Brand new property v's 2nd hand

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From: Anonymous


G'day all, I'm a first time user at this so hear goes!
Like many other first time investors, I'm green to property investing; I have been educated only by books thus far and attended my first property investment seminar as follows - a small organization which assists investors to reduce taxable income, provide an additional source of income, build a nest egg etc. etc. They do this by seeking out the location, vacant land, have an associated company build the type of property which they deem in high requirement for occupancy, set it all up, finance, building, legals, property manager & tenants; everthing from go to wo. All this is done after reveiwing your financial position of course. The key point emphasized was, because the property was brand new, it was 100% deductable for depreciation as opposed to a minimal depreciation on 2nd hand properties.This all sound very inviting, but I'm unsure of the laws & flaws of this particular format. I have requested info. from the ATO as per Jan's book; but I would much appreciate the experiences gained from those that perhaps crossed this bridge. Also, I do not know whether it is just me or not, but does anyone else like to have input into some of the nitty gritty dealings. I beleive that the "fees" associated with this setup are around 2.5% of total costs. Any comments are welcomed.
Regards - Rod
 
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Reply: 1
From: Gail H


Hi Anonymous,

I'm not quite sure what you mean by the flaws of the particular format - did you mean the issue about depreciation, or the setup as a whole. The depreciation issue is quite straightforward (greater tax break for newer properties). Of course, second hand properties that are still relatively new can also have good depreciation benefits.

You ask whether people like to have input into the nitty, gritty of the deal. I like to have more than input - try total control. I would never, ever let someone else pick a property for me. I'm not saying that that's wrong for you, but I believe there is enough information and advice out there for people to pick their own properties.

How on earth will you know if the price you are paying is fair market value? Why don't you post more info about this group, and the area that you're proposing to buy in and get some feedback.


I guess I would just ask you to reflect on why you feel you need this crowd. Buying properties certainly has some traps and pitfalls, but its not rocket science. Are you sure you need them?

Good luck

Gail
 
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Reply: 2
From: Tony Myles


There is a good article in the magazine Australian Property Investor - June/July 2001. The article compares depreciation on a new property, 1-5 years old and pre 1985.
Email me for details

Regards
Tony WA
 
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Reply: 1.1
From: Anonymous


Thanks for your reply Gail,
I'm sorry, the particular format I was thinking was about the whole scenario.
It's all becoming clearer that the reasons for "taking the first step" were certainly true - is the pension enough, how much of an income stream do you require now & do you want your lifestyle to change, are you in the 95% of people who do nothing or are you one of the 5% that make a go of it. Yes all this accompanied by tax advantages more income etc. are I guess, at least the beginning of my objectives - but I feel it shadows the underlying business or the goals of the "middleman".

If you look for wiseinvet.com.au you see the above mentioned party. All input welcomed.
I feel they are not the sort of path I will follow to building a property portfolio.

Thanks Gail

Regards Rod
 
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Reply: 2.1
From: Gail H


Rod,
I had a look at the website. Seemed a little insubstantial to me. I also don't like the way they emphasise tax benefits so much. Sure your income tax goes down when you negatively gear a property - this is because you are making a loss. You will also pay less income tax if you never earned the money in the first place. I know its not quite the same because some of it is due to depreciation. But none of this should be your first priority.

Negative gearing certainly can work, but only if the capital growth is sufficient to compensate for the recurrent losses. The capital growth issue should, therefore, be the primary one in any negatively geared investment.

Good luck

Gail
 
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