Hello Kyla

After 2 years, when your fixed loan period expires you would naturally organise an offset account for the loan and move the $10,000 into there.

Actually if you sit down and work it out you'll see that it will only cost you an extra $200 – $300 in total over the 2 years that the money is in a high interest account instead of reducing the interest on your loan. 
 
It's certainly not worth reducing your tax deductible interest for that as this will continue for the life of the IP loan.

Cheers
Elka

That seemed so strange that I just had to have a look myself.

The link below is to the ATO site.

http://www.ato.gov.au/individuals/content.asp?doc=/content/36887.htm

If you look at the second example where the house was rented out for more than 6 years then CGT is payable on only the time that is over 6 years.
 
Total time of house ownership                          5356 days
total no. days rented                                       2556
total no. days rented in 1st 6 years                  2191

Extra income producing days                           365 days

Portion of taxable CG  = Total CG   x   365/5356

Not the easiest example to follow. Not sure why they made it so complicated.

However, if my understanding of this example is correct then you only pay CGT on the days it was rented out above the 6 years but on the total CG over the whole period of ownership. That last part is not great.

It's definately worth coming back to live, even for a short time, before the 6 years expires though I suspect if you make it obvious that the reason you came back was to restart the 6 year rule they will disallow it.

 Also if you rent it out for just less than 6 years and then leave it vacant till you sell that also avoids incurring CGT.
 
Naturally a good accountant is the best source of advice.

Can anyone supply me with a link to the information you found as it seems to contradict the info I found. ?
  
Cheers
Elka

Hello

The sentence should have read as above.
A loan is never tax deductible only the interest on the loan.
Sorry if I confused anyone.

Cheers
Elka

FYI it was not the reality of the past for most people either.
Most BBers started small / cheap and worked their way up.

Elka

Hello Marl

Banks will usually allow you to top up your loan to 80% of the current valuation so if your unit will be worth $200K and you believe that your loan at the time will be $130K then you should be able to pull out $30K of equity.

However, why would you do it this way ?.

Instead of paying down your loan by $30K you should deposit the extra repayments into a 100% offset account linked to your loan. The interest saving will be the same. You will also be better off if your loan is IO rather than PI.

When you are ready to buy the next unit you then use this $30K as deposit and costs. When you rent out the first unit the interest on the full $160K becomes tax deductible. 

If you had paid down the first loan and then re borrowed the $30K to fund the second unit, only the interest on $130K would be tax deductible as the other $30K would have been for personal use (funding your home).

Here is a link to a good explanation of the advantages and use of an offset account by Qlds007 

https://www.propertyinvesting.com/forums/getting-technical/finance/4325393?highlight=offset%2Caccount

But that hasn't actually answered your question.  

$30K should be enough as deposit and costs for the next unit if you don't mind paying LMI again. To avoid this cost you will need about $48K ( $37K deposit plus $11K costs) to buy another $185K unit.

It's not possible to say whether you will be able to afford the second unit in 12 months without knowing how much negative gearing you can afford.

When you rent out your first unit the figures will look something like this.

Rental income   $10,400 =   (52 x $200pw)
 
Expenses          $2080 =   ( normally about 20% of rent to cover agents fees, insurance, council fees, water, repairs, 
                                         vacancy period etc.)
Interest            $14,400=   ( used 9% on $160K IO loan)

Loss               $6,080=   ( $117 pw )  

Of cause this loss will help reduce the tax you pay and you should also be able to claim some depreciation which will also help reduce the tax you currently pay.

It's great to see that you have a plan to get where you want to go and are willing to do the work.
 
Hope this helps
Elka  

Hello YI

Paying only the interest portion would be $525/month.

$30,000 X 21/100 = $6300 / 12 = $525

This is really expensive credit. 

Hope this helps
Elka

"Please learn your own economics : Housing costs are not in the CPI. End of story, this is an absolute, just look it up before you post nonsense like this."

Now I'm confused.

http://abs.gov.au/AUSSTATS/[email protected]/Lookup/6401.0Explanatory%20Notes1Jun%202008?OpenDocument 

Hello Collette

Not sure what you mean by "signed the deed with you". Is his name on the title and/or on the mortgage or did he just guarantee your loan? Who paid the deposit and buying costs? Did you draw up any agreement at the time?

No one here will be able to give you a definitive answer and you really need to go to a good solicitor with this problem. Take with you all the relevant paperwork including proof that it's you who paid the mortgage, council rates, water service charges etc. 

If you post the area you are in there may be someone on the forum who can recommend a good solicitor.

Good luck
Elka

Hello Kenzel

Just a small correction

"2 months down the track I decide to turn this into an IP by switching to an IO loan (as from what I understand this signals to the ATO that your intentions for borrowing the money has changed and that it's now an IP – i.e. the balance owing is now fully tax deductable)"

The above statement is not correct. The ATO doesn't care if your loan for an investment property is PI or IO. Just by renting it out and earning income it becomes an IP with the benefit of being able to deduct all expenses including interest.

Cheers
Elka

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