Buying your first property

[fungus pudding]

Right i did not realise this im just going off of the asb securities floating rate for margin lending and it is a good 1.5% higher than the interest im currently paying on my fixed rate

Not sure what you mean. Are you proposing to lock in part of your mortgage that currently is floating? If so - slow down. That will not create a tax deducible loan. The loan you have now is not tax deductible or tax effective. What you must do is repay the loan - that was raised to buy your home and is not deductible. Then after repaying you can organise a new loan to invest, and that will be a tax effective loan as long as it is borrowed with the intention of furthering your income through investing. Timing is crucial.

[JBmurc]

Hey JT I am in a similar position I am currently looking at investment properties but have enough for a deposit in a savings account(which I gathered from selling down some of my portfolio) and the rest in stocks. But after reading your strategy I am considering doing the same and selling more so i can buy a property outright however when you say take out a huge mortgage to buy stocks how would you go about doing that? as far as i understand borrowing against your house to buy stocks would come with a premium interest rate right? or would you set up a separate entity to sell the property to and use the proceedings from the sale to invest whilst paying off your mortgage over a 30 year term? I am very interested to hear your answer. cheers.

No you shouldn't have to pay a premium over standard rates if you have good home equity(if the banks states that go elsewhere) ....generally understand the major banks will loan upwards of 80% of your free equity ... but does depend on what your investing in
sharemarket etc you might find the bank will only give you 50%-60% etc ...

I have for a long time had a 150k loan in the ASX(through my company) ..I did fix this @ 4.9% for 2yrs round 7-8 months ago(same time I got 4.9% home loan)

I agree get a house debt free or close enough to it ..before loaning for the market

[fungus pudding]

No you shouldn't have to pay a premium over standard rates if you have good home equity(if the banks states that go elsewhere) ....generally understand the major banks will loan upwards of 80% of your free equity ... but does depend on what your investing in

It shouldn't. Most banks won't even consider what you are doing with the money and won't even ask. All they want is security - something to sell if you fail to pay.

[voltage]

fungus pudding, you have a wealth of knowledge on property trusts, using home equity, are property trusts fully priced and which ones would you recommend
thanks

[Joshuatree]

Possibly the offer contained a time-clause and the vendor decided to bring the auction forward, which would be highly unusual once the auction date has been publicised. But an offer prior to the fall of the hammer does not force anything.

P.S. Are you sure the property was to be suctioned - sounds more like it was for sale by deadline treaty?

Yes checked today. He put an unconditional 48 hour offer in and after discussions the agent allowed the offer in and brought the auction swiftly forward; . There was one other int party but they pulled out citing not enough time for doing their due diligence. Whether my friend overpaid or under we will never know but it created near certainty for him which worked and he moved in swiftly and set up his business in the large basement . He had moved from sth island and setting up his business pronto was very important.

[fungus pudding]

fungus pudding, you have a wealth of knowledge on property trusts, using home equity, are property trusts fully priced and which ones would you recommend
thanks

I think they are fully priced. They are all above NTA*, but have been for ages. Hard to see them dropping though IMO with interest rates favourable to real estate investments and the share market itself. Building replacement costs are always rising as well as demand in Auckland market which should bode well for rent reviews flowing through to higher valuations and NTAs. I suppose I'm saying while they are fully priced today they might hold their premium. I don't think there's much doubt that plenty of people are buying or chasing yield. And it is a game where ultimately asset value rises. (Big help - aren't I) So you know the rules - if you buy now they'll drop - and if you don't they'll rise! Over the last few times I have checked they have drifted up and down a fraction. but seem pretty stable.
Which ones? Arg and Str (Argosy and Stride) have a mix of commercial retail and industrial. PCT (Precinct) specialise in high quality office buildings. KPG (Kiwi Property Group) retail. PFI (Property for industry) specialise in industrial and GMT (Goodman Property Trust) have a mix of buildings but also develop vacant land, as do a couple of the others to a lesser extent. They are the ones I hold and should have added Vital health care ,Rymans and/or Sumerset but haven't. Probably will one day. All those ones seem to be well managed and in growth areas. Look at hteir various websites and you'll see the general standard of buildings and a very impressive list of tenant names.
Using home equity? Why not. Remember the returns are tax paid while your interest is deductible if you have borrowed to buy in. I don't even report the income. So you should show a positive return from day one. It's always a risk of course but probably a damn sight safer than most investing. As I wrote elsewhere if you spread a bit around those investments you will have a share in hundreds of prime buildings and they regularly report vacancy rates of maybe 1 or 2%. They all have a WALT (weighted average lease term) of around 5 years or more so income fairly well assured. They all seem to be good tenant managers and work hard to retain where possible or at least move them to another property they own or develop if they have out grown the premises. Looking in my crystal ball I see LPTs as filling a real gap in the market way into the future. Gone are the days when individuals can manage larger buildings, shopping malls, etc. We are not all Bob Jones types. Professional management is essential. Keeping up with legislation etc is not for everyone.

* point about NTA with property is if the building(s) were sold and money distributed then you would not recoup all your money - so unlike lots of things NTA should be the share price in a perfect world. However there is demand for these schemes - so hence the premium.

[fungus pudding]

Is a property especially hard to run from a remote location? For example I live in Auckland but am considering a place like Taupo/Dunedin simply due to the affordable housing.

Yes it is. Don't even think about it.

[Joshuatree]

fungus pudding, you have a wealth of knowledge on property trusts, using home equity, are property trusts fully priced and which ones would you recommend
thanks

IF wanting to diversify Aus has some good yields still; for example TIX an industrial prop portfolio; yield re 7 -8% with no franking to lose out on.Trending up atm ahead of div and possible inclusion in ASX 300.I hold.