Forum Replies Created
- rgarreffa wrote:Can someone comment on legality of such a strategy?
* Google "debt recycling"
* Talk to your accountant.
* Give your IP savvy broker a call
* Ring RichardMy understanding is that debt recycling is a fairly common method that investors use us repay their home loan quickly and ensure that all of thier debt is tax deductible.
You have lots of equity so a broker shold be able to release some of it if needed.
I recently saw some cheap granite kitchen benchtops at the KBC (Kilsyth Bargain Centre) in Melbourne's East.
Have you looked into debt recycling? You could pay the rent to yourself and capitalise all investment costs, including interest, within a new loan account (or your existing investment loan if the limit is high enough).
Don't waste your time talking to the bank about LOE. Find an investment savvy mortgage broker to set up the structure and discuss the tax implications with your accountant. Watch the figures closely and NEVER draw on your investment account for personal expenses.
Changing the subject slightly, there is a group "Australian Property Investment Group" on Facebook.
If you're interested, feel free to join this group. It's purpose is simply to connect people on the basis of an interest in investing in property in Australia. It's not intended to be another discussion forum, just another way for people to connect.
Neil,
I'm sure you didn't submit your post hoping that people would advise you to sell your family home. Why would you? People shouldn't aspire to be a "successful investor" for the sake of being a "successful investor". If you're like me, the reason you're thinking about investing is to improve and secure your financial future.
Most property investors start from a position a little like yours. They have a house and some equity. They take out a new loan to harvest that equity which forms the deposit for their first rental property. Beyond this, I'd make three suggestions…
(1) Your own home is a very high growth / very low yield asset so it would seem sensible to look for investment properties with a higher yield (like units) which will will assist you to service the loans.
(2) Positive cash flow properties kinda don't really exist any more so make sure you borrow enough to cover the monthly shortfall that negative geared property brings. Use debt to fund all investment related expenses (and interest) while directing all rental income into your personal home loan – recycling your debt.
(3) Find an investment savvy mortgage broker who understands this structure and can help you set it up.
I'm not a guru but I was in your shoes twelve months ago.
Good luck – Ben
Have you got your structure right? Are you "Debt Recycling"?For those of us with a PPOR mortgage (or any personal debt) the opportunity to reduce that loan using IP rent, while capitalising all associated investment costs in a separate tax deductible line-of-credit, may have little effect in the short term but be very beneficial in the bigger picture.
Using this type of structure, even if your property were to have a pretty ordinary year (say, for example, 5% yield plus 3% growth minus 8% cost of finance), You'd still be in a better position at the end because a portion of our personal debt would be recycled into a tax-deductible loan. Your investment debt would accumulate quickly but our PPOR debt would be fast approaching zero. The benefits would be realised with the submission of each tax return for years to come.
If you sell you'll regret it forever. Perhaps you can get your LOC limit increased to give you some more breathing space. Or perhaps another loan can be taken out if you have some equity somewhere. This is where a broker can help you.Suffering break costs with RAMS would likely be cheaper than selling a good asset.
m.pulley wrote:Barney,What an incredibly selfish Idea.
Having all that money and not willing to pay any tax what so ever..
I suggest that if you go down that path, the end of your life will be miserable.
Imagine being on your deathbed and looking back on all you contributed to society or others and seeing nothing but the burden left behind.
I am not a socialist, but a capitalist with a sense of social responsibility.
How could you possibly judge a person so harshly on the grounds that you think they don't pay enough tax at a particular stage in their life?I look forward to the day that I can jump off the treadmill and LOE. This does not mean that I won't give anything back to the community (paying income tax is not the only way to do so).MichaelYardney wrote:Probably a more importnat question is …..in which municipalities are you likley to make a good development profit.Sure some councils are more difficult to deal with, but this usually means once you have a development approval your property is worth considerably more as you have added even more value by taking away the development risk.
With building costs being much the same across Melbourne, I would concentrate on the more affluent suburbs where property values are increasing and markets are strong rather than the outer suburbs where prices are languishing.
Hi Michael,Your input is always valued. However, I'm interested on what basis you would suggest that property values are languishing in Maroondah and Knox. Seems to be contrary to recent statistical and anecdotal evidence.Sincere Regards – BenSorry to hijack your thread but I'd love to hear about your history with Knox. We have houses on development blocks in Boronia and Ferntree Gully but we've never attempted development before. What "lessons" did you learn?
This issue has nearly been concluded – with surprisingly positive results.RAMS sent me a letter stating that it as all our fault (not RAMS or the broker) in language that must have come from the mouth of a lawyer. However, in the same letter they agreed to our demands to fix the rate at 7.35% for three years from March '07 and refund any extra interest paid so far.No signatures in place yet but, I must say, we're pretty happy RAMS customers at the moment. I think they're doing the right thing and keeping their end of the deal – but many lenders probably wouldn't!Hi Steve,
I appreciate your idea and hard work but I'd be interested if you could work on the "WealthScore Mark II". This is because the current version of Wealthscore assumes that you spend all of your income on your personal life. This is not the case for those who, like me, are in the negative gearing camp (sorry Steve but there are still a few of us out there).
There's also the likelihood (as posted above) that even if you liquidate all of your assets, you're unlikely to stuff the cash under your mattress. Many savings accounts provide returns that are higher than inflation – even if you need access to the cash almost immediately.
Regards – Ben
Would anyone else care to comment about the tax deductibility of interest on interest using an offset account, a line-of-credit or a 'cashflow' loan? I am no accountant by my understanding was that such deductions are quite legitimate.An article by Julia Hartman in the August edition of API makes the following conclusions on the matter of Capitalising Interest: "Those readers who aren't afraid of a confrontation with the ATO may choose to redirect rental income towards their private mortgage." And "…even the most conservative reader shouldn't use income that isn't directly from the investment to prop it up. Borrow the money necessary to meet the cash shortfall and use all of your personal income to pay off any personal debt."For those who are negatively geared like me, this is very important.G'day,
The June 2007 issue of Australian Property Investor has a profile on Maree Leach who's first investment was in Bernie, TAS – she lived in Coffs Harbour, NSW. Perhaps you could find some inspiration there?
Regards – Ben
Hi Jenny,
In most cases, to "go lo doc or no doc" you will need to have held an ABN (and be GST registered) for a minimum of two years.
Perhaps I'm wrong about this?? My situation is similar to yours so I'd be happy to be corrected by and of the brokers on this forum.
Regards – Ben
Hey Marc, from where can one get their hands on this software?
Hi Matt,I've recently applied for a split loan with LoanAuustralia (http://www.loanaustralia.com.au/).
One side of the split is their "Flexi Plus" variable loan for my personal funds and the other side of the split is their "Line Of Credit" for my investments.
A word of warning: They've been a little slow and I've needed to "drive" them a bit (phone calls, emails). But I feel that it's worthwhile for the product they're offering and the low rates.
I was lucky, they recently increased their advertised rates more than 0.25%. However, because I applied before the increase, my variable interest-only rates will only jump to 7.24% for the Flexi Plus and 7.39% for the Line of Credit. There are no fees.
Regards – Ben
Hi Sonny,
I don't have any experience to offer regarding your question but I did notice an advertisement that you might find interesting. Here's the link:
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=2432161&emailsource=emailalert
In this case, the investor is trying to sell all of the headaches and risk (along with the land) to a developer.
Hopefully some more enlightened posters may have more to offer on your thread. Good luck!
Mr Simba, I'm interested in any ideas you may have as to who would find tenants and manage the property as a holiday rental for you?
