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  • Profile photo of ducksterduckster
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    I once planted grass seed in the front lawn that was dead. Replanted new plants in gardens , mulch in gardens, removed ugly volcanic rocks.
    The front of the house is the most important part of landscaping.

    An 8 person Spa and 8 burner BBQ and out door area could be over capitalizing
    if no one who lives in this area expects these extras.

    If you would like help with sprucing up a house you could use
    Charyn's help
    http://www.housestoimpress.com.au

    Profile photo of ducksterduckster
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    qin wrote:
    Hi,

    I am new to this forum. With what I have been reading from this forum, I feel people here are very helpful, so I am wondering, I might be able to get some help here too. Below is my situation:

    (1) I bought a PPOR around 6 years ago (p1)
    The price I bought was at $380K, now it worth $500K
    I still have around $240K loan with the bank, I have an offset account for the loan. The redraw amount allowed from the loan account is around $48000

    This redraw are you planning on using it as a deposit for p2 loan ?
    You may be better setting up a line of credit loan against p1's security you can borrow usually up to 80% LVR this works out to $160,000 if you can service both loans (lender will check if you can service it)
    And this separates p1 private PPOR loan with LOC investment use loan making it easier to work out tax time.
    Ask your lender if you can do an LOC

    qin wrote:
    (2) I am planning to buy another property soon, costing around $480K (p2)
    My plan is to rent out my current PPOR after I bought the new one, then move into the new property for a few years (say, 5 or 6 years), then rent the new one out. Afterwards I might be move back to my current PPOR.

    If you rent out p1 you can only claim interest on the 240k loan
    I am assuming you are trying to reduce capital gains tax by moving every 5 to 6 years however only one property at a time can be deemed your PPOR. So when you move out of p1 and start renting it out you have unless you deem it to remain your PPOR you have changed its use and this is a capital gains event. The value of the house p1 at this stage becomes the cost base for the capital gains tax if you sell it in the future.
    If you deem it to remain PPOR then p2 is subject to capital gains tax if you sell it.

    qin wrote:
    I am the sole owner of the both properties.

    I got some ideas from some source saying  it might be more tax beneficial if I first rent out the p2, namely the new one, before moving in.

    I would like to get help/clarification from here on the following points:
    (1) Would that be the case I shall first rent out my  new purchasing for better tax benefit?

    As you owe more on the loan for p2 it would most likely be negatively geared and you could reduce other tax assessable income more than p1.
    Depends on your marginal tax rate as to how much you get back at tax return time.

    qin wrote:
    (2) When I rent the P1 out, would the interest for the P1 deductable? Some people told me, theoretically, the interest of P1 shall not be tax deductable as the original purpose of the P1 wasn't for investment.

    Some people may be correct in what they told you.
    What happens is the net income or net loss determines if the expenses are claimable. Yes they are claimable but if the rent income is greater than the expenses you will pay tax on the extra net income.
    net income = rental income – total expenses incurred
    net income = rent – (water rates, insurance, council rates, repair costs, interest, management fees, depreciation)
    if this sums up to a negative number then you are making a net loss which can come off other income you have paid tax on already)
    if this is a positive number then you are making income that is taxable.
     

    qin wrote:
    (3) What would be the best way to structure the loan on the two properties?

    LOC loan 120k against p1 to cover 96k for 20% deposit (avoids needing LMI)  and 24k cover possible stamp duty costs
    Go to another lender and borrow the $384 k required or remaining short fall.
    Then pay off LOC as soon as possible
     

    [/quote]

    Profile photo of ducksterduckster
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    Can you please provide more information on where the 12 months time frame is from ?
    Is there a first home owners grant involvement? (if yes you need to live in the house for 6 months within the first 12 months)
    If you have first home owners grant involved and you are going to demolish and re – build you want to check with the local state revenue office on if this is ok or not to be eligible for FHOG.

    You have a conflicting objectives in the question

     to build a PPOR

    and then

    My aim is to purchase this block/house as an investment property


    You will need to lodge and wait for demolition permit to be approved by council –
    You need plans drawn up for building permit application.
    You will need to lodge and wait for building permit to be approved by council.

    You may be able to check with local council on typical time frame for gaining approval for these permits.

    May be useful to employ a local private town planner to know what is involved and for them to submit the necessary permits and plans to council.

    Whole development / project could take at least 18 months to complete.

    Profile photo of ducksterduckster
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    Can you service the loan is another factor that the lender is going to look into .
    I would recommend consulting also with a lender or mortgage broker to see what your service ability would be.
    There are a number of brokers on this forum that might be able to help you with this consideration.
    But you have not mentioned how much you earn a year so they might have trouble answering this service portion of lending.

    Profile photo of ducksterduckster
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    That sounds like a bit too much of a squeeze I would guess at 1200m squared. Need to really get a designer or architect as you have to allow for driveways (Width), turning circles, distance from street, over looking neighbours, outdoor backyard space.
    Each  council is different.
    You might be able to get more on with 2 bedrooms but designer / architect would be able to advise you more accurately..

    Employ a local private town planner may be another way to go.

    Profile photo of ducksterduckster
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    You have not mentioned if you lived in it as your main dwelling till September 2004
    If you lived somewhere else was the other property your main dwelling.
    Yes you can deem one property as your main residence for up to six years if you lived in it as your main residence and have not claimed another property to be your main residence in the six years.
    see
    http://www.ato.gov.au/individuals/content.asp?doc=/content/36887.htm
    Also mentioned in API magazine July or August edition think it was August as I am subscriber so I get it earlier.

    https://www.propertyinvesting.com/forums/getting-technical/legal-accounting/4331793?highlight=6%2Cyear#comment-209434

    P.S.
    Welcome to the forum

    Profile photo of ducksterduckster
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    You need to clarify what you mean by purchasing costs.
    Borrowing costs are claimed over five years. So total borrowing cost / 5 is claimed each year for five years.
    http://www.ato.gov.au/individuals/content.asp?doc=/content/31258.htm
    You can claim if the property is available to rent. So get a property manager to start marketing it as being available to rent after a certain date (due to upgrade) being when you think it will be ready to rent. (Tenants do not usually move in if it is not finished and will be able to move in straight away when you have finished it if it is marketed via property manager.

    Mortgage insurance is claimable see in web site links from ATO.
    Legal Fees are not claimable for borrowing costs.
    Stamp duty on the loan is claimable but not stamp duty on the whole property /land transfer !
    http://www.ato.gov.au/individuals/content.asp?doc=/content/00113245.htm
    http://www.ato.gov.au/individuals/content.asp?doc=/content/00113243.htm

    Renovations and improvements are claimable as depreciation against future rental income (divided over life of improvements)
    employ a quantity surveyor to work out a depreciation schedule
    when you finish improvements and rent it out. Keep receipts for quantity surveyor to use.

    If you do not rent it out and resell it the renovation / improvement costs can be added to capital cost base
     however you can't claim both it's one way or the other way
     (can't double dip expenses claim – against income and against capital gains cost base its one of these but not both)
    Talk to your accountant for more specific advice.

    Profile photo of ducksterduckster
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    I believed the university and government that I would get employed and earn a big wage by going to university
    and soar like an eagle.
    When I entered university I had a negatively geared property that I calculated I could afford the cash short fall for 4 years .
    When I realised I had been massively misled and failed to gain a graduate position for 6 years I had to sell the property or go broke when I left university after 18 months without employment success.

    I missed out on 2001 – 2004 growth as I couldn't borrow money due to no income during university.
    The $100,000 property I sold in 2004 for $170,000 but now in 2010 it would be worth $280,000 if I could have held on to it.

    I did a hospitality course and have gained employment part time within 2 months

     where as university was a waste of my time.
    and the HECS debt,  I still have to pay even though no employment eventuated from it.

    Profile photo of ducksterduckster
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    mine is $700 but I have shares and property to deal with.

    Profile photo of ducksterduckster
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    Hi, Welcome to the forum,
    What you need to consider is what type of investor you are.

    A negative geared investor would go IO to maximise tax deduction while freeing up cash flow for covering more investment
    A negative geared investor relies on capital growth being higher than the cost of the short fall over a time period

    A cash flow positive investor would consider P & I loan so as to build up equity and to get a property into a cash flow situation over time.
    As time goes by the loan gets reduced, equity increases, cash flow increases, capital growth may not occur depending on where property is located if it does occur it is not the main focus more of a bonus to the investor..

    Profile photo of ducksterduckster
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    When you demolish property one and build a new property there is a cost involved in building the new property.
    This construction cost is added to your cost base and reduces the impact of CGT however you will have to deal with GST on 1/11th of the eventual sales price if you sell it so check with your accountant on GST liabilty.

    You may be liable for CGT for the 2 months that the tenants are living in property one after settlement.
    This is due to not moving into the house in an appropriate time after settlement.
    However you can proportion the capital gain as you are only liable for the amount of gain during the time it was rented out.
    You could get a valuation when you move into the property to work out the deemed sale price (deemed sales price when you changed to PPOR exemption) and also the capital gain for the short period.
    Search the ATO web site for main residence exemption fro examples of time proportion.

    Profile photo of ducksterduckster
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    Check out amortization template in excel office 2007. You can download it

    Click on office logo top left corner the circle thingy

    Select New
    Select Template
    Select microsoft office online
    type in search microsoft online box
    amortization
    click on download
    save template

    Profile photo of ducksterduckster
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    It could take 18 months to sub divide and construct another dwelling.
     If you borrowed the money to cover the $469,000 you have to consider holding costs (interest of $469,000) plus $350,000 (2/3 interest costs over 18 months on construction loan) plus cost of submitting DA planning permits,connecting services (power, water, sewerage).
    You need to research the cost of Architect/ designer, Construction cost from builder and Surveyor, submitting plans, connecting services, landscaping.
    At a guess I would have thought 50k profit on renovation or subdivide
    and 100k profit on subdivide and new dwelling at back.
    You would know a little bit better with finding out the costs of subdivision and new dwelling.
    Also you need to factor in Sales Commission and GST on a new dwelling 1/11 of sales price.

    If the Fibro turns out to be asbestos you will have to pay to have it removed by an asbestos removal expert.
    if you remove the sheeting or demolish house. Demolishing the old house has a cost also if you decide to build a new building in its place.

    Profile photo of ducksterduckster
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    I have done some research on this question for you
    and come up with the following explanation

    It seems that Paul Keating introduced as Part of his One Nation Package an incentive for property developers called accelerated depreciation.
    This article may shed some light on it.

    Accelerated Depreciation was introduced on the 26th of Feb 1992 and was removed in 1999 Ralph tax review
    See
    http://www.propertyoz.com.au/Blog/archive/2009/05/04/54.aspx

    Your parent's apartment's developer may have opted to use Accelerated Depreciation.
    (Probably was a selling incentive I am guessing for potential investor buyers)
    Also I discovered in my research that common property area may have a five year depreciation life.

    Profile photo of ducksterduckster
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    Profile photo of ducksterduckster
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    MattG536 wrote:
    Hi, I’m new here and to the concept of IP…
    I know my wife has asked a few questions also (Libra76)  
    Q1 – Is it better to buy an IP in both names or just in mine for the TAX advantage (hers is about 15% and mine is 38%) I know it seems like it would be better in mine only up until when we sell the property and capital gains tax will be greater on my half. So the question is, is it better to be on both names or in just mine over 5 to 10 years? 

    This is really a win now lose later situation.
    You need to consider if Libra76 will be taking time off work for maternity needs as negative gearing affects family payments
    or a lose now win later situation.
    A lot of investors plan never to sell to avoid CGT or pick a financial year they are not working to sell.
    Are you claiming depreciation on the building as your losses can be increased but this adds each year to capital gain by reducing the cost base. If newly built building cost of construction can be depreciated and claimed each year for 40 years.
    I can't give you financial advice so my answer may seem vague to you but you may wish to talk to an accountant about what is best in this situation.

    MattG536 wrote:
    Q2 – Has anyone ever looked at the investment of putting more into the house you live in? No capital gains on that, but no tax advantage either, I find all this very hard to weigh up and analyze what are the best options for investment? 

    Check into what an offset account on a home loan does ! (try searching for the term offset in this forum)

    MattG536 wrote:
    Q3 – Has anyone got some simple matrix to work investment advantages and profits based on income, TAX advantages etc…??? 

    http://www.spreadsheet123.com/ExcelTemplates/real-estate-investment-analysis-spreadsheet.html
    http://www.apimagazine.com.au/api-online/web-specials/2010/free-download-property-tracking-spreadsheet

    MattG536 wrote:
    Any helpful suggestions will be much appreciated
    Cheers
    MattG536
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    danviv1 wrote:
    Have a PPR (let's call it P1) almost paid off
    – Have a IP (let's call it P2), negative geared before

    I moved into my P2 from P1 in the end of last year, so now P2 becomes my PPR. I haven't done the FY09-10 tax return yet, so this has not been triggered in my tax return with ATO.

    Eventually your tax return will be done and the rental income you were claiming on P2 will cease and the ATO may think you have sold this property and will look closer at your tax return to see if this is the case as they like CGT and will most likely notice you are claiming rent for P! as income instead.

    danviv1 wrote:

    P1 has been rented out privately, I manage it myself since I moved out. I wish to withdraw some some equity out of P1 in the future, maybe to buy a P3 or maybe lend/gift the money to my family member.

    My questions is, if I withdraw the equity in P1 and gift it to my family member, does ATO have any rules about it? After I withdraw the equity, P1 will be neutral geared, will that attract audit from ATO? Will I need to document it somehow to show them where my equity goes to?

    You may need to show purpose of the loan was for investment purposes to be able to claim the interest costs against P3.

    If you gift the money it is not investment purpose there has to be a direct link with earning income to claim interest costs.

    If you set up a line of credit loan facility against p1 you can borrow the money from the LOC and use it as a deposit for P3.

    The line of credit separates the existing loan of p1 that is very low from a larger LOC loan secured against p1 that is claimable against p3 income as it would be used for a deposit on that investment property p3.

    something else do not try to claim repairs that improve a property beyond the condition you purchased it at. As it is claimed via depreciation as an improvement. Replacing something in its entirety like whole roof is an improvement also rather than a repair.

    danviv1 wrote:
    Hi there

    I have one more question that I forgot to mention.

    What if I move out of P1 in FY09-10, rent it out, then withdraw the equity in P1 to pay down P2 in FY10-11. Will that fail the purpose test again?

    cheers

    If you are trying to claim the expense of the increased loan on p1 that has been used to pay down a private use loan being p2 this fails the direct loan to investment purpose.

    Profile photo of ducksterduckster
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    harrip wrote:
    Hello I purchased an investment property on 9 July 2010. I was looking to obtain a depreciation schedule on the property, but an accountant advise I may have to wait until the next financial year to be able to obtain the deductions.
     Is this correct?

    Yes because you missed out on last financial year 30/06/2010 anything after this date is claimed after 30/06/2011
    You are waiting for next tax return lodgement after 30/06/2011 for the time 1/07/2010 thru to 30/06/2011

    harrip wrote:
    I have to complete a monthly IAS for the tax office, so could this possibly prevent me from submitting the PAYG withholding variation form that I believe is usually used to obtain the tax benefit now rather than waiting? Thanks.

    This depends on if the new purchased property expenses exceed rental income and if this loss is greater than the extra income you are earning now. As an IAS usually occurs if you earn more income that is not PAYE.
    You have to work out the overall non PAYE income – new property loss = 0 or < 0
    If you make an overall loss you can offset against wage then you would be able to vary tax.
    May have to wait till tax return done to figure this out with ATO.

    Profile photo of ducksterduckster
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    Yes it is a monthly magazine.
    http://www.apimagazine.com.au/
    It is not stupid wanting a property relatively close by
    just be aware of  the possible lower capital growth compared to the city metro suburbs. And it it  is self managed your tenants might visit your place if really close by to ask for repairs to be done.

    Profile photo of ducksterduckster
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    Hard to resell
    This results in the banks not being too keen to lend money for the property – check with lenders first  before committing-
    Students are also not attending university for the whole year and have a long end of term vacation

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