Hi People
I have been reading the forum for a couple of months and finally am going to post. Hi all ….. Just about to embark on the exciting journey of property investment and I have a few basic questions.
I have a decent income ($120k) and I figure that I can probably take a small hit on a slightly -ve geared proerty but my question lies in how the banks assess my servacibility. If I buy an investment property with a view to renting it out does the bank include the likely rent I will receive when determining whether I can service the loan or do they just assume that I would have to be able to pay the loan as if it were my PPOR.
Sorry if I sound naive but best I get the info before diving in. Please be gentle ; )
Cheers
The bank will include 70-80% of the rent – depending on which lender you use. The remaining 20-30% is reserved as your cost of running the IP – rates, repairs and the like.
I suspect that with your income you can probably afford to have several negative geared properties. Unless of course your lifestyle precludes that!
Many people are dead against negative gearing. I think that if you find a property that you believe will appreciate then negative gearing can be justified.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks Mortgage Hunter. Ideally I would like to buy investement property that are at worst nuetral and preferably +ve but I am really struggling to locate anything that comes close.
I figure that I am going to work for another 15years before I would like to slow down so the CG on these properties may well justify a negative cf investment in the meantime. Its the classic conundrum.
Thanks for the advice all the same …..
Originally posted by meatgroup:Thanks Mortgage Hunter. Ideally I would like to buy investement property that are at worst nuetral and preferably +ve but I am really struggling to locate anything that comes close.
I figure that I am going to work for another 15years before I would like to slow down so the CG on these properties may well justify a negative cf investment in the meantime. Its the classic conundrum.
Thanks for the advice all the same …..
We are in the same boat. My wife loves her vocation and earns a substantial income. She wont even consider retiring for at least another 20 years.
Negative geared property with strong growth potential suits our profile well. We intend always keeping one place as our PPOR and sheltered from CGT.
Everyone has a different profile and thus different requirements for an IP. There is no standard rule in this caper.
All the best
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi meatgroup, welcome to the forum!
This may be an obvious question;
Have you factored into the equation any likely tax benefits from depreciation while researching your properties?
On your income, the tax benefits for investing in property can be substantial – especially in properties built after 1987. You can claim 2.5% per year depreciation on the building for 40 years from construction, as well as all the other items in the property. A depreciation schedule will determine the percentages for each item.
You normally wouldn’t have a D.S done until after you purchase the property, but you can make a ‘guestimate’ on the building at least – eg: 20 sq house constructed in 1990 @ $5k per sq = $100k.
That’s $2,500 per year you can claim at your marginal tax rate.
This may bring a property a lot closer to cashflow neutral or even positive.
As a rule, banks don’t factor the depreciation aspect of the investment into the figures on an I.P, so if they assess that you can handle repayments on an I.P based primarily on the rent and your income, then you can be fairly sure that after tax benefits AND depreciation are considered you probably can do it easily.
Of course, you will need to talk to an accountant about this.Cheers,
Marc.
[email protected]Interesting point youn have there LA Aussie…. please forgive my ignorance in respect of depreciation if I am off the mark but while depreciation is a handy deduction to have, isn’t capital gains tax still charged on the entire profit when selling an IP – effectively voiding any real benefits of claiming the depreciation in the first place.
Would it then be unwise for me to factor depreciation into my calculations because I end up paying all of it back in CGT when I sell?? (or do I just relish the fact that the capital gains, tax considered, are so great it doesn’t matter ??)
I am not sure I am even near the mark with a statement like this [confused2]
Originally posted by meatgroup:Interesting point youn have there LA Aussie…. please forgive my ignorance in respect of depreciation if I am off the mark but while depreciation is a handy deduction to have, isn’t capital gains tax still charged on the entire profit when selling an IP – effectively voiding any real benefits of claiming the depreciation in the first place.
Depreciation is 100% deductible in todays dollars.
CG is taxed at 50% (assuming property held for 12 months+) and paid in tomorrow’s dollars – IF YOU SELL at all.
I would rather have two birds in my hand today than MAYBE one bird in the bush tomorrow to torture the old saying … [blush2]
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Simon is spot on.
The end result is you will sell (why sell at all?) and make a profit! It’s hard to go broke doing that.
Don’t be afraid to ask silly questions. The only silly question is a question not asked.Cheers,
Marc.
[email protected]Hi meatgroup.
reading the posts, & popped on just to encourage you not to be afraid of the -vely geared property,or other investments ,IF chosen wisely & for capital growth. If I was in your position, I would jump in… but thats me. Everyone has a different risk profile, cashflow etc.I am earning $38 000 per annum gross. I bought my 1 st IP in 1999, -ve gearing (cause I had to borrow all costs as well), then another one a few yrs after. I am considering another one within a year or two, when my cashflow improves and equity rises. And I am 54 yrs old. I waited till I was 48 to start investing… and only after I had had an income shock.. where my job was restructured and I lost about 1/3 of my annual income.
It was then that I thought I has better get a wiggle on & do something about building a passive income stream, otherwise life and earned income would one day pass me by.
I would have have been very comfortable now, had I made the decision to invest sooner.An ex banking consultant recently told me that we have our choice… either pay TAX, or pay out in INTEREST. I thought that was wise.
This is only by way of encouragement, NOT financial advice.
[smiling]Hi Meatgroup, Well I was in same position some 5 years ago and I can only offer words of encouragement and just bite the bullet by, looking,look and kept looking with plenty of research, figure checking and cross checking. My property went from negative geared to positive and capital gains to boot.The biggest problem is keeping the money wheel spinning , which is key if someone can explain?
Everybody is here for help which is good for growth and always get own advice as well, cheers [thumbsup2]Hi Meatgroup
You probably need to ask your accountant about building depreciation as I think there may be circumstances where ATO will deem you to have included it in your previous years’ deductions when they calculate your CGT even if you didn’t charge it at the time.
Mum
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