secure knowing you won't have to move, but to be honest renting is not that hard. Most landlords hold for the long term and you don't need to move often.
 
To cut it right to the basics, the main advantages of property investing is that values compound while the tenant makes your repayments. It is a snowball effect and for that to happen the magic ingredient is something we can't buy or change, Time :)

It is much easier to buy the first one but it becomes harder to buy the second one, hard to buy the third then starts to get easier because usually, time has created equity in the first by now :)

If the area you purchased in has not moved yet (only been one year) perhaps you need to find another area so that whichever one moves first you gain some equity.

Otherwise, I would do as previously mentioned, move out of PPOR and be a bit selective on where you rent. Maybe talk to the PM and tell them you want a long lease on someones investment property, not a house that is empty while someone is on a trip.

Ask for a 12 month lease, or longer, and be a no trouble tenant as much as possible. Three years there with a bit of freedom to move on the PPOR equity could make a huge diffrerence.

If you don't have a good broker talk to some of the experienced ones on here before you do anything so that you start with a plan, Good advice from Rolf on here, maybe talk to him :)
 
If you do decide to move out of your PPOR, and don't want to wait the full years until growth, you can accelerate your savings and buy your next IP quicker by doing something like this:
1. Use an offset account to put a portion of your pay away each month
2. Get a depreciation report done on your property, that lets you claim alot more than what your accountant would estimate
3. Ensure you will be claiming on tax all the depreciation, and borrowing costs (if LMI etc) will be deductible over 5 years). Also maximise your other deductions like work related. Get a GOOD accountant that is not scared to make strong claims for you.
4. Do a PAYG withholding variation, so you get to keep alot of your tax each month, and push it into your offset account. Money now is morth than money later. Paying alot less tax is great for cashflow and savings on interest. You can also include other deductions in the variation such as work related, motor vehicle, income protection, family etc. You'll be amazed how much tax you'll save each month.
5. Do a PROPER budget. I use YNAB software, and it helps alot and also makes it alot safer for larger expenses, I don't get unexpected large bills anymore.

There's high yielding townhouses that can be purchased in south Brisbane (for example slacks creek) for $200k-$230k that bring in over $300pw rent. To buy a property like that you need less than $40k if using mortgage insurance, this includes stamp duty, solicitor costs etc.

If you can save up $40k, you can buy a cheapie property as your next one.
Then do another depreciation report, PAYG variation, and start saving into the offset account again. This will be easier since it's essentially cashflow positive.

Then once your first property grows a bit, you can get a new equity loan and buy your 3rd, but consider a more expensive and capital growth area this time. If you don't have enough equity in your first property, look at taking equity from IP #2 as well. You can use the money from both equity loans towards #3.
 
Hi, you really need to look at tax savings investments to grow your portfolio whether property or shares. Your PPOR should not be considered as an investment. And cash savings while good for sanity is not good for tax savings.

You may find the going tough for a few years but once it takes off, it gets easier and easier.

KY
 
Kum Yin Lau I'm not sure if I'd agree you need tax savings to grow your portfolio.

You need deposits and serviceability.

If you negatively gear for tax savings you reduce your serviceability and therefore limit your growth once you hit the serviceability wall, gonna get there pretty quickly on 110k a year with some negatively geared props.

Having a PPoR increases you non deductible debt, but saves paying rent. Rent may be cheaper but it can be nice to have a PPoR.

If you mean something else other than negative gearing or not having a loan on your PPoR and turning it into an IP if you do, in terms of tax savings I'm happy to learn what they are.
 
You need deposits and serviceability.

If you negatively gear for tax savings you reduce your serviceability and therefore limit your growth once you hit the serviceability wall, gonna get there pretty quickly on 110k a year with some negatively geared props.

If you mean something else other than negative gearing or not having a loan on your PPoR and turning it into an IP if you do, in terms of tax savings I'm happy to learn what they are.


Agree with j_p about serviceability.

KY, could you share other options about tax savings while maintaining serviceability to build wealth.
 
yeah just salary sacrifice to super up to the allowable $30K limit. If you start that now at 39 you won't have to worry about gearing, debt etc and have a very comfortable amount in super by the time you retire. Just saying....
 
Thanks Greedy, never thought of super. Not that I like the idea of not been able to access my money until much later (I could be wrong about this as I never read into it)

I would like to retire well before having access to my super
 
Super is ok if you're willing to wait, but some of us want financial freedom at 45 or 50.

Super rules prevent that.

Re the comments on tax - you can still get tax deductions with positive geared property in the form of non cash deductions like depreciation or borrowing costs. You can still grow your portfolio and get tax benefits just that it's a good idea that growth and strategy is the focus, with tax only as a bonus consideration.
 
Super is ok if you're willing to wait, but some of us want financial freedom at 45 or 50.

Depending on your ages, you could buy IPs both in your own name (or other structure you choose) then in Super.

I agree that I don't want to wait until I reach retirement age (and the ongoing management of investments inside super may be more difficult than owning in your own name) but if the super rules allow you to get benefits from the investments when you reach retirement age, then by all means go for it, after you have the foundation set up.

I would want to know the ins and outs of buying and managing investments in super before diving in. I think you should have the foundation and understanding set up first.
 
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