Hi,
I don’t know a lot about PI, and it is a bit scary because of the money involved. I have made bad decisions in the past about purchasing things, so that scares me too.
My wife and I relied on an Advisor in the past and he sold us the idea of Negative Gearing, due to the good income we were on. We now have a unit in Sydney and I am curious about your advice on our investment.
After 3 years we estimate the increase in value to be $70,000. We are saving about $10000 in tax, but we are out of pocket each year about $17000 dollars after that saving.
We owe about $160K on our PPoR, and I keep wondering whether paying our house off would be of more use for the $17000.
I am only just learning about positive gearing and it does seem a lot more attractive.
Any fans of negative gearing out there? And are you happy to see your money dissapear and your capital gains increase?
Thanks, and be gentle.
– Mark
Mark,
That is one huge lot of negative gearing if I am reading correct. After your deductions, you are still actually paying an additional $17k. Wouldn’t this also be tax deductible or are you effectively paying no tax??Don’t think negative gearing is the issue as a general principle, just whether it corresponds to your overall property strategy.
If you can’t use the $17k as deuction of some sort, then on the surface, paying off your PPOP would be far better option.
Of course you would have to way up CGT & other costs if you sell your IP.I am currently negative gearing, although my out of pocket expenses are a fraction of what you outline. Has an accountant (someone who delas with property of course) ensured that have fully maximised your deductions. $17k (which is $326 a week!!!) is a lot (sorry to repeat myself)
James
Not the best return,
if your funding 17k PA in three years is 51k out of pocket for a gain of 70k less 51k = 19k. If you sell you now you may break even. Another problem you have is that you relied on an advisor, I hope this person didnt sell you this property. My opinion is if it took 3 years to be up 19k on investment propery if this property didnt exist your 160k PPOR could have now been less than 109k.
We all make bad desicions and sometimes our pride can get in the way of logic.
Do your homework and imagine yourself in 3 years time going through all the options now looking back and hopefully saying to yourself “we did the right thing”.Regards the freedomfinder.
Thanks for the response guys.
I was too trusting and don’t have much faith in myself doing all the work to get an IP. Doing what you say not to do here.
And I though that was what negative gearing was all about, losing money and saving tax.
After I started ready Steves book and looking at this forum, I spent a lot of time looking at my situation and examining my finances more carefully.
You guys are right, I am thinking of dumping the unit, focus on my PPoR, then look at positive geared properties like you guys are talking about.
Thanks for the advice, and thanks for this forum educating me on smarter investing.
There may be hope for me yet!
– Mark
Hi Mark
I know how you feel i went through the same sort of thing. Id be happy to share soem stuff with you and also listen to your story.
I had reasonable knowledge and still was persuaded so dont feel too bad. Real estate is forgiving.
Think long and hard before you sell. Its easy to knee jerk. Do the figures you may be able to increase rent or do something like a lease option etc.
Dont forget the capital gains tax and any depreciation building write off you have to add back. Do your research thoroughly.
regards
alfMarkE
before you sell.. consider ( reasearch ) the costs of doing so, you don’t want to ‘lose’ on the purchase and also ‘lose’ on the sale, so weigh the options.
with Negative gearing, depending on your tax bracket, you effectively get that portion back ( for me 30c back for every $1 i spend ) however , what you are aiming ( hoping [
])for is the capital growth of the property will cover the lost 70c, rents will also rise also, and maybe one day you’ll have a + geared property still achieving growth..a friend i knew many years ago was advised ( ? ) to ‘sell’ his negatively geared property as he was now getting no tax benefits from it ( Now ‘making’ him money ).. and he did so [8].. advisers give you advice from thier perspective, or interests only, the decision is yours
REDWING
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
Thanks,
The 3 things I have learnt are:
1) Don’t trust anyone else
2) Do your own research to back up their claims.
3) Income Protection – I have been out of work for 4 monthsI assumed that everyone in property was doing the same thing, losing money to save tax.
I am doing my research now on selling costs eg Agent costs, Capital Gains Tax, so I will know exactly what it will cost, I shouldn’t lose too much I am lucky.
The main killer with this investment is the interest on the loan. I can’t see that we can increase rent in that area, lots of units, and we will never pay off that loan.
My wife is on maternity leave, I have been out of work for 4 months and I can’t see the unit increasing in value to match the cost of the unit in the next year. So after I research the numbers selling sounds like a good option.
Then I am keen to try something new. A unit that actually ‘makes money’. Sounds CRAZY!!
THANKS!
– Mark
Speak/PM mortgage broker on this forum or one of the other brokers for advice and your options, you’ll need to give all your figures and what you hope to achieve… there are options and the regular brokers on this site are very helpfull.. look at ‘all’ the options and choose what best suits your situation and what you are comfortable with..
Good Luck
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Sorry guys, but I got my numbers wrong.
I was looking at tax forms which include depreciation and other stuff.
We are only about $5000 out of pocket each year, after tax back etc, so the capital gains is above this, which is a good start I guess.
I am only just getting my head about this stuff, so i will find out more.
Still positive gearing does sound more attractive.
– Mark
Éveryone would love to have a positively geared property. However, what’s good for one person might not be good for another. You just need to sit down with someone and have a close look at your financial situation and see what’s best for you. Just ask yourself what your goals are and then see which method would be best to achieve them. Our first property is only slightly negatively geared at the moment, we’re out of pocket maybe $1000 each year. Our second property however puts us around $9k out of pocket each year.. I’m on the highest tax bracket so this helps me out a tad. I couldn’t see someone earning a lower income benefiting from this set up though. I’m sure there are some good tax accountants on this board that can help you out [
]Excellent, thanks NewGen.
My wife and I are in the higher tax brackets, so the negative geared property is helping with tax.
But the positive geared property sounds like a good return for you.
I will investigate more.
– Mark
Mark, you say that both you and your wife are on the highest tax bracket but you mention you have been out of work for 4 months?
With the ‘No Income Protection’ I’m guessing that this is through injury, but that either way you are not getting paid? Therefore your tax bracket would be very low?
$5000 isn’t too bad (except when there is no income[V])
Definitely contact a mortgage broker. An option for you may be to set up a LOC against the extra equity (either in your PPOR or IP) and use it to slowly fund your ‘out of pocket’ expenses. If done the right way, the interest on these funds can also be tax deductible – check with a good accountant. This could enable you to redirect your earnings towards your PPOR, thus reducing the non deductible debt. This frees up more money for you etc. If your IP loan is not Interest Only – make it so while you have PPOR debt, and cashflow issues.
Then, instead of selling, look to see if you are able to fund the purchase of a CF+ property, which will further help you to pay off your PPOR, and offset your loss from the CF- property.
Selling costs, CGT, etc. etc. will take a big hunk of that $70K away from you, and it may not be worth it.
That’s my 2c. Ignore all if you wish, it’s my opinion only.[
]Cheers
MelOriginally posted by melbear:That’s my 2c. Ignore all if you wish, it’s my opinion only.[
]Hi Mel,
dont say that, your advice is always great to hear… and mnay forum members look forward to reading your opions and offer of help and advice…
keep up the good work Mel… [^][^][^]
Cheers,
sisThat’s my 2c. Ignore all if you wish, it’s my opinion only.[]Thanks for taking the time to answer.
I am very new to IP so I don’t ignore any advice, there is a wealth of IP knowledge here.
I have been out of work because the company I worked for closed down, and I wasn’t smart enough to take out income protection.
Your advice is good:
– If I sold the $70K would be cut down by the agent fees and CGT
– LOC sounds like a good plan, I will look into it.
– The +ve geared property helping to pay off the PPoR would be a great option.My number 1 dream is to pay off my own home, so the above points would help me achieve that.
Thanks melbear and all who help us Learners.
– Mark
– Mark
])for is the capital growth of the property will cover the lost 70c, rents will also rise also, and maybe one day you’ll have a + geared property still achieving growth..
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