Signed contract - accountant says "Don't do it!"
- Thread starter newlywed1311
- Start date
Thanks for your words of support
Thanks so much for your feedback and reassurance. You have all given me some things to think about. This is the first negative response I've received to my plan of property investment, so I guess it was always going to wobble me a bit - especially when it's coming from an accountant.
I always intended to ask him how many IP's he had, but then when the meeting started off quite quickly with this tone - I didn't want to appear like a smart a*se or defensive. I'm certainly no expert in this field as I am still learning, and I didn't want to appear to know it all - because I most certainly don't.
So I just sat and listened.
He also said:
We have faith in the property values of this area, good diversification of economy, continued infrastructural and community development initiatives, house prices up and down - but similar to most regional communities in this uncertain economy.
We have faith in the property we've purchased: sound brick building, good, accessible location, large block suitable for sub-division, near schools, large shopping complex, public transport (not such an issue here as most people drive). In 1999 we purchased our first home in this area and we sold it in 2004 for a $65,000 profit. I have no reason to doubt that we'll see that cycle repeated - based on historical evidence.
You know, if he'd crunched the numbers with me and said "don't do it" on that basis, it would hold more water for me. However, he did a little loose number crunching but basically his fears were the GFC and our 95% borrowing (which we were lead to believe was a good strategy, not a negative one).
I should clarify that he did not say "Don't buy this property" but did say "if your finance does not get approved, I would not be concerned at all". It's the same thing said in a different way, that's all. He pointed out all of the risks.
I agree with you. Yes, I should have spoken to him before signing contracts - mainly because it would have given me time to recheck my figures, speak with another accountant (possibly) and re-confirm my decision. I guess I was pretty confident of my strategy though - didn't see a real need for an accountant's opinion previously and now I know why
He pointed out the risks involved - he did not say "don't buy this property" but he was certainly clearly against it. I am aware of the risks but have focused more on the benefits. I don't mind being informed of the risks. Agreed that's his job. Agree I would be complaining if he didn't point them out. I'm not questioning his role -he has a professional responsibility to point out the risk, which he has done. I'm questioning whether his D & G is justified. But I guess that's the same question we are all asking at the moment.
Propertunity - thanks again for such an enlightening post.
Rolf, what does this mean?
Our investment is long term. If I was looking for short term gains, I can understand our accountant's conservative views better. I think his view makes a difference due to our long term vision.
Thanks for your support and reassurance. Thanks also for those who suggested that I listen to his advice and reassess the risk factors, crunch the numbers again and do some forecasting. Your opinions are all valued.
Thanks so much for your feedback and reassurance. You have all given me some things to think about. This is the first negative response I've received to my plan of property investment, so I guess it was always going to wobble me a bit - especially when it's coming from an accountant.
I always intended to ask him how many IP's he had, but then when the meeting started off quite quickly with this tone - I didn't want to appear like a smart a*se or defensive. I'm certainly no expert in this field as I am still learning, and I didn't want to appear to know it all - because I most certainly don't.
So I just sat and listened.
He also said:
- Most people sell when they don't see an increase in their property value in five years - suggesting we might do that.
- Many people sell when their property gets trashed by tennants - suggesting we might do that. We will have Landlords insurance.
- If my hubby is handy, then this may save some of the holding costs (he is)
- There is minimal tax advantage because my husband has salary packaging and pays barely any tax - I would get some tax advantage, but not huge. I told him we're not purchasing primarily for the tax advantage, but for the long term CG. He said we should have purchased in my name only so I could get all the tax benefits, however, my question is: what happens when the property becomes positively geared? Do you change the name on the title/loan?
- Because the house is 20 years old, things will start to need replacing - costing more to hold.
We have faith in the property values of this area, good diversification of economy, continued infrastructural and community development initiatives, house prices up and down - but similar to most regional communities in this uncertain economy.
We have faith in the property we've purchased: sound brick building, good, accessible location, large block suitable for sub-division, near schools, large shopping complex, public transport (not such an issue here as most people drive). In 1999 we purchased our first home in this area and we sold it in 2004 for a $65,000 profit. I have no reason to doubt that we'll see that cycle repeated - based on historical evidence.
You know, if he'd crunched the numbers with me and said "don't do it" on that basis, it would hold more water for me. However, he did a little loose number crunching but basically his fears were the GFC and our 95% borrowing (which we were lead to believe was a good strategy, not a negative one).
I should clarify that he did not say "Don't buy this property" but did say "if your finance does not get approved, I would not be concerned at all". It's the same thing said in a different way, that's all. He pointed out all of the risks.
I agree with you. Yes, I should have spoken to him before signing contracts - mainly because it would have given me time to recheck my figures, speak with another accountant (possibly) and re-confirm my decision. I guess I was pretty confident of my strategy though - didn't see a real need for an accountant's opinion previously and now I know why
He pointed out the risks involved - he did not say "don't buy this property" but he was certainly clearly against it. I am aware of the risks but have focused more on the benefits. I don't mind being informed of the risks. Agreed that's his job. Agree I would be complaining if he didn't point them out. I'm not questioning his role -he has a professional responsibility to point out the risk, which he has done. I'm questioning whether his D & G is justified. But I guess that's the same question we are all asking at the moment.Propertunity - thanks again for such an enlightening post.
I absolutely agree with this. I am convinced what I am doing is right and after speaking with a number of people about this issue, have been reassured. I know I have to have faith in the property cycle. It is good to be reminded of the risks, I guess. You go in with your eyes wide open then.
I didn't come back with arguments because I didn't want to appear defensive or not able to listen. I just sat and listened to him. Chewed it over. Poured my heart out to my SS forum advisors... and the rest is history
Rolf, what does this mean?
Our investment is long term. If I was looking for short term gains, I can understand our accountant's conservative views better. I think his view makes a difference due to our long term vision.
Thanks for your support and reassurance. Thanks also for those who suggested that I listen to his advice and reassess the risk factors, crunch the numbers again and do some forecasting. Your opinions are all valued.
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Really? I always thought there were three types of accountants.
Those who can count, and, those who can't.
I have no idea whether it's right for you to buy this IP or not, but the fact that the accountant's opinion has provoked such a strong reaction in you is cause for alarm. You need to be more sure of your decisions in yourself, and not so swayed by the views of others.
Newlywed
You mentioned that you were in it for the long haul. Excellent, If you are looking at holding for 15-20 years, then if the market falls tomorrow by 40% you shouldnt give a rats derriere..... because we all know, over time, it will recover, it will gain price and value, it will do what you need it to do.
Look at the people that got stung by the 2-tier marketing on the gold coast in the 80's and 90's.... buying units for 100k and finding out 3 years later that they were worth only 80k....
Those units are now worth 300-400k... In hindsight a good investment.... again time healed the wounds
You will find a motza of well meaning people that'll tell you that its a bad move. But this is your backyard, you know it (im assuming), and you know that this property could be something in the future...
Nothing ventured, nothing gained....If your gut says its good, then it probably is.
Luvvit.
You mentioned that you were in it for the long haul. Excellent, If you are looking at holding for 15-20 years, then if the market falls tomorrow by 40% you shouldnt give a rats derriere..... because we all know, over time, it will recover, it will gain price and value, it will do what you need it to do.
Look at the people that got stung by the 2-tier marketing on the gold coast in the 80's and 90's.... buying units for 100k and finding out 3 years later that they were worth only 80k....
Those units are now worth 300-400k... In hindsight a good investment.... again time healed the wounds
You will find a motza of well meaning people that'll tell you that its a bad move. But this is your backyard, you know it (im assuming), and you know that this property could be something in the future...
Nothing ventured, nothing gained....If your gut says its good, then it probably is.
Luvvit.
Why did'nt you ask him that?
He knows your situtation, nobody here could possibly know it.
Exactly!
Your accountant is doing his job.
Unfortunately like 90% of people out there, you are not understanding what he is saying.
And he's not making your decisions for you.
It's not "the same in a different way".
Nothing against you personally, but I encounter almost on a daily basis that when you
tell someone "maybe this could be a problem because of xyz" after a few
days they say "you said I should'nt..blah blah".
It's part of taking responsibility for your own actions, plans & future.
You can pass the responsibility of understanding what he said on him,
or take it unto yourself.
He's in a lose/lose situation no matter what he says in your case, and probly knows it. That's the life of an accountant.
As for 95% LVR, i sure agree with him, I consider it like the plague that needs medicated asap.
Even though you loan is small and you could likely bring that easily down to <80 within 12 mths.
You asked your accountant for his advice and he gave it.
End of story.
As to the question of whether he has any IPs, if you discounted the advice of any professional who hadn't actually done what you propose to do, you may as well take all your advice from anonymous participants on websites.
End of story.
As to the question of whether he has any IPs, if you discounted the advice of any professional who hadn't actually done what you propose to do, you may as well take all your advice from anonymous participants on websites.
Panicking!
Enthusiastically purchased our first investment property two weeks ago
CONGRATULATIONS!!
...and my house warming present to you is a little story
You are standing on the train station platform waiting for a train that you intend to catch to travel to a place that is called “Closer to Richville”
Your ultimate destination is “Richville” but there is no ticket that will take you directly there.
You have decided to catch the train to “Closer to Richville” and once you arrive there, decide on the route of the next journey that will take you to the next destination, which is called “Even Closer to Richville”
You hear the sounds of an approaching train and you suddenly look up and at the same time your glasses fall on to the hard surface of the platform and shatter.
You try to make out the sign on the front of the train but it is difficult to do so without your glasses.
You turn to the person on your left and ask them if this is the train that is going to “Closer to Richville” and they reply that they don’t think so but they really wouldn’t know as they only usually travel a couple of stations to “Mediocre-ville” and although they have heard of this place called “Closer to Richville”, they have absolutely no idea on how to get there.
You then turn to the person on your right and also ask them if this is the train that is going to “Closer to Richville”.
They reply that they don’t really know if this train actually goes to “Closer to Richville” because the only place they catch a train to is “Comfort Zone-ville” even though they have friends and business acquaintances from “Closer to Richville”, they figure that it’s not the right time to travel to “Closer to Richville” but they will, eventually, one day, when they get around to it and all the conditions are favorable contemplate going there.
Now you have a dilemma, ……If you catch this train, it might be going the wrong way and if that’s the case, you will end up at a place called “Further Away from Richville”.
You decide to not board the train at this time and wait for the next one that might have a larger sign on the front that you can read and be sure it will get you to “Closer to Richville”.
Many more trains arrive and you can’t read any of the signs and therefore remain waiting on the platform till the train services stop for the day and you walk home without ever having gone anywhere.
But if you had got on that first train, sooner or later would have figured out that it was either heading in the right direction or not. If the direction was correct, you would have reached your destination quickly. If the train was heading in the wrong direction, it would have reached the end of the line and turned back and then be heading in the right direction and ultimately you still would reach your destination although it would have taken somewhat longer. Either way you would have reached your destination.
By not getting on the train, you go nowhere.
Tread carefully but GET ON THE TRAIN!
I'm sure people could find flaws in the analogy, but I love this story, Jakk. Certainly it seems apt for newlywed1311's situation. Thanks for sharing it.
Actually, reading the OP it appeared she went to the accountant for advice on finance setup for tax purposes and instead got investment strategy advice.
So he gave advice alright, just not the one she asked for.
Aren't our individual replies a result of our own journey? For me, to decide to change course before the start of the race based on the accountant's advice is to negate the due diligence already done.
If the decision to buy was made prior to seeing the accountant (not accountant bashing here) or the hairdresser, or the neighbour or whoever...... the only thing that has changed is having spoken to someone who disagrees with your plan.
Our accountant and financial planner both said we were mad to stretch ourselves, but we went in with eyes open, and it has brought us "closer to Richville". If we had made a purchase that went pear shaped, we would just have sold it, made a loss, and moved on. We wouldn't be happy about making a loss, but it is better than giving up.
We took so many risks when we were young. We were lucky (or insightful) and they have paid off.
Apart from everything going absolutely pear shaped (which would affect everyone), if the rent is only leaving you $65 out of pocket, that will soon be caught up by rent increases. If that $65 is before you get a tax refund, then it is even easier. If interest rate rises are a concern, lock them in now while they are low, or at least lock in part of the loan to give you more flexibility.
I would possibly be more cautious now being closer to retirement than when we took bigger risks, but probably not.
I am not advising you, but speaking about how we have approached things over many years. We have had lean times, but went in with eyes open.
If the decision to buy was made prior to seeing the accountant (not accountant bashing here) or the hairdresser, or the neighbour or whoever...... the only thing that has changed is having spoken to someone who disagrees with your plan.
Our accountant and financial planner both said we were mad to stretch ourselves, but we went in with eyes open, and it has brought us "closer to Richville". If we had made a purchase that went pear shaped, we would just have sold it, made a loss, and moved on. We wouldn't be happy about making a loss, but it is better than giving up.
We took so many risks when we were young. We were lucky (or insightful) and they have paid off.
Apart from everything going absolutely pear shaped (which would affect everyone), if the rent is only leaving you $65 out of pocket, that will soon be caught up by rent increases. If that $65 is before you get a tax refund, then it is even easier. If interest rate rises are a concern, lock them in now while they are low, or at least lock in part of the loan to give you more flexibility.
I would possibly be more cautious now being closer to retirement than when we took bigger risks, but probably not
.I am not advising you, but speaking about how we have approached things over many years. We have had lean times, but went in with eyes open.
Hi, my 2 cents worth.
How likely will house prices go down from $209000?
Highly unlikely. For that to happen, all of us will be in shitsville.
Because, it means that it will cost less to build. That means that fees, taxes, rates etc will go down. Someone tell that to my council!
It means that brickies, electricians, surveyors, painters, metalworkers etc etc who are involved in the completion of a house must all take less pay.
Anyone knows a bricklayer or cement worker who will work for $20 per hour? I can arrange 2 years work for him right now, today.
My building consultant was trying to get me to build in regional SA. Guess what? It costs 10% more than in the big bad city. Because of infrastructure.
Someone tells me they think houses will be $150000, I'll tell him to get me 5 of them.
Good luck with your decision,
KY
How likely will house prices go down from $209000?
Highly unlikely. For that to happen, all of us will be in shitsville.
Because, it means that it will cost less to build. That means that fees, taxes, rates etc will go down. Someone tell that to my council!
It means that brickies, electricians, surveyors, painters, metalworkers etc etc who are involved in the completion of a house must all take less pay.
Anyone knows a bricklayer or cement worker who will work for $20 per hour? I can arrange 2 years work for him right now, today.
My building consultant was trying to get me to build in regional SA. Guess what? It costs 10% more than in the big bad city. Because of infrastructure.
Someone tells me they think houses will be $150000, I'll tell him to get me 5 of them.
Good luck with your decision,
KY
I appreciate all of your responses. You have assisted me re-affirm my decision but also to keep my mind open to risks. It's good to be exposed to people who don't agree as it helps you ensure your DD and to go in with eyes wide open. This I have done
Kudos to Jakk! Great story.
Ok: So this accountant is saying that your IP will not increase by $3380/annum over the next 20 years? (NG $65/week).
So: 20(yrs) x $3380=$67,600.
Therefore: This property will be worth only $272,600 in 20 years! An increase of 33%.
Piston Broke, Evan and Rolf, Now I KNOW you all know better than that.
Like it or not, that is a pretty ignorant assumption. If your accountant WAS doing his job as a few of you like to point out...maybe he should have done some number crunching?
Regardless of what some say here, I think they have forgotten that the first time can be a little scarey. Add on top of that an Accountant that throws in his uninformed opinion and no wonder you had some doubt.
It sounds like you have made up your mind and are feeling more confident about your original decision. Good for you and Good Luck.
Regards JO
Panicking!
Basically, he has a number of concerns. These are:
- We are borrowing 95% of the loan (though technically could increase our mortgage on our PPOR another $30,000 and then have a 'deposit' which would reduce our borrowing percentage)
- The market is flat and he believes it is likely to go into decline based on what is happening in Japan and USA.
- We will be negatively geared - I work it out to be around $65 a week. Quite affordable for us, but he claims we may be propping up a property that may still decline in value due to GFC.
- We have equity of around $67,000 in our PPOR which is what we are utilising as our line of credit to purchase our IP. He said he'd like to see us reduce this loan even further before considering an investment property.
- He's concerned that we (AUS) may be heading for a recession/depression that we may not recover from - so property price could decrease while we are still out of pocket trying to hold onto it. We have a 20 year investment plan, ie, not to sell until retirement and only if necessary.
Can anyone reassure me or will you tell me to listen to him?
Ok: So this accountant is saying that your IP will not increase by $3380/annum over the next 20 years? (NG $65/week).
So: 20(yrs) x $3380=$67,600.
Therefore: This property will be worth only $272,600 in 20 years! An increase of 33%.
Piston Broke, Evan and Rolf, Now I KNOW you all know better than that.
Like it or not, that is a pretty ignorant assumption. If your accountant WAS doing his job as a few of you like to point out...maybe he should have done some number crunching?
Regardless of what some say here, I think they have forgotten that the first time can be a little scarey. Add on top of that an Accountant that throws in his uninformed opinion and no wonder you had some doubt.
It sounds like you have made up your mind and are feeling more confident about your original decision. Good for you and Good Luck.
Regards JO
Geez.... thats really lame advice from your current accountant IMO.
True Josko, I can't believe the words from those regular members either.
True Josko, I can't believe the words from those regular members either.
Huh? what are you 2 smoking!?
The accountant never advised not to buy it, just pointed out what could
happen and what he think may happen.
I've posted a million times before: your accountant does'nt and should'nt make your decisions for you.
If you rely on accountants to make decisions, you have'nt done your homework. There role is of an advisor that gives an opinion.
And you sure want them to point out the worst case scenario.
I also posted that it's not much to pay in this case.
95% LVR is way too much imo and I've also posted that many times before.
Those that invested in SEQ went through 7-10 yrs of negative gearing and no CG. Anyone who thinks that's ok is not an investor, and I'll buy it from you at less than what you paid for it after it's cost you money every week to hold for 10 years. I will patiently wait until your wealth dies from a thousand interest rate & repayment wounds, like many did before you. And of course those who have borrowed 100%+ to buy their IP's.
Yes, good times are coming
The accountant never advised not to buy it, just pointed out what could
happen and what he think may happen.
I've posted a million times before: your accountant does'nt and should'nt make your decisions for you.
If you rely on accountants to make decisions, you have'nt done your homework. There role is of an advisor that gives an opinion.
And you sure want them to point out the worst case scenario.
I also posted that it's not much to pay in this case.
95% LVR is way too much imo and I've also posted that many times before.
Those that invested in SEQ went through 7-10 yrs of negative gearing and no CG. Anyone who thinks that's ok is not an investor, and I'll buy it from you at less than what you paid for it after it's cost you money every week to hold for 10 years. I will patiently wait until your wealth dies from a thousand interest rate & repayment wounds, like many did before you. And of course those who have borrowed 100%+ to buy their IP's.
Yes, good times are coming
This is really quite simple.
Accountants should advise you regarding the best way (structure, make sure you claim everything you can etc) of going about what you are trying to achieve. They should also point out what may happen and check you have considered the downside. They should not advise you regarding the probability (or lack thereof) of investment success. To do so would suggest they know more about the future than the market. They can of course advise of the historical performance of different investments alongside the proviso that past performance is no guarantee of future performance etc.
If an accountant tries to predict the future performance of your investment then treat that advice as if it came from your postman, particularly if their net worth is similar, which it often is.
I disagree. When you have the option of receiving advice from someone who is a successful investor and operates on a higher level than you do, wouldn't you take it? Any qualified accountant can do the legal / structure / tax advice right (apart from the strategic bits) but I'm talking here about investment advice.
For the purpose of charting a course to the future wealth and financial security of both myself and my family, I will always seek out those who have gone before... Past performance may be no guarantee of future success but it's a damn good predictor!
And Jakk - that was great - kudos! The best way to learn about how to get there is to jump on the train yourself, even if you do just go in circles for awhile... then your future success will be less dependent on the advice of others.
Accountants should advise you regarding the best way (structure, make sure you claim everything you can etc) of going about what you are trying to achieve. They should also point out what may happen and check you have considered the downside. They should not advise you regarding the probability (or lack thereof) of investment success. To do so would suggest they know more about the future than the market. They can of course advise of the historical performance of different investments alongside the proviso that past performance is no guarantee of future performance etc.
If an accountant tries to predict the future performance of your investment then treat that advice as if it came from your postman, particularly if their net worth is similar, which it often is.
I disagree. When you have the option of receiving advice from someone who is a successful investor and operates on a higher level than you do, wouldn't you take it? Any qualified accountant can do the legal / structure / tax advice right (apart from the strategic bits) but I'm talking here about investment advice.
For the purpose of charting a course to the future wealth and financial security of both myself and my family, I will always seek out those who have gone before... Past performance may be no guarantee of future success but it's a damn good predictor!
And Jakk - that was great - kudos! The best way to learn about how to get there is to jump on the train yourself, even if you do just go in circles for awhile... then your future success will be less dependent on the advice of others.
Hi all,
Off Topic,
I lost all concentration reading this thread when I saw 'JAKK the Slumlord' was back. How have you been Jakk with your 4 year holiday from posting?
To most of the posters in this thread, Jakk is not known, but when it comes to IPs in country Vic, I'm pretty sure he knows what he is talking about. I recommend the newer members of the forum do some research on some of his older posts.
On Topic,
Most people are tending to forget the rent on this property over the long term. Assuming 3% inflation, the rent is going to be over $21,000 pa in 20 years time. After 2 or 3 years, this property will become positively geared. Simply using the rent (above interest) to pay down the mortgage, will give you an enormous buffer against any possible collapse in property prices.
The only way I could see you coming unstuck, is if this regional city was having a population decline.
bye
Off Topic,
I lost all concentration reading this thread when I saw 'JAKK the Slumlord' was back. How have you been Jakk with your 4 year holiday from posting?
To most of the posters in this thread, Jakk is not known, but when it comes to IPs in country Vic, I'm pretty sure he knows what he is talking about.
I recommend the newer members of the forum do some research on some of his older posts.On Topic,
Most people are tending to forget the rent on this property over the long term. Assuming 3% inflation, the rent is going to be over $21,000 pa in 20 years time. After 2 or 3 years, this property will become positively geared. Simply using the rent (above interest) to pay down the mortgage, will give you an enormous buffer against any possible collapse in property prices.
The only way I could see you coming unstuck, is if this regional city was having a population decline.
bye
