Team,
Just after some info/advice on my current situation. Myself & partner are 26, combined income of $131k gross.
Building a new 5 bedrm house in Gainsborough greens estate, pimpama. Plan is to live in it for 12months, then rent it out, buy & move into a 3bedrm town house or similar that needs renovated, turn around in 12months & repeat.I’m trying to get an idea of how I calculate true figures on if this will be positive or not & anything I should be including.
Loan on property
$552k @ 4.5% PA. – $24,840pa I/O
Rent – estamated on others in estate
$600pw -$31,200PA
Appx Council rates, water, insurance
$3,000Pa?
Maintenance on new house
???
Depreciation on new house this size apparently is appx.
$27,000 in the 1st year.Am I correct in saying on paper we are making a loss of $23,640?
But our tangible figures of $3,360PA (31,200 in rent minus 27,840 costs) + the tax on the loss of $23,640 actually makes us cashflow positive??
I may have this completely the wrong way around but this is our first road into property and would appreciate the help :)
Regards,
CodieHi Codie,
Am I correct in saying on paper we are making a loss of $23,640?
Using your numbers as provided, yes you are correct. One thing I would question is the figure of $27k for Depreciation. How certain are you of that number? One small part of it will be Capital Works (2.5% of build cost of the house) or other Capital costs. Given a likely $200k build cost, that is $5k.
Can the remaining $22k be found in the Depreciation Schedule? That seems like a very high figure but it could be true for year 1 e.g. A low-value pool will likely give you a large deduction in Year 1 – but check it out for years 2 onward !! There could be a large drop in later years.
There could be Borrowing Costs – they do NOT form part of Depreciation figures, but could well be another $4k or so per year. Maybe these are rolled up in that $27k figure (???)
On your numbers, it does appear that you start off positive geared. And you will be even more positively geared after your “non-cash deductions”.
Benny
Thanks benny,
Build cost is $341k.
Reasonably mid to high level build.Those figures of 27k are from a simple phone conversation- someone’s opinion.
Using an online calculator came up with a simaler result for a house of that Sqm and inclusions. Capital works make up $8,500 of that figure, min to max is $21,000- $27,000- using demonishing scale, the 5thyear depreciation would be $14,000-$16,000 roughly.
I guess what I’m getting at is if depreciation was to say an average of 20k in the 1st year, and we are taxed at say 33% on our income, we would be likely to receive a decent tax return within the 5years and defiantly be cashflow positive for the first while.
Hi Codie,
defiantly (???) be cashflow positive for the first while.
You appear to have the right idea – and yes, there should be a pretty decent Tax return coming your way once it is rented (at least until year 5).
Re “things to watch” – you quoted $341k for the build, and from the facts you mentioned (high end features, 5 bedroom house, 296m2 in size) that build cost is higher than usual.
Now this next bit I am NOT sure of, but I don’t think you can get Capital Works deduction on the developer’s profit !! Also, some of that $341k is going to be paying for those high end items that will be depreciated separately, so NOT Capital Works. This should see the $8.5k figure drop – perhaps nearer the $5k I mentioned initially.
But yeah, these costs are all legal deductions when investing, whatever figures they turn out to be.
Is your place in Pimpama built already? Or is it yet to be built?
Benny
Really from all info I can find I would have thought we have a good deal?? That works out to $1,150sqm.
Maybe your thinking just the build?
That build price is finished, driveways, landscaping, deck, ducted aircon, 6kw Battary solar, fencing, full render. 2 story house.. I would have thought $1150sqm is a fair to good price for a above normal spec home?yes in pimpama, slab is due to go down next week, might start a forum for the build!
Cheers
Hi Codie,
Good point !!Maybe your thinking just the build? That build price is finished, driveways, landscaping, deck, ducted aircon, 6kw Battary solar, fencing, full render. 2 story house..
A large chunk of those ARE Capital, so that will lift the Capital Works deduction above the norm for sure. No, I hadn’t allowed for all of that extra (fencing, ducted air, full render) so the Cap Works figure will be higher than what I thought. But then, my figures and guesses don’t count. The important figures will be the ones on your Tax Return, whatever they turn out to be.
yes in pimpama, slab is due to go down next week, might start a forum for the build!
Cool – I would love to hear how it goes.
Benny
Hi Codie,
How did it all pan out? Did you get to move in, and maybe you ahve already moved out again? Looking forward to your update.Benny
Get some proper advice because you will not be able to claim depreciation on fixtures and fittings unless the property is new. As you will be living in it the property will not be new when you rent it out. Possibly $18k less deductions as a result.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Benny, Thanks for the message!
Build went ahead – Have lived here for just over the 12 months now, Have just been pre approved for $750k if we sell or $550k holding onto this. https://www.realestate.com.au/property-house-qld-pimpama-126686478 – Rental appraisal $630-$670pw, 2x Bank Valuations $650k
However after much more education & research since this last post. The strategy has definitely changed, and looking back on it I would not go down this track again, buying & building in an area where there’s a ton of land, no scarcity, and nothing to really drive prices long term.
We are now looking to build a portfolio holding only properties within 10km of CBD in Brisbane at this stage, and Melbourne in the next couple of years, so for us its the opportunity cost of holding onto this property now that may not grow for many years (hence why its on the market, if doesn’t sell will rent it) However I guess you could say it served its purpose & isn’t a complete mistake in getting us from $10k to our name in a new country to potentially 2x houses within 2yrs.
im also only 27 and looking 20-25yrs down the track holding this house may not be a bad idea. im more just considering the the fact that once I get past 2mil in borrowing the serviceability may get tight and I don’t want to be holding an underperforming property when I could hold something else..
Thanks Terry, I would love to come and speak with you but I read somewhere your not taking on anymore Clients :)
Im yet to speak with BMT and have an appointment with my tax accountant tomorrow, although I need to find a different one that actually owns property and better understands what we are trying to achieve..
Build cost is $341k.
Reasonably mid to high level build.Those figures of 27k are from a simple phone conversation- someone’s opinion.
Im yet to speak with BMT and have an appointment with my tax accountant tomorrow, although I need to find a different one that actually owns property and better understands what we are trying to achieve..
Hi Codie,
I saw your post and it interests me. I’m going to have to step in and say that I agree with some opinions already given: $27 000 in first-year depreciation seems a lot for a build cost of this size. I would estimate more in the realm of a bit over half that. Maybe think more in a window of $12 500-$15 500, the lower end of that window being quite conservative.
Chris | BMT Tax Depreciation
https://www.bmtqs.com.au/
Email Me | Phone MeMaximise the cash return on your investment property
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