Need your advice

[shail]

Hi to everyone, I'm new to this and I need advice.
Last few months, I have been browsing through this forum and found it very useful. I had lots of queries and the search forum really helped me getting me answers

I have a question that you may find it stupid. but I can't stop asking it.

I bought my first unit 3 years back, north to Sydney. its my residential property.

Here is what I am planning to do now:
buy investment property (unit) in lower north shore.
rent it out to friend so I know I will get good/long term tenant.
get the possible tax deductions.

I am very new to the investment and specially property investment.
Do you think that I will need any advisor? or accountant?
In what area they will help me? is it worth paying them $$$?
I am relatively new to this country so not familiar with the legal maters.
Also should I be looking for newer units to get maximum tax benefit (with depreciation)

Thanks in advance
Shail

 

[alexlee]

I bought my first unit 3 years back, north to Sydney. its my residential property.

I'm assuming you mean that you're living in it and it's your principle place of residence.

buy investment property (unit) in lower north shore.
rent it out to friend so I know I will get good/long term tenant.
get the possible tax deductions.

Why would you assume that a friend would naturally be a good or long term tenant? Personally, I wouldn't rent to anyone I know. Far too many potential problems down the track. Say they run short one month and decide 'Shail is a mate so I can just pay next week after the pay comes in'. What do you do then? what if you thought they would stay forever and they decide to go overseas or get married and get a bigger place or whatever?

I am very new to the investment and specially property investment.
Do you think that I will need any advisor? or accountant?
In what area they will help me? is it worth paying them $$$?
I am relatively new to this country so not familiar with the legal maters.
Also should I be looking for newer units to get maximum tax benefit (with depreciation)

Newer units will get you better depreciation, but the price is usually higher for a newer unit than an older one. i.e. while you're getting more depreciation it's because you've paid for it. An accountant will help you with tax and bookkeeping matters. One experienced in property will help you maximise deductions, etc (though have a read of the forum and you'll get the basics anyway).

I think right now you need a mortgage broker first. Get an idea about how much you can borrow. And REALLY think hard about whether you want to rent to a friend. Recipe for disaster, in my opinion.
Alex

 

[shail]

Thanks Alex.
That was very quick reply. I went to edit my post to add 'girl' before 'friend' and saw your reply.

I have done the basic research about the loan and how much I can borrow. and with 60% of the total amount i can borrow, I can manage a 2bedder. but the buildings are very old around 25-30 years.

Should I be looking for an accountant before I buy a property or after? I know that accountant can help me with the taxing and book keeping but will he help me before I buy property? I mean giving me advise on buying the property. and help me building the portfolio. Sort of information available on this forum.

Sorry for asking dumb questions.

 

[alexlee]

That was very quick reply. I went to edit my post to add 'girl' before 'friend' and saw your reply.

That's even worse. My advice: don't ever have monetary dealings with people you know. Especially if they're close enough to knife you while you're asleep.

I have done the basic research about the loan and how much I can borrow. and with 60% of the total amount i can borrow, I can manage a 2bedder. but the buildings are very old around 25-30 years.

You may not have much choice about the age of the building if you're looking at lower north shore. You're looking at, what, 400k or so for an older 2 bedder?

Quick question: how much of a cash deposit are you planning to put down and are you aware of how much the cashflow (most likely negative) it'll be? That is, do you know how much this place will cost you?

Should I be looking for an accountant before I buy a property or after? I know that accountant can help me with the taxing and book keeping but will he help me before I buy property? I mean giving me advise on buying the property. and help me building the portfolio. Sort of information available on this forum.

If you are considering buying in something other than your own name (a trust, say) then you should talk to an accountant beforehand. Pretty much everything other than owning entity selection can be done after (depreciation reports, etc).
Alex

 

[shail]

You are right. around 410k for 2 bedder.
I do not have any cash deposit as I am paying all my savings against my current mortgage which is around 250k. I can redraw 5-10% to use it for the new property but I am not sure if i should do this as the new property will be an investment and I will not get any tax deduction on the 5-10% amount.

Thats the reason I was thinking of getting some proper advice from the accountant or advisor (dont know who will be the right person). so that someone can answer my questions.
like, Should go for a 100% loan and pay for mortgage insurance. or should I pay 10% from my current home loan.
Should I merge my both loans together or keep it seperate.
Should I go for interest only loan or get the standard variable as there is no much difference in interest.
Should I just scrap the idea of buying in north shore and buy 2 properties in adelaide.
It just gets confusing sometimes. and after searching through the forums, reading different views it gets more confusing.

 

[alexlee]

You are right. around 410k for 2 bedder.
I do not have any cash deposit as I am paying all my savings against my current mortgage which is around 250k. I can redraw 5-10% to use it for the new property but I am not sure if i should do this as the new property will be an investment and I will not get any tax deduction on the 5-10% amount.

A redraw from your existing PPOR mortgage WILL be deductible if you use it as a deposit for the investment property. Assuming it's a redraw and you're not putting your savings against an offset account. The deductibility rule relates to the PURPOSE of the new loan. If you use it to buy an investment property, it's deductible.

Should I merge my both loans together or keep it seperate.
Should I go for interest only loan or get the standard variable as there is no much difference in interest.
Should I just scrap the idea of buying in north shore and buy 2 properties in adelaide.
It just gets confusing sometimes. and after searching through the forums, reading different views it gets more confusing.

To avoid lenders mortgage insurance, you want to only take a $340k mortgage against the investment property (assuming 400k purchase price) and redraw 80k from your existing mortgage. ALL $420k will be deductible if you do it correctly.

Should you keep the loans separate? Yes. Cross collateralising between investment properties and PPOR would be a nightmare for bookkeeping purposes.

The choice is between interest only or principle and interest, and then variable or fixed interest rates. NOT variable and interest only (since interest only can be variable or fixed, and conversely variable can be for interest only or principle and interest).

In general you should choose interest only. Whether you want have a fixed or variable rate is a different issue.

I think you need a savvy mortgage broker more than an accountant at this stage. Also, read a few investment books (all of Jan Somers' ones to start with, and some basic ones like Donnely's residential property investing). I think you need some clarification on the basic concepts (such as deductibility).
Alex

 

[warrioress]

Hi Shail

Firstly, congratulations on your buying your PPOR.

Secondly, you will find that everyone's plan is different - we all strive for different things out of property investing, and whilst it can be reassuring to have someone hold your hand through the process, sometimes you have to stand up and make that decision for yourself.

The forum is a wonderful tool, but it would be a good idea to read Jan Somer's 'Building Wealth' book. I can't remember what page, but she has a guide to making an investing plan for yourself.

Once you have a set plan, you can start to work out ways to achieve this. Whilst a good team around you is important (Broker, Accountant etc.) use this time to map out what you want, and how you'll get there.

Good luck with your investing journey.

 

[shail]

Thanks guys for the advise.

 

[handyandy]

You can't beat Alex to the punch and always there with very good advice

I would support his statement re the 'friend'.

I can understand that you would see that as easy and a comfortable decision and imagine that because of the relationship no landlord /tenant problems will arise but instead you will not just get the inevitable landlord/tenant issue but worse it will be clouded all the emotional baggage that exists in the relationship you have with your friend.

Better to deal with a tenant that you only have a business relationship with.

Cheers

 

[shail]

I value your advise. We all learn from experience, it has always taught me
things in life. whatever choice i will make there will be pros and cons. I just hv to decide which one i can live with.

but what I need first is to read through the Jan Somers' books and learn more about the property investment. get to know the basics. get to know more on the home loans and options available. Also search for good mortgage broker, accountant in Sydney.
any suggestions?

 

[Twitch]

My tip would be to not redraw from your existing mortgage, instead set up a new loan to draw any deposit from.

 

[skater]

Beware! Friends/family & money don't always mix well. Before you do anything take some time out & research. This forum is an excellant place to start.

 

[Dazz]

My advice: don't ever have monetary dealings with people you know. Especially if they're close enough to knife you while you're asleep.

Wow Alex !!!

Hey Shail - I bet you wouldn't get that type of advice from your friendly financial planner.

 

[alexlee]

Wow Alex !!!

Hey Shail - I bet you wouldn't get that type of advice from your friendly financial planner.

Same reason why I thought the engagement ring my fiancee liked was expensive but I still bought the thing..................