Join our investing community

Rental Reality and "Our" Reality

Discussion in 'Real Estate' started by TryHard, 17th Aug, 2005.

  1. TryHard

    TryHard Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    863
    Hi all

    Apologies in advance this is a bit detailed :(

    Wife and I are converts to Steve's process, and trying to work through the issues we have created and move more toward the "Navra way" :) We are btw working with Steve and the Brisbane office to arrive at a strategy, however would be interested in thoughts on this as a general discussion.

    "Rental Reality' makes perfect sense. However we are keen to keep an existing PPOR and turn it into an IP (mentioned in another thread). Trick is, we want to sell it to our Trust for market value ($500K) and the rent return is $380 per week max. So following the logic, we should get rid this property and get into something else that DOES meet rental reality.

    However, the property (in wife's name) is on 5,000 m2 and adjoins another 5,000 m2 IP we own in the name of a Trust. It is 28 km from Brisbane city at Karana Downs which has some reasonable growth prospects (its in the 'growth corridor', near river, public transport coming one day when the politicians honour a promise (cough!) ). House is 35 squares 4 bed 2 bath, large double garage, new inground salt pool, many new fixtures etc for depreciation, originally built in 1989. The area I think meets all Steve's other suggestions (many owner occupiers, lots of improvement, family area, close to schools etc)

    So "my" logic (often proven flawed) tells me there are some good characteristics that might allow some "flexibility" in viewing this property and rental reality. Does anyone take into account other "special considerations" when deciding which property to buy, if it doesn't meet the sums ?

    eg. if I "firesell" the property in the current market for $450K, what would I be buying that meets Rental Reality (how much land, growth prospects, etc?) I would also lose the potential future benefit of adjoining acreage blocks in a growth area.

    Any thoughts appreciated

    Cheers
    Carl
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    You want to spend a lot of time thinking about the ramifications of selling (getting rid of) a property before you do so. Look at all the costs associated with selling, and any potential capital gains tax you might be liable for ... compare this with the expected return you might get for the property if you were to keep it another 10 years, and compare this again to what you think you could do with the money left over from the sale - could you really make better use of that money over the next 10 years than you would by not selling?

    If it's not a lemon, I wouldn't sell (unless the numbers were compelling enough), and I'm pretty sure Steve wouldn't advocate "getting rid of" a property just because it doesn't meet rental reality criteria - it's not quite that simple when you look at all the costs in doing so - it may cost you more to get rid of it than it will to keep it!

    I do believe that Steve is loathe to sell off any assets (unless it really is a liability) - although I'm not trying to speak on his behalf here - is just an observation!

    I'm also not making any observations here about selling to your trust - only about selling to someone else. The trust stuff is a different matter, and one that you'll get many different opinions about :D
     
  3. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    Rental reality is only one aspect of property selection. The development potential gives prospects for significant value-add upside. I wouldn't let the property go. If cashflow is a concern, look at structuring your investments to manage the overall portfolio cashflow.

    Cheers
     
  4. Denis

    Denis Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    67
    I sold a blue chip property six months before I met Steve.Whilst there were some mitigating circumstances it was a major mistake.Forget about Tax Considerations .There are enough smart advisers in this forum to help you maximise your position and protect your assets without selling.It is much easier to build wealth when you own assets.You do not need cash in your hand to build wealth ;it is the assets that you leverage.Good Luck !!!
     
  5. Andrew

    Andrew Active Member

    Joined:
    16th Aug, 2005
    Posts:
    27
    Location:
    Moonee Ponds
    Don't forget there's stamp duty incurred when you buy a new property.
    Your new prospects will have to justify vendor + purchasing costs.

    andy
     
  6. TryHard

    TryHard Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    863
    Thanks !

    Thanks Sim, Nigel, Funds and Andrew !!

    - that clarifies our thinking a bit, and addresses the same sort of issues we had in mind. Sim - on your point, no CGT applies on this one as its our PPOR, but the reason we thought we'd wear the expense of purchasing it via the Trust (stamp duty and costs) is to retain the other benefits we see in the property - ie. try to keep it somewhere in our structure but in a tax deductible set up. We got the idea from one of Nick's excellent presentations at one of Steve's excellent seminars ! :p (I love being able to give accolades without Bill_L following up with a flame :D)

    The proceeds from the sale (that would go to my wife) are going toward building the 'dream home' on 'the farm', which we have been compelled to do through reasons of the heart and not the head. DA is in Council and we are told expect to wait up to 2 years as the Brisbane mayor is replacing no staff, and putting the money into his budget for all the tunnels he has planned !

    Thanks again all :)
     
  7. johnnyb

    johnnyb Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    190
    Location:
    Hobart
    As I noted in another thread we did the same PPOR to HDT transfer a while ago. We also follow the "Navra Way" (to a certain extent) and our PPOR wouldn't have passed the rental reality test - but doing the transfer and freeing up the equity in a tax efficient way made sense for us as we wanted to buy a new PPOR (a heart over head purchase).

    John.
     
  8. TryHard

    TryHard Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    863
    Good one !

    Hi JohnnyB

    Nice one - that makes me feel better :)

    Actually I met with Steve and Roger at Navra Brisbane today and their enthusiasm and professionalism always makes me feel at ease. So the plan is underway ... I will post results when there is something to report ;-)

    Thank u all :D