Hi again Fudge,

Yes I agree, depreciation wont affect plan 1 or 2 differently. But if your reducing debt quicker than normal and relying on cash flow, depreciation is a big part of it. It could turn a neg geared property into +ve CF. Yeah before 18 July 1985 you cant claim the special building allowance for residential property. From July 85 – Sept 87 you can claim 4%, from Sept 87 – current you can claim 2.5%. All these figures are from Margaret Lomas’ book too. The dates and figures are different for commercial , tourist and structural improvements as well. You can always claim Plant and equipment depreciation regardless of when it was built.

You asked what the depreciation figure would be, its whatever figures your Quantity Surveyor has drawn up for your property. Its all Tax deductible and would be like leaving out any other tax deduction like rates or management fees. For example I have a depreciation schedule for a property I may be buying. In the first year I can claim $1613 for Division 43 (special building allowance) and $1452 for Division 40 (Plant and Equipment)= $3065 (for year 1). Using your plan 1 your weekly CF was $21 PW, factoring in depreciation takes your CF to $49 PW. This would be your after tax cash flow. Im quite sure you can only claim the Interest on your loan as a deduction, so your repayment figure of $11,535 in your first year would include principal repayments which arent deductable. If im wrong on this someone please correct me

Cheers

Oz

Hi Fudge,

I have always prefered to invest in property to keep for the long haul and to eventually live off passive rental income from those properties. I buy properties every year or 2 now and reduce debt considerably at the start of the loan. Yes your ROI will decrease because of your increased equity BUT dont forget your cash flow will increase because theres less debt. Plus its a guaranteed return !

I think you’ll be in a better position if a crash were to hit as you’ll have more equity to play with which will allow you to buy up bargains. I do agree with Peter in that you have to hit the loan in the beginning to see the biggest Interest savings.

I have a LOC for as long term as I can get it, in case my income were to change down the track. I then can make the minimum payments if needed.

I went through plan 1 and came up with a few different figures for cash flow, but I used your tax effects. And like Jim said depreciation is a biggie !

quote:

---

Plan 1: loan 7% 25 years $136,000
Annual Rent 280*51= $14,280
less
Annual Repayment= $11,535
Rates= 800
Insurance= 400
Management Fees 9% 1,285
Land Tax (unimproved) 170
Total Costs $14,190

---

Arent annual repayments ( 7% * 136000 = $9520)
Total costs therefore = $12,175
Tax effect on $2105 profit = $989 Paid.ie($9520+$800+$400+$1285+$170-$14280)*47%(Top Tax bracket)

Cash Flow = (-$989+$14280+Depreciation?)-($9520+$800+$400+$1285+$170)= $1116 PA or $21 PW

I couldnt see my addition signs in the preview, hope they are there.

Gday,

Wouldnt these 3 properties actually be negatively geared (positive CF after tax), seeing the highest any of them return is 4.8% ?

These figures are a bit out of my league, but I would have thought youd need a few positively geared properties to alleviate pressue from the other 3 ie.

Hi,

I couldnt link to that site Simon, but land tax is a state tax so you can minimize by spreading your investments around each state. The amount payable depends on the value of all your properties land values in a particular state. Tax levied goes up at increments of 100k,300K, 500K,1M and 2M.

I have the figures here, if you want let me know what state your in.

Cheers

Oz

Hi,

I am buying a niche unit in Mitchell St, right in the main drag. Positively geared, 8% net, lessee assumes all operating costs including vacancy, insurance, rates, and body c. NAB guarantee for the first 5 yearts. There were 12 left last I heard. They have commenced construction and completion is scheduled for June next year.

I have the info sheets if anyones interested. I lived in the NT for 7 years and absolutely loved it. mmmm Barra fishing !

Well I think there is a LOT of growth to be realised in Darwin. For a start the Australasia Railway is completed which links Darwin to the rest of Oz, that is predicted to bring 30000 visitors a year to the NT. Theres the 600 Million Waterfront Upgrade right in Darwin which is commencing shortly. The Indo Gas pipeline work has started which means Darwin will be the hub for Asia. Tourism is one of the biggest industries in the NT and the Government has realised how important backpackers are and is injecting time and money to bring and retain there skills to Darwin. Darwin is very Multicultural as anyone who has been there will tell you that. There also building a University, a large Exhibition centre, Tourist Precinct, and theres a proposed Chinatown area.

I think Darwin is set for some descent growth !

Cheers

J

“Success comes from having the proper aim as well as the right ammunition”

Kym,

Thanks for your post, I enjoyed it and learned something new from it.

Im actually on the other side of the world and use PM’s in Oz. All the more eyes and ears near your property the better !

Cheers

J

“Success comes from having the proper aim as well as the right ammunition”

Im no expert either, but for me keeping it would depend on how much of a dump your talking about and if its going to be an endless $ pit. If its sturdily built or in a good area and how close you were to seeing a neutral and then positive CF.

As for finance find out what LVR the banks will give you as this will effect your borrowing capacity more than the gearing.

Cheers

Ozpat

“Success comes from having the proper aim as well as the right ammunition”

George,

I cant say for other states, but in Qld there are 2 commissions and 1 management fee.

The 2 commissions (which are negotiable) are Letting and Rent Collection, both are capped by the PAMD and depend upon length of tenancy and if the Letting commission has been charged or not. More than likely though the letting commission will be equal to 1 Weeks rent and is only payable once (on finding a tenant)

The Rent collection commission can only be 5% (Max) of the rent collected in the first year, if a Letting commission has been charged. It can go up to 7.5% in the following years only if the same tenant exists.

The Management Fee is not regulated by the PAMD(Property Agents and Motor Dealers Act) and therefore has no legal maximum. It is GST inclusive and an acceptable market rate for residential property is 5%.

In practise though all the fees and commissions are usually explained as 1 total percentage ie. 8%. If your unsure ask your agent to fax you a copy of your Management agreement.

Cheers

Ozpat

“Success comes from having the proper aim as well as the right ammunition”

Im a Newbie on this forum too Investorgirl.

I havent read that book, but ive just finished Margaret Lomas latest” How to Maximise your Property Portfolio” found it very helpful for going through after tax cash flows. The parts in her book about Niche property couldnt have come at a better time as Ive just bought my 3rd IP which is very Niche.

Cheers Ozpat

Hi All,

I have just put a deposit on my third property which is quite Niche, but it is positively geared[] ! The Unit will return 8% net, no Body Corp fees , no rates, leased back on 5x5x5 with ratchet clause.Lessee assumes all operating costs including Vacancy and Insurance.Bank Guarantee for the first 5 years from NAB. My Unit is $123750 GST Inc, 10% of which is claimable if you register for GST(Im not sure if I will).

Im no fan of buying off the plan, but the depreciation figures and 9K a year for at least 5 years sold me. These Units will be completed next June and are in the NT.

If I register for GST(to claim $11250) I think I have to submit quarterly tax statements,anyone know? Out of 98 for sale 12 are left, Id be happy to pass on the information sheets if anyone wants a look.

Cheers

J