Forum Replies Created
Hello CJ
Glad to see that you are managing to work it out. I went back to your original post and thought that I would use your real figures together with Terrys example because I’m a little fuzzy about the end result of the example too.
You said the house which is jointly owned by your parents is worth $400K and has a $112K mortgage.
$400K – 112k = $288k so each parent has $144K in equity.
Your father is willig to sell you his half for $100K which means, as Terry has pointed out, that he is making you a gift of $44K.
In fact to be able to own the house fairly 50/50 with your mother you need to give your father the $100K for his share of the equity and take over half the mortgage from your mother.
What you are then getting is 1/2 the house worth $200K
And this is how it is paid for :-
$100K new loan you need to take out to pay your father.
$ 56K half of the existing loan
$ 44K gift from your father.If you want to keep your loans totally seperate from your mothers you may be able to take out a loan for $156K and pay them both out.
However it may be enough if you took out a seperate loan for $100K which you could pay off quicker if you wanted to and just simply paid the original loan 50/50 with your mother.I think both those options are possible and someone like Terry would be able to help you in setting up the loan correctly so as to keep the parts seperate.
Hope this has not confused you even more. [biggrin]
ElkaThank you both. Apparantly there is some sort of barrier spray that you can also use which seems to be doing the trick for the moment.
If the problem stays away for 4 weeks I will be able to apply one of your solutions myself as I will be in Melb. on a visit. Yipeeeee.[biggrin][biggrin][thumbsupanim]
Cheers
ElkaHello CJ
If I were starting out that’s what I would do. Buy a property as my PPOR. Get the FHOG and live in it for the time required while renovating it. After that I would move out and rent.
While I think you are probably right in thinking that the buying costs would not be tax deductible after the property becomes an IP, don’t forget that the biggest buying cost is stamp duty. Depending on which state you’re in you may pay little/no stamp duty as a first home buyer. Even if this is not so, stamp duty is not tax deductible but is added to your cost base for calculating CG. something that you will not need to do.
Alll other expenses including interest will be tax deductible while it’s an IP. Depending on the age of the property and specially if you renovate you will be able to claim depreciation as well.
Hope this helps[smiling]
ElkaHello picklesam
Assuming an interest rate of 7.21% if you pay off $4700/ month then your loan will be paid off in just over 9 years.
http://www.homepath.com.au/calculators/
The link is to a good loans calculator where you can play around to see the effects of various scenarios. b.t.w. I hope you are paying fortnightly and not monthly (assuming variable loan). It saves you quite a bit of interest over the term of the loan. Have a play.
My suggestion would be to get an offset account linked to your loan and put all of your salary into this for the time being. This will reduce the interest you pay on the loan without reducing the mortgage as such. (Actually it does as with less interest charged per month and the same loan repayments the difference comes off the principle.) This leaves you free to use the funds in the offset account for both personal and IP expenses without confusing the deductible interest on your loan.
If some time in the future you decide to use the funds accumulated in the offset account to buy yourself a PPOR (or go on a holiday)then your deductible interest on your IP will just rise again. If you pay off the loan directly and then redraw some funds for personal use, that portion of the interest will not be deductible which would be a pity.
Hope this helps [smiling]
ElkaOriginally posted by L.A Aussie:Sounds like a hefty rent increase at the next lease signing is in order.
LOL. Actually you read my mind. [smiling]
Hello Tara
I actually think the CGT issue may be very important and I would suggest that you go to an accountant who is well versed in CGT in relation to inheritance.
A lot depends on whether the property was bought pre or post Sept. 1985 and whether it was always someones PPOR or an investment property.
You may want to read up on this topic on the ATO site so that you are a little familiar with the issues and know what questions to ask.
http://www.ato.gov.au/individuals/pathway.asp?pc=001/002/026&mfp=001&mnu=5060#001_002_026
Good luck [smiling]
ElkaOriginally posted by bridgebuff:Does anybody know if CGT applies if you sublet two rooms in your PPoR?
Believe it does, on a pro rata bases.
http://www.ato.gov.au/individuals/content.asp?doc=/content/36910.htm
There is currently a thread on this topic. Here is the link.
https://www.propertyinvesting.com/forum/topic/19961/1.html?sortfield=&sortorder=
Hope this helps [smiling]
ElkaHello catherina38
The thing you might like to check with your accountant is the CGT consequences if you ever sell.
If, except for the period of the current lease, you always use it as your PPOR and then sell, then it should not be a problem. However the ATO treat the few months you rented it out first, the consequences will be minimal.
The problem may be, and this is what you may like to check, if you first use it as your PPOR and then as an IP.
Maybe someone here knows the answer to this?
Cheers [smiling]
ElkaHello eve100
I think you might do well to speak to your accountant about this before you sell. There are several ways to reduce your CGT but it all depends on your circumstances so ask a professional.
Cheers [smiling]
ElkaEH??????????
Since when did 1/3 or 1/4 become more greedy than 1/2 ……..or am I missing the joke here ? [confused2]
Hello L.A. Aussie
Is Money secrets of the Rich a “how to save” or “how not to have debt” book? If not can you please give me a very brief overview of it. The title sounds good. [smiling]
I’ve always had one rule. If I can’t pay cash for it (even a car) I can’t afford it. The only exception is for property.
I am coming to Australia next month to visit my family and am trying to make an “absolutely must have” list of books to buy while I’m there.
Thanks
ElkaHello Dr. Spock
Here is a link to an article I was reading on getting rid of debt. You, and specially your husband, might find it an interesting read too.
Go to the PDF entitled “How To Become Debt Free (Including Your House & Cars) In 3 To 7 Years” by John Burley”
http://www.gatherumgoss.com/free_stuff.htm
Good luck [thumbsup2]
ElkaHello Bridgebuff
No, your understanding is not correct.
Just using your figures here is how I think it will work assuming that the two blocks that you subdivide into are of equal size and that the house is worth $80k.
cost of land $120,000
cost of house $80,000
cost of subdivision $20,000Cost base for block 1 (the one with house) = $60K + $80k + $10K + $20K (reno)
CG = $220K (sale price) – $170K
The cost base for the second block will be $70K.
Of cause this is very simplistic and doesn’t take into account buying and selling costs etc. It’s just meant to demonstrate how the purchase price is apportioned on a subdivision.
Hope this helps [smiling]
Elka
Hello PostEnterprises
Bridgebuff made several good points.
Before you buy get a building inspection done so that you don’t get caught having to do “non visible” and thus non “value adding” work. Roof, gutters, damp course etc.
In my opinion if you don’t already own a PPOR then it’s a great place to start with renovations as long as you stick to your goal of renovating for resale and not get caught up doing it too expensively.
I did that ( a long time ago [smiling] ) with my first property while working full time in a demanding job and as long as you (and your partner) are prepared to live in the mess then it’s easier then having to travel to do the reno. This way every hour you have free can be used productively.
Doing it room by room where possible minimises the mess.
The big benefit is that when you sell you will not be up for CGT. It may be wise to wait at least 6 months before selling though.
As Bridgebuff pointed out, be prepared to either take longer over the reno. (which is no real problem) or be prepared for little/no free time. If your young and enthusiastic it’s certainly doable.
Cheers
ElkaHello meatgroup
That is really nice of your Grandmother.
I think that the answer to your question depends on how much your PPOR is going to cost you. Is 25K deposit enough to not have to pay LMI ? If not I would use some of your windfall to avoid this. It’s such a waste of money, specially for your own home when it’s not deductible.
Just my opinion [smiling]
ElkaOriginally posted by Ems:Yes we will be living in the property until we go back to the UK. It’s going to take around 6 months to build and then we plan to live in it for 6 months in order to get the FHOG and then were off. It is a big house and there are 4 bedrooms with only two of us so we are thinking of letting 1 or 2 rooms out just to help us pay the mortgage and save a bit more. Not sure how we will cope as we are used to sharing just one room back in London so it will be different. If we do rent the rooms out can we claim anything like carpet, paint through tax deductions or as it will be our PPOR will that not be allowed?
I suggest that you do not rent out any rooms and do not claim any tax deductions. For the few hundred or even couple of thousand you will make/save you will seriously jeopardise your capital gains tax status (CGT) which may end up costing you much much more later.
Of cause once you go to England and rent it out all costs will be tax deductible. You should get a depreciation schedule made as with a new house you will have lots of deductions.
Elka – so if we rent the house out for 6 years and then decide to sell we won’t have to pay any GST? We plan to go back to the UK for about 5 years and then come back here to OZ. My husband already has a job waiting for him back there which is good to know.
No, you wont need to pay any CGT if you sell at that point.
When you come back you could live in your house again for awhile and then rent it out again. That way the 6 year rule starts again. i.e you get up to another 6 years CGT free … but as long as you don’t declare any other place as your PPOR. Anyway, that’s a decision you don’t need to make now.
Marc – I don’t think we will be getting the rent money sent back to the UK, I think the rent will go into the same account as the mortgage will come out. The only money that will be transferred will be UK pounds which we will send over to pay more off the mortgage and to cover the mortgage when we have breaks in rental and all other fees.
I think it would be good if you set up an offset account against your mortgage. You could have all rent deposited into this and also any money you transfer from England. This is better then paying off the mortgage directly. It achieves the same result in reducing the interest on the mortgage but gives you full flexibility.
Hope this helps [smiling]
ElkaHello Ems
Although I am an Aussie I have lived here in Belgium for many years. All my investment properties are in Australia and I’ve had no problems. The secret is a good PM. With a good PM, email and internet banking you are set. You will also need a good IP savvy accountant to do your tax returns for you.
Since your house will be new you should have little to no maintenace problems for years. Any small things will be taken care of by your PM. Even painting or recarpeting is no problem long distance. Your PM should do regulate inspections and if you have a friend who could drive past every so often to check that it’s still there I think you will be alright.
Are you planning to live in it until you go to England? Normally you are able to rent your PPOR for up to 6 years without attracting CGT if you sell. I don’t know how that works if you are immigrating back or if in fact you have to declare that you are leaving for good. I mean who knows what can happen. A good accountant can help you there too.
Hope this helps [smiling]
ElkaThanks condog for being willing to share your opinion on this.
B.T.W. In case you get a chance to live in Belgium for a while grab it. For someone into shares it’s great. Australia does not apply CGT on shares for overseas investors. Belgium taxes the dividents at 25% ( which is lousy for fully franked shares as in fact you end up paying 55% tax) but does not tax CG.
Cheers [smiling]
ElkaHello condog
Just to clatify something. Are you saying that people holding even blue chip shares like ANZ, NAB,BHP,SPT etc. should be selling now and waiting to pick them up again after the correction?
Not asking for advice, just your opinion.
Thanks [smiling]
Elka
