Canterbury Property Services

Are they trading options to generate cash-flow?

 

Just a quick update for everyone, my finance got approved recently and the settlement will occur mid June. Builder said they can only submit the council application after settlement and the application will take 6-8 weeks to be approved. Base on this time frame, construction will commence late July/early August.

 

The market and hardship of positive cashflow property

Dear All,

Just came back from Australia (my brother place) and we were looking to expand IP's portfolio with negative gearing positive cashflow properties. I will tell you later what we have seen and discovered but before some questions about CPS explaining why I am interested to know answers to 2 simple questions...

1.) can anyone confirm that all IP's you have with CPS were and are at least neutral cashflow when negatively geared at say 37% tax rate most people are on and say 7% loan interest rate because one day soon it will get there anyway.

Do not tell me how they do it (if - as they are entitled to have some secrets after all) but your monthly CASHFLOW should answer this question even if you have properties with them 1 - 2 years....

WHY: this is crucial in my view as this allows you to have many many more properties limited only by spare equity and risk of rates shooting hugely up (hence 7%)

2.) Second question how much equity you usually use on IP'S to purchase CPS ?
Is it usual 20%? Or better 10%, 5% or even 0%?

WHY: Obviously the lower the number the larger number of properties you can buy with your existing equity and being ready for the next major boom as they do not come very often.

Now back to my trip. We have spent huge amount of time seeking IP'S WITH POSITIVE CASHFLOW and we discovered some duplex in NSW that is new and service apartments in Noosa and if you careful some new houses are also there after plenty time of research etc. than capital gain probability is often not easy task...

So honestly if CPS can repeat 1.) and 2.) (with decent capital gain potential) on regular bases I would give them a go so I can simply visit OZI and enjoy trips and holidays as opposed to hard work seeking positive CASHFLOW IPs

I stress here that I have nothing to do with CPS no interest whatsoever but if one of you confirms that 1 and 2 with solid capital gain potential as above are always met I would give them a go...

 

Hi Dominique,

I am going to build my first investment property with CPS and I can share with you what I got told.

1) The investment property I am getting is negatively geared but hopefully it will be a positive cash flow property. It has nothing to do with my income tax rate which is currently 32.5%, and to be honest, it has nothing to do with CPS. The reason why a negatively geared property can turn into a positive cash flow property depends on the maximum amount of the tax deduction that you are entitled to.

With CPS, they want you to build a house on a piece of vacant land. This way, you are entitled to more tax deduction (construction expenditure, depreciation, and etc) then an existing property which are not eligible for. If I remember correctly, the estimate tax deduction for a new built house is approximately 21-24000. So as long as your taxable income is greater than this number, then you should be able to turn the negative geared property into a positive cash flow property.

Do you need CPS? No, you don't. You can actually do everything yourself. Search a piece of vacant land, build a house, and then get an accountant to do your tax. Having said that, I think what special about CPS is that they have enough knowledge to look for high growth area which will then make your property worth more in the future. But again, you can do this by yourself if you have done sufficient research.

2) Before I met CPS, I got told by a few banks that my 35k deposit is not sufficient to get an investment property. I got told to save a bit more deposit as the maximum borrowing amount for investment property for most banks are 90% and this doesn't include stamp duty, legals and etc. So my 35k is not nearly enough. I need at least 40-45k.

(One thing I should probably add to question 1 but related to question 2 is that, stamp duty is much lower when you build house on vacant land)

CPS got me a 97% loan which also include the mortgage insurance. I will have to pay the legal fee, stamp duty and miscellaneous bank fees out of my own pocket. I am now able to get a loan with approximately 15k deposit.

Just another note, if a person is not an Australia permanent resident/citizen, banks will not borrow that amount for investment purpose.

Conclusion) I am an expert at my job but when it comes to property I don't know much about it. I am a firm believer that an expert can always do a better job than an amateur. In this case, I am the amateur. Can I do my own research and get myself an investment property without CPS? Yes I definitely can. But I think I will have plenty of sleepless night worrying if my research is good enough or if I have made the right decision.

By no means I am trying to prompt CPS. CPS is likely a travel agent to me. It is a one-stop-shop for me to get the hotel, rental car, holiday insurance and tour packages altogether. It connects all the dots for me so I can sit back and relax.

Hopefully that helps you a bit.

Kingsley

 

Thanks for the useful info Kingsley.

Yes. When I said positive cash flow negative gearing I did mean after tax and all tax deductions and depreciations. Zero cash out of pocket...

97% is pretty good and $15k deposit is very good too considering that standard 20% of say $420k is 84k or less common 10% $42k

Yes you can do it yourself but it takes time to correct mistakes in property ... or losses if not whiling for time to fix it...

It starts to make sense to me... With above people can afford larger number of properties as opposed to what they would have perhaps making more once boom comes ... Hmm

Thanks again

 

This is a forum for education. Let me correct a couple of things mentioned in the last few posts, Banks will not tell you what other lenders can do as most do not know, they only know their own products and policies. Banks will simply tell you it is not possible, like Kingsley above and the 90% LVR (loan to value ratio). There are lenders who will go to 95% and cap LMI (lenders mortgage insurance) to 97%.
LMI becomes expensive at that LVR, once you go over about 87 - 88% LVR, LMI takes a steep hike upwards, it is a progressive cost, the higher the LVR, the higher the rate. Suggestion - use a good mortgage broker.

In terms of depreciation and building allowance, any property built after 1987 will be eligible for building allowance claim so the fallacy that it has to be a new build is simply incorrect. What you pay for with a land and build package is a developers/marketing company commission unless you do it yourself. As long as this is disclosed, I have no problem with it, just be careful that the valuation on completion will stack up otherwise you may find yourself unable to settle without suddenly needing to find lots of additional funds. Once you take yourself into gearing > 80%, you then are governed by mortgage insurers additional scrutiny.

Be aware the higher you gear, the more difficult it is to have a positively return for your investment. There is no magic formula for positive returns, income just needs to be greater than the costs associated. Depreciation will help if you have other income which you can claim these expenses against but the lower your marginal tax rate, the less effect these have. Depreciation and building allowance are not in themselves a cash flow item, it is just the tax effect that is a benefit.

An example - a client recently purchased a near new property in Gladstone (used a buyers agent), geared 105%, rent yield 7.6%, even that showed a small net taxable loss but with depreciation benefits on a zero marginal tax rate, resulted in a small cash surplus.

A rough rule of thumb, the rent yield needs to be at least 1% higher than the interest rate you are paying with an 80% LVR.

In respect to PM, most investment properties purchased in the last few years are negatively geared. Simply refer to the ATO statistics for verification. What you may need to consider is arranging your finances so you can effectively debt recycle. It does not negate the fact that outgoings are greater than income but it can make it tax effective.

In terms of building a property portfolio, the two main factors are usable equity you have to be able to settle a loan for the next purchase and serviceability in terms of income against commitments. Unless you are on very high income, most investors need to balance their portfolios with positive cash flow properties.

Hope this helps and good luck with your investing.
Greg

 

Thanks for sharing your insight Greg, I did learn a few things off your post

 

G'day everyone (forum newbie)

I would be interested on an update on your experiences with CPS.

I have a young family on single income, and we are very slowly paying off our PPOR on variable rate mortgage.

We currently have approx $130000 equity in the house.

I am not looking for a get rich quick scheme or anything with ridiculous risk, just a reliable way to pay off our PPOR quicker and develop an investment portfolio.

Thanks

 

Have a read of this Debt Recycling thread and also investigate offset accounts

 

Thanks Redwing. I read that and a few other sites and threads in a bid to further self educate .

I have made contact with CPS and will be interested to see if they can assist my wife and I. I also took the liberty to fire off some PM's to people for a personal no punches pulled assessment of what to expect and how they are going. To these people, I hope you don't mind and I greatly appreciate your time.

Thanks everyone, great forum and top thread.

 

Have a read of this bulletin people, a chronology of tax rulings relating to capitalised interest.

http://www.bantacs.com.au/booklets/Claimable_Loans_Booklet.pdf

 

Our Journey so far

Hello everyone, thought I'd let you all know how things are going,
Our IP has been Let out and so the Rent is coming in
We are about to do our Tax etc on the Property and claim all that we can, and put that all into our PPoR loan
Since starting with our new PPoR loan we have payed down twice the amount we would have with our old loan and that was before any rent from IP so now will go down even faster. we have had a Tax variation letter from the ATO where I now only pay 15% tax on wage's and my wife pays only 5%, which in turn gives us another $250.00 per week to put into Loan, things have moved along very nicely so far and are looking forward to building another IP hopefully in 2-3 yrs or sooner through Canterbury as they don't just set you up then leave the rest up to you, they stay with you as long as you wish, keeping a record of your journey, and always there to answer any Questions you have, and they don't charge for that. you don't pay them anything out of your pocket, we know, we have done it and so glad we have,
Barnoid, yes read the tread you put up, but that is all known with Canterbury, and the tax Agents they use do not claim the capitalized interest only the original interest on the LOC, and funny enough the Accountants that put that up is the Accountants Canterbury use, we use, Bantac's Accountant's, no one is going to put you at risk with the ATO, they all have their Reputation to up hold.
Hope to hear soon from dp and others that are already doing the journey

 

Hi dp, you have not been on here for a while and was just wondering how it is all going for you? have you been up to see your IP yet?
We are still very happy with our Dealings with the guy's at Canterbury, funny thing is when its all up and running, you miss the contact haha, but at least know they are alway's there for you.
I think some people on here, with their slight negative attitude to C is because they have friends or themselves, think they know better than these guy's, but Canterbury set you up with a system, that would probably fail if you don't follow it whole heartedly, and C do not want us to fail
People who have their own idea's should just go their own way, cause they know better
Hope to hear from you soon, Venom.

 

Hi Kingsley, It is August now and would like to hear how the Build is going and if you are still happy with everything, we have been getting rent now for around two months now and all is great

 

Hi Venom, building is going well, frame is done so I am expecting it to be completed around the November mark. I am really looking forward to seeing it completed and have it rented out right away

 

We recently had our second meeting with Canterbury. Rob spoke with us and I am quite happy with them and the systems they employ. I have done a lot of research on them and whilst a couple of people have pointed out some possible negatives, weighed up against the positives I found the issues are minimal to us and our situation.

As previously stated, there is no black magic, no unlawful or borderline dodgy bookwork, no get rich quick stupidity and no insane risk levels. Strategies for passive income (non property) are discussed using a variety of methods however all of these are elective and the pros and cons of each are openly discussed. The commissions they receive are disclosed in the Asset/Liability statement you fill out and all of my questions were answered openly and confidently.

Prior to my meeting with Rob I had a decent, workable knowledge of what they did and what to expect. The answers I didn't have were why they have an edge, and why they are not well known and a huge company if they are so successful. I now have these answers, and they sit well with me.

I am comfortable to work with them, far more comfortable than I have been with any other investment strategist I have spoken to. I will be proceeding with them.

Feel free to PM me with specific questions if you want to know more, I won't publicly announce their strategies as proposed to me as I don't think that would be sound.

Thanks
Barnoid

 

Hello Venom... so sorry. For some strange reason. I didn't get updates from this forum, suddenly I got update yesterday & I've noticed people still discussing..

Yes. Our IP is up and running. Tenants moved in early July. rent is coming now.. I've already started annoying Canterbury about the next one, they asked me to wait for a while, till I increase the value of all the properties. Soon I will re-balance my loans to fill the buckets.. To be honest its moving smoothly. Jodie & co are always there for any questions. no doubts about it. I always come up with some new ideas, ......

I was expecting / (illusion) to see the PPOR to reduce quicker, but the reality is not like that, but its going down. May be I expected lot more..

I came across duel income property in QLD (interesting concept) but my current serviceability stopped me from going forward.

How others are progressing here....

 

Hi, I am new to this forum. I have my PPOR and one investment property which was purchased 3 years ago, which has not seen much capital appreciation due to the market conditions since 2010, I think. I have recently contacted CPS and had my initial approach. I am currently waiting on them to get back to me with a proposition. What I have read from the forums has been nerve settling and welcome. Appreciate that. However, if I had to develop another property not for investment purposes but for living and make my current one as an IP, how would that work with the CPS model and what should I be looking for here? Any comments, much appreciated.

 

Hi emkey. This can work with CPS model. your current PPOR will become an IP and , A new loan will be taken for your new PPOR. As long you can establish the serviceability with the lender (which I can't see much issue), as CPS will advise you to go for a portfolio loan . Advantage for you.... you can sell you current PPOR within 6 years and avoid the CGT , although CPS model doesn't encourage people to sell the IP, just keep growing and growing more...

 

Thanks DP. I will keep the forum informed about my engagements with CPS.