Remember, our constraint is not demand given the expected increase in immigration, forecast job growth and the past unfilled inherent latent demand which has built up by way of increased people density per dwelling. It is affordability. So, while our predictions are for the median outcome, growth rates in affordable housing will be significantly higher.Sourced from Michael Yardney's Blog
Sunday, 30 October 2011
Australian Property - Will Demand Keep Growth Happening???
Olympic Dam - The News
In the longer term, South Australia will present very differently to its current situation. BHP Billiton has received federal and state government approval to expand its Olympic Dam mine into the world’s largest open pit operation. It is forecast to contribute $45 billion to the SA economy and almost $18 billion to the national economy over the next 40 years.Sourced from Michael Yarndey's Blog
This operation still requires approval from the BHP Board, however it does look promising. BHP appears committed and indicates the project will go before the Board in the first half of 2012. There will be many aspects that boost the economy from the project but in the longer term it will be the state royalties (estimated at $350 million per annum) and increased exports that provide the most benefit.
Should BHP move forward, the Olympic Dam project will dramatically change the fortunes of South Australia. However, it will take some time for the benefits to flow through to the Adelaide area. The first beneficiaries will be areas such as Whyalla and Port Augusta, which will see increased activity as equipment and services are transported to the expanding mine.
How Property Depreciation Works
There are two main types of depreciation you can claim each year for your investment property on your tax return.
1. Diminishing Value Method
Under the diminishing value method the deduction is calculated as a percentage of the balance you have left to deduct. The formula for calculating depreciation using the diminishing value method is:
Properties settled pre 10th May 2006
Properties settled on or after 10th May 2006
2. Prime Cost Method
Under the prime cost method the deduction for each year is calculated as a percentage of the cost. The formula for determining the amount of depreciation deduction under the prime cost method is:
Properties settled pre 10th May 2006.
Which Method of Claiming is Best???
Depends...
Short Term Investment (0-5 yrs) > Prime Cost probably better suited.
Long Term Investment (5yrs +) > Diminshing Value
That is, if the owner purchased the property for the purposes of a short term investment and planned to sell it in approximately five years time, the DV rate would be a more attractive option to take, as it provides higher returns over the earlier years. If you claim using the Prime Cost Method (PC), you are claiming a lower but more constant portion of the available deductions over the life of the property. If the owner was intending to retain ownership for a longer period of time then the PC option may be more suitable, as it provides a constant projection of what the investor’s tax deductions will be.
Low Value Pool - A low value asset is a depreciable asset that has a written down value of less than $1000. That is, if the opening value of an asset is greater than $1000 in the year of acquisition but the value remaining after depreciating over time (opening value less depreciation in year 1 less depreciation in year 2 etc) is now less than $1000. Assets meeting this classification are placed in an itemised pool.
Pooling is used in conjunction with the diminishing value method to maximise deductions in the first 5 years of the depreciation schedule.
- Construction Costs
- Fit-Out Costs
1. Diminishing Value Method
Under the diminishing value method the deduction is calculated as a percentage of the balance you have left to deduct. The formula for calculating depreciation using the diminishing value method is:
Properties settled pre 10th May 2006
|
Opening undeducted cost |
X |
Days owned 365 |
X |
150% Plant’s effective life (in years). |
|
Opening undeducted cost |
X |
Days owned 365 |
X |
200% Plant’s effective life (in years). |
2. Prime Cost Method
Under the prime cost method the deduction for each year is calculated as a percentage of the cost. The formula for determining the amount of depreciation deduction under the prime cost method is:
Properties settled pre 10th May 2006.
| Cost | X |
Days owned 365 |
X |
100% Plant’s effective life (in years). |
Which Method of Claiming is Best???
Depends...
Short Term Investment (0-5 yrs) > Prime Cost probably better suited.
Long Term Investment (5yrs +) > Diminshing Value
That is, if the owner purchased the property for the purposes of a short term investment and planned to sell it in approximately five years time, the DV rate would be a more attractive option to take, as it provides higher returns over the earlier years. If you claim using the Prime Cost Method (PC), you are claiming a lower but more constant portion of the available deductions over the life of the property. If the owner was intending to retain ownership for a longer period of time then the PC option may be more suitable, as it provides a constant projection of what the investor’s tax deductions will be.
What is pooling?
Low Cost pool - A low cost asset is a depreciable asset that has an opening value of less than $1000 in the year of acquisition.Low Value Pool - A low value asset is a depreciable asset that has a written down value of less than $1000. That is, if the opening value of an asset is greater than $1000 in the year of acquisition but the value remaining after depreciating over time (opening value less depreciation in year 1 less depreciation in year 2 etc) is now less than $1000. Assets meeting this classification are placed in an itemised pool.
Pooling is used in conjunction with the diminishing value method to maximise deductions in the first 5 years of the depreciation schedule.
Can I claim renovations done by the previous owner?
Yes. Anything in the property that is part of a previous renovation should be estimated by your Quantity Surveyors and depreciated accordingly. This includes items that are not obvious e.g. New plumbing, water proofing, electrical wiring etc.What is the difference between plant and equipment and the building write-off allowance?
Plant and equipment items are basically items that can be ‘easily’ removed from the property as opposed to items that are permanently fixed to the structure of the building. Plant items also includes items that are mechanically or electronically operated, even though they can be fixed to the structure of the building. Plant and equipment items include( but are not limited to):- Hot Water Systems
- Carpets
- Blinds
- Ovens
- Cooktops
- Rangehoods
- Garage Door Motors
- Door Closers
- Freestanding Furniture
- Air Conditioning
Tuesday, 18 October 2011
Phil Anderson and the Dirty Dozen Webinar
12 Dirty Tricks & Traps Aussie Property Investors Must Know... And How YOU Can Avoid Them To Grow Your Wealth Through Property
Often people are making mistakes because they rush into things as a result of 'waking up' one day and realising that they need to do something in order to have a comfortable, sustainable retirement.
Misleading 'Professionals/Experts'
They often are experts, but the comments they say are driven by how they make money.
They're only interested in promoting the things that they make money out of...
Often not promoting whats good all over the nation but whats good for them and their business model...
Common with 'Local experts' in CBDs and cities eg Buyer Agents or Real Estate Agents that talk up the area they cover...
Excess/Bargain Stock
There are stages where developers are being caught out by the cycle and there becomes over - supply and thats when the 'bargain stock' comes out...
Various entities grab a hold of it and wrap a 'great story' around the excess stock...to make it look like a GREAT DEAL!!!
If you're buying the last remaining stock, this stock often has valuation problems...you'll be settling on stock that is valued less than you thought, hence eating into the equity...a symptom of badly timed excess stock. Can be made worse if buying off the plan (more on this later)
It's worth noting how some of these things get wrapped up together into a 'combo dirty trick'.
Smoke and Mirrors - Multiple Hats
If you're looking to use a service to buy an investment property...be aware of issues you have when you're shopping with a 'one stop shop'. Cautius of the ones that wear multiple hats...eg Financiers, Advisers, Developers, Lawyers...here is our lawyer, here is our accountant...etc.
They find the property, could be the developer, they supply advise, they supply the finance...the issue is the fact that the valuations often do not stack up.
Make sure you double check the valuation...
If they control the finance and the advice...they may tend to smooth over the details..."it'll be ok, this is how it can work"
It's best to use independant advisors, finance...this way, inconsistencies will light up.
(Faye found a group...the "right group"...they were the developer, financier, real estate agent...still felt that they were 'stiched up'...bought at the wrong time of the cycle, long build time, massive negative gearing)
Rental Gurantees
They do have a place.
The busy person that falls in love with the story..."guranteed rent for next 12 months"...very often, it is excess stock...the rent gurantee is often just a marketing tool to get rid of stock that wouldn't otherwise move.
Ends up being more pain once the rental gurantee has finished due to low demand, rent must be lowered drastically and the gurantee is often just built into the price anyway...
Also conscicous of 'Mining Markets' - developers can gurantee the rent because of the immediate demand. But the problem obviously lies in the reliance on the one industry in that area...same as all Mining investments, you need to make sure there is more going on other than the Mining.
Sales Machines
There is a lot to be gained from these groups - the power of numbers, the support, the discounts through bulk buying...
The problem is that they can be cleverly disguised sales machines...just spitting out lots and lots of properties.
Often just excess stock where timing is not so great.
What they often don't share is that they are getting paid by the developer for all the units they shift...the developer gives a referall bonus, $20, $30K for seriously excess stock.
Paying too much for stock, holding costs were too high...
Usually quite a lot of good references that make you feel at the time like it is a good deal.
Social Belief
The conditioning that gets layered into people...'herd buying habit'
Has a lot to do with property cycles...
Buying at the bottom of the cycle is not necessarily the best idea...hundres of clocks throughout Australia (not just one for Sydney)...
Buying at the bottom...you have no idea how long it is going to sit there at the bottom...
An A-Grade investor is looking for 7 o'clock in the market...the media is negative, "doom and gloom...nothing is happening..."
The developers are focussed at 7 oclock...they're smart enough to know when growth is coming.
9 oclock is when the media is buzzing again...backyard convos, auction rates are coming up...this is when B grade investor jumps in
11 oclock is when the C grade investor will buy...when the media is going crazy about it...lots of positive news...lots of people bidding at the auctions...emotional buying...the A grade investor will stay far far away...the C grade will invest due to the Social Proof
the C grade investor will then need to wait a FULL CYCLE (7-10 years) before they actually go through the growth phase again...this whole time their property will not grow much, if at all!!!
(Townsville: not the best market right now [18/10/2011]...just went through a good growth phase...look at the rent - is it as high as it should be...has the capital growth just spurted?)
Trap: Buying Off the Plan at the wrong time of the cycle
Don't wait for the media acceptance (eg 9oclock onwards). If you're buying a two year or construction, the cycle will be quite different by the time you come to settle. Settling can be a problem because the bank will want to settle at a differnt price based on the valuation...this can have a cascading effect: if everyone can't settle, then developers fall over, etc etc...
Buying Around The Corner
A different sort of conditioning: buying in the area yhou grwe up in and live in...that they know about and have heard a lot about the great performance that others in the area have had - and only buy in that area
Problem: you're in the one property cycle and subject to it fluctuations, and only its fluctuations...
Really need two cycles at polar opposites working for you.
The local ones are often bought in the reverse order: 1. find property 2. go to bank manager 3. find out how much it is going to cost you
Key: don't do the traditional 10% deposit deals - know the figures up front - know how much it is going to cost you
Real Estate Snobery
Common with CBD investors (busy, executives), used to living in affluent suburbs and get hooked up in the 'status' of the suburb...expecting it to perform well because it is a 'good place to live'
Extensive survey of investors: where do you expect to find the best capital growth areas???
1. Inner city suburb
2. Sea change location
3. Outer suburb
4. Regional areas
The actual best capital growth areas:
1. Regional centres
2. Outer suburb
3. Sea change location
4. Inner city suburb
Good strategy: small, key growth, affordable stock...adding to the portfolio with the right timing and predictable growth. lowest risk, best investments, lowest cash deposits and lowest holding costs.
Rat Race Investor
Mid to high income person - often sacrificing a lot of things in their life for that income. This person may pay the lifestyle price...
Interesting investment habits: "catch-up"
So often too bust to pull away the layers and do the due diligence...often very vulnerable to the 'Sales Machines'
Need to know the best ways to get property for you, with the minimal input!
Old Shopping Habits
A condition to get up on saturday, look through paper for investments, go to properties on the retail market...
You can shop wholesale, leverage your money and time.
Get into the motivated developers at the 7 oclock stage...they know 9 oclock et al are coming around and they need sales now to fund the business and ensure that they are ready for the 9 oclock stage.
Take NSW as an example: it has extremely strong demand (low construction), high rental demand, fudning happening in regional areas from billions of private investments (hunter etc)...big incentives from government (no stamp duty for new developments below $600K)
The Game Plan - or lack thereof
Do Not Buy A Property and HOPE....buy a property and KNOW!
Model Phil Teaches: Offsetting your tax and leveraging your Super money.
Using Super
New Law and Bank Products that fit: take a super balance $100K and get a bank loan to get a investment property into the super fund. EG outcome a $300K property, pay for holding costs using 9% super contributions, and in 10-15 years, you can own it outright, sell it and not pay 1c in captial gains tax!!!
Know:
The right deposit amount
The right holding costs
and then find a market which is at the right stage of the cycle which fits your strategy.
LORRAINE: Got Super under own control. Bought the property without any cash put in. Bought in two markets, getting ready for the third. Will own the properties outright by the time they retire.
asdf
Get a sneak peak into Phil's Program
Often people are making mistakes because they rush into things as a result of 'waking up' one day and realising that they need to do something in order to have a comfortable, sustainable retirement.
Misleading 'Professionals/Experts'
They often are experts, but the comments they say are driven by how they make money.
They're only interested in promoting the things that they make money out of...
Often not promoting whats good all over the nation but whats good for them and their business model...
Common with 'Local experts' in CBDs and cities eg Buyer Agents or Real Estate Agents that talk up the area they cover...
Excess/Bargain Stock
There are stages where developers are being caught out by the cycle and there becomes over - supply and thats when the 'bargain stock' comes out...
Various entities grab a hold of it and wrap a 'great story' around the excess stock...to make it look like a GREAT DEAL!!!
If you're buying the last remaining stock, this stock often has valuation problems...you'll be settling on stock that is valued less than you thought, hence eating into the equity...a symptom of badly timed excess stock. Can be made worse if buying off the plan (more on this later)
It's worth noting how some of these things get wrapped up together into a 'combo dirty trick'.
Smoke and Mirrors - Multiple Hats
If you're looking to use a service to buy an investment property...be aware of issues you have when you're shopping with a 'one stop shop'. Cautius of the ones that wear multiple hats...eg Financiers, Advisers, Developers, Lawyers...here is our lawyer, here is our accountant...etc.
They find the property, could be the developer, they supply advise, they supply the finance...the issue is the fact that the valuations often do not stack up.
Make sure you double check the valuation...
If they control the finance and the advice...they may tend to smooth over the details..."it'll be ok, this is how it can work"
It's best to use independant advisors, finance...this way, inconsistencies will light up.
(Faye found a group...the "right group"...they were the developer, financier, real estate agent...still felt that they were 'stiched up'...bought at the wrong time of the cycle, long build time, massive negative gearing)
Rental Gurantees
They do have a place.
The busy person that falls in love with the story..."guranteed rent for next 12 months"...very often, it is excess stock...the rent gurantee is often just a marketing tool to get rid of stock that wouldn't otherwise move.
Ends up being more pain once the rental gurantee has finished due to low demand, rent must be lowered drastically and the gurantee is often just built into the price anyway...
Also conscicous of 'Mining Markets' - developers can gurantee the rent because of the immediate demand. But the problem obviously lies in the reliance on the one industry in that area...same as all Mining investments, you need to make sure there is more going on other than the Mining.
Sales Machines
There is a lot to be gained from these groups - the power of numbers, the support, the discounts through bulk buying...
The problem is that they can be cleverly disguised sales machines...just spitting out lots and lots of properties.
Often just excess stock where timing is not so great.
What they often don't share is that they are getting paid by the developer for all the units they shift...the developer gives a referall bonus, $20, $30K for seriously excess stock.
Paying too much for stock, holding costs were too high...
Usually quite a lot of good references that make you feel at the time like it is a good deal.
Social Belief
The conditioning that gets layered into people...'herd buying habit'
Has a lot to do with property cycles...
Buying at the bottom of the cycle is not necessarily the best idea...hundres of clocks throughout Australia (not just one for Sydney)...
Buying at the bottom...you have no idea how long it is going to sit there at the bottom...
An A-Grade investor is looking for 7 o'clock in the market...the media is negative, "doom and gloom...nothing is happening..."
The developers are focussed at 7 oclock...they're smart enough to know when growth is coming.
9 oclock is when the media is buzzing again...backyard convos, auction rates are coming up...this is when B grade investor jumps in
11 oclock is when the C grade investor will buy...when the media is going crazy about it...lots of positive news...lots of people bidding at the auctions...emotional buying...the A grade investor will stay far far away...the C grade will invest due to the Social Proof
the C grade investor will then need to wait a FULL CYCLE (7-10 years) before they actually go through the growth phase again...this whole time their property will not grow much, if at all!!!
(Townsville: not the best market right now [18/10/2011]...just went through a good growth phase...look at the rent - is it as high as it should be...has the capital growth just spurted?)
Trap: Buying Off the Plan at the wrong time of the cycle
Don't wait for the media acceptance (eg 9oclock onwards). If you're buying a two year or construction, the cycle will be quite different by the time you come to settle. Settling can be a problem because the bank will want to settle at a differnt price based on the valuation...this can have a cascading effect: if everyone can't settle, then developers fall over, etc etc...
Buying Around The Corner
A different sort of conditioning: buying in the area yhou grwe up in and live in...that they know about and have heard a lot about the great performance that others in the area have had - and only buy in that area
Problem: you're in the one property cycle and subject to it fluctuations, and only its fluctuations...
Really need two cycles at polar opposites working for you.
The local ones are often bought in the reverse order: 1. find property 2. go to bank manager 3. find out how much it is going to cost you
Key: don't do the traditional 10% deposit deals - know the figures up front - know how much it is going to cost you
Real Estate Snobery
Common with CBD investors (busy, executives), used to living in affluent suburbs and get hooked up in the 'status' of the suburb...expecting it to perform well because it is a 'good place to live'
Extensive survey of investors: where do you expect to find the best capital growth areas???
1. Inner city suburb
2. Sea change location
3. Outer suburb
4. Regional areas
The actual best capital growth areas:
1. Regional centres
2. Outer suburb
3. Sea change location
4. Inner city suburb
Good strategy: small, key growth, affordable stock...adding to the portfolio with the right timing and predictable growth. lowest risk, best investments, lowest cash deposits and lowest holding costs.
Rat Race Investor
Mid to high income person - often sacrificing a lot of things in their life for that income. This person may pay the lifestyle price...
Interesting investment habits: "catch-up"
So often too bust to pull away the layers and do the due diligence...often very vulnerable to the 'Sales Machines'
Need to know the best ways to get property for you, with the minimal input!
Old Shopping Habits
A condition to get up on saturday, look through paper for investments, go to properties on the retail market...
You can shop wholesale, leverage your money and time.
Get into the motivated developers at the 7 oclock stage...they know 9 oclock et al are coming around and they need sales now to fund the business and ensure that they are ready for the 9 oclock stage.
Take NSW as an example: it has extremely strong demand (low construction), high rental demand, fudning happening in regional areas from billions of private investments (hunter etc)...big incentives from government (no stamp duty for new developments below $600K)
The Game Plan - or lack thereof
Do Not Buy A Property and HOPE....buy a property and KNOW!
Model Phil Teaches: Offsetting your tax and leveraging your Super money.
Using Super
New Law and Bank Products that fit: take a super balance $100K and get a bank loan to get a investment property into the super fund. EG outcome a $300K property, pay for holding costs using 9% super contributions, and in 10-15 years, you can own it outright, sell it and not pay 1c in captial gains tax!!!
Know:
The right deposit amount
The right holding costs
and then find a market which is at the right stage of the cycle which fits your strategy.
LORRAINE: Got Super under own control. Bought the property without any cash put in. Bought in two markets, getting ready for the third. Will own the properties outright by the time they retire.
asdf
Get a sneak peak into Phil's Program
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