Comments on: Property Investment Part 2

By: Passion

Passion — Wed, 26 Sep 2007 01:03:00 +0000

Sorry for being late!!
Alan you already know my stance on property investment as we discussed a bit off your blog. Just want to agree with what Warrick said “you can claims heaps on depreciation”. Recently we received a sizeable cheque from the tax department and 75% of the refund was claiming on depreciation! We are not in property investment. But any business should be able to claim heaps from depreciation. Cheers

By: Alan Howard

Alan Howard — Thu, 20 Sep 2007 01:25:00 +0000

I’m looking at all sorts of options right now, including cashflow positive investments, where the income exceeds the cost. That would only come from a low-valued property that’s got a good rental return. Based on what seems to be market value in the area, the house my brothers are in would return a 7.5% yield. That’s if I get it at value. If I get it at a reduced price, that only raises the yield.

Finding high-yield properties is, I think, better than hoping for capital gains in the future. If you can actually make money from them from day one, instead of them costing you money, then the increased income can be used to go back into other investments. For example, a strategy I liked that I learned about a few years ago is that for every two cashflow positive properties you have (eg. low capital gains but high yield) you have one negatively geared property for the capital gains. The money you earn from the CF+ properties would cover the cost of the negatively geared property.

I’m more interested in having a property manager to look after the nitty gritty, and just claim back the costs against tax. That way I don’t have to worry about chasing after landlords. Much easier, I think, especially if you just want to reap the rewards without the stress and hassle.

MrsJ and Warwick, thanks for all your tips. The good thing about having you provide them via this blog is that they’re there for me to refer back to, and that your tips can help others too.

Does anyone else have any tips to add?

By: Warwick

Warwick — Wed, 19 Sep 2007 11:16:00 +0000

Hi Alan,
This is a topic I’m rather passionate about, so apologies if I’m a little vocal.

Here’s a few other bits of advice that aren’t obvious:

- The cost of buying and selling a property is significant. Some items are tax deductible, others aren’t - get a good accountant! One that isn’t obvious and I gather is correct is that in the ACT if a property is bought for investment, stamp duty is tax deductible (this is related to the land being leasehold I think).
- Property management fees are usually 10% of rent or higher. You can manage a property yourself, and I have all the documents for ACT property management laws etc. It’s easy when the tennants are good - but can get very awkward if there are any disputes.
- Get a depreciation schedule done. There are professional companies like ‘write-it-off’. You can legally claim heaps on depreciation.
- If you decide to sell the property and you’ve made a capital gain on it, you will incur capital gains tax. Specially nasty in the first 12mths.
- Go crazy on insurance for liability, loss of income etc.
- In these uneasy times, DHA houses may be an option. Returns aren’t as good, but you have guaranteed rent for a long period of time and they fix the house up at the end of the term.

I could go on, but I’ll stop now
And of course, I don’t purport to be an expert, so check all I’ve said, but hope the advice is worthwhile.

Warwick

By: mrsj

mrsj — Wed, 19 Sep 2007 04:31:00 +0000

Personally, I believe we’re in a bull market and, as such, I wouldn’t be buying a thing. Unless you spot an out and out bargain. There will be another interest rate rise in the next two months, after which I think we’ll start to see bargains. Have a look at domain.com.au as they always have great articles about what the market is doing.

By: Alan Howard

Alan Howard — Wed, 19 Sep 2007 03:23:00 +0000

Thanks mrsj. I’m feeling more like investing in a known market now, but I’m sure I had to experience what I did in order to learn from it.

I think everyone’s glad I’m out of it… So maybe you could give me some advice as to what you think I should get IN to?

Give me some tips about where to buy, what to look out for, the best way of buying, etc. I’m all ears.

By: Warwick

Warwick — Wed, 19 Sep 2007 00:49:00 +0000

I’m glad you are getting out of that one. That was close! I held my tongue when I heard you were going down that path. I’ve heard heaps of horror stories of people being flown up to QLD from CBR for ‘investment opportunities’. Beware!

Warwick

By: mrsj

mrsj — Tue, 18 Sep 2007 23:40:00 +0000

I’m glad you got out of it. When you said developing areas of Melbourne, my heart sank because I know the developing areas of Melbourne’s fringe are, for the most part, stagnant at the moment thanks to interest rate inceases. Inner Melbourne is booming (we just sold our house for a price that was a whopping $250k more than it was valued for at the start of the year) but outer Melbourne is floating. I’d suggest you invest in a market you know well, not just in terms of what looks good on paper, but places you have lived in and know well enough to have that ‘gut instinct’ about.