Forum Replies Created
I think you probably get the loan in her name and you go guarantor on the loan if mum doesn't qualify for the loan.
This means if mum defaults on her loan it becomes your sole responsibility to take on the loan repayments.
The bank only cares about the loan being paid back and that your mum or you keep up the loan repayments.
By going Guarantor the bank is assured you are going to pay back the loan if mum can't.Some brave parents go Guarantor even though the loan and property purchase is in their child's name.
If their child doesn't pay the loan the parents are approached by the bank and told that it is their responsibility to now pay the loan.
So this is just the reverse of this in your case.Check with solicitor as you will need one to buy property for mum.
You want to discuss with a solicitor to see if a family trust, other trust structure or you as guarantor should be set up to buy the house in the name of the trust with you as Guarantor to know if this affects your assets test for rental assistance.
Check with the bank / lender if they will lend against student apartments and if loan mortgage insurer will insure it as if no LMI you need 20% deposit .
Also are the apartments rented out all year round or just during the two semesters as university students get long holidays at the end of the year and between the two semesters.
A line of credit is like an elastic band. You go to the bank and ask for a line of credit loan. They look at what your income is and what is your allowable LVR. (loan to Value Ratio). So say as an example you have a house worth 400,000 but a loan of say $200,000 based on an 80% LVR you can borrow 80% * 400,000 = 320,000 as your loan is 200,000 you have 120,000 you can borrow. So when you apply for the loan of credit you get a facility that allows you to borrow 120,000 when you need it. if you pay it off you can borrow it again its like an elastic band that strectches to $120,000 if your sevice ability can cover $320,000 . You get charged interest on the 120,000 when you borrow it.
How do you work out the interest charged on the redraw to work out the investment tax deductible amount?
You can easily see the interest charged on a split loan as one loan is private and the new one is for investment purposes.
There is a loan called a line of credit.
You have to be aware of service ability as well as equity when borrowing. It is a good idea to go and talk to your loans manager at your bank to get an idea of your borrowing capacity before you get too excited out in the market place.
If you are planning on getting aus study any negative gearing is added back to your income to work out your payments while at Uni .
Is there anything else I should be doing with my loan and/or finances?
Yes !
Why pay the highest interest loan (credit card) off as slow as possible?
Pay it off as soon as possible.If the Reno was for your investment property and you put it on credit card you should borrow from house IP Loan as tax deductible.
If you redraw equity it will most likely be 80% LVR that's $12,000 (check with loans manager)
If it is any higher you have to pay loan Mortgage insurance!So if the deposit is not 20% after the stamp duty being paid the LMI will be payable on the new loan. (check with loans manager)
Can you afford a loss of $186 a week?
or pay off loan one down to $200,000 then if interest rates get as high as 10% the property doesn't cost you anything to keep it as it is positively geared.MsTrump wrote:never too late, that's certainly an alternative we could consider, but the lack of people renting out the second property during that first year means 100% of the loan expenses will have to be covered by us during that period. Otherwise if there are renters inside, at least we'll only cover some portion of the loan, not everything. At the end of the day, though, the CGT we may end up paying could be the same (or similar) to what we otherwise could have paid to the bank during that one year period, should we choose to do everything as you've suggested. It really comes down to careful calculations and figuring out what alternative works best for us. I'm seeing my accountant this week, and we'll discuss it further.There have been some really helpful suggestions in this forum, and good sources of information. I've also been digging myself for more info, so I'll see how it all goes.
Thanks again!
You will also have to collect tax for the ATO when you sell in the form of GST.
Your new income may have to wait till you are permanent in the job and considered permanent by the bank to borrow from the bank.
Suchy wrote:hey,Is my income enough to consider purchasing an investment property when I have only a few expenses ( petrol, phone credit, food, rego & insurance )
Depends on what amount you want to pay for the investment house
If it is in a rural town you may find the purchase price is less.Suchy wrote:Since i will only be paying around $3.5k tax per year i suppose it wont be possible to find a positively geared property?Positive geared properties are dependant on how much interest plus expenses you are paying compared to how much rent you are receiving. unless you are also adding in depreciation expenses as well.
Nett property income = Rent – (interest expense+ council Rates + borrowing expenses (5yrs) + water rates + insurance + repairs)
If Nett > 0 then it is positively geared.Where your 3.5 tax comes into play
30 k a year
6 k is in tax free threshold
6001 – 30,000 is 15c= $3600
If Nett < 0 then negatively geared. Up to -24,000 so you could claim 15c back on every $1 you had to top up property loss by.
So negative gearing not really a good thing when on 15% tax.Really depends on ownership structure on Properties Title.
If Joint Owned then it would require a transfer of ownership with a solicitor. Stamp Duty and Capital Gains Tax would be payable with the transfer of ownership. If Joint owned she owns 50%
If Tenants in Common she could own a 40% stake
If a trust is used you need to talk to solicitor or accountant as there are different types of trusts.
Bronte wrote:Hi!
I want to work out an LVR by adding a 2nd property to an existing mortgage – but am uncertain about where the cash deposit fits into the equation.For example:
I have one property valued at 440k.
I want to purchase a 2nd property valued at 524k.
My mortgage on the 1st property stands at 378k.
That means (*I think*):Valuations of 440k + 524k = 964k.
Borrowing required 378k + 524k + 19k stamp duty= 921k
My cash deposit is 40k…….
Hmmmmm…..I can't complete the equation and I can't find an online LVR that can help me.
B x
Hope this is what you are seeking Good luck with the Calculations !
Based on your 40 k deposit being eaten up by stamp duty and mortgage insurance.
LVR = Loan to Valuation Ratio
LVR = Loan / Valuation (this is what ratio means something divided by something else)
Total Loan = 378k + 524k = 902k
Total Value = 964k
LVR = total loan / total Value * 100 (Multiplied by 100 to get a percentage figure)
LVR = 902k / 964k *100
LVR = 93.56%Lets now assume that you borrowed the stamp duty and no mortgage insurance was needed
LVR = Loan to Valuation Ratio
LVR = Loan / Valuation (this is what ratio means something divided by something else)
Total Loan = 378k + 524k +19k = 921k
Total Value = 964k
Now 40k used as deposit !
Then the loan is going to be 40k less ! (assuming no LMI)
Total Loan = 378k + 524k +19k = 921k – 40k
Total Loan = 881k
LVR = total loan / total Value * 100 (Multiplied by 100 to get a percentage figure)
LVR = 881k / 964k *100
LVR = 91.39%
As LVR is > 80% you are going to have to pay LMI so your 40k deposit could be paying for this cost,
so this LVR won't happen but I have shown in case you were wondering how to work it out or if it would work out to be < 80 LVR and hence avoiding LMI.Lets now assume that you borrowed the stamp duty and mortgage insurance needed (based on a $27,000 LMI)
LVR = Loan to Valuation Ratio
LVR = Loan / Valuation (this is what ratio means something divided by something else)
Total Loan = 378k + 524k +19k +27k = 948k
Total Value = 964k
Now 40k used as deposit !
Then the loan is going to be 40k less !
Total Loan = 378k + 524k +19k +27k – 40k
Total Loan = 908k
LVR = total loan / total Value * 100 (Multiplied by 100 to get a percentage figure)
LVR = 908k / 964k *100
LVR = 94.19%
As LVR is > 80% you are going to have to pay LMI so your 40k deposit could be paying for this cost,
LMI figure based on total loan of 948k
used http://www.homeloanexperts.com.au/lenders-mortgage-insurance/lmi-calculator/ to get 27k guestimate however some lenders had as high as 34k LMI.Employ a quantity surveyor and they will work it out for you.
If you work it out yourself it is quite involved.
The date the renovations were done would be needed and the costs involved.
Then you need to find out the effective life spans of each item in the renovation.You can use diminishing depreciation but the calculation is more complex as you need to diminish the value while it was being used for private use.
Or
Normal depreciation over effective life. So if private life was 2 years and 60 days and the effective life was say 6 years then
2 +60/365 is private use and 6 – (2 + 60/365) is investment use.So in the last year you can only claim 305/365 of the depreciation.
The depreciation is original cost / effective life for each year or portion of the effective lifeYou need to see it before signing your purchasers contract.
Now if you went to your solicitor they would advise that they need to see this vendors contract and the purchasers contract before you sign anything.
see
http://www.lawyersconveyancing.com.au/section.asp#4see
http://jmbenson.com.au/buying_auct.html
If it is going for auction ask for a copy of both contracts so solicitor can check over them.Go to the bank and discuss setting up a line of credit loan.
By doing this you are getting a facility set up so when you need to borrow the extra equity you withdraw funds from the line of credit account and then the loan starts.
By doing this the bank will work out how much you can borrow based on the value of your property to a set LVR level and also your service ability if you can afford the repayments.
is there a limit on when i can access equity again after that?
Yes LVR and service ability.LVR = (Loan Already + LOC + Another Loan / Property Value ) x 100
LVR may be 80% for line of credit. You might be lucky to get 90% LVR
(Property value may increase but that takes time)Here is a typical reason to get measurements done.
Your neighbour puts up a fence or your previous land owner but puts in 10 m on someone elses land.
The Titles are incorrect – I have seen it happen on current affair. If it is the 4th lot from the corner make sure it is.
You think your buying 980m2 of land but it is in reality 780m2 . – Seen this on Current affair.http://www.wecare.net.au/buying.html
See section labelled as property location.under section 5 buyer bewarehttp://www.realestateeducation.com.au/buy_documentation.htm
See section Titled as TitleAdverse Possession of land may be a good reason to measure !!
In Victoria the Torrens Title System is being used
http://www.tisherliner.com.au/Adverse_Possession_in_Victoria.pdfHope this helps in finding a reason to measure before buying
When you look at building depreciation on the 2 new 750k IP's you need to look at what the construction cost was as this can be depreciated as a building write down over 40 years . at 2.5% per year. (you can't depreciate Land cost). Also note depreciation is subtracted from your cost base each year you claim it. This means in layman terms – increased captial gain in the future – increased capital gains tax.
Here comes some of the maths
New Building
Building cost estimate say $200,000 as a guess – You need to know this amount to do this.
2 x 200k = 400k building cost
depreciation per year = 400k * 2.5% = 10,000 a year as depreciation expense.
Loan of 750k based on 100% borrowing . interest of say 7.5% per year = $56,000 in interest p/a
Rate and insurance guessimate of $2500 p/a
Possible Strata charges guestimate $1000 p/a
Total expenses = $59,500 out of your pocket and $10,000 depreciation = $69,500
Total Income at 700 per week * 52 = $36,400 (may have real estate commission
Nett Property Income/ Loss = $36400 – 69,500 = -33,100
(please be aware that this is added back if dealing with Centrelink or Family office for payment calculation for income deeming)
(23,100 out of your pocket after adding rent )
Old property
Building cost estimate Hard to know depends on age of building Quantity Surveyor can help with this.
Fitting depreciation per year on renovation – Hard to know Quantity Surveyor can help with this.
Loan of 400k based on 100% borrowing . interest of say 7.5% per year = $30,000 in interest p/a
Rate and insurance guessimate of $2500 p/aTotal expenses = $32,500 out of your pocket and unknown depreciation on renovation = $32,500
Total Income at 400 per week * 52 = $20,800 (may have real estate commission to pay)
Nett Property Income/ Loss = $20,800 -$32,500 – = – $11,700 (Loss)
($11,700 out of your pocket after adding rental income)Tax Benefit
Ownership Structure 120k p/a 100% ownership
any income over 80,000 is taxed at 40% till $180,000
New
Loss of -33,100 so tax saved = 33100* .40 = $13240
So you lose $23100 to get back $13240 each year
Old
Loss of $11,700 so tax saved = 11,700* .40 = $4680
So you lose $11,700 to get back $4680 each yearWith the new option you are in a riskier situation
You have more interest rate increase Risk
You are affected more if rates rise and have to find more after tax money to fund cash flow shortfall.
Lets assume a 1% interest rate increase.Building cost estimate say $200,000 as a guess – You need to know this amount to do this.
2 x 200k = 400k building cost
depreciation per year = 400k * 2.5% = 10,000 a year as depreciation expense.
Loan of 750k based on 100% borrowing . interest of say 8.5% per year = $63,750 in interest p/a
Rate and insurance guessimate of $2500 p/a
Possible Strata charges guestimate $1000 p/a
Total expenses = $67250 out of your pocket and $10,000 depreciation = $77250
Total Income at 700 per week * 52 = $36,400 (may have real estate commission
Nett Property Income/ Loss = $36400 – 77250 = -40,850
(please be aware that this is added back if dealing with Centrelink or Family office for payment calculation for income deeming)
# any loss over 40k will actually be lower tax deduction at 30% due to lower tax bracket !
at 11.5% interest($53,350 out of your pocket after adding rent ) to claim back 40% of 63,350 = $ 23005 #
at 10.5% interest($45,850 out of your pocket after adding rent ) to claim back 40% of 55,850 = $ 20775 #
at 9.5% interest ($38,850 out of your pocket after adding rent ) to claim back 40% of 48,850 = $ 18505 #
at 8.5% interest ($30,850 out of your pocket after adding rent ) to claim back 40% of 40,850 = $ 16225 #
at 7.5% interest ($23,350 out of your pocket after adding rent ) to claim back 40% of 33,350 = $ 13340Old
at 11.5% interest($28.700 out of your pocket after adding rent ) to claim back 40% of 28,700= $ 11480
at 10.5% interest($24,700 out of your pocket after adding rent ) to claim back 40% of 24,700= $ 9880
at 9.5% interest ($20,700 out of your pocket after adding rent ) to claim back 40% of 20,700 = $ 8280
at 8.5% interest ($16,700 out of your pocket after adding rent ) to claim back 40% of 16,700 = $ 6680
at 7.5% interest ($12,700 out of your pocket after adding rent ) to claim back 40% of 12,700 = $ 5080Yes you can lock in a fixed rate but only for a certain time period and when that is over you could find the interest rate is 2% higher in four years time.
If you go down the line of joint ownership then half the loss and assign it to each taxable income.
However only $999 of the halved loss will be claimable at 30% for lower income worker
Any more loss will be at 15% for portion over $999 and below $28,000 of half of total loss amountI can't advise you as I do not know your ownership structure, goals, financial position and risk adverseness
And I am not licensed to give financial advise.
However I have pointed out the risk factor so you can decide the ownership structure (you need to talk to your accountant on what is the best ownership structure) and what risk you can tolerate.
I have not factored in annual repair costs in the calculations.Here is a previous posting on this subject
Do you get paid when people click on your referal link ?
And does the IRS take out their 30% Foreign investment TAX Payment out Automatically ?
See if you can get bridging finance if you are selling the PPOR property. You may find interest rate is higher but it may help with the timing problem.
I am reading an interesting book that talks about the timing of paying tax rather than not paying tax via different structures.
see http://www.propertyupdate.com.au/pages/How-to-Legally-Reduce-Your-Tax….without-losing-any-money.htmlAs you stated you know nothing about this field. I would suggest you look at buying books on how to do property investing.
You then can decide
if you have the time to do development ,
or buy and hold with a negative gearing approach
or a positive gearing approach.
Knowledge gives you an advantage.
Check out the business mall from API
Do a search on Google for Business MallIf you would like to learn and possibly meet fellow property investors come to the active property meetings.
http://www.activepropertynetwork.com.au/You didn't mention the front garden. Landscaping – What the front of the property looks like.
You didn't mention light fittings – painting of ceiling ?
A Carport can add value or an outdoor area like a pergola. or paved area outiside .
Door knobs
Tap fittings
Drawer handles
Light Fittings
bathroom and Kitchen are important areas that have a huge impact !I think at the moment it will be hard to increase the value as valuers are being conservative due to financial crisis.
I just had an evaporative cooler and central heating installed and the council valuation is 40k higher but I am not sure I would get the extra 40k or not if sold.You may have to buy a really bad place that the condition is putting off buyers to get a cheaper property that can then have value added to it by renovation.
