"The Week That Was: 20-26/10, 1999"

From: Mike .

Hi All,

Before we start, just want to thank those who replied positively to the recent editions of TWTW. It seems some people are actually enjoying them. I'll keep going until you've all shaken off your Old Forum Blues.

This week is notable for the longest thread to date of 10 posts, started by Les, called "5 Year Crunch". Anybody guess what that term might mean? All up there were just 4 threads and 21 posts in total.

Topics included: P&I v IO, PIA, Advice re Defamation Marketing Mob, Expiry of IO Loan (aka 5 Year Crunch). BTW, Les, what did you do in the end re the 5YC?

Lots of Quotable Quotes to choose from:

From Les: "But watch out - I remember reading "Solicitors will tell you that verbal contracts are every bit as binding as written ones - and they'll happily spend your money to prove it!"

From Boyd: "No, the RAAF won't pay for my new place as it's not RAAF owned or leased. It would be great if I could talk them into paying off my own home. Everyone would enlist!!!"

From Les: "Good for you, Boyd - and (says he donning his Devil's Advocate hat) was this purchased IO, or P&I ? ;^) <--- Note the evil wink!"

From Rob: "First: Your answer (Les) has helped me to crystalise the potential possibilities. Why aren't we all doing this??!?!!?!?!?"

Me: Why aren't we all climbing Mt Everest, Rob? I guess climbing doesn't appeal to a lot of people and spending appeals to more people than saving and investing.

From Les: "Anyway, Boyd, re my profession - I'm a problem solver from way back - in the computer industry. The real estate arena is relatively new, but I am both an avid reader, and questioner - I tend to play with myself, too ;^)"

Me again: See Les' problem solving ability in this weeks Classic Post. (Groan) Sorry, Les, I just noticed a cut and paste error in the previous paragraph. The last sentence should read: "I tend to play "devil's advocate" with myself, too ;^)"

Is this SPAM creeping into the forum?

"I have not heard of this company but they may be fine. I have three places in the Brisbane area and have been using EZiPAC Family Property. Dealing directly with the owner and builder, Fred Minter. Phone 07 38012427. I could honestly recommend him and have found him to be as honest as the day is long. Hope this helps. Mark"

Me: As I see it, this info is OK if asked for, otherwise it is unwanted SPAM. Am I right?

Now, to this weeks Classic Post. Les gets my gong for just attempting to answer this complicated post, which had 5 questions in it. Nobody else had the balls to have a go at this one from Rob. (The Wife wasn't posting, yet) These quotes from the thread gives you some idea of the mind-numbing, number crunching detail involved in Rob's scenario.

From Les: "I hope your head isn't spinning, 'cos it might be about to start !!!! ;^)"

From Rob: "Thanks once again Les. Anyone got an aspirin for my headache?!?!"

Here's Rob's Post:

Hey all. I just stepped out onto the road of owning [building] my own home, the great Australian dream. Until recently, I understood the world in terms of having the loan and paying it out. Out of the blue, I found "Building Wealth...". My mind is now racing with the possibilities!

OK, there are a couple of queries I would appreciate some property investment angels to consider and comment on.

So my situation is this. I bought the block of land outright and the credit union have loaned me 100% of the construction value of the house, $140k odd. The credit union have taken a mortgage over the block and house. The loan currently a variable loan, daily interest, no penalty, no fees, flexible repayment type loan. The house is at putting up the frame stage. Oh and I'm single. So my cash flow is from a single source.

So my plan was to take the 25yr loan in order to get the lowest minimum repayments and I was also going to share out the other two rooms. My thinking was that between rent and paying extra from my salary, I'd knock off the loan in about 8 - 9 yrs. Obviously this is an after tax mentality. If I was going to be sneaky, I would have used most of my salary for the loan and then lived off the cash rent therefore minimising [illegally?] the additional tax liability. But NOW a whole new world of opportunities have opened up.

Until I read the book I didn't even know that I could potentially negatively gear 2/3 of the loan [3 person house, 2 pay rent], and claim a bunch of other deductions too... all while living in the place as well. I understand that there are CGT implications in doing this, but as I don't understand them, I'd like to ask where can I go to look into it??

Jan's plan also seems to require at least having some equity in your own property to kick off the portfolio. So that means that this first loan *has* to be a P&I type loan. Is this a given? I calculate that the loan could be repaid in about 7 yrs using the 2/3 -ve gearing benefits [assuming I want to share for that long!]

Now I'm entertaining other ideas of continuing to share where I am and turn the house into an investment property inorder to claim full negative gearing benefits. Even so, the way I read the plan, the loan would still need to be a P&I loan in order to build equity. The down side of this though, is that I would have to pay rent. The dollars almost figure out the same way as if living in the place cause sharing or forgoing 1/3 of the rent by living in the place have the same impact on the bottom line. So I was wondering whether there were any views about the "living in" versus the "living out" scenario.

I see some of the forum folk talk about making the first house IO while still renting a place. So that makes me ask, how do you kick off a portfolio after that first place if you never develop any equity????? To buy another place IO would mean you'd have to do some amazing sweet talking to get the bank to accept the investment property as the sole security for the loan? And doesn't that also mean that you're always well behind cause you have to fund your own rent, plus the difference between the taxman and renters on any properies you IO buy??

Too many questions!!! Why didn't I find this book years ago????

Look forward to hopefully a lively discussion with a single's investing point of view in mind.

Thanks in advance.

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Reply: 1
From: Les .

G'day Mike,

Re your comment (below)

>> Topics included: P&I v IO, PIA, Advice re Defamation Marketing Mob, Expiry of IO Loan (aka 5 Year Crunch). BTW, Les, what did you do in the end re the 5YC?

Answer: "The end" hasn't come about yet - I'm still 3 years away from that (told you I was a newbie, didn't I??) - was just thinking WAY in advance when I wrote that one...

When will you get your computer fixed, Mike - all those cut and paste errors can't be good for it ;^)


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