Forum Replies Created
Hi Ezrent,
Me wonders about the legaility of this from a taxation department perspective.
As I understand it deductibility of costs fully applies when a property is leased at a market rate. I assume therefore that a similar line of thinking would apply to interest claims and the question of market rates or not.
I have a feeling that the ATO would deem such an arrangment to be ‘tax avoidance’ and therefore operating outside tax laws. For me, at best a discussion with an accountant, or even a private ruling from the ATO before embarking on any adjustment of my loan book.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi STeve,
It seems as if this question may have slipped below the radar.
I suggest you tell us a little about the type of property you are after, whether or not you are a growth or income investor and so on so that any responses you get are more likely to be meaningful to you.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Originally posted by HT-007:Quote:
Yep, I am getting wireless at home (I use a laptop) so I can join in the forum when I am in the lounge in front of TV, study, bedroom, back yard, court yard, and even in the toilet! [puke]
Provided there are no sh… messages or p… jokes we should survive.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Kay,
I skimmed API last night and noticed most (all?) of the statistics provided related to rental rates. I vaguely remember there were periods in API’s past when they alternated sales and rental stats – I contend this month’s focus was ‘rental’
As an aside monthly real estate figures typically don’t move a lot anyway so are they worth it?
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Originally posted by Scremin:Derek, as much as I use the multiple intelligences theory from gardner and blooms taxonomy for questions, I don’t think it is really that relevant to studying.
As much as i value that theory, I really can’t see it helping someone study.
Steph.Success is 1% inspiration and 99% perspiration.
Hi Steph,
Not at all – The Theory of Multiple Intelligences has a lot to do with study.
In short it highlights that there are different strokes for different folks when it comes to knowledge acquisition.
As such Jaffa needs to work out what he is – sure he will need to read the text material and then he will need to commit it to memory – how closely aligned the ‘commitment to memory’ process he uses is to his ‘preferred intelligence’ will determine how effective his study regime is.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Marisa,
Convert that ‘holiday home’ to a full time IP.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Siacci,
The ATO has moved towards an apportioning process when determining CGT liabilities on a residence that was an IP and PPOR during its period of ownership.
See below from the ATO’s CGT booklet.
“Main residence for only part of the period you owned it
If a CGT event happens in relation to a dwelling you acquired on or after 20 September 1985 and that dwelling was not your main residence for the whole time you owned it, you get only a part exemption.
The part of the capital gain that is taxable is calculated as follows:
Total capital gain made from the CGT event
X
Number of days in your ownership period when the dwelling was not your main residence
total number of days in your ownership periodExample
Main residence for part of the ownership periodAndrew bought a house under a contract that was settled on 1 July 1990 and moved in immediately. On 1 July 1993, he moved out and began to rent out the house. He did not choose to treat the house as his main residence for the period after he moved out, although he could have done this under the continuing main residence status after dwelling ceases to be your main residence rule. The ‘home first used to produce income’ rule does not apply because Andrew used the home to produce income before 21 August 1996.
The contract for the sale of the house was settled on 1 July 2002 and Andrew made a capital gain of $10,000. As he is entitled to a part exemption, Andrew’s capital gain is reduced as follows:
$10,000
X
3,288 days
4,384 days=
$7,500″
Sorry about the justifications.
This may be more reader friendly.
http://www.ato.gov.au/individuals/content.asp?doc=/content/31570.htm&page=11
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Ray,
“we have an existing line of credit of around $25000, of which we have used around $12000. As our PPOR was last valued at around $150000 i take it that we have un-tapped equity of $95000 (150000×80%- 25000) plus $13000 available on line of credit. Let me know if i’ve got it wrong!!
Yep 80% of $150K less anything you have spent gves you a potential LOC of $108K after allowing for the $12K already spent.
The final figure will be dependent upon your aims, income levels, and valuation by the bank
By applying some of the existing line of credit to deposits on IP’s we can claim that portion of interest bill on line of credit on tax. Right???
Yes – the purpose for which the money is used will determine its deductibility.
As a word of caution keep your non-deductible and deductible debt in split accounts. This way you keep things nice and tidy for your accountant and the ATO – if they ever came knocking it will be very easy to justify your claims.
If we were to extend our line of credit to say max ($120000) would that be a better option than seeking a “new” finance package?
If I were in your shoes I would extend the line of credit out to 80% and use these funds as deposits and purchains costs for property – with the remaining funds coming from the bank.
I would suggest you meet with a broker to discuss your best configuration as you will need to balance the need to extend your LOC with its impact on your borrowing capacity/
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Wilko,
Things starters I consider;
1) Collects rent on time and informs me if tenant is late to pay.
2) Returns my calls – makes calls without me having to initiate them all of the time.
3) Keeps me informed about rental changes in the area.
4) Deposits money early in the month.
5) Provides good property condition reports and undertakes a thorough inspection.
6) Is approachable by the tenant and I – deals with maintenance issues in a timely manner.Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Originally posted by GreatPig:(like the 100% pa return)
Wayne
Hi Wayne,
The 100% return is a bit of a ‘smoke and mirrors’ trick.
I suggest that the salesman was referring to 100% return on your money as follows (I have simplified the numbers consistent with my maths ability)
You purchase a property for $100K and use a deposit of $10K.
Assume the property grows in value by 10% (10% of 100K = 10K) as such they say you have doubled YOUR money – even though the property has only grown by 10%.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Originally posted by kay henry:Derek, I think you’re a lovely guy, but I do remember you said on this Forum that you wished to mentor people- and to charge people money for that mentoring. If that is still the case, then you have an additional purpose to merely “sharing information”. I think you give great advice, and as I said, you’re a lovely man, but I also think people need to be open with any (financial) agenda they have.
kay henry
Hi Kay,
Yep that comment was made in response to a question about ‘business ideas etc’ someone asked some time ago and was highly relevant to the discussion thread. Others shared their thoughts and I shared mine but…….
I emphasise the comments in that thread were strictly a series of my ideas at the time and there is a long way to go before that idea even reaches fruition. But rest assured my ‘pig headedness’ will get it up and running one day.
Bloody work keeps getting in the road [biggrin]
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Originally posted by Coldy:One more thing… I was just wondering whether it is legal to buy an apartment off the plan then sell it before completion. Thanks in advance. I’m finding the postings on this site very informative.
Coldy
Hi Coldy,
This is commonly referred to as ‘flipping’ and was used by some investors very early in the current boom who made frequent use of deposit bonds to secure their property befor onselling prior to settlement.
Sure some of these ‘investors’ (if that is the right word) made some money but there are many more who being burnt by the downturn in the Sydney, Melbourne and Brisbane apartment markets.
As a word of advice – this is NOT a strategy I would emply at this stage of the property cycle.
As for seminars – for me they are of value as they can speed up the education process. However I would also strongly recommend a lot of reading of various authors to help fine tune your ‘BS detector’ before attending a seminar.
Having said that I would not pay big $ for expensive seminars but rather use the funds towards income producing assets. Go to the free and/or cheap seminars as part of your education process.
Ultimately the value in a seminar is determined by what you do with the knowledge – no action = no value.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi DD,
Thanks for the unsolicited ‘plug’ but I must highlight that I am not a financial advisor and my sole purpose on this forum is to share information.
Sure if people want to contact me – fine – but I am not interested in open solicitation beyond a signature ‘ad’.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Wezwaz,
The only(?) reason a lender requires a valuation is to protect their money. They generally couldn’t care less if you overpaid for the property as long as they have sufficient asset security to hold over you and get their money back should things go awry. It is for this primary reason that many of the two tiered marketing groups flourished in recent years.
For this reason they use a registered valuer. In most cases a registered valuer is hired by the bank to give them an indication of the worth of your property.
The registered valuer will largely use comparable sales to ensure they have sufficient evidence to justify their figure. Depending upon the nature of the market you are buying into some valuers may also include reference to land values, building costs and so on.
Ultimately the valuer will provide the lender with proof required to justify their figures so that they are covered by their professional insurance should the lender come knocking for their money.
Commercial valuations include acknowledgement for rental income.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
HI Falcon,
If you have non-deductoble debt then definitely go I/O on your investment loans.
If there is no non-deductible debt then it becomes a matter of what are you trying to achieve, how do you feel about a debt that doesn’t get smaller, and what is your planned exit strategy.
For me my priority is to clear the non-deductible debt and then when this is completed I will evaluate all of my options in the light of the complete investment picture at the time. Part of me at the moment is leaning towards getting rid of some parts of my LOC debts that have been used to supply deposits for various properties – the other part says stay at I/O and keep investing.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Scott,
There is no definitive answer to the question – it is a case of what works for you and meets the ATO requirements of a good records.
For me (and my accountant) a simple excel spreadsheet for each property does the job.
Ultimately it doesn’t matter how good the software is, if you don’t have good book keeping practices then you will quickly come unstuck.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Wayne,
I haven’t done any developments – I live a little too far out of Perth to ‘supervise’ a building project. I have certainly dreamt of completing such an undertaking – one day.
Project feasibility assessments can be undertaken with software vailable at http://www.devfeas.com.au and for some information on property development try http://www.smartpropertydevelopment.com.au.
I can put you in touch with a broker who also does his own developments. If there is a way for anyone to get finance he will know it. PM me if you want his contact details.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi HHH,
Unfortunately that can happen as you found out. I use a broker to support the valuations I have supplied.
It does beg the question why won’t the bank accept their valuers figures – the cycnic in me says it is so they can ‘instruct the valuer’ and influence the final figure.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Originally posted by vkolaj:JamesR:
It can apply to the property as well if it satisfies an active asset test.
Vkolaj
A couple of useful documents to assist with the definition of active assets.
http://www.ato.gov.au/content/downloads/n8384CGT.pdf
A search on ‘Active Assets’ as defined in the ATO’s legal database revealed a section 152-40 which defines an ‘active asset.’
http://law.ato.gov.au/atolaw/view.htm?find=%22active%20assets%22&docid=PAC/19970
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi PurpleKiss and others,
Be aware that raw figures baased on median prices do not always tell the full story.
Some of the ‘better growers’ have undergone significant renewal and redevelopment programs and as a result the very nature of the median priced property has changed in many of these suburbs. In effect comparing median prices is not necessarily the most accurate means of checking growth rates.
Sure they do give an indiciation but they are not the complete story.
Where I live REA are running around saying our town has experienced X% growth in the median price over the last 12 months. What they conveniently forget to say was there were also a disproportionate number of higher sales figures in the last twelve months – thereby statistical distortion did take place.
As an aside isn’t it better to get onto the wave early rather than later – the challenge is to pick the next ‘wave’ and not find out where the last one was.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
