Forum Replies Created
And the disadvantages are:
Cost to set up (say, $1500)
ongoing costs (say $1000 p.a.)
more paperwork & reporting
cannot negative gear ie.offset losses against other income
pay land tax regardless with no tax free thresholdHave I missed anything?
Thanks Terry, thanks house call, this is all good advice and I'll investigate the options. I knew there was a lot more we could be doing. I'm also thinking that with the equity sitting there and only 50% geared we could purchase some +tive geared IP's to offset the costs on these 2. Sounds good anyway.
Thanks for the clarification Terry. I am still unsure overall as to whether or not to set up a trust and purchase IP's through it or purchase them as an individual. Steve McKnight seems to think the former is by far the better option. Anyway, I'll crunch some numbers and try to work it out. Thanks for your input.
Thanks Terry – How do they hinder exactly?
Thanks Terry for your comments. Yes, the accountant did mention that.
The bit about existing debt levels affecting the ability to borrow via a trust cam straight out of chapter 9 of Steve McKnight's first book '0-130 properties in 3.5 years' page. 175.
Has anyone out there set up a Trust and discovered they could NOT borrow any more than as an individual?
Hi grimnar – thanks I see what you mean. A very simple little thing that at least frees up some cash flow.
Hi Trent – yes, I have been wondering about that too. I have this feeling that we could do things waaaay better than we are.
Eg. We are only geared to just under 50% at present with 600K+ in equity. I crunched the numbers a bit differently to you as follows: Keeping our incomes out of it for now, (so this is only hypothetical), if we have 600K equity then we can have total borrowings of 3M right as 600K is 20% of 3M? Less the 600K we already have on loan, that leaves 2.4M we could theoretically borrow. Security would be provided by the portfolio of properties we buy for the 2.4M (obviously plus the 600K equity). Serviceability would come from those properties being positively geared.
Is there a flaw in my thinking/numbers?
Hi Grimnar
Yes the flat would pay itself off with a little left over if we moved out and rented it out. But the other property is heavily negatively geared. If we didn't have future plans to live there we would be better off investing elsewhere from a cashflow perspective.
When you ask about re-financing the flat to offset the amount paying on the house, do you mean it is possible to re-finance the flat and use the equity to pay down the loan on the house? I mean, effectively move the equity from the flat to the house? I have a feeling the ATO would not allow that. Please correct me if there is a way without having to sell the flat though, because that would be ideal!
Of course if I was to do that then it would only be beneficial if I was to live in the house as if I was to rent elsewhere it would not create any advantage as the two properties offset each other anyway (ie. the positive gearing of one helps a little toward the negative gearing of the other).
Hi Scott
1. The current values of the properties are from real estate agents in the last 2 months and if anything may be a little on the low side, and the rent is actual/recent estimate from agent. So figures are all pretty up to date if not inspiring.
We bought these properties 8 and 9 years ago for:
Flat in cap city – 290,000
House in regional – 475,000On the positive side capital growth has been good though not amazing, and we have had zero vacancy.
2. I cannot work out why the regional place is not worth more in rent – the climb has been extremely slow, but compared to other places in the area it seems set at market value. The house is old with an outside bathroom, and is on a large parcel of land, so maybe that is why rent doesn't seem to stack up against value.
Undercapitalised? I would say definitely yes. We did a lot of reno when we bought, did the work ourselves and it took months and burnt us out. We haven't done further renovations due in part to this but also due to zero vacancy, lack of cashflow and lack of time (3 little kids and not great incomes).
3. We could rent further from here and thereby afford something bigger, (but still closer than 1.5 hours away) as you suggest, the only issue there is the lifestyle consideration of moving then moving again (if we still pursue the 'dream' of living in the regional place, which I should add is where other family members also live).
4. We would stand to pay CGT as there has been a 300k increase in cap value. But still, as an 'investment' it is getting harder and harder to justify!
I know there is an answer out there and really appreciate your thought starters and input to help us find it.
