Decisions for a Newbie???

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From: Shane .


My situation is as follows:

25 yrs old, reasonable job (~$50k), still living with parents.

I've been working for 2 years and haven't done a whole lot with my money (apart from spending it). I've read Rich Dad Poor Dad and just wading through Cashflow Quadrant; purchase and played Cashflow 101 and apparently proven my financial knowledge. I agree with Rob K, and can see the benefits of investing.

I've been contemplating my investment options and have been thinking about property. I've got a minimal investment in the stock market, and a few $k in the bank. My problem is I'm having trouble deciding what to do. The reason for this I think is my lack of knowledge about the "in's and out's" of investing in property and what to look for etc.. I've just ordered "Building Wealth through Investment Property" hoping to learn some of the basics.

Added to my lack of knowledge, I've heard a bit about the $14k government grant and am more confused now.

I'm happy living with my parents (makes for excellent savings), and comfortable with taking risks, however I'm not sure if I should buy an IP now, or purchase/build a "home" of my own using the governments grant and then look at other IP's??

So I'm looking for other places to research/learn about investing in property, or some advice on which is the best option for me????

Thanks in advance
sm
 
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Reply: 1
From: Mike .


Hi Shane,

If I were in your situation I'd buy an IP now for tax minimization and capital growth. I'd stay at home for 5 more years to save. If you buy a new house to qualify for the $14K, try and buy in a location near you or work. Move in after 5 years when most of the depreciation is exhausted.
Take in boarders. Use equity in property to fund another IP.

Regards, Mike
 
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Reply: 2
From: Yuch .


Shane,

I am in a very similar situation where I couldn't decide if I want to make use of my FHOG or just totally forget about it.

I've done my numbers and found out that if I buy my home first, extra expenses on my home will delay my investment plan. Hence, it'll take me longer to get out of my rat race. As getting out my rat race is very important to me that I am willing to give up FHOG.

Depends on what's important to you and what works for you, Shane.

Regards
yuchun
 
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Reply: 1.1
From: Cameron James


Shane,

I am in a similar situation as you. I am
getting prepared to start my strategy to
invest in property.

The thing that I have found most helpful is
concentrating on learning about different
strtegies. I been collecting notes from
variouse sources and compiling them
into examples and approaches of
different strategies. This has given me a
picture of what is possible and what
might suit me to concentrate on.

I suggest you spend some time thinking
about what kind of future you actually want
, then CREATE your own path to get there.
(you probably already have a good idea of
what you want) I like the idea of following
a simple method to building wealth and
then getting creative along the way. Then
as long as you stay true to your original
plan you will end up reaching your goal
and with the creative extras you will
probably get there earlier.

I think I have been fortunate that I have not
been in the financial position to start
investing. There have been times when I
was sure of a paticular strategy and I
wanted to jump right in, only to find that if i
had I would have been going backwards.

What I am trying to say is, get an
understanding of a variety of strategies
and then put them together into a plan
that will get you to your desired future.

If you want some info./explanations on a
few different strategies give me an email
and I will send them to you.

(Iknow how you feel)

Cam.
 
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Reply: 3
From: Garry T



I'm yet another newbie in a similar situation and a similar age to you, seems like there are a few of us around.

Like those who have replied earlier I've decided that investing first is the way for me. I've actually been investing for a while in the share market but I have re assessed the benefits and risks and have decided that IP's are a lot better for me. I say 'me' because everybody's situation and goals are different.

I'm not sure where you are but here in NSW I've 'tried' to do some research into the FHOGS and First Home Plus (duty exemption). They are both administered by the Office of State Revenue and they both require the applicant to make the property their principle place of residence within 12mths of settlement. What I want to buy it then stay in it for a few mths. During that time I can do some cosmetic improvements to the place so that the rent I can charge will go up when I make it available. Very generally speaking the 7k FHOGS + 0 duty will equal a saving of close to 1 years rent.


The problem is that the legislation does not give any guide about how to prove that the property has been used as a principle place of residence. The legislation is available on the NSW OSR website. Enquires with the OSR suggest that electricity rates etc. will do but these are off the record comments as the Compliance Division is responsible for audits and they are not contactable by the general public. I understand their stance but I'm not happy with it. To me a principle place of residence means as long as you can show that you are the occupant for a fair period of time then you qualify.

So I guess I can't say I'm none the wiser but I'm still uncomfortably uncertain. If anyone out there can shed more light on this it would be greatly.


Garry
 
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Reply: 3.1
From: Mel W


Hi,
I've just used the $7000 to help get into my first property, I'm living in it with my boyfriend and we rent out a room to his cousin (helps pay the bills).
I have a friend who has taken up the grant to buy an IP, they simply moved into it for a week, had their mail re directed for that time, moved out again, and that was it. No one I know has found anything to say the length of time you have to live there. The application for the grant makes you state that you plan to live there in the first 12 months, and from what I've seen the gov are happy to take your word for it from then on.
Hope this helps,
Mel
 
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Reply: 3.1.1
From: Garry T



Thanks for that info, good to hear from someone who has actually had experience with it.

I have however read that 10% of applicants are audited, don't know if is just one state or nationally. The legislations doesn't mention time and it doesn't say 'intend/plan' to make it your principle place of residence as I have seen it described in a few places. It's a case of must. I've included the relevant bit from the legislation below.

(1) An applicant for a first home owner grant must occupy the home to which
the application relates as the applicant's principal place of residence within
12 months after completion of the eligible transaction or a longer period
approved by the Chief Commissioner.

I've tried to search the web (legal rullings etc) for a definition of 'principle place of residence' but can't find any. Seems to be a grey area that is at the discretion of the authorised officer.


Garry
 
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Reply: 4
From: Shane .


I'm glad to see I'm not alone here! Thanks for all the replies, it certainly is encouraging.

I've done a very small amount of reading on the Federal Government web site in relation to the FHOG, and I'm more confused now.

It states:
"You will be eligible to apply if you:

-are buying or building your first home
-are an Australian citizen or permanent resident
-intend to make the home your principal residence, and
-start living in the home within a reasonable time. "

That's Ok..


Then it states:
"If you purchase an investment property after 30 June 2000, this will not disqualify you from participating in the scheme.

If you purchase undeveloped land at any time this will also not disqualify you. Trusts and companies will not be eligible for FHOS payments."

taken from: http://www.taxreform.ato.gov.au/factsh/1999/nat3023/index.htm

Does this mean that I can buy an IP and afterwards still qualify for the FHOG??
 
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Decisions for a Newbie??? for Shane

Reply: 4.1
From: Garry T



I suggest you read the legislation. I'm pretty sure that is what matters in the end. It's not a hard read, actually most of it is in plain english. It's also not very long. You can find it at www.osr.nsw.gov.au

It should answer most questions.

As for the principal place of residence I have found a website from the Qld OSR that has what appears to be guidelines for their auditors. I don't have it with me right now but I'll post it tomorrow if I get the chance.


Garry
 
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Decisions for a Newbie??? for Shane

Reply: 4.2
From: Garry T



I suggest you read the legislation. I'm pretty sure that is what matters in the end. It's not a hard read, actually most of it is in plain english. It's also not very long. You can find it at www.osr.nsw.gov.au

It should answer most questions.

As for the principal place of residence I have found a website from the Qld OSR that has what appears to be guidelines for their auditors. I don't have it with me right now but I'll post it tomorrow if I get the chance.


Garry
 
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Decisions for a Newbie??? for Shane

Reply: 4.2.1
From: Glen Wilson


Hiya all guys and gals. Wow, lots of us newbies here huh. I am in the process of getting my investment strategy going and my first step is to build using the fhog of $14000. I am going to pretty it up, landscape etc then sell it.

Garry with respect to how long you need to have it as your principal place of residence, I have gone around getting my investment team together, accountant, solicitor etc and made enquires about that very fact. I was informed, as long as you make steps to move into the property, it is then considered your principal place of residence. With that, it was implied, putting the electricity on in your name, moving in some furniture etc. You can then sell it whenever you want. You can say circumstances have changed and you need to sell the premises for whatever reason!!!

I reckon it is a perfect time to start investing using the fhog to give us newbies a nice kickstart. All I have to do now is find a nice block and build a nice house on it and put some of my handy man skills to work :)

Keep in touch.

willo
 
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Decisions for a Newbie??? for Shane

Reply: 4.2.1.1
From: Garry T



Thanks Shane. Been doing a bit more reading on the principal residency thing and I have to say I generally agree with your info. The key appears to move in and to show the intention to make it a permanent move which is pretty much as you have described. Just don't take any measures that would suggest that you have other plans in the first mth or two and it shouldn't be a prob.


Garry
 
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Decisions for a Newbie??? for Shane

Reply: 4.2.1.1.1
From: Shane .


If anyone is interested the Fed Gov has a web site dedicated to the FHOG

http://www.firsthome.gov.au/

It links to all the relevant authorities responsible in each state..

I'm yet to come across a definition for principle place of residence..?? I had heard something about a statutory declaration you need to sign for the stamp duty to say you'll live there for at least 6 months... not really sure though

Shane
 
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Decisions for a Newbie??? for Shane

Reply: 4.2.1.1.1.1
From: Garry T



Sorry I addressed the wrong name in my last reply.

I read that 6mth thing too, that was for Qld. It did mention 'the 6mth statutory period' which FHOGS does not have so I didn't pay much attention.

By the way, which state are you Shane?


Garry
 
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Decisions for a Newbie??? for Shane

Reply: 4.2.1.1.1.1.1
From: Shane .


I'm In QLD

And a little tip, if you click on the person who posted a message you get a peek at the user details... This even works if the email is anon... eg you're from Sydney?

Shane
 
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Re: Decisions for a Newbie??? for Shane

Reply: 4.2.1.1.1.2
From: Terry Avery


To add fuel for thought about how to meet the requirement of making a house
your place of residence for FHOG this is what the ATO say in their handbook
on your own home qualifying as a principal place of residence under CGT.
Perhaps this will be used as a guide by SROs and may give an appropriate
level of confidence if you meet these requirements.

Is the dwelling your main residence?
Factors that may be relevant in determining whether a
dwelling is your main residence include:
..the length of time you lived there -the capital gains
tax legislation does not specify a minimum time that
a person has to live in a home before it is considered
to be their main residence;what is important is that
it is your main residence
..where your family lives
..whether you have moved your personal belongings
into the home
..the address to which your mail is delivered
..your address on the electoral roll
..the connection of services -for example,telephone,
gas or electricity
..your intention in occupying the dwelling.
 
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Reply: 5
From: Miakat .


Shane,

A friend of mine recently took advantage of the FHOG in NSW. She bought the house on her own and now has a lodger paying rent for the second room. She has recently split her loan such that 1/2 the loan is tax deductible because half the house is an investment. Also, half of all her expenses are now tax deductible also.

As the legislation on the FHOG says that you only need to move in within 12 months, you could also rent out the property for 12 months before you move in. I assume you'll want to leave home eventually.

I also took advantage of the FHOG and bought my house in September 00. I then paid as much as possible off the loan and by Feb 01 was able to buy my first IP with the equity. I think I got the best of both worlds.

Mia
 
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