mrd

To make sense of the property market we must separate opinion from fact. Opinions will always be heard… just in greater numbers now perhaps. If you are prepared to “drill deeper” and dissect the evidence available; the facts will speak for themselves. There’s no reason for allowing the conflicting voices of opinion to keep you confused!

In the current round of Web Seminars we are offering, I highlight four key factors that are a MUST… if you expect to draw any credible conclusions.

1.    Record Population Growth
2.    Investors Have Fled The Market
3.    Home Ownership Unattractive
4.    New Construction Has Stalled Badly

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Last month there was talk that the RBA would drop official interest rates by 50 basis points or 0.5%. I believed there was justification for them dropping rates by a full 100 basis points; or 1%. I kept my opinion to myself and as history has shown, they did…

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Nick will be in Sydney this weekend and has a spot available to meet with someone in the Pyrmont area after 11:30 am (to early afternoon); before catching his plane home.

If you would like to meet with Nick to discuss any aspect of the current property market or your own financial situation, please click here or call 0424 144 103 & speak with Rod to book an appointment.

Time used unwisely and spent without thought will make you a pauper and leave you with naught, but time that’s well spent will stitch upon stitch weave memories and dreams that will make your life rich.

Time is money, as they say. But yet many whittle away the hours without thinking of the value that has been cast away with every second. This does not mean that we should work each and every hour of the day. There needs to be an investment of time in leisure, fitness, relationships, further education and at times in doing absolutely nothing. Learn to say ‘no’ to the good in order to say ‘yes’ to the best. Invest in what is best for you and your life. Take time to smell the roses at times. When you work, work with all your heart and when you play, play with all your soul.

Happy Investing,

Nick Lockhart

Residential Real Estate Prices To Drop By Up To 40%; According To Some!

A History Lesson…

The worst excesses I have seen in the residential housing market was the selling of overpriced property through the 1990′s. Many people have heard of Two Tiered Marketing… where interstate and overseas investors paid a different price to what the locals were paying.

This practice came about as a result of greedy developers flooding markets, in particular the Gold Coast with more property than there was demand for. Driven by profit, rather than demand, the result was a massive oversupply of coastal high rises and Surfers Paradise became Renters Paradise. The law of supply and demand ensured that rents fell encouraging many disgruntled vendors to sell.

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I was out last night but when I arrived home my wife was disgusted. Not with me; ha, ha… but with a report she saw on 60 Minutes. Katrina doesn’t usually get so fired up by these sorts of things, but she was really livid.

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• Northern Brisbane Townhouses
• $325,000 – $345,000
• 5% rental returns
• 3 bedrooms
• 2.5 bathrooms
• Double Garages
• 800 metres to the water
• To be release next week

I want to be a VIP!!

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If the consequences of the current financial challenges faced by the United States right now could be contained to Wall Street then there would be no debate in Congress; because there would be no bail out on the table.

Unfortunately, if allowed to run the full course, this catastrophe on the Wall Street financial markets would flow through and effect all Americans in both a seriously and significantly way.

It would not stop at the borders of the United States, but would flow around the world affecting us all.

Therefore to simply say “why should we bail out the fat cats” and oppose the bailout, demonstrates a lack of clear understanding.

While Wall St has caused this problem, it is the systemic failure of the American government over various administrations that is at the root of this problem.

They failed to:

• Reign in those excesses
• Address the corruption
• Regulating the markets
• Prevent the free market concept being subjected to extremism

The Government did not directly cause the problem, but indirectly they are guilty of contributing to it. Their failure to build the secure railway track has resulted in this runaway train wreck.

Therefore, in my opinion, the United States Government does have a moral obligation to contain the damage, rebuild the track and protect the average citizen from fallout that they probably cannot imagine right now may befall them.

The free market has delivered a problem under a regulative environment that was doomed to failure. Therefore, the Government now has an obligation to fix that regulatory environment to ensure this never happens again.

Unfortunately, like it or not, the only way confidence and strength will come back into the economy is via the free market; and that free market is currently crippled. Given the U.S. Government has been a part of the problem, they must be a part of the solution; as fair or as unfair as that may seem to the average person.

Happy Investing,

Nick Lockhart

The so called economic guru’s are very quick with their opinions and commentary on the state of economic affairs; but remember they are only expressing their opinions. While I don’t profess to offer financial advice, or to have the answers to “life, the universe & everything”, I too have opinions.

In the lead up to the end of the 06/07 tax year, when “the experts” were promoting the virtues of investing into the Howard/Costello “tax effective Superannuation offer”, I didn’t believe them. Today I hear economic guru’s peddling the fear that our property market will follow the US lead and fall by up to 20%. Guess what, I don’t believe them!

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It is a tough job for simple people like me to unravel the logic or meaning behind Tax Rulings at the best of times; but when the ATO goes and uses words like “impecuniosity”, I scream “plain English please!” I suppose it is actually a good thing when we are given the opportunity to expand our vocabulary; which I did recently when reading up on the whole subject of the “tax deductibility of capitalised interest”.

For many years I have capitalised my investment property expenses. Managing a portfolio of 13 properties has meant the interest rate rises of recent years had the potential to “hurt a lot”. Not having to pay those many expenses from my cashflow has been the difference between sailing through the storm or being shipwrecked along the way!

Having taken clear instruction from my accountant on this subject, I have always done the “right things” by the ATO. I keep a separate Line of Credit for all my investment property expenses; such as rates, body corporate levies, maintenance and so on; allowing me to preserve/protect my cashflow. I have always been diligent to pay the interest on our 13 loans from a personal (non tax deductible) Line of Credit. This is because of my understanding that to claim as a tax deduction any capitalising of interest would be to cross the line with the ATO.

It would appear, however, that recent rulings (PBR 80938, 79493 etc) have determined that it is perfectly OK to claim as a tax deduction any capitalisation of interest payments for an investment property (as with the related property expenses) on the condition that:

• My loans are kept separate and
• My primary reason for doing so is not to reduce my tax liability. That is, it is not part of a “split loan” which aims to pay off personal debt (such as a home loan, e.g.) faster.

Hanging over all of this, however, is “Part IVA”; which reads: “The incurring of compound interest depends upon a decision not to pay simple interest as it falls due. Sometimes such a decision will be compelled by impecuniosity”. My understanding of what this is saying is that if anything is done with a “dominant purpose of a tax benefit” it is not allowed. Where the word “impecuniosity” turned up (a word that neither my spell check or I were familiar with) is in a statement from the ATO that simply means you are too poor and cannot afford to pay.

My personal choice is to continue to make all interest payments from personal funds, only capitalising my property expenses. Like anyone I am allowed to capitalise my interest payments; I just cannot claim the interest on interest as a Tax Deduction; unless I found myself between a rock & a hard place unable to keep up with my payments and facing the prospect of a forced sale. Rather than falling victim of such drastic action, I would make application to the ATO for a “Private Ruling”.

Q: Why a “Private Ruling”?

A: Because if the ATO decides it can deem my action (to claim as a tax deduction capitalised interest), as taken primarily to avoid tax they will disallow the claim; and probably fine me.

Without a private ruling I would have to demonstrate to the ATO my impecuniosity.

Please email me at martin@investmentmentor.com.au if you have any questions.

Martin Bell