Kinda like Monopoly

I was out for a run over the weekend, and along the way noticed a board out the front of a house. Numbers 5 and 7 Alfrick Road, Croydon, have recently applied for council approval to demolish the two existing houses and build a three-storey apartment block. From memory, we're looking at about 42 doors.

The local and state governments have earmarked the areas around Croydon central for high-density occupancy for several years now. Those familiar with the area will already know of the developments around Hewish Road, and the council has indicated that they are open to more of the same.

7 Alfrick Road sold in Janaury 2009 for $435,500, and 5 Alfrick Road sold in May for $480,000. Clearly, the land is now worth quite a lot more, particularly once those plans are approved shortly. Having control over both blocks would mean that number 5 there is worth more to the developer in question, hence why the sale price was a little over the odds compared to an almost identical block next door.

It's kinda like Monopoly, really.

Now, the Croydon Town Centre Residential Development Policy, linked above, was issued in January 2006. Consider 2 Alfrick Road; sold in March 2006 for $327,000 - after the policy was released - and resold to a developer in September 2009 for $660,000. Not a bad increase in three years or so, but you've gotta feel sorry for the vendor who let it go so cheaply at the time.

Two key lessons in this, I think.

Firstly, it's important to know what the local councils are planning and encouraging in a given area. And secondly, knowing the higher and better use for a given property can sometimes mean that you can find an opportunity that others may simply overlook.

Want our number?

That time of week again, people. Dave has kept his massive lead over everyone in the sharemarket game for yet another week but it looks like everyone (Dave included) got hammered today with falls across the board. Ouch!

Also, just so you all know, we've finally finished re-structuring our company. Everything continues exactly as it did before, but we now have a brand spanking new tax agent number that will be effective as of Tuesday 1st of December. So if you need it for anything, disregard any such numbers that you might have seen before and replace them with this one: 80936 000.

Have a great weekend! =]

Chasing your losses

Given the option, we would all want to make money out of the share market in every trade we made. Unfortunately, there will be times when you buy a share and it does the exact opposite to what you were hoping.

I’m sure we have all heard of the term stop loss, having a pre-determined sale price in which to sell if the share drops. Having trail stops are also are good idea; as the share goes up, so does the level for the stop loss.

An important thing to remember though is that it is not important to be profitable on every trade; just to be profitable overall. Let's look at a simple example of possible trades in a given week to demonstrate the point.

Say for example you buy 100 RIO shares on Monday, at $70 each. They then fall to $68 per share, giving you an unrealised loss of $200, plus the brokerage cost, which we shall make $29.95 per trade . You then decide to hold RIO and ride out the fall. RIO then jumps back to $71 on Friday afternoon, and you sell to close out the week. Considering brokerage this gives you a net profit of $40.1 or 0.57%. Not too bad considering you were almost 3% down on it at one stage; that’s a 4.41% recovery.

Let’s now figure though that instead, you sold RIO on Tuesday when it hit $68. You accept a $259 or a 3.7% loss. Now things aren’t looking so good for you at this stage. Let’s then figure that you decide to buy 134 WPL shares for $50 each. You have to fork out another $29.95 in brokerage but have contributed no extra money after the loss on RIO. The WPL shares leap up to $54 each on Friday to close the week and you cash in for the weekend.

Taking into consideration you incurred twice the brokerage for the extra buy and sell ($119.8 all up), you are left with $7116.1, an overall profit for both trades of 1.66%, a better result than keeping RIO, even though you accepted a loss. This is called the opportunity cost of buying or selling a share. Holding on to RIO in the above example means you make no actual losses, but you lose the opportunity to make more money out of WPL instead.

So remember, always make sure you are looking at the best opportunity, not just chasing your losses!

Works of art

The end of the calendar year is quickly approaching now, and with it, the end of the 50% investment allowance for small businesses. For those who meet the criteria, and are looking at buying new assets in the near future anyway, it may be worth giving a little thought to taking advantage of this one and bringing forward any planned acquisitions.

Assets, bye the way, can also include artwork.

The tax office have issued a guide on what they would like to see before such a purchase is considered eligible. Interested? This is what you need to know...

  • The artworks are not purchased with the view of resale for profit in the foreseeable future;
  • The artworks are new pieces created by either recognised international artists, or professional Australian artists operating with an ABN;
  • The artworks are publicly on display in the business premises (ie, not restricted in viewing to the owner); and,
  • The artworks are tangible in nature, and not digital items.

Of course, both your business and the intended art purchase still need to meet the usual criteria to be eligible for the allowance. If you'd like to know more about how your business can benefit from the opportunity, just shout.

Join us on facebook!

Hey, weekly trading game update. Dave is still in front by about $2k, after most players seemed to stay more or less in place from last week. Only four weeks to go now, people, so keep emailing me your trades!

And only five weeks until Christmas. So, just a reminder that we're closing the office from Wednesday 23rd December until Monday 11th January. There's still enough time for us to get some work done for you though, so just shout if we can help.

By the way, have you seen our facebook page yet? We just ticked over 200 fans - if you're not one of them yet, maybe you should be! Go on, check it out. And have a great weekend!

Property analysis #1 - positive gearing, easy

Ok, first up, I’ve spotted a neat little 2 bedroom unit at 22 Bond Place, in Karratha, WA. I figured it was certainly one worth looking at, as the benefits struck me right away. Let me show you the potential this property could have...

Just a reminder, for this hypothetical investment we’re assuming our investor has a taxable income of $100k prior to the purchase, no other properties in the state, and is using equity in their current portfolio to borrow the full purchase amount including costs. And, of course, this is all guesswork and we're not recommending that you rush out to buy this property without doing your own due diligence.

Now, the beautiful thing about this property is that it’s highly likely to be positively geared straight off the bat. We can see in the ad that it’s currently pulling $1,200 a week, leased until the end of March next year. We've assumed about $2,000 for rates, $1,000 for insurance, similar figures for ongoing maintenance and 9.5% property management fees (plus various letting fees, land tax, etc). Asking price is $650,000 and we'll assume that our investor can't negotiate a discount on that.

The interest amount isn’t too scary, either. We’ve assumed an average interest rate of 6.30% over the full purchase price plus costs, which gives annual payments (on an I/O loan) of approx $43,000. Even with the instability of rates at the moment, we can be fairly confident that the rental income will still manage to cover the interest even with a few increases over and into the new year.

So, the bottom line? Our estimate for how it works out in the first year shows about $8,000 cashflow positive; or, about $154 per week. That includes a relatively small tax benefit for the depreciation, too. Remember, our investor didn't put any actual cash into this deal, so that's all pure profit.

We've also worked on a fairly modest capital growth rate of about 6%, being a tick over expected inflation of 4%. Using that, at that 10 year mark, our investor would be sitting on almost $500k equity in a $1.16 million property and will have pocketed something close to $130,000 in positive cashflow in the meantime. Nice!

How to make money out of property investment

One of the most frustrating things for us, as investors and advisors, is watching our clients lose money. Every investor starts with good intentions towards building wealth, and yet we still see too many people who keep forking out too much to own a property that just hasn't gone up in value quite so much as they had hoped.

So, starting this week, we’ll be analysing real life deals for you every second Wednesday. Armed with little more than, the Somers' PIA software, our depreciation estimation tool, and a passion for making money out of property investment; Danny will show us all just how easy it is to make a little coin in today’s market.

There will be a lot of assumptions needed, of course, and by no means would any of these analysis exercises on our blog constitute specific advice. The sole purpose of this regular feature will be to highlight different strategies and methods with which to create wealth in real estate. So for consistency, each deal will assume that the investor has a taxable income of $100,000 prior to purchase, no other properties in that state, and is using existing equity their portfolio to contribute towards borrowing full purchase price plus costs.

We can also do this purchase analysis for you, too, if you have a potential investment in mind. Just shout if you’d like to know a little more about this new service.

We’d love to help you increase your wealth.

We'd love to help you more!

Hiya! What a beautiful week it's been outside. Shame we've been stuck in an office for most of it... Grrr. At least Dave has made the most of his time inside by streaking away from the pack in the sharemarket game again. He's now $2,000 ahead of his nearest rival! But with five weeks left to go there's still time for everyone else to catch up.

We were thinking earlier this week (always dangerous) and it occurred to us that maybe everyone doesn't know about all the different things that we can do to help. Our name is House of Wealth Accounting Solutions, of course, and that's because we like to find solutions for investors with their accounting and wealth creation.

Did you know that we can help you to;

  • increase the cashflow from your investment properties?
  • sort out messy lines of credit and other mixed-use loans?
  • analyse potential property purchases and sales?
  • do lots of other things too!

We created a new page to let you all know what we can do to help. So, have a look at our services and just shout if there is anything that you would like us to help with.

Accumulating excess cash?

Just a quick tip for today.

Recently, we've seen a few people declaring large amounts of interest or paying down their own home loan with excess cash. Neither of these ideas are necessarily 'wrong', per se, but often there is a better way to do things.

Paying down the debt against your principal place of residence certainly provides options. Lower LVR, more security, and generally regarded as quite a sensible thing to do. The main issue here comes about if you get to the point where you'd rather move into a new home, and rent out the old one. If you've already paid down the debt, then any redraw to purchase a new home will be considered private in nature and thus the debt; non-deductible.

However, using an offset account will have much the same affect in reducing interest, yet redraws from an offset account will not change the nature of the underlying loan. That allows for the opportunity to take cash out of the offset to put into a new PPOR, and the entire amount of interest on the previous home may then be deductible as investment-related debt. Clearly, a much better situation to be in.

With regard to savings accounts, the main drawback here is that interest earned is considered taxable income. However, interest saved on private debt using an offset account; isn't. And, in most cases, the interest saved will usually be much higher than the interest earned - even before tax.

So, it might be worth looking at how your banking is set up. And just shout if you'd like to be pointed in the direction of a good broker, too.

Only 7 weeks?!?!

It’s that time of week again so time for the share trading update, well no one has been able to get ahead of David who is sitting on $23,809, but not too far behind is one of our clients Edward who jumped to $22,450. Go Edward!

Something else now, we also received an email from the tax office this week about their new system updates. What it means for you is that any returns lodged, or still in their system in late January and early February, could be delayed a little. With Christmas also quickly approaching - omg, only 7 weeks!! - you should probably make an effort to get organised pretty soon if you haven't already.

Oh, and if you want to read more about that tax office change program, there is more info on the tax office website.