Finance

[WebBoard]

From: Mike .


Interesting Read: Thanks Les
From: Gary H
Date: 7/27/00
Time: 11:47:57 PM

Hi Les, thanks for being so forthcoming in offering help. I'm new at this IP stuff and I'm looking for for a few pointers.

My question...would there be any advantages in returning your tax return to your ip or dumping it onto your mortgage?

 

[WebBoard]

Les

Reply: 1
From: Mike .


Re: Interesting Read: Thanks Les
From: Les
Date: 7/28/00
Time: 12:42:40 AM

G'day Gary,

Your question:

Would there be any advantages in returning your tax return to your ip or dumping it onto your morgtage?

Gary, I think what you're asking here is - should you pay down your home mortgage with your Tax refund, or put it into the IP (mortgage?)

Answer - pay down the Non-Deductible debt (i.e. your own home mortgage, credit cards, etc) first. Leave the IP mortgage until the others are sorted.

However, if "put it into the IP" means add value to the IP (e.g. fix it up, enabling you raise the rent) or invest in another IP, then the answer is not so "cut and dried". Here it's a matter of "doing the numbers" to see what works best. I hope the FIRST answer was what you were thinking - it's easier ... ;^)

If that first answer is not what you had in mind, do come back - but there'll be a heap of questions to consider, so post a bit more about exactly what you were thinking of doing, and we'll take a crack at it.

Regards, Les

 

[WebBoard]

Geoff W

Reply: 1.1
From: Mike .


Where to put tax return money
From: Geoff W
Date: 7/28/00
Time: 8:17:13 AM

Les,

If you were to put money into an IP to improve its value, you may well be better off to put the money into your own mortgage first, then taking a line of credit for the same amount to use on the IP. That makes the interest on the line of credit tax-deductible, as against mortgage interest which is not deductible.

Geoff

 

[WebBoard]

Les

Reply: 1.1.1
From: Mike .


GeeCee, Sue1, Geoff1, (Some1 ;^) - can you help here?
From: Les
Date: 7/28/00
Time: 9:04:28 AM

G'day GeoffW,

Good thought - and a good way to turn non-deductible debt into deductible !! (??) Certainly worth consideration - but is it possible that's also not "cut and dried"??

A bit of "thinking out loud" here:-

Would a loan taken for ANY/EVERY IP expense be deductible? e.g. for Capitalised IP costs, would a deduction be valid? (just thinking here of things like "putting up a garage" - If memory serves me correctly, the work is Capital (thus not deductible for the full amount, like an expense - rates, etc. - would be) but Building Allowance of 2.5% would be a valid claim - not a great return if borrowing at 7.5%

And then (memory again) I believe (as with some NON-deductible costs - e.g. purchasing costs) that even though the actual cost is not deductible, any Interest on a loan taken to pay it IS deductible (???)

Obviously I'm not certain about all of this (don't have my books handy either) - but here's a question for the veterans:-

Can the Interest on a loan taken to spend on an IP be deductible no matter whether the loan is a borrowing cost, purchase cost, capital cost, or straight out expense?

And thanks for the suggestion, GeoffW - could well be a winner - I'm just not sure it is ALWAYS going to be a winner, but the forum can hopefully sort that out. And, as always, a good Accountant's advice can help you sleep nights...

Regards, Les

 

[WebBoard]

Pierre

Reply: 1.1.1.1
From: Mike .


Re: GeeCee, Sue1, Geoff1, (Some1 ;^) - can you help here?
From: Pierre
Date: 7/28/00
Time: 12:18:54 PM

Les,

You're on the money.

* New garage is a capital cost so only capital allowance is deductable at 2.5% for 40 years. * Yes, you can claim all of the interest accured on borrowings to build the new garage on the IP. In fact, Yes--the interest can be claimed no matter what the cost incurred, so long as it is a cost associated with aquiring, holding, maintaining an income producing asset. (ATO

Here's a thought ... I wonder if you can also borrow to cover the interest payments on an IP mortgage and claim that interest too? Brain hurting stuff, but worth an argument! If this were true, then you could claim some of the interest accrued on your residential LOC where you make your interest payments to your IO loans from your residential LOC. Come to think of it, in effect, you really ARE borrowing to pay for interest on borrowings where you pay interest from you residential LOC.

As for what to do with the tax return, I believe it should be treated as the rest of your income. It should go straight onto your residential LOC. If your salary, all your rent, and all other income goes there, so should the tax refund.

We should all be focusing on eliminating our non-deductable debt (own home). Eliminating debt on a tax-effective investment before eliminating non-tax effective debt doesn't compute!! (in most cases).

Pierre

 

[WebBoard]

Les

Reply: 1.1.1.1.1
From: Mike .


Re: The 9th Wonder of the world perhaps?
From: Les
Date: 7/28/00
Time: 5:40:41 PM

G'day Pierre,

What a great thought !!! Could deductible interest on borrowings to pay out deductible Interest be the "9th Wonder of the World" (with apologies to Einstein). The Power of Compounding Deductions !!! ;^)

Thanks for your words of wisdom, Pierre - I actually went off track a bit (as Gary H was talking of dropping CASH into the equation, not borrowings), but your thought (the 9th wonder) was well worth the deviation.

Regards, Les

 

[WebBoard]

Geoff1

Reply: 1.1.1.1.1.1
From: Mike .


Re: The 9th Wonder of the world perhaps?
From: Geoff1-stop fiddling on the titanic
Date: 7/29/00
Time: 12:04:42 AM

Hey guys,

Look I am impressed how you ANALyse everything to numbers and how you get excited if you can make a saving in some direction but hey, guys, you arent working for the MacQuarie Bank in their trading division you are very very minor players in the property investment field.

Can I suggest you stop focussing on savings and get stuck into the makings...

that is where the money is made...

spend weeks saving a dollar or two while I go out and buy a bargain and make $50k...

its ok for me but you guys are being left behind...

is that ok for the people who are listening to you??

I know from experience this wont offend you guys because you have been doing some great work on this forum ...congrats

Geoff1

 

[WebBoard]

Geoff1

Reply: 1.1.1.1.1.1.1
From: Mike .


Re: The 9th Wonder of the world perhaps?
From: Geoff1-I sound like Will-sorry
Date: 7/29/00
Time: 12:43:29 AM

Hey guys No offence..

I meant WE are minor players and to focus on making money ...OK...

Yeh actually I remember being in the same position years ago but if we focus on the makin's not he savin's we should fly ..

the ATO rulings wont make us rich...creative strategies will...!!!

What do you all say???

Geoff! let's get going...

 

[WebBoard]

Pierre

Reply: 1.1.1.1.1.1.1.1
From: Mike .


Re: The 9th Wonder of the world perhaps?
From: Pierre
Date: 7/29/00
Time: 11:58:21 AM

Yeah righto - so Pierre's a numbers nerd. I was bored and my mind was wandering.

Anyway, Geoff1, I'm hunting for another property - my first one in Wynnum is nearing completion, and I've still got some dollars to get another one. I've been madly looking around for a similar property to the one you told us about - 3 units 150K, 11% return. I found a couple in Newcastle where I live - actually not that hard as you say, but they were snapped up pretty quickly. I'm more interested in picking up another property in Brisbane, and was wondering which suburb your great buy was in? 7km from the CBD - I can have a bit of a stab - any chance you can share that with me?

Also, any chance you can drop me an email - I have a couple of things to ask you - (perhaps a favour).

Much appreciated,

Pierre [email protected]

 

[WebBoard]

Les

Reply: 1.1.1.1.1.1.1.1.1
From: Mike .


Raising the Titanic ;^)
From: Les
Date: 8/1/00
Time: 11:05:27 PM

G'day Geoff,

I took a bit of time to consider your points - and I agree there is a lot of truth in what you say. One point you made (below) gave me some food for thought -

>> Is that ok for the people who are listening to you??

And you're right there too - it is important to consider what others may take from such a discussion. This is what I came up with :-

1. As a relatively new investor, I am probably going to do far more analysis than an experienced investor would need to. As we are starting, a bit of analysis can...
(a) prevent us from making a huge mistake
(b) give us confidence to proceed or
(c) assist us to generate/save more cash with which to expand into IP's.

2. Along the way I'm going to enjoy what I am doing - including a bit of friendly banter with another investor. And also I may get absorbed in things I enjoy (analysis) and which I consider to be a "platform" on which I can build my IP fortune. A confidence builder, if you will.

3. That it is OK to be different from other successful investors. It is also healthy to disagree from time to time (in a nice way, of course). Quote from an unknown source "If two people always agree, only one brain is working".

4. That I (personally) understand the "numbers" far more than the "makings" at this point in my IP path. The "makings" will come as confidence grows. And a forum like this (I believe) can help significantly with this.


Geoff, the other point that I hope you will help me (and others) with, is this:- As a "fresh" investor, (say 1 - 2 years into your investing) what was YOUR focus? Was it in the "makings" at that point for you? Did you have a different "platform" that helped your confidence grow? (I gather it WASN'T analysis ;^)

How did you handle the "bet the farm" feeling of committing your whole bank balance on an IP purchase (remember, you're now back at the START of your career - with appropriate bank balance).

What would have been your biggest hurdle back then - and how did you overcome it?

And maybe other "seasoned" investors might wish to contribute here too. I imagine there might be a handful of tripwires for new investors, but with the knowledge in this forum, if these are brought to light with solutions it will assist many a novice.

Thanks for your thoughts, Geoff - and I look forward to your response,

Regards, Les

 

[WebBoard]

Geoff1

Reply: 1.1.1.1.1.1.1.1.1.1
From: Mike .


Re: Raising the Titanic ;^)
From: Geoff1-a titanic question
Date: 8/3/00
Time: 5:03:14 PM

Hi Les, Hey you'll tire the 2 finger typist with q's that long! Here we go

1 a b c agreed

2 No doubt

3 vive le difference

4 I can see that

5 re What was my focus when I was 1 to 2 years into investing?

Ans That was a very long time ago.

It happened like this.

read Nickersons book "how to turn $5000 into $5 million in real estate" (from the library) - got excited...

Looked around for a property...

found an old cottage for sale in Brisbane with tenants.

made an offer ...accepted...went to the bank for a loan... got laughed at.

Told I could have a personal loan for a car...

went to my credit union got laughed at...got

told i could have a loan for some furniture...

Said ok i will buy some furniture $2k and a car $5k...

got the money and I.... changed my mind and bought a rental property instead...

Found I had a bunch of bikies in there and went thru some learning experiences until they were thrown in the "clink" for break and enter.

hardly the basis for a confident start.

Still i found after 5 years i had almost doubled my money..thats when I thought "there is something in this property lark"

Im trying to remember the rent i think it was $30pw. Gee thats $1500 per year or a 20% return!!!...

Thats ok if the bikies decided to pay the rent that week...

I think interest rates were about 6%.

I dont remember heavily analysing it or feeling threatened...consider tho i had just lost my shirt on the stock market after getting 100% returns overnight (for a while) so property was real slow relatively.

In 1987 I bought a block of flats and they were about 3 times the price of a house and I did "do the numbers" then.

My partner was "scared " of the big loan number so it was reassuring cos I found that "at worst" they would cost me $3000 pa -ve...and I was saving $13500pa so I knew it would work...in actual fact they ran positive after noncash deductions, rent increase and minor refurb...

Biggest hurdle was ...management.

The price of rental property is at some time you will get a bad tenant.

Suprisingly a lot of people throw in the towel when that happens...giving away their shot at financial independence to some turkey of a tenant.

Bizarre. You can tell them by their comment...like "all tenants are bastards"

"They don't give a sh..t about my property"

"they are all pigs" etc etc.

So i think people need to develop skills in management if they are going to own big self managed portfolios, especially when they realise its harder to find a good property manager than it is to find a good tenant...

thats enuf, the finger is failing.

Geoff1

 

[WebBoard]

Terry

Reply: 1.1.1.1.1.1.1.1.1.1.1
From: Mike .


Book
From: Terry
Date: 8/3/00
Time: 10:59:29 PM

I just did a search on Amazon for that book mentioned. Unfortunately it is out of print, but he details are:

How I Turned $1,000 into Five Million in Real Estate in My Spare Time by William Nickerson

 

[WebBoard]

Geoff W

Reply: 1.1.1.1.1.1.1.1.1.1.1.1
From: Mike .


Re: Raising the Titanic ;^)
From: Geoff W
Date: 8/4/00
Time: 9:03:34 AM

Geoff,

Thanks for the excellent contribution. It is useful for novices like myself to know how people such as yourself got to where you are going. It's good to know how people can start small, to make mistakes, and to get over all of that and still be successful.

It also looks to me that if you had started in the way you did, if you hadn't had that vision from the block of flats you wouldn't have got where you are. I'm not sure I would have got over my partner's objections proceed and get out of the ratrace. So thanks again.

Geoff

 

[WebBoard]

Les

Reply: 1.1.1.1.1.1.1.1.1.1.1.1.1
From: Mike .


Re: Raising the Titanic ;^)
From: Les
Date: 8/4/00
Time: 6:06:40 PM

G'day Geoff1,

You rose to the occasion admirably Geoff - and Thank you for the insight. I'm with GeoffW - your story has a number of important points that we can relate to (and endeavour to avoid - in some cases).

Keep on swinging (or is it "pinching cookies" from the cookie store !!!).

Regards, Les