Forum Replies Created
- Originally posted by gronk007:
generally looking around the inner west or lower north shore, but a 1 b/r is all i have for capacity/serviceability.
Hi 007,
Without knowing the full details of your situation it is difficult to comment with a degree of accuracy however if finance matters are your primary stumbling block have you thought of lookig further afield?
Modern technology, increased PI knowledge, cheapish travel etc make owning something somewhere else a little less daunting than it once was.
If you are buying for a PPOR then it may be better in the long run to rent something where you live and buy elsewhere.
Just a different thought.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Hi Leewizza,
I do not use these so am unable to verify accuracy but they may be of assistance. Be aware that tax threshold changes, depreciation rule changes and so on are constant and as such may (or may not) affect the accuracy of these.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Hi Terry,
Not sure if this is in the same league but……..
I used to work for the Education Department and we got a free biro whenever the previous one ran out[biggrin]
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Originally posted by AmandaBS:First I’d probably visit the bank or a finance broker and get an idea of your borrowing capacity.
Agreed – and if if the broker says ‘not yet’ use the time to do your research.
If this is going to be your home I’d be looking at a principle and interest loan to gain as much equity as possible. You want to pay down all non tax deductible loans ASAP. However if you intend to rent out some of the rooms then perhaps an interest only loan may suit, but it really depends on the finance institution.
If at any time in the future the property is going to become an IP or part IP you are better off taking out an I/O loan and placing all surplus money into an offset account. This way you will reduce your monthly interest bill while retaining capacity to claim interest costs in the future if/when you redraw any funds and direct to a future IP. This appraoch means you have maximum flexibility while retaining full access to future tax deductions should the current PPOR become an IP.
Personally I believe in having full control on an asset so we stay clear of units and townhouses. It is the land that appreciates in value over time, buildings depreciate, so we look for houses with a high land content.
This statement comes up quite frequently and needs qualifying. It is the value of the land component that is critical. As an extreme example 1 hectare at the back of beyond is worth less than a handerchief size plot in the city centre.
When choosing a property take into account its location. Close to shops, schools, transport but in a quiet leafy street surrounded by well kept homes.
Agree and I would also add your lifestyle choices. It seem we (the collective we) are wanting to travel less so are therefore choosing property close to the things we use.
Hope this helps in some way and best wishes, but you’d be far better of moving to sunny QLD !!
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Not disagreeing with Terry at all.
The flip side of the cost equation asoutlined by Terry is the security of knowing what your repayments will be for the duration of the fix period.
If you do fix five years and above, in my personal opinion, is too long in most cases.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Originally posted by Qinvest:Sorry, that wasn’t my intention at all, just after feedback. I am new to this web site, sorry if i am on the wrong area.
Hi Qinvest,
In my experience there are many Mum and Dad investors who are not aware of section 15.15 of the tax act and the capacity to forward adjust tax paid.
I tend to agree with NATS – the form is very simple and anyone who has done their own tax, or who has a sense of numbers can work their way around the form.
In general terms once someone has been shown once (and provided they know their ins and outs) it is a relatively straight forward process.
PS Your post did come across as a trawl for clients.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Originally posted by Bigbelly:Thank you for your response. I just trying to understand the possible gains of negative gearing, when income reaches the 48.5% tax bracket.
This does not mean the whole $100K is taxed at 48.5% as there are taxation thresholds as follows. In the current year (0506) according to the ATO you will pay $28200 tax for the first $95K earned. Thereafter you pay @47% for all $1 in excess of $95K.
In total this means you will pay a total of $30550 in tax in the relevant financial year.
What to do with 100K at 48.5%.
Say over a 5 year periodI assume you mean you are earning $100K each year over a five year period. Is this correct?
You do not seem to have allowed for living expenses in your calculations. Even though your take home pay is $69450 you do need to allow some discretionary expenses. But lets use the $51.5K as investible money so the following figures remain consistent.
Scenario 1.
Interest Only Account:
* 51500×0.054 = 2781pa. Give government another 1400 tax! (No Compounding)
* $257500+1400+2800+4200+6600+7000=$279500.
* Gain 22000 after tax.Your calculations have not made any allowance for reinvestment of income and the compounding that occurs therein.
Your second year of income is now $100K + $2.8K in interest and you would be taxed on $102800 (real tax rate $31866).
In effect & using ‘real figures’ you gained $2781 and lost $1316 to the tax man.
Scenario 2.
Invest Negative geared.
* 5 properties bought at 300K each with 80% leverage.
* 1200000x.003x5years=180000
* Lose 500,000 for the 5 year period. But get 242500 from tax man.
* $242500 Cash and 180000 unrealise equity value?
* Gain approx 150K in 5 year in unrealise value but if you do CGT … then it will about 110K gain?In an effort to keep the illustrations simple.
Someone on a taxable income of $100K should be able to borrow $600K with a good broker alongside them and will be able to purchase 2 properties at $300K.
Some equity would, in most cases, be required to get them started in property investment in most cases so allowance needs to be made for this.
At a rent return of 6% these two properties would cost the investor $64/week after allowing for ITWV. The tax savings would see this same investor reduce their annual taxable income to ~$75K and save around $12K in tax.
Assume the properties grew consistently by 7% per annum at the end of 2011 these two properties would have grown in value to ~$792K. A tax free gain of $192K
If the same property consistently $grew by 10%/annumat the end of 2011 they would be valued at $890K. A tax free gain of $290K.
Obviously there are a number of assumptions that can be challenged and further clarification is required. But I hope this shows how negatively geared growth property can be a good investment.
Add additional properties and ???????????
Am I missing something here? It appears that John really invest 15K and makes 110K. Now this to me is not right, did I miss a calculation somewhere?
By the way are you confusing taxable income and cash or equity or ………?
Hope this helps and doesn’t confuse.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Hi Marty,
Without knowing the total picture that is Marty, his investment goals, property price, holding costs, value, rentability and so on it is difficult to say.
Having said that I would take a stab with the following comments – too small, limited market, limited growth, finance issues, and so on.
I get very concerned when people contemplate looking at a property soley because it is ‘cashflow positive’ – there are other ways to successfully invest in property without being seduced by ‘cashflow’
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Hi Swoffer,
Well picked up – LVR, access to security and so on are all issues. While there may be movement in bank policies further down the track (in fact it may have happened already) this is the big ticket issue at the moment.
Also recommend a search of the forum – this topic comes up quite frequently. See under forums button at the top of the page.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958This post, by Property WA, has been cut and pasted from another, since deleted, thread.
Hi Qinvest,
We have two clients do the Variation method and one swears by- so for some it works.
Two things that I have found to way up –
1)The Variation allows you to put the ‘extra’ money into an investment now rather than wait for the Lump Sum return at the end of the year for which you incurr oppurtunity cost.
2)Those that use the Variation must be dedicated enough to use the money along the way for an investment (or another useful purpose) and not just pilfer it here and there. With the Lump Sum after your tax return its like a forced savings plan coming to fruition.
If you get $100 worth of silver coins over the year chances are you’ll loose half and waist the other on misc. You get a $100 note and I bet its used more rewardingly.
Just food for thought – and don’t get me wrong I think its a great idea to market.
Hi Bigbelly,
Assume a person is on $100K as per your example they typically pay around ~$32500 (as per Chris’ eg). Another way to look at this is the tax payer takes home $67500 but acquires no assets as per this example.
Assume two taxpayers buy a negatively geared property that ‘loses’ $20K over the course of the year.
Person A – On a starting salary of $100K (as per your example) this taxpayer will only be taxed on $80K which sees an annual tax bill of ~$23300. In effect this taxpayer has lost $20K and saved $9200 in tax.
If Person B has a lower salary, say $50K and this taxpayer also buys the same property. Normally this taxpayer would pay tax of ~$11200
He also ‘loses’ $20K so his taxable income is reduced to $30K upon which he pays ~$5200 tax – a tax saving of around $6k.
As can be seen the higher paid person ‘enjoys’ greater tax a greater return (in tax dollars saved) than someone in a lower bracket.
Of course it goes without saying that good selection of growth properties should offset any losses through an increased asset base. Otherwise the wrong decision making process is being employed – tax savings are a potential biproduct of investing via negative gearing they should not be the sole reason for investing.
Hope this helps a little.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Hi SK,
While price declines/stabilises are on record in recent months in a number of Brisbane suburbs these statistics only reflect the movement in the median price. Within each suburb there is property that will perform conosiderably better (and worse) than median price changes.
The other comment I would make is that such deviations really do pale into insignificance in the longer term. It is the longer term performance of an area that should be your initial signal indicating whether or not more research is warranted.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Originally posted by InvestorInTraining:I just thought it would be a good entry into the market – and if it generally isn’t costing me anything from week to week I thought it might be a good idea.
Hi IIT
This comment makes me wonder whether or not you have fully though about what you want to achieve and how you are going to do this.
Simply buying something because it is a good entry point needs a rethink.
What are your long term investment goals, how are your investments going to support you later on, what is the exit strategy, financing these properties, you lifestyle and income limitations/advantages and so on. All of these come into play and need some answer before making the first step.
Cheers
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Hi Felipe,
The question has been hanging for a while now so I’ll open discussion.
There is no clear cut right or wrong answer as individuals have different circumstances that necessitate an individualised approach.
For me – growth is the key attribute that I chase.
Good research and considered decision making will assist me in achieving this aim. If I buy a growth based asset and I need to contribute some money on a regular basis all I need is to achieve growth greater than the amount I contribute and I consider myself in front.
Obviously higher income earners do have a tax scale advantage when it comes to negative gearing so this needs to be considered in any decision making process.
Other will advocate an cash is king approach and will make just reasons for this opinion.
Ultimately you need to determine what your end point is and which growth or income or combinations thereof will get you as quickly and as safey as possible.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Well said shake.
Do not be seduced by good returns which because of other reasons will slow you down in the long term.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Hi Redwing,
Congratulations – they say the first mill is always the hardest and thereafter it will continue to leapfrog (or is that snowball).
Is that $1m in equity or $1m in property?
Now get out there and keep looking.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Hi Straw,
How much to offer? it is a bit like how long is a piece of string.
To determine this you need to consider how much you can afford, what similar properties in the have previously sold for (not what they are listed at), try to find out why the vendors are selling as this may determine how desparate they are, what you highest buying price is, where there this property fits in your grand plan, what it will bring to your grand plan and so on.
Unfortunately there is no – offer – X% rule around as the market eventually determines the selling price.
Good luck with the hunt.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Hi Dr. X,
Changing tack slightly – great read in February edition of API.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958HI Redwing,
It seems our ‘friend’ TUREH has been busy – I am sure the returns here will be very attractive to some investors.
I will also add Rewing that you have blown your chances for involvement in this deal – did you miss the line that says “Please,you have been advice to keep top secret as i am still in service”
You should really be ashamed of yourself – by posting the message here you have put our friend at risk [biggrin]
By the way – I have forwarded the message onto Brent (just in case he didn’t get the invitation too) so that he could ban the messenger. Unfortunately we don’t have the capacity.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958Hi Marty,
Might be worth a phone call – three different answers.
I got my figures from an OSR fact sheet. It is possible $352K is the figure for land owned as at Dec 31, 2006. Wake got her figures from an official letter from the OSR [bigeyes] – go figure.
Hmmmm – maybe they have mates rates for some people.[exhappy]
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
