Forum Replies Created
what you need to be mindful of is rising interest rates, as it is a big expense in buying an IP.
So if Interest expenses go up you will find it hard to find a positive property.
Income = rental income – interest – council rates – water rates – insurance – repairs + (tax return deduction for building depreciation)However you need to take also into account building write off depreciation at 2.5% on new buildings. However capital gain increases each year you claim this depreciation.
Have a look at Cameron Bird – Google Search – for an example of this type of depreciation being used to increase cash flow but you need other wage earned income to increase tax so depreciation can be used.
What you are missing is the collateral
You have one property secured as first mortgage and then you go to another bank for another loan then you are trying to use a property secured by another bank as collateral. (This is known as a second mortgage and banks do not like being second securer over assets.However
If you went to bank one and said I have heaps of equity can I set up a line of credit loan to borrow $50,000 the bank will most likely lend to 80% LVR.
Then go to bank two and tell them you will put $50,000 towards a deposit and stamp duty you might have better luck at securing the second loan.
Rough formula
Say house one had a value of 400,000 but you owed 200,000
LOC = Value * 80% – Loan
LOC = 400,000 * .80 – 200,000
LOC = 320,000 – 200,000
LOC = 120,000
However you have to make repayments on this line of credit loan once you pull money out of it.
So service ability is also looked at when bank assesses borrowing capacity.Do a search on the subject of line of credit in this forum as there are many postings on this subject.
What happens if the rent is late ?
See if you can set up an offset account against the loan and take expenses out of it and have rent paid into it.
Or if you have a non tax deductible home loan link offset account to it so you can reduce non – tax deductible interest costs via offset account.You really need landlords insurance for the public liability cover in case tenant injures themselves in your house.
Landlords insurance + additional contents insurance.
http://www.allianz.com.au/aalaus/aalaus.nsf/docs/B023F9FEFA364289CA2574C20008290A/$FILE/POL112BA-Allianz+Landlords+Policy+05.09.pdf
http://www.allianz.com.au/allianz/Landlord+Insurance.htmlhttp://www.cgu.com.au/cgu/cgu/linkAuthContent.do?contentId=/OurProducts/PersonalInsurance/LandlordsInsurance
This company has a excess you have to pay for a claim.Not sure how good they are
Do a google search on Landlords Insurance for more comparisons.Put it in an offset account where balance comes of PPOR home loan interest calculation – linked to your PPOR home loan !!
Then later on if you need the $18k for something else like an investment purpose then it is on call to be used .cana05 wrote:Hi
The real estate suggested to put the rent up and they think we can even get $360 per week. We only increased the rent once for $5 more per week because we liked the tenants.
The problem is that I am not sure if we put the rent up how is this going to affect the tax now and what happens when the property becomes positively geared if we continue to put the rent up?
Is that when you sell it?I would really appreciate if someone can explain this to me, I am still a learner otherwise I won't be asking you guys
Thanks
It really depends on what marginal tax bracket hubby is in.
If you increase the rent by $5 per week then you need to
decrease your negative gearing loss by $5 * 52 minus real estate agent commission increase)
A whole $260 a year.
Contact your accountant and mention you may need to re-submit a tax variation form as the rent has increased by $260 a year.If you want to stay negative maybe you have some improvement that needs doing that you have to borrow money to get done.
Carpet renewal , repaint, new kitchen, an evaporative central air conditioner and heating ($8000 cost) , ect
Or maybe if you get real positive buy another investment property.P.S interest rates went up .25% on melbourne cup day that will change your calculations unless you have a fixed interest rate.
Do a google search on certificate 4 mortgage broking
or on a cheaper note
http://www.amazon.com/Mortgages-For-Dummies/dp/B001NH4ARI/ref=sr_1_2?ie=UTF8&s=books&qid=1257413542&sr=8-2
http://www.amazon.com/Understanding-Your-Mortgage-Patty-Crowe/dp/097762692X/ref=sr_1_13?ie=UTF8&s=books&qid=1257413542&sr=8-13
http://www.amazon.com/Rules-Mortgages-Dale-Robyn-Siegel/dp/1592579485/ref=sr_1_34?ie=UTF8&s=books&qid=1257413751&sr=8-34
http://www.amazon.com/Mortgage-Confidential-What-Need-Lender/dp/0814473695/ref=pd_sim_b_2Not sure on the books as they may be american and it may be different to australia.
I learnt my knowledge from doing Certificate 4 in Mortgage broking and completing a bachelor of commerce degree .Interest is calculated Daily.
Daily interest = annual interest rate / 365 (or 360 USA value) * loan balance owing on day.
Then each daily interest calc it is added up for the whole month to come up with the monthly interest charge.
Ask your mortgage provider and they will tell you if they use 365 or 360 in their calculation
Also monthly fee may need to be added to loan balance once a month on a particular day.A lazy way is to download the amortization template spreadsheet for excel from microsoft.
There is another formula which is FV= PV* (interest rate for period +1)^n
n being periods of interest charged
FV = final value
PV is first balance of loan. (say 400,000 as eg)
So monthly would be 12 for n and I= interest rate/12
Then n * 20 for 20 years
n = 240 periods
FV = 400,000 * ((6.5%/100)/12)+1) to the power of 240You have to have the collateral to be able to borrow the deposit for another property.
Say you had a property worth say $400,000 but only had a loan of $100,000 against it then you could borrow a deposit for another property. In this case you decide to add the two properties values together and get a deposit bond for the deposit as together the two properties add up to say $800,000 in Value and total loan is $500,000 then you have enough collateral to get a deposit bond for when the loan comes through and you can pay the bond back.The main point is that you will have the funds at settlement. It is not used to keep the bank happy but rather the selling vendor happy.
have a look at this site for more insight into deposit bond requirements
http://www.depositpower.com.au/dpg/purchasers?quicktabs_4=0#quicktabs-4A little bit confused about your situation
We are buying out in-laws on a property?
What sort of property are you buying out from in-laws is it an investment property purchased after 2000 ?
Why I am asking is because if they own property already purchased prior to 2000 will they be able to get FHOG ?
or if they already own a residential property they can't get FHOG.
Some states allow prior purchase after 2000 if investment property it varies from State to State of OZ.
My question is, can you not borrow for the deposit? The total amount of borrowing is 10% of the value of the property and they will be paying cash upon settlement for the balance.You normally can get a line of credit loan but I think in this situation the in-laws are selling the first property and then buying another property in this situation what some people do is get a bridging loan.
see below – not recommending a lender just highlighting the product your in-laws may be afterhttp://www.commbank.com.au/personal/home-loans/our-borrowing-options/bridging-finance.aspx?cid=dsm
http://www.anz.com/personal/home-loans/refinancing-home-loan/bridging-finance/
http://www.xinc.net.au/home_loans/bridging_loans.html
http://www.aussie.com.au/home-loan/selling-guide/sell-or-buy-first.htm
http://www.aussielegal.com.au/forum/forum_posts~TID~6188.htmNot sure if this will help your in-laws but sometimes the right question to ask the bank can make a big difference like asking if a bridging loan can be used.
It really depends on the time you have.
If you are retiring tomorrow at 65 years of age you probably do not need a dream home but alsoI saw on ACA that a couple won Tattslotto and decided to demolish their house and build their dream home on the land.
Only problem was after demolishing their house and starting the building their bank that held the funds froze its assets during the financial crisis and the stress of this caused the husband to pass away.If you like working you might use the 500k as a good deposit and leverage by part borrowing the rest of the funds and paying off the debts over say 20 years and eventually owning 5 properties outright in 20 years.
The time factor also can directly relates to the risk tolerance you have to losing 500k
.Scott No Mates wrote:It is very simple to find lost super (although they don't update the database once you have found it & amalgamated it with your other super). Many super websites (or even your favourite search engine will find our lost super).Unless you reach 65 years of age because it is automatically transfers to the ATO and you have to apply to the ATO to get it back
and if you do not do it within 5 years after the transfer it goes from ATO to be absorbed into treasury funds.
Terryw wrote:Hi WayneThere was that recent case in NSW where an agent sold a house where one son of hte family killed his parents and a sister (gozales family). The house was sold to a Taiwanese couple who where from out of town and not familiar with it. They were also superstitious. They eventually found out and sued the agent. Think the received a large payout too.
I think it was ruled the agent has a duty to declare this sort of information even if the topic isn't brought up.
But how long should this be disclosed? What if the next purchasers sell the house 5 years later etc.
I saw the crime re-enacted on the show criminal investigations on T.V. – Very sad event ..
Great Video Joel,
Just some feedback for you.
Rain – Use a tarp with four tent poles over work area
Panning video – Try and do a slow smooth movement of the camera rather than rapid jerky movements.
Removing Rose bush and moving stones you could have hired a dingo for speed versus cost.
Continuity Mistake- You state you are off to your first reno property when in fact you dropped into the essential one stop shop !
Wife / female partner – You didn't introduce her on the video !I'm sure your next video will be even better than this well produced video . Great work Mate !
Line of equity loan on property one = est value * 80% – loan owing
loc= 425,000*.80 – 305,000
loc = 340,000 -305,000 =$35,000
Now Stamp Duty will be the big Killer it could use up the $35,000
Then you have Loan Mortgage Insurance this might be able to be added to your loan depends on lender.
But now after stamp duty and lmi you may have no deposit.(Highly Risky move – borrow some of the deposit off credit card and pay it off first at the very least $6000 could be borrowed as it takes 3 months for settlement and you have $2000 a month you can pay off it . You might be able to negotiate a longer settlement of say 6 months and borrow $12,000 from credit card for deposit )
It would be a good idea to talk with your lender or possibly with a mortgage broker about what the possibility would be.
You can add both properties together as security but it is risky as you can lose both if you can't pay a loan back.
Loan one 305,000, Loan two =$425,000 ,Property one 425,000 ,Property two 400,000
Total property values = 825,000 Total Loans = 745,000 (added $40,000 for LMI guess & stamp duty Guess)
LVR now becomes 745,000/825,000 *100
LVR = 90%
(You may be able to use a deposit bond from the bank in this situation for the deposit)It would be a good idea to talk with your lender about what the possibility would be.
At least you have some idea what to ask them !You could offer to rent out a bbq as an extra and it also allows smokers to smoke outside your house if renting it.
Also if at University be careful if on
Austudy as if you sell in the same financial year as the Austudy and make a capital gain Centrelink wil deem you earned income and take back some of the Austudy as it will be deemed over payment.
Been there
Done
that !Hi,
Welcome to the forum.
I am in a similar predicament .
Although I do not own my own home I can't advise you on selling your investment property but want to point out a few things.Are you claiming depreciation on the investment property get a quantity surveyor to assess the property.
You may need to fix your interest rate or sell , you can't do both once fixed you pay break fees to break the fixed loan.
Are you claiming negative gearing at the end of financial year, you can claim it weekly with a tax variation form. Helps with cash flow.
If you sell a joint owned investment property and make a capital gain the capital gain will be deemed income for the parent claiming parenting payments if in the same financial year or could also be added to partners other incomein same financial year for a nice tax bill at the end of financial year !
If you sell and decide later to borrow money you will get a shock when the bank lowers the amount you can borrow due to reduced incomes.
Is the investment loan interest only as if it is not you could change it and put the extra savings in repayments into the non tax deductible home loan.
look into an offset account linked to your non tax deductible home loan and have your salary paid into it. This reduces your interest on your home loan. Yes it may be a couple of days but it makes a small difference , that over a longer period of time adds up.
Warning you must be very good an not blowing out a credit card to do this!
If you have a high level of financial spending will power pay your normal expenses on an interest free credit card and pay it off from the funds sitting in the offset account before the interest free period runs out in usually 55 days or maybe every 30 days paying out the balance would be safer.
Warning you must be very good an not blowing out a credit card to do this!When you go to get family payments your negative gearing will be added to your tax assessable income to deem your income for payment allowance assessment. See my entry in opinionated for more information on this caper.
If your combined incomes are low enough and the parent at home does 15 hours in their business or in training or in a part time job they may be elligible for Child Care Benefit.
Five years ago having two children at the same time and being unemployed out of University (Had to be House Dad)
I had two investment properties and analyzed my cash flow over the next 5 years. I decided to sell the negative geared property and keep my positive geared property. I estimate that I have lost $70,000 in capital gain over five years from doing that but I can sleep at night and can deal with centre link's bureaucracy and the family office bureaucracy as I am not making a negative loss which is deemed as income to them !
Unfortunately and frustratingly I can not get a loan to buy more property as our total income is not enough to borrow more than $70,000 even though my equity is about $200,000.
However there is a glimmer of light at the end of the parent tunnel in that my two kids are starting school in 2010.
So I can either try and get a job even though this has been a hard and impossible task over the last five years or run my own business full time ,which I have been doing on a part time basis for the last 2 years.My thoughts are with you as you navigate this unsupported minefield know as being a mum and dad investor. Remember it is only for five years and try and cherish the time with your kids at this age as the 5 years will go so quickly for you !
I had to add some more comments in !
You are on low incomes.
Lets take an example of you earn $50,000 and your partner earns say $45,000
Now with the tax scales
$0 – $6000 is nil
$6001 – $34,000 is 15%
$34001- $80,000 is 30%
$80,001 – $180,000 is 40%
see http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htmLets take an extreme case you both lose $30,000 a year
you
$50,000 – 34001 = $15999 * 30% = $4799 in tax
$ 34,000 – 6000 = $2100 tax payable Note $4200 in tax max amount achievable on more loss made
Total tax = 4799 + 2100 = $6899
So you lose $30,000 so you can get back $6899
You have room for another $14,000 loss to get $2100 back before you hit the $6000 mark in the tax scales
(This could be depreciation costs , you could employ a quantity surveyor to claim depreciation – may help your cash flow but may increase your capital gains tax!)
Partner
$45,000 – 34001 = $10999 * 30% = $3299 in tax
$ 34,000 – 6000 = $1649 tax payable Note $4200 in tax max amount achievable on more loss made
Total tax = 3299 + 1649 = $4948
So you lose $30,000 so you can get back $4948
You have room for another $23,000 loss to get $3450 back before you hit the $6000 mark in the tax scales
(This could be depreciation costs , you could employ a quantity surveyor to claim depreciation – may help your cash flow but may increase your capital gains tax!)Now you do know about a tax variation form from the tax office to increase your weekly cash flow ?
http://www.ato.gov.au/individuals/content.asp?doc=/content/00188348.htmNow what if you made say an extra $20,000 between you from a portfolio of positively geared property
$10,000 * .30 = $3000 tax each
So you make a total partners profit of $14,000 after paying tax compared with
A total partners negative geared loss return of –$48153Now what if you made say an extra $60,000 between you from a portfolio of positively geared property
$30,000 * .30 = $10,000 tax each
So you make a total partners profit of $40,000 after paying tax
Assuming joint ownership.I hope this highlights that negative gearing is not as attractive under the lower tax scales being introduced.
morgan1 wrote:Hi, am looking for something fairly positively geared as the rising interest rates are scaring me.Worried we're in over our head (a 2% increase will increase our annual interest repayments by over $40,000, and we don't have much of an income to negatively gear.)
.
Consider fixed interest rate loans if you think you are in stable employment or reducing your borrowings
Say as an example you are on a marginal rate of 40% tax this means you spend say $10 in expenses to get $4 dollars back. This is a loss of $6.
You have to make a capital gain of $6 after capital gains tax to be even.
So you are very reliant on capital growth. It can be done but what happens if no growth and higher interest charges.
morgan1 wrote:We've bought 7 properties in the last 12 months (have 10 all up,) and while I knew rapid increases were possible, I was banking on rates being low for a long time, and increasing rent, increased savings in our off-set account, and improving incomes to off-set the increases when they happened. Hmm…maybe not such a great plan.
Don't get too down on yourself it was a reasonable strategy but where you may have gone wrong is expanding too rapidly without letting the rents increase over time (1 to 2 yr time frame between each purchase) while at the same time increasing your equity through capital gain and by paying down loans or saving money. A lot of property investors have a LVR limit as a control on this as it is easy to get carried away if you have the investing bug. So they might say I will have an 80% LVR limit on my borrowings or it could be a 70% LVR limit.
morgan1 wrote:Hoping for some advice – is trying to buy something positively geared without worrying about potential CG a good strategy to try and 'mop up' some of the defecit, or would that only dig us in deeper?
If it is a good idea, would buying in the Newcastle area, but on a busy road, or buying in a country area, be a safer bet?
Usually its one or the other. As you are negatively geared you may find a positively geared country property will add as an example $40 a week into your pocket. It is not going to help your deficit much but the $40 a week would improve your cash flow.
Ask your self these questions
(Q1) How many positively geared properties can you afford to own from a cash flow view point?
(Q2) How many negatively geared properties can you own from a cash flow and equity view point?
Answers
(Q1) Heaps they are not costing you anything to hold them.
(Q2) 10 in your case and now you are having a hard time maintaining the cash flow loss and soon the bank will say your maximum loan amount is reached.
Another strategy when mixing negative with positive is to own enough cash flow positive properties to have enough positive cash flow cover the negative cash flow of the negative geared property.
But in your situation you are more negatively geared than positive.
morgan1 wrote:
Would appreciate any ideas (and also to hear if anybody else is worried about being able to hold onto their IP's if interests rates rise too rapidly.) I always knew it would be risky to max out our borrowing capacity while property was well-priced and times were good, and promised myself I'd have no regrets about 'giving it a go'If you fix the interest rate on your loans you then have a definite interest cost for a defined period to work out your figures from.
You may wish to split the loan and have 10% variable and 90% fixed
This allows you to pay off 10% of the loan.You may consider as another method what is called interest averaging.
You split the loan
and do the following
30% fixed for 5 years
30% fixed for 4 years
30% fixed for 3 years
10% fixed for 2 years
in two years time you can decide if you want to fix 10% for another 5 years
in three years time you can decide to fix 30% for another 5 years
in four years time you can decide to fix 30% for another 5 years
in five years time you can decide to fix 30% for another 5 years
So each year a small amount of your loan is becoming variable and you can then decide if you pay it off or fix the interest rate again.The draw back is that you may pay penalties called break costs if you break the loan before the fixed interest time period.
You may decide to Fix a maximum % to allow you to sell a certain number of properties if you get into troubled due to a percentage of your loan amount being variable interest rate.Another thing to be wary on
What if scenario
What happens if a tenant trashes a place – landlords insurance policy – Do you have each property insured?
– 3 months or more without rent during repair phase?
– $20,000 repair bill can you borrow it or have cash on hand in an emergency !THis is another form of protection
read this
http://www.rpemery.com.au/online/cohabitation-agreement.html
