check list before buying an IP - about to take the plunge

[penti99]

hi guys

being a rookie

lots of questions rattle in my mind

can some one clear them

I spoke to a couple of mortgage consultants from banks .. not so clear and offcourse in a rush always

I have some questions

as my budget is going to be under 200 K ( I
can only afford to start small and cant afford to go wrong )


my areas would be bendigo + ballarat + horsham + traralgon + wodonga --etc

looking to buy a + cash flow IP ( even a neutral flow would be great which can take care of its mortgage + rates+ water and other costs ...( what else would be there ????)

I hope everything goes well with renting of IP but due to different circumstances if I need to sell within lets say 1-2 years

would the bank slug me with a huge fee or is it any different to IP;s

or

would be any different if I sell the first one but buying another one ...

and how to calculate all the costs involved when buying an IP and what to ask the agent

Is there any calculator which can give me figures on mortgage payements + rates+ water charges ( any other charges I am missing ....)

what can be or cant be claimed at tax time

going thru post I have come across setting upa family trust to buy an IP

can some one explain on this ...

anything else I need to calculate before taking the plunge

your suggestions are greatly appreciated

 

[alexlee]

looking to buy a + cash flow IP ( even a neutral flow would be great which can take care of its mortgage + rates+ water and other costs ...

Do you understand the difference between positive/negative gearing and positive/negative cashflow?

( what else would be there ????)

Insurance, agent fees, repairs

would the bank slug me with a huge fee or is it any different to IP;s

Fewer fees if the loan is variable, but it depends on the bank. Ask your mortgage broker first.

would be any different if I sell the first one but buying another one ...

Costly, because you'd have to pay selling costs AND new buying costs.

and how to calculate all the costs involved when buying an IP and what to ask the agent

Budget for 6% of purchase price to be conservative.

going thru post I have come across setting upa family trust to buy an IP

can some one explain on this ...

You don't have enough knowledge ot use trusts. Stick to buying in your own name.

anything else I need to calculate before taking the plunge

Re-do your numbers. How much flexibility do you have if rates go up? You have to do repairs? If say you borrow 200k, each 0.25% increase in interest rates is $500 more a year. Can you afford another 2,000 (tax deductible) a year? If not, maybe now is not the time to buy.

 

[Blitzkrieg]

hi guys

being a rookie

lots of questions rattle in my mind

can some one clear them

I spoke to a couple of mortgage consultants from banks .. not so clear and offcourse in a rush always

I have some questions

as my budget is going to be under 200 K ( I
can only afford to start small and cant afford to go wrong )


my areas would be bendigo + ballarat + horsham + traralgon + wodonga --etc

1) looking to buy a + cash flow IP ( even a neutral flow would be great which can take care of its mortgage + rates+ water and other costs ...( what else would be there ????)

I hope everything goes well with renting of IP but due to different circumstances if I need to sell within lets say 1-2 years

2) would the bank slug me with a huge fee or is it any different to IP;s

or

3) would be any different if I sell the first one but buying another one ...

4) and how to calculate all the costs involved when buying an IP and what to ask the agent

5) Is there any calculator which can give me figures on mortgage payements + rates+ water charges ( any other charges I am missing ....)

6) what can be or cant be claimed at tax time

going thru post I have come across setting upa family trust to buy an IP

7) can some one explain on this ...

8) anything else I need to calculate before taking the plunge

your suggestions are greatly appreciated

I numbered the questions to make it easier for me I like numbers

inquisitive little thing aren't you

I can't help out with the trust stuff, but here goes,

1) Mortgage (interest portion of mortgage is claimable only - not any principal payments). Rates, water. Add emergency services levy, land tax (but you will be under the threshold at this stage - not sure what the value is though), building insurance, landlords insurance, repairs/maintenance, property management fees (all I can think of off the top of my head....)

2) A loan is a loan, IP or PPOR. It will be written into your loan contract what any break fees are.

3) Not sure what you mean? Sell the first IP to buy another one with respect to bank loan fees? Not really my specialty area, but I would say two things to this;

a) If you are staying with a particular bank, perhaps they can waive fees for your continual business, it pays to ask.

b) If you have built up enough equity to purchase another one, you can refinance the loan on the first IP based on the new valuation to access the funds to purchase the second IP without selling the first one - and the refinanced loan is still deductible as it was used to purchase the second property, but don't by a car or a boat with refinanced money, that will affect your deductibility - you will need more advice on finance in the future.

4) Stamp duty is the major one, there are a few other much smaller costs, but stamp duty will cost the most (online calculator).

5) Not really as rates, water, emergency services etc are based on the council's valuation of the property, the agent does know these figures though, so they should be able to tell you, but it will be different for each individual house. Do your maths.

6) Claimable outgoings include - interest on loan (but not any principal payments), council fees, etc, property management fees, insurances. and two more things to be aware of;

a) maintenance is claimable, but capital improvements must be depreciated. Ie, you (or a repairman) can repair broken cupboards in a kitchen for 100% claimable cost, but if you replace the kitchen, the value gets depreciated by a percentage of the cost per year until it reaches 100% - A new thread will be needed if you don't understand this. It is important to know.

b) Depreciation on the cost of the building or recent improvements - even if you haven't paid for them (existing pergola looks new?). Depreciation can make the difference between slightly negative gearing and neutral gearing. You will need a Quantity Surveyor to estimate the value of building improvements or the whole building if built after a certain age to take benefit of this (it's a one off fee and there figure is used in all future taxes, and the fee is also tax deductible). Again, a new thread will be needed if you want this made clearer.

7) Can't help, I know some advantages and disadvantages, but I may skew the story too much. Anyone else care to play

8) I think you will be pretty well set with all the information you will have. You will continue to learn, tenants will throw curve balls at you and you will be back here for advice. Don't worry about knowing 100% of everything before you take the plunge, if you understand the answers to everything you are asking, you can't go too wrong in my opinion.

Good luck!

Michael.

 

[our obsession]

...and as well, Pent99, here are some incredibly valuable reading (I found to be worthwhile), for nitty gritty basics, better understanding of the actual process and more rounded gist of property investing:

http://www.somersoft.com.au/books.htm

Yes, it is Jan Somers (part of the founders of this forum site) books, her experiences, her knowledge, her readability factor, easy to understand is good. And I think even though time has elapsed since some of those books written, the fundamentals remain the same.

Also you may find Blakes Go Guides "Investing in Property" (Linda Fischer) a useful simple guide too.

 

[big_head]

I am new to all of this and currently researching for my first PPOR followed by an investment property.

After searching the site, i have noticed a lot of people use 2-3% of the purchase price of the property for items such as property management, strata fees (if applicable), council rates, water (if you are paying it opposed to the tenant) etc. On top of that you have the mortgage repayments, you can get a rough estimate on the various bank websites. A rough rule i use for quickly calculating them is $80 a week for every 50k borrowed.

From further research i have found that you generally have to make a trade off between strong CG and a stong rental yield. If you are planning on selling the property after 1-2 years, have you looked at the possible costs? Chances are you will pay an early termination fee with your bank, CGT, selling costs, and not to mention the buying costs as well (stamp duty etc) to get the place in the first place. I would think it would be much better to hold onto the property for at least one property cycle.

Being new to all of this as well, i am going to take things slow, read lots and get the best possible advice i can through getting a good mortgage broker, building a relationship with a buyers agent etc. I realise that only a very select few make instant dollars from property, its more of a waiting game/long term wealth creation strategy.

As far as your other questions go, tax time, i believe any costs associated with the holding of the property, eg council rates, maintenance, management costs, depreciation etc. The interest portion of your mortgage repayments, however remember the rent received is counted as income, so if its cash flow positive you may be able to claim nothing, or even have to pay some back!

Maybe a silly question, but i noticed your goal is to earn 2000pm cashflow from these properties, and you plan to move overseas. How much rent would your current place get if rented out? If you where to focus everything to reducing that loan, wouldn't that satisfy your goal, minus any risk/extra costs etc?

As stated many times above, i am also a newbie, alot if not all of the above info could be wrong or not relevant! feel free to correct!

Good luck with it all!!!

BH

 

[alexlee]

A rough rule i use for quickly calculating them is $80 a week for every 50k borrowed.

8% would make sense for P&I. IO would be lower.

so if its cash flow positive you may be able to claim nothing, or even have to pay some back!

Look at the difference between positive/negative gearing (before tax) and positive/negative cashflow (after tax). You can be negatively geared, claim losses on your tax return, and result in positive cashflow.

 

[big_head]

Thanks for that, as i read the other posts i did notice there is a difference, will check it out now!

 

[penti99]

thanks one and all

hi

thanks one and all

that opened up a lot

i should put aside more than what I was initally thinking but

with the things claimable

how much % can be claimed ??

alex

no I dont clearly understand postive / neutral and negative gearing

where can I read about this

finally

finding a property in central location in areas mentioned
( ballarat , bendigo , horsham , wodonga , traralgon , mildura )
with good rental yeild

and doing my maths

with the current interest rate ( lets say 7% ) if I can find IP with 9-10 % ( i think thats hard ) but If I can

would you agree that it should be ok to cover all costs

or else

I will buffer for 3 % ( claim on what can be claimed )

i think I will be fine If the above is possible but the only situation I would be in a pickle is the IP is vacant for more than 4 months ...

can some one correct me if I am wrong or add anything which I missed, then I think I can start looking

waiting for your reply


thanks
sri

 

[alexlee]

no I dont clearly understand postive / neutral and negative gearing

+/- gearing is before tax, +/- cashflow is after tax. Read a book on personal income tax.