Bronwyn&Co Posted July 18, 2014 Author Report Share Posted July 18, 2014 Thanks guys I think we'll see if the tenants renew for a fourth year. If they do, we can sit tight a bit longer. If they go we'll be forced into a decision. Quote Link to comment Share on other sites More sharing options...
vaughanroe Posted July 18, 2014 Report Share Posted July 18, 2014 This topic will have everyone offering an opinion and likely the opinion will will have everything to do with their own circumstances.My personal belief is buy a property you will live as soon as you can and get working on the mortgage ensuring you are able to pay in an extra 10%+ each month. Prices will rise and fall as they do but over time will rise and grow (unless you perhaps have a place in Jeffreys Bay South Africa...).If managed correctly you can get ahead and in the event of work conditions pushing you to move to a different part of the country then you should be in a position where the property has grown in value through the market and from a little elbow grease which will mean you could potentially rent the place to cover your mortgage through rental. All rental properties and prices are subject to the supply and demand in the area but safer ideas are to buy near decent schools and facilities.Now the average property doubles its value every 7 - 10 years (give or take) so if we bought a place for 500k in 2010 then the theory is that it will be worth 1 mil in 2020 on the market (yes i know that the value is only realised when it is sold.) It might be a forced saving scheme but it works over and over, especially when you are willing to put effort into the place.One of the biggest mistakes people make it trying to keep up with the Jones's and they buy a place and the minute they have a little equity in the property they look to getting a bigger/newer/"nicer" place.Not only does this property cost more but it also means paying more taxes and fees and duties. DO this a few times and you figure out it all adds up.I reckon the best really is to buy the best place you can afford and decide the property is where you want to stay for a long time.I do wholy aggree with whoever it was in the posts who said that the people who rent are usually ones with ego bigger than brains and they want to live in an area they cannot afford to buy in. Quote Link to comment Share on other sites More sharing options...
Bronwyn&Co Posted July 18, 2014 Author Report Share Posted July 18, 2014 (edited) I haven't seen any evidence of properties doubling in price in Australia every 10 years...we sold a house in Adelaide in late 2008 for $610k and I think it's worth about $550k now, 6 years later.City views, 6kms from the CBD, 3 bedrooms, 2 new bathrooms and a beautiful kitchen we did ourselves. All brick. We were lucky to sell at the top of the market.We put the money into the Brisbane house in Dec 2010 and now nearly 4 years later I think we will lose about $50k if we sell... Edited July 18, 2014 by Bronwyn&Co Quote Link to comment Share on other sites More sharing options...
Heymanse Posted July 18, 2014 Report Share Posted July 18, 2014 I do wholy aggree with whoever it was in the posts who said that the people who rent are usually ones with ego bigger than brains and they want to live in an area they cannot afford to buy in.I cannot disagree with you more. Like you mention in your first sentence - "This topic will have everyone offering an opinion and likely the opinion will will have everything to do with their own circumstances." We currently rent a very small 1994-built 3 bedroom house (at $610 per week) which happens to have a granny flat which is used by my 22 year old daughter who pays us board and lodging of $100 every fortnight . My ego is anything but big and yes, maybe I have no brains because I am at a loss how anyone can afford to save up for a deposit when they have to live from paycheck to paycheck. Not all of us can afford to buy a home. Not all of us earn large incomes and have hit the proverbial pot of gold when they immigrated to Australia. If I could, I would buy a house tomorrow. But that is just not on the cards for us. And believe me - I REALLY wish we could because I am sick and tired of renting and not feeling like we belong because we have to keep moving. It is no fun having to move this many times and this is now our 4th rental in 6 years we've stayed in. And no, I don't live in the area even though I cannot afford it. I live in the area because it is the most centrally located for myself, my husband and my daughter with regards to home location versus work locations. 1 Quote Link to comment Share on other sites More sharing options...
Nev Posted July 18, 2014 Report Share Posted July 18, 2014 Hi VaughanroeJust a correction:According to the 20 year average house prices increase at 3%, that means a house doubles in price every 23.5 yearsThere will be a lot of ups and downs on the way, but long term that is what you are looking at Quote Link to comment Share on other sites More sharing options...
Bronwyn&Co Posted July 18, 2014 Author Report Share Posted July 18, 2014 (edited) I don't know if this will help anyone but bbop put a link on the forum previously to these people who apparently do a 100% mortgage. I saved it for future reference http://www.mortgagehouse.com.au Edited July 18, 2014 by Bronwyn&Co Quote Link to comment Share on other sites More sharing options...
Heymanse Posted July 18, 2014 Report Share Posted July 18, 2014 Thanks Bronwyn&Co. I'll have a look at the link. 1 Quote Link to comment Share on other sites More sharing options...
ottg Posted July 18, 2014 Report Share Posted July 18, 2014 According to the 20 year average house prices increase at 3%, that means a house doubles in price every 23.5 yearsYou need to narrow your search further because the 3% refers to national average.Many suburbs exceed the national average by far.Since the GFC the markets were in general depressed aka corrected(Its like the share market - many market segments have different growth cycles)You need a methodological way to search for those gems - they are out there but its a tedious process!Out of the 100 you eventually decide to evaluate only one will pass the final analysis.Not many will tell you how and that is why buyer agents can charge for their services Quote Link to comment Share on other sites More sharing options...
ottg Posted July 19, 2014 Report Share Posted July 19, 2014 I'd pay it off and keep it...How do I evaluate different scenarios?Identify the different PI scenarios and associated risk for example:a. Property with No equity, low depreciation and no tax benefitsb. Sell property and buy a better opportunity (higher risk)c. Pay property off and live on rental incomed. Pay-off for 5 years, re-finance and purchase new property with tax benefitse. What if I keep monies in a savings account (low risk)Use any Property Investment Analysis tool and calculate for each scenario the Internal Rate of Return over 3, 5 and 10 yearsIRR takes into account the cashflow over a period discounted to today’s rate.Keep the assumptions the same for each scenario across all scenariosCompare for best results and make an informed decisionDevelop a strategy that fits the best result. Stick to your plan but review annually.Here are two short videos that explain the method.http://www.youtube.com/embed/wE2iOrwofok?rel=0http://www.youtube.com/embed/BdS3BteU_5Q?rel=0 1 Quote Link to comment Share on other sites More sharing options...
Donovan83 Posted July 20, 2014 Report Share Posted July 20, 2014 Also... and this is something it took me AGES to realise... accept that buying an investment property involves a much, MUCH bigger focus on financial returns than buying a place to live in. You can't ignore the financial aspect when you buy to occupy, but realise that trying to balance a place you'd like to live in, with a place that will earn you the biggest return, is almost impossible. Quote Link to comment Share on other sites More sharing options...
Nev Posted July 20, 2014 Report Share Posted July 20, 2014 @ottgI had a look through the video link and that is a pretty good calculator, you could possibly do it yourself (I got most of the way there with my excel sheet) with a bit of homework, But if theirs is not too pricey just use their appJust a thought though, take that or any other calculator and feed in the average property rate for the last 20 years, then the high and lows from the last 10 years and see what impact that will have on your cashflow across your entire set of properties when, not if the rate goes back up, then have a look at how long your property could stand open before you would run into trouble.A lot of these methods & guides don't look at the risks and then you in trouble, not paying off properties, negative gearing and all those concepts are really great from a tax perspective until the rate goes up or you have a problem (Like a fire or damage) and sit without a tenant for 6 months, make sure you are able to survive and how much risk you are willing to bear. 2 Quote Link to comment Share on other sites More sharing options...
Bronwyn&Co Posted July 20, 2014 Author Report Share Posted July 20, 2014 (edited) Thanks Bronwyn&Co. I'll have a look at the link. Heymanse I just wanted to share this Whirlpool link. Loving the Dalby homes you can buy second hand. They could be really beautiful when done up well. So many options...http://forums.whirlpool.net.au/archive/1909177 Edited July 20, 2014 by Bronwyn&Co 1 Quote Link to comment Share on other sites More sharing options...
miraclebabycaw Posted July 22, 2014 Report Share Posted July 22, 2014 For those that invest and don't buy...don't you pay a fortune over to the ato every year? We had all of our money from RSA in an investment account for the first 6 months of the tax year, then used it as a deposit for our house. No other income except both our incomes and the interest. We now have to pay the ato. Our interest only worked out to about $3200 split between hubby and I. We are well below the $150K tax bracket. I have to pay $480 to ato. Hubby doesn't but only because his first employer over taxed him a bit. The calculations for investments don't account for this? Quote Link to comment Share on other sites More sharing options...
chzaau Posted July 22, 2014 Report Share Posted July 22, 2014 Do you pay any land tax on your property? Don't forget yo2u property transfer tax when you bought it.One thing you can do with investments is write losses off from one year against another year. Quote Link to comment Share on other sites More sharing options...
Nev Posted July 22, 2014 Report Share Posted July 22, 2014 (edited) yep, you also pay capital gains tax on the increase in the value of your property when you sell it, so you get taxed regardless Edited July 22, 2014 by Mara Only if it is an investment property, not the property you live in! Quote Link to comment Share on other sites More sharing options...
Fish Posted July 22, 2014 Report Share Posted July 22, 2014 (edited) For those that invest and don't buy...don't you pay a fortune over to the ato every year? We had all of our money from RSA in an investment account for the first 6 months of the tax year, then used it as a deposit for our house. No other income except both our incomes and the interest. We now have to pay the ato. Our interest only worked out to about $3200 split between hubby and I. We are well below the $150K tax bracket. I have to pay $480 to ato. Hubby doesn't but only because his first employer over taxed him a bit. The calculations for investments don't account for this?People often invest in shares that are fully (or partially) franked...ie they are taxed at company rates at source before paying out dividends....no personal income tax is payable on these share dividends. See: https://www.amp.com.au/wps/portal/au/AMPAUGeneral3C?vigurl=%2Fvgn-ext-templating%2Fv%2Findex.jsp%3Fvgnextoid%3D13d0afb267c53310VgnVCM1000008801440aRCRD Edited July 22, 2014 by Fish Quote Link to comment Share on other sites More sharing options...
ottg Posted July 22, 2014 Report Share Posted July 22, 2014 For those that invest and don't buy...don't you pay a fortune over to the ato every year? One of the greatest personal investment you can make is in understanding financial and investment analysis... and the time value of moneyBy understanding the mechanics behind the share markets, property markets, futures, bonds and trading markets you will be able to make well informed decisions and hold a conversation with any expert adviser.Read 5 books on each investment instrument and you are there!To answer your question - yes but far less than the actual money you received in income. Quote Link to comment Share on other sites More sharing options...
Bronwyn&Co Posted July 22, 2014 Author Report Share Posted July 22, 2014 (edited) For those that invest and don't buy...don't you pay a fortune over to the ato every year? We had all of our money from RSA in an investment account for the first 6 months of the tax year, then used it as a deposit for our house. No other income except both our incomes and the interest. We now have to pay the ato. Our interest only worked out to about $3200 split between hubby and I. We are well below the $150K tax bracket. I have to pay $480 to ato. Hubby doesn't but only because his first employer over taxed him a bit. The calculations for investments don't account for this?Miracle baby that sounds correct. The thing is you guys had the money in a normal bank account and the interest was added to your income. If you are normal salary earners it is not easy to claim extra expenses, but there are some.If you use your personal car for work (other than commuting to and from work), I believe you can claim something but you are supposed to keep a log book.If you did a course and it related to your job, you can claim the fees. It is an expense for the tax year.If you bought a laptop which you use for work it may be possible to claim something.If your family's total medical expenses exceed a threshold, something is claimable.Did you get a certificate from your private medical aid? That proves you had cover and brings your medicare levy charged on your salaries right down. Did you hand those in?? It's a big chunk.On the other hand we are more talking about investing in property, where you can claim all your investment property's expenses. So in our case we claim the garden & pool service, everything that breaks, everything we spend on the property. In addition you get a 'Depreciation Report' on the ppty and it costs about $600 (also claimable), but with this an expert visits the ppty and compiles a report detailing the depreciation annually, so each year we get a big chunk of depreciation we can claim as an expense.If you are lucky and vigilant, your expenses (include interest on the mortgage) equal your rental income and at the end of each year you break even. If there is a loss at the end of the tax year you can offset it against your personal tax.Then after a few years you sell for a profit, pay capital gains tax, and the rest is yours.Well, that's the theory ? Edited July 23, 2014 by Bronwyn&Co Quote Link to comment Share on other sites More sharing options...
Donovan83 Posted July 22, 2014 Report Share Posted July 22, 2014 Its amazing how few people (here in Aus as well) don't understand the concept of claiming a deduction for tax, versus claiming something back. I spoke to someone the other day that honestly believed that "claiming back" meant "receiving 100% back" from the ATO. All that claiming a deduction does is reduce the amount you will ultimately pay over to the ATO. So to use the example above of being able to claim the $600 back for the depreciation report doesn't mean the ATO credits you with $600, it means they take whatever rental you earned, less whatever costs (including the $600) and then tax you on what's left. So the real benefit is probably only around $200 at best, and you will always have to spend more than the "raw" tax benefit.I knew someone in SA that misunderstood this and once she'd reached the threshold for claiming a deduction for medical expenses, she was going to the doctor excessively and getting all the medicine she could get, thinking that she'd claim it back and get SARS to pay... she looked miff when she realised that wasn't the case 1 Quote Link to comment Share on other sites More sharing options...
Nev Posted July 23, 2014 Report Share Posted July 23, 2014 (edited) Yep, Donovan is spot onthis is an over simplification and the tax rates vary slightly but it explains the concept, A good way to think of it is that you, as a person, are a company:The tax man will be taxing you on your profits for the month, so all the money you get in, be it from salary, property rent, interest earned ...etcFor Example:Salary - $ 100Savings interest at bank - $ 2Rent from investment property - $10Extra job income - $15Total Income - $ 127Less all your expenses that you had getting that money, you can include repayments and rent on investment properties but not properties you are living in, you can claim car usage that you can prove was driving around on behalf of the work, computers and stationary that was for work use, but not general living expenses as that was not specifically for work, just remember that you may be asked to prove it was for workInvestment Property mortgage $8Investment Property Repairs $1Total Deductions - $ 9Total income less total deductions 127-9 = $ 118Your tax rate is 35% (For example) so your tax for the year is $ 41.30If during the year you paid more than that you will get money back and if not you will pay inSo this brings us to negative gearing on a property that everyone talks about:Negative gearing means that your property expenses more than your income from the property, you will therefore never make a profit and not have to pay in tax on the property rental "profit", you also dont pay properties off as then you will begin making a profit and get taxed, this is fantastic on paper as you minimize tax while maximizing your investment.....Right up till the point where the interest rate goes back to the average and for every 100k you have mortgaged your payment goes up by $ 122 times by the properties you have and the price of the properties your negative gearing suddenly becomes reeeeeeely negativeAlso:Deductions you can make by law:https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/ Edited July 23, 2014 by Nev Quote Link to comment Share on other sites More sharing options...
Bronwyn&Co Posted July 23, 2014 Author Report Share Posted July 23, 2014 (edited) Spot on. I also highly recommend getting a professional to help with tax. They have always 'paid for themselves' in our case and we usually get something back over and above that. Edited July 23, 2014 by Bronwyn&Co 1 Quote Link to comment Share on other sites More sharing options...
21yearsoutofrsa Posted July 23, 2014 Report Share Posted July 23, 2014 So agree. People use the words "claim back", "rebate", "tax deduction", "tax expense" and "tax refund" very indiscriminately and often think they mean the same thing. Quote Link to comment Share on other sites More sharing options...
Fish Posted July 23, 2014 Report Share Posted July 23, 2014 Add to that not understanding the difference between a marginal tax rate versus overall % of salary paid in tax. Quote Link to comment Share on other sites More sharing options...
vaughanroe Posted July 24, 2014 Report Share Posted July 24, 2014 I cannot disagree with you more. Like you mention in your first sentence - "This topic will have everyone offering an opinion and likely the opinion will will have everything to do with their own circumstances." We currently rent a very small 1994-built 3 bedroom house (at $610 per week) which happens to have a granny flat which is used by my 22 year old daughter who pays us board and lodging of $100 every fortnight . My ego is anything but big and yes, maybe I have no brains because I am at a loss how anyone can afford to save up for a deposit when they have to live from paycheck to paycheck. Not all of us can afford to buy a home. Not all of us earn large incomes and have hit the proverbial pot of gold when they immigrated to Australia. If I could, I would buy a house tomorrow. But that is just not on the cards for us. And believe me - I REALLY wish we could because I am sick and tired of renting and not feeling like we belong because we have to keep moving. It is no fun having to move this many times and this is now our 4th rental in 6 years we've stayed in. And no, I don't live in the area even though I cannot afford it. I live in the area because it is the most centrally located for myself, my husband and my daughter with regards to home location versus work locations.Heymanse,I am sorry if my response upset you or touched on a nerve. I am also very sorry to hear that you are not managing financially to save or invest and have to, as you put, it live from month to month or paycheck to paycheck. I can assure you many others are indeed in the same boat. As I do not know you I can assure you that I was not directing an insult at you as I do not know you in any way shape or form and thus have zero idea whether you are a good person or an idiot. Being the kind of person to give the benefit of the doubt I will assume you like most everyone in this world a hard working person who only wants the best for themselves and family.My comment was directed at those who CAN afford to buy BUT choose to rent in an area due to mostly status factors or percieved prestigious areas thinking that it makes them something special (or any other darn reason they want to employ).Hope this clears it up a little for you. Have a great day now!Hi VaughanroeJust a correction:According to the 20 year average house prices increase at 3%, that means a house doubles in price every 23.5 yearsThere will be a lot of ups and downs on the way, but long term that is what you are looking atHi Nev,Yeah mate I took a liberal look at the figures based on actual results of friends or family who have realised this growth. See prefer to talk about things from a viewpoint of knowledge. An example would be that I know someone who lives in the same area as I do who bought their house in 2003. They paid $235 000 for a 4 x 2. Today (11yrs late) the same property is worth +$600 000 and similar or lesser properties have been sold in the area for more. I have realised growth in the "value" of my own home based on purchase price and current market" value". This growth may be luck or may be because i have put time and effort in to working on my home. I could give you more examples whether in SA, UK or Aus. Fact is that you need to loook at historical values and not just the last 4 yrs as we all know that hassles with values over the last 4 yrs and the general state of the economy.Someone else mentioned substantial losses they made in the Adelaide and Gold Coast housing market I think it was? I am very sorry to hear of your loss and that your investments did not deliver the desired results. It is a shame that this happens, if you manage to hold out for a few years without having to sell I think you will see prices rise again as the economy stabilises. And no I am not talking about BOOM time but a gentle growth. Quote Link to comment Share on other sites More sharing options...
Heymanse Posted July 24, 2014 Report Share Posted July 24, 2014 Heymanse,I am sorry if my response upset you or touched on a nerve. I am also very sorry to hear that you are not managing financially to save or invest and have to, as you put, it live from month to month or paycheck to paycheck. I can assure you many others are indeed in the same boat. As I do not know you I can assure you that I was not directing an insult at you as I do not know you in any way shape or form and thus have zero idea whether you are a good person or an idiot. Being the kind of person to give the benefit of the doubt I will assume you like most everyone in this world a hard working person who only wants the best for themselves and family.My comment was directed at those who CAN afford to buy BUT choose to rent in an area due to mostly status factors or percieved prestigious areas thinking that it makes them something special (or any other darn reason they want to employ).Hope this clears it up a little for you. Have a great day now!There are still hope for humanity when people can apologise to one another - thank you for apologising and I do accept your apology. I want to apologise for jumping on you so quickly. You are correct when you say that you did touch a nerve. That kind of happens when you are not only surrounded by colleagues and friends but also people you know on social media (like this forum) buying houses and apartments as if it is going out of fashion and "poor little old me and hubby" sitting on the sidelines having to watch and hear all the ins and outs of it, wishing with every fibre of our being that it could be us, but knowing that we probably won't be that fortunate. We'd probably only be able to be in that position by the time we turn 50 and by then, I'm almost inclined to think it would be better to put the money we would have spent on a property on a monthly basis into our superannuation fund seeing as we had to start from scratch when we landed in Australia having had to use all of 18 years of savings and pension to be able to make the move. But time will tell and things change and who knows, maybe things will look better for us tomorrow.We ended up going to the Sydney Home Buyer & Property Investor Show and picked up a complimentary book from Stuart Zadel called The New Way to Make Money in Property Fast and also received 2 free tickets to attend his 'Ultimate Property Entrepreneur & Investors Conference' in September where we would be able to gain valuable information and ideas. We're trying to make ourselves more knowledgeable in this area so that we can weigh up our options when the time comes and we are able to get into the property market. Knowledge is Power Quote Link to comment Share on other sites More sharing options...
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