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Time to raise the rents.

Invest And Rent: The New Home Solution

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As usual, us Aussie are leading the way. Ignore at your peril:

http://www.smh.com.au/news/national/invest...7553651177.html

A GROWING number of young people are buying investment properties rather than homes to live in as a first step towards cracking the ownership market, a survey has found.

Reversing the traditional model of buying a home first and an investment property second, a survey conducted by Wizard Home Loans has unearthed 61,000 "first home investors".

"Although affordability is improving, prices are still high and young people are taking up smarter strategies to get into the market," the chairman of Wizard Home Loans, Mark Bouris, said.

Many young people are choosing to live at home, or rent a share house with friends in the inner city, and then invest in a cheaper property further out in the suburbs.

"I think they all realise from their early 20s that they get a better deal if they rent with their mates in Bondi, for instance, and buy something in Burwood," Mr Bouris said.

"It is a very clever property arbitrage."

Most young investors in the Wizard study cited financial benefits for their decision.

Two-thirds of respondents said that sharing mortgage repayments with tenants would help, while one-third cited the benefits of negative gearing and other tax concessions.

But for some it is as much a lifestyle decision as anything. Two-thirds said it would enable them to pick a property based on house price growth, and not on where they wanted to live.

Doing so would allow them to continue renting in the area in which they prefer to live.

More than a third said they intended to travel in the near future, and 22 per cent said their "itinerant" lifestyle made them reluctant to settle in one place.

But although first home investors enjoyed the flexibility of living in an area of their choosing, most still want to live in their own home one day.

"First home investors still share the Australian dream of home ownership," Mr Bouris said.

"Most of those surveyed said that they wanted to own their own home in the future, and two-thirds said property investment is the first step to achieving their home-ownership goals."

The typical first home investor was found to be young, male, with no children and earning an above-average income.

A financial services spokesman for the Australian Consumers' Association, Nick Coates, said this generation of first home buyers were under a lot more financial pressure than other age groups.

"All of this reflects just how expensive property has become relative to our incomes over the past 15 years," Dr Coates said.

The results were based on a Nielsen Media Research survey of 25,000 Australians and a more detailed survey of 400 would-be first home investors surveyed by pureprofile.

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As usual, us Aussie are leading the way. Ignore at your peril:

http://www.smh.com.au/news/national/invest...7553651177.html

[...]

Do you think it is something to do with negative gearing? I don't really understand what negative gearing is, it is some kind of tax advantage for oz landords I think. Perhaps you can illuminate?

frugalista

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Do you think it is something to do with negative gearing? I don't really understand what negative gearing is, it is some kind of tax advantage for oz landords I think. Perhaps you can illuminate?

frugalista

Negative gearing is where you offset the cost of your morgage/outgoings against your tax bill. But you can only do it on a property you don't own. It gets even better because there is a land tax in some states that is only payable on the second home and property of a certain value or something. So if you own but don't live in your first home you can avoid the land tax (at sale I think, but I may be wrong) and still negative gear your entire mortgage costs against income.

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Negative gearing is where you offset the cost of your morgage/outgoings against your tax bill. But you can only do it on a property you don't own.

I think you mean you can only do it on a property you don't occupy!

It gets even better because there is a land tax in some states that is only payable on the second home and property of a certain value or something. So if you own but don't live in your first home you can avoid the land tax (at sale I think, but I may be wrong) and still negative gear your entire mortgage costs against income.

When you say "mortgage costs" does it include both the interest part and the repayment part or just interest?

frugalista

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I think you mean you can only do it on a property you don't occupy!

Yep. F*ck Families. This is business.

Its treated as an investment with tax treatment for costs treated in the same way as any business cost but offset against income tax rather than a business. Also Australia has sweet FA social housing, so all the renting is in the private sector unless you are so low grade grunge that you can't take a pee without help in the morning. So the government provides for only those that the private sector don't want AT ALL. But it works a little better in some ways, because average people can rent poor peoples houses, and often do, creating competition at the middle of the market to compete with not quite so good housing which keeps rents down (a bit!).

When you say "mortgage costs" does it include both the interest part and the repayment part or just interest?

frugalista

Just the interest frugalista, don't get too excited! and you can't gear back up once you've knocked off some capital ... but you can also negative gear any other business costs (revenue not capital) of maintaining the property.

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Kirsty bloody Allsop was recommending this ages ago... buy 2 or 3 hell holes in Burnley, rent them to DSS wasters and then rent.

2 or 3 years down the line, sell your 'desirable' dwellings for big fat profit (after the dole-ites had trashed them) and use the equity to fund mansion in Hampstead (or similar).

If only I had taken her advice.

This time next year, we'll be millionaires..........

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Yep. F*ck Families. This is business.

Its treated as an investment with tax treatment for costs treated in the same way as any business cost but offset against income tax rather than a business.

[...]

Just the interest frugalista, don't get too excited! and you can't gear back up once you've knocked off some capital ... but you can also negative gear any other business costs (revenue not capital) of maintaining the property.

Okay. I've figured it out now. There is a subtle difference between the UK and Oz.

A BTLer in the UK must treat rent as income, but can offset BTL mortgage interest (and any other costs of running the BTL business) as an expense offset against their rental income for tax purposes.

But, there is something special about the Oz situation which gave more tax advantages to landlords.

http://en.wikipedia.org/wiki/Negative_gearing

The difference with Oz is that they will allow you to offset the whole set of costs including mortgage interest against your personal income even if the rental income is less than all the costs of running the property. So basically, if your BTL business is making a loss you pay less tax, even if you deliberately set it up to make a loss (you can offset the losses on other businesses but only if you can show you expected them to make a profit).

frugalista

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I'd imagine negative gearing attracts the following kind of abuse:

Two friends Bruce X and Bruce Y each buy identical houses in Wollongongmallooburra Creek for AUS$200k each. They both have 100% interest only mortgages at 5% say. Total interest payments AUS$10K a year each.

Then, Bruce X rents Bruce Y's house for AUS$1 per month, and Bruce Y rents Bruce X's house for AUS$1 per month.

They each earn AUS$10K in their day jobs, milking kangaroos or whatever.

They'd then each get to claim an income tax deduction of AUS$9,988, so they can say to the tax office that their income was only AUS$12 a year, right?

frugalista

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I am literally staggered TTRTR that you do not see this as the calling of a massive bubble.

When people want to live in Bondi but can ONLY afford to rent there, but can buy further out and will be a landlords it shows that renting must be cheaper than buying. Whats more the boom has just fanned out. WHat happens next to the ripples on the pond? They dissapear.

The article even says that this "new world" is because prices have gone so high.

This is not a clever move, its a desparate one for people who have watched the boom and been convinced that it will continue forever.

Quite frankly I am surprised at you. Quite why loads of landlords would be good for you is difficult to fathom.

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I am literally staggered TTRTR that you do not see this as the calling of a massive bubble.

When people want to live in Bondi but can ONLY afford to rent there, but can buy further out and will be a landlords it shows that renting must be cheaper than buying. Whats more the boom has just fanned out. WHat happens next to the ripples on the pond? They dissapear.

The article even says that this "new world" is because prices have gone so high.

This is not a clever move, its a desparate one for people who have watched the boom and been convinced that it will continue forever.

Quite frankly I am surprised at you. Quite why loads of landlords would be good for you is difficult to fathom.

yes, and the yields in Sydney and Melbourne are so low (2.5%) even with IRs not much above ours ..renting a place in Aus costs barely half what an interest only mortgage would be on the same property............

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In some Australian states you get a 'significant' stamp duty discount on your very first home (eg. 1% vs 4%), provided that you live there for 12 months.

Nationally you also get a first home buyer's grant of $7000, again on the same condition.

The first time property investors are either abandoning these benefits or fraudulently claiming to be living in the places that they are renting. In which case they should be smacked ... on the wrist ... hard.

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Kirsty bloody Allsop was recommending this ages ago... buy 2 or 3 hell holes in Burnley, rent them to DSS wasters and then rent.

2 or 3 years down the line, sell your 'desirable' dwellings for big fat profit (after the dole-ites had trashed them) and use the equity to fund mansion in Hampstead (or similar).

If only I had taken her advice.

This time next year, we'll be millionaires..........

TTRTR's post reminded me of the programme where a London woman was shown properties in Lincoln to rent out to students, with the same idea as above. Was it Kirsty or Sarah, I can't remember?

It would only have worked if Lincoln continued seeing strong price inflation while London prices fell. That happened for a little while but not for very long - probably not long enough to make any money considering the transactions costs. London fell a bit, but now Lincoln's begun to fall as well.

Property is not like day-trading. It's not liquid enough to take advantage of regional variations.

If you can't afford a home to live in and the market carries on going up, what makes you think you'll be able to trade up from the crap BTL to a nice home to live in?

And if large numbers of people are in the same situation as you ie can't afford a home to live in anymore, isn't the market more likely to go down?

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Actually to be fair TTRTR I do admire the Aussies. Enough to buy shares in Aussie-led Bartercard at 9.88p on Tuesday, now at 16.25p to sell, an annualised return of over 10000%. Fair dinkum cobber.

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Well, I am quietly amused to hear that TTRTR is a fellow aussie. I am currently negative gearing my property in Oz. Although I am in the UK so do not benefit - yet. However, should I return to Oz I could reap the benefits on my income tax for years. Its still a struggle though.

Actually to be fair TTRTR I do admire the Aussies. Enough to buy shares in Aussie-led Bartercard at 9.88p on Tuesday, now at 16.25p to sell, an annualised return of over 10000%. Fair dinkum cobber.

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Well, I am quietly amused to hear that TTRTR is a fellow aussie. I am currently negative gearing my property in Oz. Although I am in the UK so do not benefit - yet. However, should I return to Oz I could reap the benefits on my income tax for years. Its still a struggle though.

From what I gather this means you are letting the property for less than the mortgage interest. Let's suppose you did actually live in Oz right now. Wouldn't you be better off charging a higher rent so as to cover your costs?

frugalista

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Easier said then done I'm afraid. If only! I selected the agent that quoted me the highest rental figure. These varied hugely by up to almost $100 a week difference. The agent (she is the Lettings Manager) told me that when she went back to the office her colleagues said that she would never get that rent for the house. The next day it was let at full asking price. Go figure. The rent just about covers the mortgage at interest only, but I have to pay rates, maintenance (including pool maintenance), agents fees, landlord and building insurance etc. etc. This is where my negative gearing comes in.

From what I gather this means you are letting the property for less than the mortgage interest. Let's suppose you did actually live in Oz right now. Wouldn't you be better off charging a higher rent so as to cover your costs?

frugalista

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I'd imagine negative gearing attracts the following kind of abuse:

Two friends Bruce X and Bruce Y each buy identical houses in Wollongongmallooburra Creek for AUS$200k each. They both have 100% interest only mortgages at 5% say. Total interest payments AUS$10K a year each.

Then, Bruce X rents Bruce Y's house for AUS$1 per month, and Bruce Y rents Bruce X's house for AUS$1 per month.

They each earn AUS$10K in their day jobs, milking kangaroos or whatever.

They'd then each get to claim an income tax deduction of AUS$9,988, so they can say to the tax office that their income was only AUS$12 a year, right?

frugalista

You a tax lawyer? If not you should be. Or is spotting a potential loophole just the result of lateral thinking?

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You a tax lawyer? If not you should be. Or is spotting a potential loophole just the result of lateral thinking?

It is reminiscent of some of the crazy schemes designed for corporate clients by City investment banks.....

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I'd imagine negative gearing attracts the following kind of abuse:

Two friends Bruce X and Bruce Y each buy identical houses in Wollongongmallooburra Creek for AUS$200k each. They both have 100% interest only mortgages at 5% say. Total interest payments AUS$10K a year each.

Then, Bruce X rents Bruce Y's house for AUS$1 per month, and Bruce Y rents Bruce X's house for AUS$1 per month.

They each earn AUS$10K in their day jobs, milking kangaroos or whatever.

They'd then each get to claim an income tax deduction of AUS$9,988, so they can say to the tax office that their income was only AUS$12 a year, right?

frugalista

Gotta be careful with this one. If its investigated it might be found to be an artificial treatment. The way accounting is treated in Australia is different and is not based on regulations but standards. Its all a bit strange (and I don't fully understand it) but it gives the tax office a better hand to deal with dodges. Basically you would have to charge some sort of rent that made sense. It could be quite low, but to pull it off you would also probably want a round robin of 3 mates not 2!

Also your understanding of marsupial physiology leaves something to be desired!!!

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You a tax lawyer? If not you should be. Or is spotting a potential loophole just the result of lateral thinking?

That was a fairly common benefit dodge, or at least it was with the Boswells on Bread.

Quite frankly I am surprised at you. Quite why loads of landlords would be good for you is difficult to fathom.

It is odd. I remember previously he advised someone who was having trouble buying to become an "instant landlord". Why would a bona fide businessman want rivals who aren't in it for the profit but simply to cover their costs?

Who would want more and hungrier competitors?

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You a tax lawyer? If not you should be. Or is spotting a potential loophole just the result of lateral thinking?

Lateral thinking is fun! Dunno if the same can be said for being a tax lawyer, which I am not.

And yes, I did pretty much crib the idea from the rather unauthentically Scouse TV series 'Bread'.

Apart from the bit about milking kangaroos, that was my own bit of lateral thinking. Couldn't it be done by a well-trained koala? Or would the koala's didgeridoo get in the way of the kangaroo's billabong?

frugalista

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Easier said then done I'm afraid. If only! I selected the agent that quoted me the highest rental figure. These varied hugely by up to almost $100 a week difference. The agent (she is the Lettings Manager) told me that when she went back to the office her colleagues said that she would never get that rent for the house. The next day it was let at full asking price. Go figure. The rent just about covers the mortgage at interest only, but I have to pay rates, maintenance (including pool maintenance), agents fees, landlord and building insurance etc. etc. This is where my negative gearing comes in.

So basically, you can't do it because you're competing with other landlords who for some reason or other would rather make a loss. Or at least by pricing at cost you severely risk pricing yourself out of the market.

Well, that really has got me scratching my head.

I dunno what this is, but it sure ain't capitalism.

frugalista

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Okay. I've figured it out now. There is a subtle difference between the UK and Oz.

A BTLer in the UK must treat rent as income, but can offset BTL mortgage interest (and any other costs of running the BTL business) as an expense offset against their rental income for tax purposes.

But, there is something special about the Oz situation which gave more tax advantages to landlords.

http://en.wikipedia.org/wiki/Negative_gearing

The difference with Oz is that they will allow you to offset the whole set of costs including mortgage interest against your personal income even if the rental income is less than all the costs of running the property. So basically, if your BTL business is making a loss you pay less tax, even if you deliberately set it up to make a loss (you can offset the losses on other businesses but only if you can show you expected them to make a profit).

frugalista

Indeed, and in fact the Australian rental sector now runs at a loss in aggregate, which is pretty amazing when you consider all the landlords who bought decades ago.

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I'd imagine negative gearing attracts the following kind of abuse:

Two friends Bruce X and Bruce Y each buy identical houses in Wollongongmallooburra Creek for AUS$200k each. They both have 100% interest only mortgages at 5% say. Total interest payments AUS$10K a year each.

Then, Bruce X rents Bruce Y's house for AUS$1 per month, and Bruce Y rents Bruce X's house for AUS$1 per month.

They each earn AUS$10K in their day jobs, milking kangaroos or whatever.

They'd then each get to claim an income tax deduction of AUS$9,988, so they can say to the tax office that their income was only AUS$12 a year, right?

frugalista

Using genuine market rents rather than your $1 a month I pointed this possibility out to several people 25 years ago (and interest rates were higher then). It was fully legal at that time (unless you had a mortgage specific to owner occupiers), because land tax on investment properties had not then been introduced.

I worked out that purchasers at my income level would have no cash flow changes, and would generate a tax refund equivalent to an extra 10% in pay. You didn't even need to do it in pairs unless you were setting an artificial rent; just BTL house X and rent house Y to live in.

Even in an IT area full of graduate maths majors I got no takers; they either couldn't work through the numbers or didn't believe the results.

So I was the only one in that workplace taking advantage of the loophole. I reckon my tax refunds during the 80's added up to an extra year's salary :lol: .

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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