The Number #1 Thing New Investors Get Wrong...

Discussion in 'Where to Buy' started by Jess Peletier, 12th May, 2020.

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  1. Trainee

    Trainee Well-Known Member

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    Buy a 20 acre block, hold for 50 years. Move in before death. Tax free subdivision value!
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    if you are young enough encourage your parents to do similar strategies.

    This is an area of weakness in most plans, incorporating the whole family can save tens of thousands in tax - or more.
     
  3. spoon

    spoon Well-Known Member

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    We self-manage ours too. As our whereabout is time dependent, so, we have bought not only in Australia but outside Australia too. Lessons learned: if you are in the most prosperous place, buy locally and you win big, both CG and CF. If not, make sure you don't buy wrongly into someone else's hopeless backyard. Don't fall into the greener pasture fallacy, when in fact just the difference between the Saharas and the Centre of Australia...o_O
     
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  4. wylie

    wylie Moderator Staff Member

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    Well I've learned something tonight. But I don't think moving into an IP at such a traumatic time just to save the kids some tax would be something I'd want to even think about.

    In @Terry_w's example, a cancer diagnosis is made, Homer moves into his IP and rents out his PPOR and dies six months later.

    I wonder how many people would do this, even if they knew about it?

    When I think about the people in my life who've had such a diagnosis, they aren't thinking "hmmm... I'll move out of my house, into my IP to save the kids some capital gains tax".

    But I stand corrected. :)

    @Terry_w there was a poster a while back saying he could move into his IP before selling it and was quite sure he could do that and avoid CGT on sale. Perhaps he'd read your tax tip and thought he could sell it rather than die whilst living in his IP?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    imagine you were 20 when you bought your main residence for $100,000 and the house next door for $100,000 which you then rented out.
    You are now 60 and each property is worth $1mil. You are in good health

    You could move into the rental now and rent the original main residence out.

    You might have 30 years left, but you might also do it just in case you die next week. You have helped the kids save $250k or so.

    You could also use the 6 year rule by moving back and forth every 5 years or so.
     
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  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    More likely he went to a BBQ - the main source (sauce too) of incorrect advice. They should be banned.
     
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  7. Archaon

    Archaon Well-Known Member

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    I bought locally in 2008, 20 and no idea, but thought the fundamentals were good.

    760m2 corner block, thoughts to subdivide, didnt do due-dilligence at the time of purchase.

    215,000 purchase, subdivide, sold original un-touched for 345,000 (2017), new build for 470,000 in (2018).

    Whether luck or good timing, it worked out.

    A point to knowing your local market though, local agents said my properties were worth 320k and 420k respectively, I said they were wrong, and proved it. Sold the first property in 14 days, second in 62days.
     
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  8. Trainee

    Trainee Well-Known Member

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    We do complicated expensive wills to achieve this, so why not this? I might do it when i get old, not when i know i have 6 months left. Any trauma would be my own, so my problem. If i’m dying i’m probably thinking about my legacy which includes providing for my family.
     
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  9. wylie

    wylie Moderator Staff Member

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    Of course. You can do it and so can I. But I won’t. For the right circumstance it’s another available tool.
     
  10. Lizzie

    Lizzie Well-Known Member

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    I'm a bit "bugger the kids"... they'll be left a sizeable amount already so I'm not going to make my own life difficult for a bit more
     
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  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    What about your spouse? they could benefit if you went first.

    If you are going to make your life difficult by moving you would have to think twice, but those planning ahead now could structure their affairs so that they could implement this strategy later without too much hassle.
     
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  12. Biggbird

    Biggbird Well-Known Member

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    More impetus to put rails, ramps etc. in the IP to set it up for if you ever need to move in. Opens you up to a broader range of tenants too!
     
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  13. wylie

    wylie Moderator Staff Member

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    It's not the ability to make one of our IPs suitable for someone needing extra care, or even to accommodate us in such circumstances. It is the fact (for us anyway), we love where we live. When a diagnosis happens (and I've seen it numerous times), you hunker down and fight it from a place of safety.

    Moving house at such a time is the last thing we would do. I'm not saying it is not an option (and I didn't know about this option until I challenged it yesterday).

    Our IPs are totally unsuitable to any form of rails, ramps etc. But many houses would benefit from them, I agree.

    I also agree with @Lizzie that our kids will be well looked after, and we wouldn't uproot ourselves from a place we love to put more into their pockets. But I agree this is something someone can plan for. Just not us.
     
    Last edited: 13th May, 2020
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  14. The Y-man

    The Y-man Moderator Staff Member

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    I have always bought in my "local" area - albeit that's a 20km radius covering almost half of Melbourne. I'm lucky in that the 20km radius (other than I can drive to go to multiple opens etc) covers quite a diverse range of demographics and property types that are often in different phases of the market at any particular time:
    • CBD/Inner East/Inner North apartments (ranging from older deco apartments and villa units right thru to shoebox high rises)
    • Prestige Areas - multi-million $ mansions and acreages
    • Middle class areas - from new fangled townhouse/units to 70's Jennings homes on 600+ sqm as well as 50's weatherboards, mixed in with 80's brick boxes and mcmansions
    • New suburbs (outer north)
    • Superschool zones
    • Demographically and economically challenged areas
    • Rural and semi-rural areas
    Add to that, within this radius are:
    • 4 train lines
    • A major city express bus trunk (Eastern Fwy)
    • Major shopping centres including the largest in Australia
    • Vineyards (what the???)
    • Extensive light industrial areas
    • Major commercial areas (as well as CBD)
    • A large campus of every major uni in Melbourne

    The Y-man
     
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  15. Biggbird

    Biggbird Well-Known Member

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    Yeah sorry, that was very tongue in cheek. I completely understand why people won't want to move in circumstances like those being discussed - life is already hard enough without adding a move on top of everything else!
     
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  16. Omnidragon

    Omnidragon Well-Known Member

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    Interesting topic. I actually see the opposite a lot.

    Yes you may not make outsized returns investing in your backyard, because it's unlikely your backyard is the most optimal place to invest of all places. That said, I see a lot of people venture to places they don't get (Melb friends going to Brisbane to invest, Asia-based friends buying apartments in Melb), and they lose a lot of money/be lucky to get their money back.

    Which leads me to think, it's probably more about DD, which I guess is kind of what the point is. If you don't DD hard, for a good 6 months (arbitrary timeframe), you're probably going to get burnt investing outside your backyard.
     
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  17. wylie

    wylie Moderator Staff Member

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    This is why we invest in our backyard, apart from being hands on renovators, painters etc and being able to slip home for lunch or work late and be five minutes away from a hot shower.

    We know our area well, which streets are good, which streets to avoid. If we were to buy in another city, we would have to do a LOT of DD, and from afar, I don't really think you get a good feel for a suburb, let alone drill down to a street to buy, or to avoid.
     
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  18. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    the sydney and Melbourne greeks and italians have made an art of this

    ta

    rolf
     
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  19. spoon

    spoon Well-Known Member

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    If such an unfortunately moment of life comes and one has only months to live, look after yourself as a priority. If the kids are already capable, they wouldn't need that extra legacy. If they are not, they spend it and still in deprivation regardless. If planning is important, then it should have been done when they were kids and make sure they would live as decent human beings and look after themselves and their families as such when grown up.
     
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