Kikapu wrote:Paphitis wrote:Kikapu wrote:Paphitis wrote:Kikapu wrote:Paphitis wrote:Kikapu wrote:Paphitis wrote:miltiades wrote:Right now my advice is to sit tight.
Alternatively get shot of the plots to someone wjo can afford to develop.
What do you mean get shot and who said he can’t afford to develop?
Let me repeat it once again.
Person A is asset rich with a nice home, a few rentals earning residual income plus his excellent wage.
He has a plot that is freehold and can subdivide into 3 but needs 2 million to see the project to lock up, final fix and land scaling.
If he borrows the last 2 million to finish the project he ends up with 3 assets on 3 titles worth about 2 million each.
Should he borrow the money if the banks deem him credit worthy and build or should he not borrow the money and not build?
And if he builds, should he rent the 3 houses for $1000 per week, sell 1 and have 2 left over freehold or sell or 3 and cash up?
You left out at what interest rate the bank will charge you on the 2 mil. Also, what will be the total investment to build the 3 units?
Interest rate 5% interest only and no mandatory principle payments but voluntary down payments of principle are allowed.
So costs of about 100K per year once complete plus council rates, water rates, taxes, and insurance.
Just by looking at the above vague information, it makes no sense renting the units since you are just about going to break even, and that’s without paying down any of the principle on the 2 mil.
Selling one would be ideal, but now you own two units and a neighbour who could be a nightmare. Who needs that shit.
Selling all the units would put some serious money in your pocket.....maybe, depending what you paid for the land and personal taxes due on the sold properties.
Why would you care about your neighbors? What can they do? They also had their opportunity to have their say during the consultative council approval process and were silent.
The neighborhood is high end and nice people.
Selling 1 is a good option but not the only option.
Even renting all 3 is a good option as it’s cash positive, however, his equity loan will be maxed out which may restrict this person from doing another project. It’s ok if he chooses not to do another project but if he wants to buy another property it could be problematic.
The question is, should this person be fearful in borrowing the money to complete or should he go full steam ahead and draw on his equity loans?
Milti state’s that rich people don’t borrow money which is totally ridiculous. If people don’t borrow them they won’t ever be wealthy unless they win lotto.
No, I meant the neighbour who would buy one of the 3 units if you sold the one.
No, it makes sense to borrow at times, as long as you can make the payments and do not default on the loan, of course.
Drawing on equity loan can be risky when you have a family. Personal choice, I guess.
All loans are risky but usually these types of activities are done through companies. You never do it on your own mane for a number of reasons.
Because if you did, person A will pay 45% in tax on any profit but if it’s done through a Pty Ltd or a Trust, the tax rate is 26%.
Also, if something goes wrong, person A is protected from any action by the Banks.
Now what are the risks. The only real risk is a property market collapse such as what could happen in a crisis like Coronavirus. Put it this way, I have never seen a drop in the property market my entire adult life, not even during the GFC.
I have seen property markets flatten and even a minor decline in the Sydney market which was overpriced at one stage. No more than 10% and then it bounced back anyway.
Well, especially the way the Aussie Dollar has been depreciating over the last 10 years or so, property then becomes cheap for foreign buyers, so, the property would go up most of the time. It’s a good hedge against inflation and currency depreciation.
The Australian dollar was at parity with the USD during the latter periods of the OBAMA Administration.
It's pegged to commodity prices. So if commodities like Gas, Oil, Coal, iron Ore have a high price, then the AUD is also high. When they decline, then the AUD declines. In addition to that, the Federal Reserve has just reduced interest rates to 0% to protect business, and also announced they are going to Quantitative ease or print billions in new cash. Which means it will fall further. But beware, because it seems that Australia and US are very proactive in their economic stimulation policies and the EU which isn't could see another collapse just around the corner. Australia and US are taking their medicine now.
For foreign buyers, there are quite stringent conditions as well. Such as they pay full stamp duty and higher taxes but the Aussie buyer gates a 50% discount on Stamp duty.
Also on the sale of property, a foreign investor must pay 45% in tax on any capital gain, whereas the Aussie home buyer pays no tax in their owner occupied dwelling and gets a 50% discount on any investment property. So if their capital gain is 200K, half of it is tax free and they other half they pay tax at the relevant tax bracket with the first $27500 also being exempt.
The reason for increasing property prices is because Australia has always had a strong economy with has never been in recession for the last 30 odd years. Even with a low dollar, the Australian economy has been very strong and growing at about 3%. That is all about to change however within the next few weeks. The Australian economy has virtually shut down for business or is about to shutdown. But that doesn't really matter because Australia is resource rich and once the crisis is over, they will continue to supply the world with precious resources.
Australian citizens are the most wealthy citizens in the world or on par with Switzerland. About 2 times wealthier than any European, US or British citizen citizen.
This is why property prices go up:
https://www.visualcapitalist.com/countr ... er-capita/
