Forum Replies Created
An idea:
The Tenant has been there 12 years and probably pays the rent on time and doesn’t want to move. You could ask the Tenant if they are willing to sign a new long term lease with the buyer
. Then you could advertise the property as ideal for investment with a long lease and reliable paying tenant.
Or
you might be able to wrap the property so the tenant can buy it over a long time period and not have to move out.Finding positive cashflow is very difficult in this current market. One other area to consider is building writeoff as a way of creating extra cash flow at the expense of reducing your cost base = more capital gains tax. building improvements can push a house into positive territory. Steve Mcknight also mentions in his book about being a fixer of problems as a way of creating a positve cash flow.
the magic date is the 13th of may 1997 – property purchased after this date is subject to a reduced cost base if building writeoff depreciation is used.
have a close look at POSH
http://www.manaccom.com.au/
more info
http://www.manac.com.au/products/73381/pdf/POSH-Std.pdf
$235
I used POSH but I only own one property at the moment and haven’t used the program recently. So I can’t rememer if you can add notes to it. I know you can add pictures for each property as well as tenant payments.My mistake was going to University and thinking I could get a job in what I studied in. I am now a House Dad and can’t afford to buy or hold my negative geared property which I sold. So at the moment I am building up my cash reserves through careful stock market investing and I am waiting for the kids to go to school in 3 years time and then I will hopefully get a job. My other mistake was timing with the sale of my investment property. I should have waited till after 30th of June so that my social security payments of austudy didn’t have to be paid back due to the capital gain eing regarded as income. Interestingly Capital losses are not able to be offset against income but capital gains can be regarded as income. [grrr]
Indexation can be used but depending on when you purchased the property it may not be worth indexing. Since 1999 the CPi indexation figure has remained at 123.4 for any year after 1999 so any property purchased after 1999 will have an index factor of 123.4 / 123.4 which equals one. The indexation is done on the cost base I would suggest calculating out what the (cost base times the index factor) minus the building writeoff would be as opposed to the 50% method.
you can’t use both methods it is indexation or 50 % method but also you must hold the asset for more than 12 months and be an individual tax payer. .CGT has a component called cost base. the building writeoff is taken off your cost base. Capital gain = Sale proceeds minus Cost base
Then CGT = 50% x Capital gain
There is a date involved when building write off is added to the cost base I can’t remember the exact date it is approx 1998
Also any deductions used against rental income cannot be also added to your cost base. Like holding costs or maintence. This is known as double dipping and is not allowed.check out http://www.jenman.com.au/ for real estate games.
Negative gearing has some more sinister tax affects in that when your income is used to calculate medicare , family payments, ect your negative loss is added back to calculate your income. I had a negative geared property but I sold it as I couldn’t afford the loss. Another area for using negative gearing is when you own another property that is producing taxable income the negatively geared property reduces your over all property income for the whole portfolio.
there is an article about this in may australian property investor
Depending on your risk tolerance if you pay more off your home loan you can then cross colaterialise your next loan. What does this mean ?
Instead of trying to save another deposit you use the equity (after getting a valuation) in your home as the deposit in the next investment property.
The risk is if you can’t pay the first or second loan you can lose the first house as it is colaterial for the second house..and lose the second house as well.
This goes against Steve mcknights book though due to the risk involved.it would be worth investigating low doc home loans that require less formalities for a home loan.
I just remembered a funny situation Nov 1998
I was so excited about the original Telstra float that I asked the Service station operator if he was going to purchase Telstra shares in the float.
He answered with no it is too risky.
That particular float opened at $3.30 Nov 1998 and went to a high of over $9.15 in Feb 1999 that is a profit of 172% over 14 months but I guess it was too risky an investment for him.
I am glad I didn’t let that negative advice influence my investing styleNo one ever gets financial freedom from being negative
However you will be considered as “Lucky” when you reach financial freedom rather than as someone who worked hard and did something to create wealth.
The problem is that Wealth building takes time and a long term planning outlook.
. I am always amazed at how people can owe $20,000 to $30,000 on a credit card or buy a $30,000 car that will be worth $1000 in ten years time but see it as risky to invest by putting down a $30,000 deposit into property or shares.
Ask your relatives how long they will survive if they lost their JOB (just over broke).I have to say that your strategy does have an element of risk in the statement of well secure jobs. As I haven’t worked in 5 years I am aware of how hard it is to get finance and how long I can sustain a negative loss without a wage.
However you may need to consider if a possibility
-what happens if you decide to start a family in the future as one wage will be lost and you may need to look at reducing your debt. This is the situation I am in as I am a stay home dad and my wife works. A positively geared portfolio of properties would fund a few negative geared properties.
Also if you consider applying for centrelink payments they consider negative gearing losses as income and reduce your payments accordingly.
I am not being negative here I just think you need to consider what actions you may need to take if starting a family is a possible future occurance. You may need to sell a property or two to reduce your debt level so you can afford the loss of one wage. The selling of a property is considered as income also by centrelink so careful planning is required with regards to timing of financial years.what you should do housemender is regularly look at the current debt level of your portfolio compared with the current market value of your portfolio. This will keep you and hubby steering in the right direction and reinforce what is known as your financial position. It is easy to lose track of how well your financial position is growing and you may be shocked to learn that your portfolio has grown. The council rates is how I learnt I had made $70000 while not working for 4 years while doing University. This is what made me take notice of how easy it is to build wealth through property investing.
I also do not tell others what I do investment wise as they do not understand because they don’t think as an investor like me but rather as an employee living each day relying on the steady stream of a JOB (just over broke) wage.
This is why they are negative because it is so foreign to their perspective and you take your skills for granted and also you get so excited when you make money that you want to tell your relatives / friends in the vain hope that you can change their thinking and help them from being trapped with wage dependancy.Look at Australian Property investor magazine April issue
Article on low doc loans
and an actual comparison of all loans
see http://www.apimagazine.com.au/
Haven’t had the experience of low doc loan but I am in a similair situation of no income / no wage jobFurthermore
You cannot claim the renovation as a repair as you are improving the property to a state that is better than when you purchased the property.
As an improvement you can claim future depreciation
The tax department is very aware of landlords making the mistake of claiming renovations on new purchases as repairs in the first year of ownership and will most likely call you in for an audit or question your tax return if you try to claim a renovation as a repair.
Also the money borrowed must be against the property being rented, this is another common mistake property investors make that gets them into trouble with the tax department.I have done a bit more research . You need to have the original receipts for the furniture. Next go to http://law.ato.gov.au/atolaw/view.htm?DocID=TXR%2FTR200018C7%2FNAT%2FATO%2F00008
To find out the effective life of your assets.
use diminishing value depreciation this is calculated by dividing 150 by the number of years of life. This gives you a percentage for the yearly depreciation amount. next calculate the number of days in this financial year you used the furniture for private use (days/365xdepreciation rate). This will reduce the starting amount and time value of the furniture. Calculate the number of days left in the year that you used the furniture for income producing purposes from the date the property is rented.
If for example you have 5 years of life ,the 5 years of life will be decreased by the amount of time used for private. Say you used 120 days as private. it would be Year1 120days /365 * depreciation percentage (unclaimable) & 245days/365 *depreciation rate (income producing claimable). Year2 365 days/365 days*dep rate, year3 365 days, year4 365, year5 365 days. Also leap years its 366 days.
Renovations you would have to prorata the life also between private and income producing. Also fixtures that are part of the building are classified as Capital building write offs and the rate is 2.5% (check this at the ATO web site under capital building write offs) however things like dishwashers, hot water systems are removable fixtures and have an effective life. Note Landscaping cannot be claimed as a depreciation item
check out
http://www.ato.gov.au/individuals/content.asp?doc=/content/57228.htmif you do not have receipts the value can be estimated by a quantity surveyor who will work out a depreciation schedule that you can hand to your accountant .
If you decide to also claim a building writeoff for the actual building there is a downside of diminishing your capital base which in layman terms means you will pay more in capital gains tax if you sell in the future .Although I am currently doing a tax agents course and have done tax law I am not qualified to give you advice and do not know your individual circumstances. Tthis advice is of a general nature so you can be better prepared to question your accountant or tax agent about depreciation.
You might be able to use a buyers avocate to check out the property on your behalf and buy it on your behalf.
Use a quantity surveyor to advise on depreciation on furniture.
If you plan to rent out the property as fully furnished with this furniture you would be able to claim depreciation however determining the value of the furniture at the time you decide to rent it out will be the problem.
Most likely the quanity surveyor will want to know how long you have had the furniture and what it cost you to buy it . They will advise you on a part depreciation based on the furniture’s current market value probably based on the depreciation that has already occurred when you used the furniture for private use.
As the reno is improving the property from the condition it was in when you purchased it the tax office will see it as an improvement. The quantity surveyor will be able to advise you on what can be depreciated from the Reno.
Ask how many properties the accountant owns, the more they own the more they will know about property investment.I am not a registered tax professional and do not know your personal circumstances so this is general advice.
You would be better seeking the advice of a Quantity surveyor if you want to know how to pick a quantity surveyor look in April’s edition of Property investor magazine for an article labelled picking a quantity surveyor.
Look into the pension effects of them becoming a primary producer .
With 4 acres they could put some cows on the land and may become deemed primary producers which might help their problem.
Check this possible angle out out with an accountant.
