Now What?

[drelly]

Hey Austin,

Yeah you are right but someone always has to carry the can for any decision. Is your wife prepared to carry the can for decising to invest in land? After all, it is her plan and not yours...

Your calculation is fair enough I guess but I'd still rather pay nothing, depreciate the building and get a paper loss and tax refund! Also, you still have the potential for problems by owning and leasing land. If you want a hassle-free investment, buy bonus bonds!

"A good plan violently executed right now is far better than a perfect plan executed next week." General George Patton

[RentMaster]

Say I borrowed $100,000 @8.5%.

Payment in year 1 $9662.76
Interst Paid $8453.62
Principal Paid $1209.14
Lease Income (10acres) $1000.00

So effectively what I will pay in year 1 is:

$9662.76-$8453.14+$1000 = $2209.14 = $84.97per fortnight.

I am not sure about your calculations.

Income 1000.00
less Expenses 9662.76 (includes interest and principal)
Yearly Loss 8662.76 (or $333 per fortnight)

[Marcus]

Thanks Andrew,

I thought it was just me .

[drelly]

He is calculating the repayment of principle and regarding it as savings... the interest repayment is ignored.

Buying land can work but if you wanted to do anything else financially, you'd be buggered as the repayments on the land would stuff your cash flow.

I'm stumped as to why anyone who didn't want to invest in a rental property would consider buying land to be easier Financially it's a damn sight harder than having tenants pay the mortgage!

[AustinWong]

I am not sure about your calculations.

Income 1000.00
less Expenses 9662.76 (includes interest and principal)
Yearly Loss 8662.76 (or $333 per fortnight)

I used a free programme off the internet to do an atomization ( I think it means a detailed financial braekdown or something...an american word maybe)

What software do you use to give a detailed breakdown?


Thanks

Lawrence

[AustinWong]

Drelly, (or anyone)

What do you think of Madness's reply?

So assuming $9662.76 is total amount your paying back in a year,comprising of $8453.62 in interest and $1209.14 in principle replayments. For tax purposes your income of $1000 less interest expenses only of $8453.62 would creat a tax loss of $7453.62. So times this by you eligible tax bracket percentage and you have your tax relief. Ie @33% would be $2459.

However your actual cash flow replayments, if spread evenly over the 52 weeks, would be $185pw ($9662.76 / 52).

Or you could look at it as $138 pw ((9662-2459)/52) if you incorportate the tax relief at 33%.

I kinda thought that I could claim back all the interest, am I missing something?

Thanks

L

[muppet]

Hi Lawrence

No you can't.

Your loss is subtracted off your total taxable income. Then that amount will be taxed at the appropriate rate. As this tax should be less than the tax you have already paid, then you will have a tax refund.

Regards

[drelly]

ooh geez Austin...

No the Government does not like to pay the interest on our mortgages! You can only claim it as an expense... eg;

Say tax rate is 33%

You earn $60,000 and so pay $20,000 in tax.

However, if you pay $10,000 in business interest, you can claim it against your personal income.

This leaves you with a taxable income of $50,000 which is liable for tax of $16,667.

So you'd get a refund of ($20k - $16,667) = $3,333 which would still leave you with interest payments of $6,667 to find out of your own pocket (plus principle).

See why we like to have tenants paying the mortgage and get those paper tax losses with depreciation?

By the way, if this was in a trust, I don't think you could transfer the loss to your personal income but you could with an LAQC.

[Marcus]

Hi Lawrence,

If you are wanting to know how much money you will have to pay each week from your own pocket, Rent master is right on the money.

Income 1000.00
less Expenses 9662.76 (includes interest and principal)
Yearly Loss 8662.76 (or $333 per fortnight)

Money in $1000 - money out $9662.76 = -$8662.76p.a
Dividing this annual loss of $8662.76 by 52 (weeks) will give you your weekly payment amount required each week of $166.5 or $333 per fortnight when you break the year down by 26 fortnights.

Madness neglected to allow for the $1000 Per annum Income that Rentmaster has allowed for.

However your actual cash flow replayments, if spread evenly over the 52 weeks, would be $185pw ($9662.76 / 52).

Financially it's a damn sight harder than having tenants pay the mortgage!

B I N G O.

To look at things from a different angle, how many $100,000, 3 brm investment properties have you seen with a 1% yield? That translates to $19 Per week rent! Or $38 pw with a 50% vacancy!! Do you catch our drift here? You would need to find what could possibly be the worst returning Investment property in the country to match the figures you have given for this vacant land.

Your wife’s solution to avoiding potential tenant problems is to have you work harder to pay the costs of carrying vacant land with the hope of capital gain (Speculating). This means you are having to work harder not smarter. By doing this you are spending time, not leveraging it. Just as importantly, you are not leveraging other peoples time (tenants). They in effect should be going to work (spending their time) to pay your property off.

Rather than merely focusing on just the numbers, you could invest some time with your wife listing each of her fears (yes that means writing each one down on a piece of paper) that she has with tenants and discuss each one thoroughly (if you get stuck post it here on PT) until she feels comfortable that each problem is manageable.

Hope this helps.
Regards,
Marcus.

[muppet]

Hi Lawrence

Don't forget the other costs in running your piece of land.

Rates

Fencing costs

Water supply
to name but three. I am sure there would be other costs as well.

Regards

[AustinWong]

Hi all thanks for all your support and suggestions.

We are off to Northland tommorrow to look at land at Coopers Beach.

Please look at my new post about what conditions to put on a land purchase contract and see if you can help out.

Quite an urgent request.


IF it does not work out I will be hammering the rentals line again.


Thanks

L

[Monid]

Hi Austin

just another attempt to sell the rental idea.

How about keeping a whopping great Revolving credit account based on your equity to cover any tenant induced expenses.
Say $20000

After all you are currently looking at losing $5400 a year to hold this peice of land...

How much damage can a tenant do?

We own 8 IPs mostly in fairly shabby areas and our worst hit thus far has been $3000 and that was from previous owner neglegiance not tenant!

[AustinWong]

Well folks... here is an update on my adventures.

Found a great section (well kinda great) close to the beach and a good price.

Went off to Northland with wife and 3 kids in tow. youngest 20months old. Left at 9am and arrived at Coopers Beach at 3.30pm...big drive from Thames.

A bit of an adventure.

Before we went up I jacked a few more properties to look at as well and asked clearly if the Coopers prperty was under contract..the answer was no (you might be picking something up by now).

So 6.5 hours trip from Thames we look at the site, hummed and harred. Looked at other sites...nooo waayy ......

Said to the agent we would have a think about the Coopers beach property and meet her at the office. So on the way my wife and I agreed to stretch ourselves abit to buy. We call our retail banker and leave a message for her to call urgently to confirm some finance details.

The phone rings shortly thereafter and it is the AGENT!

She sheepishly tells us that she has just found out that the property was already under contract and was when I had asked before leaving Thames to look at it.

The mistake occured because they did not follow standard procedure to check up on the status "LOOK AT THE WHITE BOARD!!!!"

Needless to say...gutted.

We are on back up contract now ....ie next in line....but am doubtful we will get it.

So we went back to stay at Whangerai that night.

We called agents on the way back but no more properties available.

This morning we went to Whananaki North to look at a mountain goat track laced with gorse in the stinking heat.

Kids groaning and the baby (well she is really a toddler at 20months) did a bit of a nasty in her nappy...which kinda leaked. Only a parent can understand what this is like in the swealtering heat and have to make do with the boot of the car as a change table and doing a full change.

Back to Whangarei from here and to reatly agents...by this time don't worry about the kids..... I was packing up.

All 4 agents we visited and umpteen others we called said that we really needed about $100k to buy any worthwhile bit of land up north. I heard I saw and I believe. Please darling please let me buy a rental...it would make me soooo happpyyyy.

So off to Dargaville 75km away to have a nosy.

I heard of some sites on the peninsular south of Dargaville...so off we go...

The owners said a 25 minutes drive to view the site...50minutes later... now it was my wife 's turn to pack up...

We are having real fun now...with children moaning or whinging in unison or intermittently like strung cats. Funniest was my youngest son at the ripe old age of 6 who is quite savvy with his pocket money saying that we should not look at land for investments all the way to and from Dargaville....many many times...

Out of the car for a walk.

Back in the car and looked at another section on the way back to Dargaville, best site for our money yet but no potential really.

Dinner in Dargaville and back home by 10.30pm tonight.


So basically 1400km of driving in 48 hours all done by my wife (I think she doesn't trust my driving). I have no idea how much we spent on food but you could guess with accomodation anf food for a family of 5 for 2days and fuel..... and nothing.

Silver lining is that we made the most of seeing what was available up north for the $$ and getting a feel of the different areas. And i have learn that I am likely going to get disappointed a few more times with the property game ove r the next few years...a bit of toughing and growing to do here I think.

So there you go.

I am gonna contact some financial advisers!! To try and put us straight...


Cheery...time for shut eye...

Lawrence

[fudosan]

Hi Lawrence,

Thanks for the interesting update. Patience is the name of the game when it comes to property investing, so just keep on searching.

[orion]

I am gonna contact some financial advisers!! To try and put us straight...

Lawrence,

I think you really need to pay more attention to what people have been telling you on this forum. You will probably find that most of them know more about investing than financial advisors - unless you just want to be average.

As for your wife giving you advice, is she a successful investor herself? What experience has she had with her investments?
If I trusted my wife to make our financial decisions for us, I would not even be able to afford a computer in order to communicate with you.
Get yourself educated and you'll prove to her you know what you're doing. If your wife is willing to listen and learn as well, even better - you can both grow in knowledge and experience together. At the moment, what you need is more financial intellingence, knowledge and belief in yourself.

Regards
Graeme Fowler