2018 in Review with Caifu
2018 was a mixed bag of results for the property markets, although the Royal Commission’s fallout and potential changes to negative gearing, capital gains tax and lending inside super, have dominated the headlines as the year draws to an end.
Both Sydney & Melbourne saw further consolidations in their real estate prices, but some regional areas offered excellent outcomes for those who ventured beyond city limits.
The team at Caifu see much of the same for 2019, where markets will be slower and lower for a longer period of time.
Particularly in the current conditions, many retail investors are worrying right now (with their Buy, Hope & Pray approach). They are worried because they know that for the next 3, 4, even 5 years their portfolio will be stuck. It is not going to grow much at all or even go backwards.
All investors understand the process of creating equity from market growth. In principle, it takes no special skills or knowledge to be a retail investor and to buy a property and wait.
Over the last few years, you could throw a dart at a map in Sydney and Melbourne to some degree and that would have worked. The typical retail approach has been so easy for so long.
The result is that in a falling market, many investors simply don’t know what to do and are worried as a result
In 2018 our program is making money, not losing it.
Our team do use very conservative estimates when putting deals together for our clients, as they like to plan for the worst while still hoping for the best. This means that returns are regularly much higher than our benchmark minimum return (on total development costs) of 10%.
Over 2018 are clients averaged returns of 27.45% some 17.45% above our benchmark.
Caifu Update
We have had a bumper year with just over 400 clients now benefiting from our programs. We have also limited the number of clients we accept into our programs each month, to ensure the high level of service and access to opportunities is maintained.
Over 2018 are clients averaged returns of 27.45% on total development costs.
We are now operating in three locations, Sydney, Newcastle & Gold Coast, with our team expanding in recent months to ensure our service to our growing client base continues to be first class, as well as ensuring we have people on the ground in key areas to ensure we are able to take advantages of opportunities when they arise.
We have also featured in ‘Your Property Investment’ magazine several times throughout the year, including the most recent edition January 2019.
Caifu Strategy
We prefer new builds/developments – as with existing property- you are buying other peoples profits. There are lots of margins that you need to take into account when buying an existing property, builders profits, agents commissions, renovations/extensions etc.
Our strategy, put simply is to
- Buy below market value
- Add value
- Sell or refinance – to ensure you can keep growing your portfolio
All whilst looking to obtain the holy grail in each opportunity, that being;
- Positive cashflow
- Instant equity &
- Significant tax deductions
Caifu Feedback
“We run a successful small business, however in the pass when we have taken our eye off our business to focus on our personal investments the cashflow in our business has suffered.
We partnered with Caifu Property who supported us in finding opportunities that was suited to our situation.
Our opportunity had instant equity & positive cashflow that has helped us repay our mortgage quicker than our old mortgage repayment strategy which was working hard, paying taxes and paying the mortgage with what was left.
The other benefit we found working with Caifu Property was that they project manage the entire process, as we are extremely time poor with all our energy and time spent on our own business, meaning besides a bit of paperwork, there wasn’t too much for us to do.
It is greatly appreciated that you have specialists working in your best interest to achieve the best possible outcome for you.
Our last development with the team at Caifu created over $200,000 in instant equity for us!
We are over the moon and cannot wait to secure our next opportunity which will start building our nest egg for retirement!”
Andy & Tracey- Toronto NSW
Bill Shorten’s Negative Gearing Plan
What is negative gearing?
If you buy a house that makes more money in rent than it costs in repayments, then you can say it’s ‘positively geared’. Your mortgage is paying itself off.
But if the rent doesn’t cover the costs, then you can claim that loss on tax (negative gearing).
The latest statistics from the ATO, show that in Victoria negatively geared property investors claim an average loss of $6,464 each year.
When completing your tax return you can reduce your taxable income by $6,464.
Therefore if you are earning $90,000 per year, the amount you pay tax on is $83,536 per year, saving around $2,230 per annum.
Labor have proposed on removing this for those investing into existing properties moving forward. Meaning these losses can only be applied to investment income or future investment gains.
What is Capital Gains?
Capital gains is how much money you make on a house when you sell it, compared with how much you paid for it. So if you purchased an investment property for $200,000 and then wish to sell that to fund your retirement, but the property is now worth $700,000, you will need to pay tax on the $500,000 you just made. That’s called capital gains tax.
Investors are given a 50% concession on the capital gains tax on properties that they have held for longer than 12 months – so they only pay tax on $250,000 rather than $500,000.
Labor are proposing to reduce this capital gains discount to 25%, so in the same example you would pay capital gains tax for $375,000 of the $500,000. Or for someone on $90,000 this would equate to an additional $58,750 in tax.
Labor, if elected, will restrict future negative gearing to new properties only. In addition, all properties that are negatively geared before the policy starts will be quarantined and will not be affected. Therefore, for many of our clients already in deals or considering opportunities these proposed changes will have minimal effect on their ongoing cashflow or taxation position. The only concern will be the reduction in the CGT discount, however your tax professional should be able to support you with the most appropriate structure to minimise your ongoing CGT liability.
For example – if one of our recent opportunities was to occur in the proposed Labor environment
| Caifu | Existing | |
| Land | 365,000 | 0 |
| Build | 523,800 | 0 |
| Total Purchase Price | 888,800 | 1,100,000 |
| Market Value | 1,100,000 | 1,100,000 |
| Instant Equity | 211,200 | 0 |
| Income | ||
| Rent | 47,940 | 47,940 |
| Total Income | 47,940 | 47,940 |
| Expenses | ||
| Interest Costs | 40,677 | 40,677 |
| Property Costs | 8,680 | 8,680 |
| Total Expenses | 49,357 | 49,357 |
| Depreciation & Tax Deductions | ||
| Expenses | 49,357 | 49,357 |
| Depreciation | 20,000 | 0 |
| Net Profit/(Loss) | -21,417 | -1,417 |
| Estimated Tax Refund | 7,989 | 0 |
| Pre-Tax Cashflow – per annum | -1,417 | -1,417 |
| After- Tax Cashflow – per annum | 6,572 | -1,417 |
| Difference | 7,989 |
*based on $100k individual income
Caifu Message
The Caifu team continue to make money for our clients even in a “declining” property market.
Over 2018 are clients averaged returns of 27.45% on total development costs.
We look forward to assisting you, your friends and family in 2019, with some cracking opportunities that have instant equity, positive cashflow and large tax deductions.
We would like to take this opportunity to thank all of our clients whom have chosen to partner with us in 2018. Thank you for your support and we look forward to growing with you in the years to come.
Wishing you a Merry Christmas & a Happy New Year!
Drew Evans, Damien Lee & The Caifu Team