[KennyjaizMember@kennyjaizJoin Date: 2009Post Count: 69]

August 23, 2009 - 3:20 pm

Jane,

I'm not quite sure what you mean by your first statement –
"The c/c debt and the extra in mortgage payments was a fantastic idea but sadly I now think I have missed the boat as home loan rates will be up again before I can get to the bank."
The fact that home loan rates can go up for you, you are implying that you are on a variable rate? yes?
Just to reiterate what i mentioned before. Keep on paying the very MINIMUM of what you need to, to satisify your mortgage repayment. (ie, if bank asks you for $1000, just pay the minimum, and anything else should go into reducing your credit card debt)
The home loan rate increasing should not affect this?!?

The solution you choose, should be one that you feel comfortable and empowered!
What you proposed sounds logical

Hope it works out for you.
Kenny

[KennyjaizMember@kennyjaizJoin Date: 2009Post Count: 69]

August 23, 2009 - 2:53 pm

Hi Jane,

It doesn't really matter how you got yourself in your current situation. And given that you've managed to accumulate 230K equity, you've don't pretty well for yourself.

Two importants Steve M. mentioned:
1, Before you lauch yourself in the fantastic world of property investment, you need to make sure you are equipped to manage your money. If you don't think you can handle a small amount of debt, there's little chance you can miraculously handle hundreds of thousands of dollars of debt
2, If you do more of what you've done, you'll just get more of what you've gotten. (ie start doing things differently)

I think Steve's books will be good literature for starters. (shameless plug)

The reason I asked about the credit card debt is, there maybe solution to it.
You mentioned that you kept paying down the mortgage as though it was still 7.74%. I'm assuming you are implying that your variable interest rate has reduced, and yet you kept putting in the same amount as previous?! Which means, instead of paying more of your mortgage (which is probably a lot less than your credit card rate), you can reduce your highest rate debt quicker.

EG.
Credit card rate: 20%
Mortgage rate: 6%
For each dollar you spend on reducing the credit card debt, instead of your mortgage, you will be saving 14% p.a. on the dollar

There are several other options you can consider.
1, consolidate your debt, by doing an increase on your mortgage (assuming by equity, you mean property equity) and pay off your credit card (maybe you can do it while you are taking out out a deposit for an investment property, but before you do this, you should assess it with professionals like accountants and mortgage broker, if this is the best option for you)
2, consolidate your debt by taking out a personal loan with a rate lower than your credit card rate (note, you need to be vigilant so you don't build up the cc debt again)
3, transfer your credit card debt to a 0% interest rate for 6 months to another credit card (it's legal, but not good if you do it too often)

Note that comment made above are general in nature, and it may not be suited to your personal circumstance, so please seek professional advice before taking any action.

Good luck with your search
Kenny

[KennyjaizMember@kennyjaizJoin Date: 2009Post Count: 69]

August 23, 2009 - 2:29 pm

SNM – I thought in Victoria, you cannot put in a offer until the Contract of Sale and the Sec 32 (Vendor Statement) has been finalised. I have been told by the Real Estate Agent that offers can only be made when Sec32 has been finalised, and contract of sale is always made avaliable at the same time?

Andrew – Deffinately a difficult situation to be in!
I wouldn't trust Real Estate Agents if my life depended on it. (no offence to any REA out there )
REA don't really take on much of the burden, post transaction (including incorrect advertisement). All that counts is what's on the contract you signed at the end of the day!

I always email the real estate agent back to confirm the content of the phone conversation, so I have a record and I tend to document all conversations when there's a transaction going on. Because you have essentially established a verbal contract with the real estate agent, and if he turns around and sell it to someone else, or inflat the agreed price. You have grounds to sue for damages or apply for a court injunction to stop the agent from selling the property to another party before you are done dealing with him (I know, who would wanna go through all that trouble, but the potential exposure to the REA may make he reconsider his actions?) 

An alternative solution you could have taken at the start, even before the documents are ready from the Vendor's side, is get your solicitor to set up a Header of agreement, which sets out the terms and condition of the purchase once the Vendor statement is ready. However, this will be additional cost to set up and there's no guarantee the real estate will act in your favour.

Good luck
Kenny
Please note that I am not a soclicitor, so please seek professional advice before taking action.

[KennyjaizMember@kennyjaizJoin Date: 2009Post Count: 69]

August 23, 2009 - 2:05 pm

Hi Jane,

Quick question.
Presumably you have a much higher interest rate for your 10K credit card debt than you mortgage?!
Is there any particular reason why you are paying down your mortgage as opposed to your credit card debt as a priority?However, I Commend you on your dedication and motivation to financial freedom! I imagine it to be difficult in your shoes. Good on you!

Just a thought!?
Kenny

[KennyjaizMember@kennyjaizJoin Date: 2009Post Count: 69]

August 23, 2009 - 1:39 pm

Hi Orica,

I've found real estate agents in different states have subtle differences in culture and practise.
I'm also based in Melbourne.Historically, Melbourne R/E agents tend to underquote for auction houses by as much as 20-25%. Personally, I think some agents are worse than the others. I won’t name names, but think YELLOW! The main reason is, they would like to attract as many potential buyers as possible, which is always beneficial to the vendor in a competitive bidding situation.

However, my experience is, real estate will overquote in a private sales listing. They expect buyers to negotiate and haggle. However, please keep in mind that we’re in a seller’s market at the moment in Melbourne (personal opinion) . There is a shortage of supply, which is explained by the high auction clearance rate week after week (over 80%). The high demand can influence Real Estate Agent’s expectation of reasonable pricing.

Is it just me?! But I find that there’s always a “magical” interest party popping up as soon as you put in a private bid?!?

I’m not sure if you are aware, but recently real estate agents have been under investigation regarding their dishonest and unconscionable underquoting conduct.

Related article can be found:
http://www.news.com.au/business/money/story/0,,25851463-5013951,00.html

Since the investigation, a lot of real estate agents are reluctant in putting up or discussing prices anymore, especially for auction listings. To be fair, however, the current climate (demand outstrips supply) makes price estimate a little bit more difficult. (But still no excuse for experience RE – sorry if i’ve offended any RE agent out there )

I know it doesn’t really help you when you are getting frustrated negotiating with the RE agent, but my advice is, don’t over stretch!! The interest rate is at historical low, RBA has already indicated with the currently steady unemployment rate, the only way IR can go, is north. But you probably already know that.

There are still attractive properties in the North and West, but quickly catching up with the first home buyers driving up demands. (not implying you should rush though)

Good luck – let us know how you go!
Kenny

[KennyjaizMember@kennyjaizJoin Date: 2009Post Count: 69]

August 23, 2009 - 11:57 am

Hi John,

What do you mean by – if GST is payable on the "rental"?

1, If you mean is GST payable when purchasing the rental property, that will depend on vendor (if they are a business registered with GST), but the agreed purchase price will be GST inclusive.
2, If you mean is GST payable when you rent it to the hotel operator, then no, since you are not operating a business or registered for GST. ie the hotel operator will not be required to pay GST on the rent to you, and consequently, they will not be able to claim back the GST from the ATO.
3, If you mean is GST payabe when people stay at ibis, then yes, most likely, they will be reqired to pay GST for the accommodation.

Cheers,
Kenny

Comments posted on this forum are of general nature. Please obtain appropriate professional advice.

[KennyjaizMember@kennyjaizJoin Date: 2009Post Count: 69]

August 21, 2009 - 3:28 pm

Hi Karen,

As mentioned before, the following expenses are capital, or of a capital nature, and are not deductible as repair expenses:
– replacement of an entire structure or unit of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator)
– improvements, renovations, extensions and alterations, and
– initial repairs – for example, in remedying defects, damage or deterioration that existed at the date you acquired the property.

As they are capital in nature, you should be able to claim capital works deductions for these expenses.

You can refer to Fletcher Tax’s PDF link:
http://www.ato.gov.au/content/downloads/IND00191817n17290609.pdf
Page 19 for further information about capital works deductions.

Depending on the size of your company, you may be eligible for the small business concessions. To determine eligibility, go to:
http://www.ato.gov.au/businesses/content.asp?doc=/content/00106797.htm&page=2&H2
For further information, refer to Concessions for small business entities (NAT 71874).

If eligible, you will be entitled to the following concessions:
http://www.ato.gov.au/businesses/content.asp?doc=/content/00106797.htm&page=1&H1

Cheers,
Kenny

[KennyjaizMember@kennyjaizJoin Date: 2009Post Count: 69]

August 21, 2009 - 1:25 pm

Hi tuggerwaugh,

For repair expenses to be tax deductible, it needs to have nexus to the revenue generated.
While the property does not need to rented out at the time of the repair, there are two factors you need to satisfy in order to claim the repair expense.
1, Has the property previously been rented out or been made available for rental purposes.
2, If so, is it in the same financial year as your intended repair work?

If both answers are yes , then you should be able to claim the repair expenses.

With regards to utility connection and consumption. Again, there needs to be nexus to the revenue generated.
If the whole purpose of connecting the utilities is for renovation, in order to restore the rental property to the original state. Then the whole amount can be deducted. I suspect that you will also be using it for personal reasons, as you will be living there for 2-3 weeks. You may consider apportionment.

As FletcherTax mentioned, you need to be careful when distinguishing repair (to restore it back to original/usable state) and capital improvement (improvement over and beyond original state). This is a very comment mistaken when preparing tax return.

Hope that helps

Karen,

When you say “under a company name”, what do you mean?
The rental property was purchased under a PTY LTD structure? or merely a sole trader ABN number?

Thanks
Kenny