Forum Replies Created
If you take a loan for the whole amount you still need to find money for the deposit and you would be risking losing both houses through cross collateral of the two properties.
You can borrow from the LOC but it is better to have no other private use loan in the LOC.
So that 100% of the LOC has been used for investment purposes to fund the 2nd IP
If you have private use on the LOC you may need to set up another LOC account for this investment purpose.
It makes it easier at tax time to work out the investment interest for IP 2.I would also try and get away with as little initial deposit when buying the property and then paying the remaining deposit before settlement during the settlement period. Usually your solicitor will tell you that the remaining deposit has to be paid.
some old posts on similar theme
https://www.propertyinvesting.com/forums/property-investing/help-needed/4330502?highlight=cross
https://www.propertyinvesting.com/forums/getting-technical/legal-accounting/4330668?highlight=cross
https://www.propertyinvesting.com/forums/getting-technical/finance/4330653?highlight=cross
https://www.propertyinvesting.com/forums/property-investing/general-property/4330647?highlight=cross
https://www.propertyinvesting.com/forums/property-investing/help-needed/4330566?highlight=crossDon't type in CAPITAL LETTERS as it is considered as shouting on the internet.
From APRIL 2009 to NOW when you Sell it you can claim a part Capital Gains Exemption as your main residence.
Calculating a part exemption
The part of the capital gain that is taxable is calculated as follows:
see in
http://www.ato.gov.au/individuals/content.asp?doc=/content/36883.htm
If using a real estate agent there is sales commission of about 2 – 3 %
of sale price
If using solicitor there will be the legal fees charged to sell and settle transaction
There may be advertising costs if using an agent
You may need to get selling contract signed at Police station (like a stat dec sort of requirement)If buying another property there is stamp duty
If borrowing you may be up for mortgage insurance if LVR >80%Usually solicitor doing the conveyance for your property purchase works out your portion based on time left as it would be unfair to have to pay the lot. As an example its unfair if you were expected to pay for the whole year of council rates if say 2 months were left on say the council rates. Water rates are billed every 3 months and you pay a service charge which is different to excess usage.
You also need to get the electricity and water meters put into your name and possibly a meter reading done.
I am also not sure on your question but have assumed this is what you were asking about.EB wrote:Please excuse if this has already been handled, I have been trying to find the topic amongst the forum subjects with no success.My husband owns our house freehold. I am hoping to buy a property at some stage, my first, probably my only, because I too want something of my own but we have no intention (most likely) of living in it since we are happy in the current property. Thats the plan anyway.
I want to buy as an owner occupier not as an investment in case we do change our minds but where does this leave the living arrangements regarding the owner.
You said you were married – If you are married you are one entity as far as owner occupied goes.
So the house you live in is deemed as your main dwelling.
http://www.ato.gov.au/individuals/content.asp?doc=/content/36883.htm
This is for capital gains tax exemption.
So if your husband sold your husband's property he doesn't have to pay capital gains tax.
Now you can only have one house at a time deemed through living in it as a main residence.
However there is a six year rule where a previous main residence can be held as a main residence even though you moved out of it and rented it out. However you still can only claim one house at a time as your main residence so the other house would be deemed as capital gain taxable.EB wrote:Is there a clause that owners must live in any bought property as occupier for a set time? And what if they don't? Or they don't and then choose to sell it. What are the repercussions?Yes you must be able to prove that you live there
The tax department will only let a married couple have one house treated as their main residence.
http://www.ato.gov.au/individuals/content.asp?doc=/content/36893.htm
unless they own 50 % then the ATO might treat both houses to 50% main residence exemption
If you do not live in the house you can't get the capital gains tax exemption and remember you can only claim one house at a time so the ATO can get their tax from your property one way or the other.
It is up to the tax payer to prove to the ATO that they lived in the property
The implications are that if you sell your investment property at this stage in tax law that if owned for >12 months you get a 50% reduction in your capital gain.
The gain is then added to any other assessable income the property owner has and then tax is worked out. So you could if say marginal tax rate worked out to 40% dividing the gain by 2 for discount be paying 20% Capital Gain Tax on the increase in value of your property.EB wrote:I have images that we would have to move at some stage and live in the property for a set period of time because friends have intimated that we would have to do this if we were ever planning to lease it out to others at any stage and basically treat my only property as an investment property.Your friends are most likely thinking of the first home owners grant which because you are married you most likely can't apply for as you (married entity) already own a property and if owned before the year 2000 then you definitely can't claim FHOG.
there was a loop hold where you could buy a house in some states of OZ and rent it out after year 2000 and still be able to apply for FHOG as you had never lived in your property on the next property you decided to live in.
To get the FHOG there was a requirement to live in it for 6 months in the first 12 month period to be elligible.
Now on the point of moving into the investment property get a valuation done on the investment property and the property your husband owns to make working out future capital gains tax as you will have a good record of the values.
When you both leave husband's house – you could sell it but if you don't sell it the valuation on it sets the cost base for when it changed to an investment property to work out future capital gains tax.
You can pro rata by time – like owned as main residence for 7 years owned as investment for 5 years so 7/12th is main residence exempt and 5/12th of the gain is capital gains tax liable.
But a valuation is more accurate.
With you investment property when you move in the valuation works out what part is capital gains tax liable and what starting value is capital tax exempt. If you sell it anytime in the future.
Its for record keeping requirement and protects you in the future when trying to work out capital gains tax.EB wrote:Can anyone please advise or advise a link for me that explains this simply in 101 english.
My husband will not be involved in my property purchase. I will be the sole buyer.
Thanks
Not sure if its in 101 english.
I am sorry in advance if what I am commenting on below in this matter of fact simple english comment on the unthinkable as it might cause you or your husband any offense in anyway but it is important to think about and even discuss this with your husband for asset protection planning.
Reading between the lines of your last statement.
Your husband will not be involved in my property purchase. If your husband is not contributing to the repayments and running costs of your investment you need to discuss this point with your husband.You may need to consider protecting your investment in the improbable event of marriage breakdown. I am not saying you will be having this occur but you need to protect or consider what the implications can be if it were to happened.
(similar to Life insurance no one likes to consider it or talk about it )If you have paid for all the costs and it's in your name you would have to pay your Spouse Half of your investment value. If you are forced due to this to sell you could be paying capital gains tax not your Spouse. Then with what's left over you then have to pay half of what the sale proceed were to your spouse.
I know it is not romantic and most people don't want to even think about it but there is a way of protecting this investment if you are the sole expenses contributor.
http://www.law4u.com.au/cgi-bin/factsheet_frameset.asp?article_id=479
http://www.legalaid.qld.gov.au/Legal+Information/Relationships+and+children/Property+-+married+and+de+facto/Property+and+financial+agreements.htm
http://www.financialagreements.com.au/separation-agreement.html
I am assuming that the statement you made may be along this line of thinking when reading between the lines.I am sorry in advance if this matter of fact simple english comment on the unthinkable has caused any offense to you in anyway but it is important to think about and even discuss this with your husband for asset protection planning.
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It wasn't easy to find but here goes
http://law.ato.gov.au/atolaw/view.htm?docid=GST/GSTR20033/NAT/ATO/00001
Point 40You may find the ATO doesn't allow the loan interest as a deduction
I recommend you read this web page below to understand the likely problems with tax deductibility
http://www.ntaa.com.au/media/associationatwork/yourassociationatwork2007/yourassociationatworkapril2007.html
http://www.ntaa.com.au/download.asp?RelatedLinkID=169
http://www.trustmagic.com.au/inf/Finance-Hybrid-Trusts.pdf
http://law.ato.gov.au/atolaw/view.htm?docid=CTD/TD2009EC17/NAT/ATO/00001
http://www.apimagazine.com.au/api-online/web-specials/2008/06/hybrid-trusts-julia-hartmans-commentsIn my opinion you have to be careful with hybrid discretionary trusts as the deductible tax is questionable by the ATO and good professional advice from a tax accountant is required.
Welcome to the forum.
smoule1 wrote:Hi All,I just have a few questions I was hoping to get a little feedback on. I'm a 26 year old female living in Brisbane city. I recently came into some financial freedom, having a little over 300k in the bank and not sure which way I should invest it. I'm planning a 6 month overseas trip in a few months time
How do you plan to fund your holiday ?
Are you having a working type holiday or are you relying on your savings or the $300,000 as this will have a bearing on what sort of investment plan you may need?
If you are away for 6 months on holiday a bank won't be too keen to lend you money while you do not have employment.
If you borrow money you have to be able to make the repayments, so how confident are you at gaining employment once you get back from your holiday. Because you could fund say 12 months of repayments out of the cash you have.
What is your long term plan?
Are you thinking of ever living it the property later or continue renting it out.?
With investment property you can buy it in areas you do not live now!
So If it was me I would look at quantity of land under the building.
Here are some examples
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=106196932&f=60&p=10&t=res&ty=&fmt=&header=&cc=&c=21109608&s=qld&snf=rbs&tm=1265161067
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=106157826&f=50&p=10&t=res&ty=&fmt=&header=&cc=&c=21109608&s=qld&snf=rbs&tm=1265161067
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=106117420&f=50&p=10&t=res&ty=&fmt=&header=&cc=&c=21109608&s=qld&snf=rbs&tm=1265161067
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=105870703&f=40&p=10&t=res&ty=&fmt=&header=&cc=&c=21109608&s=qld&snf=rbs&tm=1265161067
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=104980069&f=30&p=10&t=res&ty=&fmt=&header=&cc=&c=21109608&s=qld&snf=rbs&tm=1265161067
Now I have no idea where these suburbs are in relation to Brisbane
but you most likely do.Say it costs you 330,000 for one of these properties
say at a guess you need $10,000 stamp duty
say a 40% deposit say 130,000
Loan of about $205,000
Rental income of about at a guess $11,000 a year
Repayments on P & I of $500 a week based on 10% interest rate
$26,000 a year
with the left over $100,000 you should be able to cover 3 years if you have no tenant.
With a Tenant you would be $16,000 you have to find a year. $300 a week.now another scenario
Say it costs you 330,000 for one of these properties
say at a guess you need $10,000 stamp duty
say a 61% deposit say 200,000
Loan of about $125,000
Rental income of about at a guess $11,000 a year $218
Repayments on P & I of $278 a week based on 10% interest rate (bad interest rate for safety margin)
$14456 a year
with the left over $90,000 you should be able to cover 3 years if you have no tenant.
With a Tenant you would be $100 a week short or $5200 a year (I added 2000 for expenses).
you should be able to cover 17 years of holding this property without rent increases.smoule1 wrote:and hope to have a place before then. If you were in my situation what would you do? Would you loan money from the bank and get a house and have tentants pay it off or just spend all of your own and buy a unit? I live in Brisbane city I would greatly appreciate feedback.Are you interested in getting money for nothing (the first home owners grant you may be eligible for it) ?
http://www.osr.qld.gov.au/client-group/first-home-buyer/index.shtml
But for FHOG you need to live in it for at least 6 months before renting it out?
Do you like paying capital gains tax (if you live in it for six months see below links) ?
http://www.ato.gov.au/individuals/content.asp?doc=/content/36887.htm
https://www.propertyinvesting.com/forums/property-investing/help-needed/4330593?#comment-202397.With borrowing (not lending) the money from the bank you get a leverage effect property grows at about 7% p/a over a long term average. So if you borrow money that is not yours you make capital growth on the borrowed money. Also you have some cash in case things go wrong like the house is trashed (have landlords insurance) and it takes 3 months and say $30,000 to get the house rent-able again. Where as if you use all your cash if something goes wrong you may be able to borrow money from the bank but you will have no spare cash to cover the loan repayments.
I am sorry that I have not given you a clear direction or advice but I am not allowed to unless I am a licensed advisor so you need to work out what risk you are comfortable with with your investing
One big risk you are taking right now is having 300k in one bank account. During the financial crisis some banks froze their deposits for 12 months ! Every heard of Pyramid building Society ! http://en.wikipedia.org/wiki/Pyramid_Building_Society
Maybe you could read books on this to broaden your understanding and books do not cost a lot compared to seminars.An Auction works against the seller. If you set a reserve price make sure the agent doesn't talk you into lowering it during an auction.
In the heat of the moment it is real easy to get sucked in to lowering you reserve price. You can always negoitiate with the highest bidder later if the house is passed in at auction. You can also get stung with $10,000 worth of advertising by the agents which you do not really need.
If the market is slow you suffer
If the market is hot the buyers can end up paying more .
I have not sold by auction myself but in some suburbs they sell only by auction especially during a hot market.The sale can fall through with an auction .
If the bank lowers the valuation for the buyers loan then they may not be able to buy it.Is the property you already own in joint names. If it is this can cause problems if the LOC is in one joint owners name while the equity is owned by two owners. I had to go to a solicitor and have the implications of this explained to me.
Although a LOC would seem to be fair if it gave you usually up to 80% LVR this requires the bank to value the property and you have to be able to service the LOC maximum allowed borrowing limit.
This LOC will effect the other loan as you have a massive borrowing capacity in the LOC that has to be serviced.
Do banks require a new contract to setup a LOC on existing equity? – Yes it is a new loan facility account
Could the transfer of money from the LOC to the trust be the issue? – maybe if evidence of savings are required and also the service ability as you have to service the LOC and then service the new loan.
Very strange that you could not set up LOC on existing equity until you sign on another property.
I have two LOC accounts with ST George and I do not have another property contract signed .
Another option is to install a heat pump replacement hot water system.
which has a federal gov rebate of $1000 towards the cost of installation.Air conditioner and wardrobe is an improvement. You can claim depreciation over the effective life of each item.
As long as the property is available to rent (ATO wording) on the rental market you have an investment property that you can claim depreciation on.
Because you are improving the property beyond what condition you purchased it in it is an improvement rather than a repair.
If the item is of low value you may be able to claim its depreciation straight off I can't remember the exact threshold
http://www.ato.gov.au/download.asp?file=/content/downloads/IND00191817n17290609.pdf
see page 12 on allowable expensesGet an electrician to check the wiring.
The best electricians I find are in the local paper and they like doing small jobs where as yellow pages electrician are too busy to look at a small job
I had a light doing this and it was found to be rats had eaten the power cable between the light switch and the light in the actual wall. Rats seem to like and are attracted to wires with electricity in them. You may be able to look in the ceiling and follow the wiring to see if there is a dead rat attached to the hot water wiring. (This could have happened during house vacancy and throwing rat poison packs in the ceiling prevents this happening again)
Another house I had a similar occurrence and the roof was leaking water onto the electrical terminals of a light which then blew the fuse intermittently when it rained.
Otherwise it will be the element but the element usually goes open circuit rather than short circuiting either way an electrician will most likely have to fix it.The rental income you earn is regarded as income so when you fill in your tax return you fill in a section called Net Property Income / Loss
If the Net property income is positive you pay tax on it
If the Net property income is negative it is subtracted from your other assessable PAYE income (WAGE and extra earnings)and then you will have less assessable earnings and tax you already paid during the year will be returned to you.
However it sounds great but with the lower tax rate scales you may be in say a 30% tax bracket.
So you Lose out of your pocket say $10,000 so you can claim back $3000 unless you are using building write off depreciation
Net property income = Rental income minus (Expenses incurred to earn the rental income)
Net Property income = Rental Income
– Depreciation expenses (fittings)
– Depreciation expenses (Building Write off) http://www.ato.gov.au/individuals/content.asp?doc=/content/00183243.htm
– Council Rates
– Water Rates
– Insurance
– Loan establishment costs over first five years http://www.ato.gov.au/individuals/content.asp?doc=/content/00113245.htm
– repair http://www.ato.gov.au/individuals/content.asp?doc=/content/00183233.htm
– investment mortgage interest http://www.ato.gov.au/individuals/content.asp?doc=/content/00113233.htm– legal expenses http://www.ato.gov.au/individuals/content.asp?doc=/content/00113243.htm
Now with new buildings you can depreciate 2.5% of the building costs over 40 years however the amount you depreciate is taken off the cost base for capital gains tax calculations which means you are spending money each year paid for out of thin air but you pay more capital gains tax if you sell later on.
So with a positive geared property with the actual cash in your hand you may be able to have a loss on paper through the building write off depreciation. It is like an expense you have when you are not actually spending money out of your pocket.see
http://www.ato.gov.au/download.asp?file=/content/downloads/IND00191817n17290609.pdf
the physical documents can also be ordered
http://www.ato.gov.au/individuals/content.asp?doc=/content/00191817.htm
however account has to be set up with an email and password
Development is not an easy starting point for a beginner.
What are you going to sell it for. The market determines the selling price.
If you go over costs you can make a loss.
Do you have a team of professionals. Do you have a plan drawn up. Do you have an Architect, Builder, Solicitor , ect
Would suggest reading some books of development of property so you know what you may need to do this project.GST , building permit submission cost, costs for connecting services like water, electricity, Sewerage, Storm water, capital gains tax, marketing costs, selling commission costs, ect
check out http://www.businessmall.com.au/ when the web site is back online and go to property development.
karen. wrote:I wouldnt be considering this is we weren't positive if we wanted to keep this house long term or not. Alot of things changed in our plan when we discovered I am pregnant again.We have never sold a property before so are unsure how much $ we would actually walk away with.
Details:
– prop jointly owned 50:50 between me and my husband.
– paid $250k for it, plus $12k for buying costs and renovations. market appraised at $320 – $330k. so assume that we come to an agreed price of $320k. That is $70k minus expenses …. but what are the expenses???– bought the prop in june 09, so would need to have an extended settlement period to june 10 so we can pay less capital gains tax.
Nope this is worked out from the date you enter into a buy or sell contract rather than settlement date.
Better to wait till after June 30 2010 before entering into a Sell contract so that capital gains proceeds are in next financial year when you are possibly not taxed as much due to not working the full financial year being July 10 to 30 June 2010karen. wrote:by just using an online CGT calculator im allowing $10k estimate for CGT. my taxable income is nil, hubby's is $61k. so its going off those details and other expenses.
– we wouldnt need to use a REA cos we would just organise it through our solicitors so that saves some $i was wondering if those who are in the know could please alert me to the other factors i havent considered yet with costs involved in selling. i know there are more.
also, is there any legal things i can do to try to minimise my CGT?
if its worth my while and i walk away with a decent deposit for another better house Id be happy.
Why do you want to sell it?
Is your cash flow projection telling you you cannot afford to keep the property or is it the effect of the family office rules?
I had to sell a property for a profit of 70k when I could not get a job and had to be a house dad and then I found the bank would not lend me money on one income.
I worked out that it has cost me 70k over the last 6 years in lost capital gain from selling the property. I worked out the growth at 9% compounding per year.
You may find you can't get as much finance once you stop working !My two twin girls go to school 1 FEB 2010 so I can run my business or maybe get a job.
I know of a person who had built a home like this in the late 80's and used old wooden power poles he had acquired from somewhere that I can't remember.
I am not concerned at all.
I do not care if no one takes a closer look at this sub division or does. Its information that someone may find useful.
I am very familiar with the background of this area so I know it is a once in a life time sub division.
They will most likely not be allowed in the future to release any more land via sub dividing the national park or even sub dividing the last remaining sole caravan park in Peterborough.I probably see things from a different prospective to you
I see the situation occurring like thisa future lack of a resource (land) = future increasing land value
or
basic economic theory
Demand is greater than Supply thus increasing the value of the itemThis forum topic is labeled as heads up
–
give somebody a heads up
is an idiom that has the following meaning.to give someone information or a warning.If I was concerned about it I would have posted it in opinionated but it is a non changeable event so why worry about it when you could possibly profit from it or have a nice quiet retirement place if you are an older baby boomer investor looking to retire .
Welcome to the forum !
What you have to be aware of is that with investment property it doesn't have to be in darwin necessarily. It seems from what I saw that Darwin is quite expensive if you buy a house.
You may need to look else where
as stamp duty has to be paid if you buy a house and mortgage insurance.
$18,000 based at 90% LVR is $180,000
Most of the houses are around $300,000 to $400,000
$2,000 mortgage insurance most likely to pay
http://www.yourmortgage.com.au/calculators/mortgage_insurance/
$5,000 in stamp duty
http://www.revenue.nt.gov.au/calculators/sd_calc_normal.shtml
Probably you could look at 2 bedroom units or apartments as you do not have enough saved up for a house deposit or the hidden costs in Darwin. May need to look elsewhere check http://www.realestate.com.au or http://www.domain.com.auFirst step would be ask local bank what you can borrow and what the stamp duty and nortgage insurance will be and any other expenses you may incur.
second step – now that you know what you can borrow look for property that you can afford to buy.
third step – work out likely rent in suburb / property type you decide on
fourth step work out cash flow
five – decide if buying or not
due to being able to nominate the PPOR for CGT exemption even if you are using it as an IP as long as you do not have another PPOR that is being claimed for CGT exemption at the same time.
http://www.ato.gov.au/individuals/content.asp?doc=/content/36887.htm
I am not sure if you are able to claim interest costs, expenses incurred as tax deductions in this main residence exemption time period.
