Forum Replies Created
Hi Essar,
I changed the example for your interest rate level, let’s assume a 5% interest (very hard to find but possible)
IP = $345,000
You put $$35,000 from your pocket
Loan = $310.000 for 30 years 6% interest
Rent received after commision =
$265p/w x 52weeks= $13780 – $2500 (costs) = $11280
Loan Repayments = $1,859p/m x 12months = $22308Let’s assume you are in the 47% tax bracket.
As you receive rent, you have to pay tax for it =
$11280* 0.47 = $5301.6And you have a tax deduction for your repayments=
$22308x 0.47 = $10484.76Totals = $11280+ $10484.76 – $22308- $5301.6=
-$5845Now, Brisbane prices are stank or are going up 1% or 2% that means = $345000 x 1.01 = $348450 which means $3450 profit but you are paying -$5845, so you end up paying -$2395 out of your pocket per year for your $35000. (-6.84% return/year)
In my own opinion, get a property for yourself and stop paying rent first and then buy an IP.
These are just my thoughts and they could be wrong, they are not recommendations in any way.
WBII
Originally posted by Qlds007:WB
Your scenario is simple in ideals but has also forgotten a couple of important issues concerend with property investing:
1) Building Allowance Write Off’s
2) DepreciationBoth these are non cash items but will dramatically effect your Taxation position.
Just a reply from a previous comment, I do not think you should invest in IP thinking about depreciation:
Truth #2: The dangers of depreciation
Buying a property based on depreciation benefits is dangerous and deceptive.
Depreciation is an accounting term used to describe the wear and tear of an asset that occurs over time. In practical terms, depreciation on a property refers to the carpet wearing down, the walls becoming chipped or stained and the furniture dating.
In most new properties you are allowed to claim a tax deduction for the depreciation of the fixtures and fittings and in certain circumstances you may also claim a building write-off of either 2.5 per cent or 4 per cent of the property (not land) value too.
Slick marketing companies sell the notion of the taxman paying off your property using depreciation and building write-off deductions, but this sales pitch is quite deceptive because you don’t avoid paying tax with depreciation, you just defer it.
Commonsense suggests that depreciating an appreciating asset like property will give you a tax deduction today, but you’ll have to repay it in the form of capital gains tax at a later date when you sell.
‘Bracket-creep’ issues can catch out many taxpayers too. If you earn $50,000 when you buy the property you will only be able to claim a deduction for depreciation at 43.5 cents in the dollar, but if your income rises to $60,000 when you sell then you’ll need to repay the depreciation at 48.5 cents in the dollar.
If you don’t ever plan to sell the property then at a minimum you should recognise that your depreciation tax deduction represents the wear and tear on your asset that will need to be eventually refurbished in order to continue attracting quality tenants.
Finally, beware any financial model that allows for depreciation benefits but does not include a maintenance budget. You cannot have depreciation without an expectation of repair costs – even new properties still need tap washers replaced.
WB
Originally posted by esaar:I must say I agree with ‘Qlds007’ I do not think that your analysis is complete. Depreciation is a very important component to look at when purchasing IP. There are varieties of loan products that probably better serve your purpose of building equity faster and turning your property into neutrally geared. Now days the banks competing within themselves to get a bigger share of the market and offering 0.7%-0.8% off the current STD rate, reducing your interest repayment can change your position faster.
Need more information or personal analysis, just email me via this forum.Regards,
ES
Hi Essar,
I changed the example for your interest rate level, let’s assume a 5% interest (very hard to find but possible)
IP = $230.000
You put $85000 from your pocket
Loan = $145.000 for 30 years 5% interestRent received after commision =
$230p/w x 52weeks= $11960 – $2500 (costs) = $9460
Loan Repayments = $779p/m x 12months = $9348Let’s assume you are in the 30% tax bracket.
As you receive rent, you have to pay tax for it =
$9460 * 0.3 = $2838And you have a tax deduction for your repayments=
$9348 x 0.3 = $2804.4 (This has changed as less interest paid)Totals = $9460 + $2804.4 – $9348 – $2838 = $78.4
So, my point here you can have a 37% equity in your IP and you are still paying money out of your pocket.
This is a very clear Brisbane example, this includes real unit prices and rent.
Now, Brisbane prices are stank or are going up 1% or 2% that means = $235000 x 1.01 = $237350 which means $2350 profit but you are paying -$2316, so you end up getting only $2428.4 a year for your $85000. (2.85% return)
WBII
Originally posted by Dazzling:Hi WB,
You’ve picked a shocker of an example of the ‘property market’. Buying a bag of lollies down the corner shop would be a better investment than what you have proferred. Whatever supports your argument hey ??
Hi Dazzling,
As you said, it is a shocker of example but it is the current market in any unit or small house in Brisbane. I can’t imagine why people are still investing with these conditions. I mean I understand people saying that is more secure and all that stuff but being happy with a 1% or 2% return/year is a shocker as that is eaten by inflation.
I am no familiar with commercial property and no really interested in, but looks it is the only kind of property investment today.
Regards,
WB
Hi Richard,
Thanks for your comments. I agree the sharemarket is giving 20%-30% for the last 2 or 3 years. The 10% was the most conservative example.
Now, questions:
How many years do you depreciate a house or unit?
Do you depreciate from the date you buy or the date it was built?WB
Who is still investing in property when the sharemarket is booming. If you want a poor 2% or 5% per year better going for a saving account. managed funds are easily paying more than 15%, I got 30% last year and this year is getting close to 15%. They also have the magic of compounding and you can sell any time.
Just my thoughts?
It depends if you are going to borrow money to buy the property or not.
If you borrow I think is better to have it under your name as long what you pay for the loan is more of what you receive from the rent.
If you do not borrow is better under your wife because the rent is income which will be taxed at a lower rate.
You also have to consider improvements you make to the place. If you make a lot of pricy improvement it is better under your name because you can depreciate and claim those expenses.
This are just a few factors to consider.
