excellent thanks very much for ur reply. As you already have IP’s here. how is tenancy demand in these area, I am also concern about the locality in these area specially tenants, I m living in eastern suburbs throughout my life…..unemployment rate in Maribyrnong council area is 8.5%. somewhat worries me…….is it possible to get decent tenants in these area…… thanks……..

my budget is 340K max…..minimum i want 2br apartment or unit (not high rise buildings). I know it is hard to find but that is something i have to search for, possibly run down property, is there any real estate agencies in these area u recommend someone with decent knowledge of area or something and understand the investment potential

thanks
Saurin

Hi Terry,
 
thanks for your response. I gota be honest ,I am bit concerned with the word generally in your reply.

I understand the difference between the capital costs and borrowing costs now. But I think there is still  a grey line which costs falls in which category  when it comes to tax.

Let's say I want to buy 300K IP in Victoria,

If I use LOC of (79.5K) which I primary be using to pay stamp duty and borrowing costs as well as deposit. I can't claim that in tax not even over the 5 years.

But If I borrow lets say 95% of 300K property and that extra i m borrowing for paying borrowing costs, LMI, can be claimed over 5 years in tax, am I correct.

If I have got it right, then there is no way I can claim the stamp duty in tax, only if I sell and CGT comes in play. So eventually we are looking that stamp duty will not be claimable in tax. but if I borrow more from lendes (if they allow) to cover my borrowing costs, LMI can be claimed over 5 years. 

thanks
Saurin

Hi there,

thanks all for your response. I have some more queries about tax implications but before that I guess i need to structure my investment correctly.

I am planning to buy IP in Melbourne around 300K.

So far I understand I will arrange my Loan structure like this

Loan A : PPOR = 258K  ( Existing morgage) linked to Offset 25K account (current market value of PPOR 375K)
Loan B : 79.5K (90% borrowed against equity)
Loan C: IP 240K (interest Only loan)

From Loan B I would user 60K as Deposit and 19.5K as other capital costs (stamp duty, morgage registration etc..) If I understand your advise correctly I will be able to claim this in next 5 years in tax (does it mean 79.5/5 = 15.9K each year)? so it means if I earned 80K for next 5 years then only tax I would be on the amount of  80-15.9 K for next 5 years. is this corerct?

Also, As i have 25K in offset account which is linked to my PPOR morgage, I wanted to keep this 25K in offset as safe side like buffer for my IP? can this be used any other way to maxismise the benefits.

Also, 240K I have for IP property the interest on this is tax deductible. Please confirm if my understanding is right the way this will work is . My annual rental on IP is 20K and all outgoings including interest is 25K then I have negative cashflow of 5K a year. So in If I earn 80K that year the tax i would be paying on amount of 80-5K = 75K is that coerrect. I understadn that depericiation can be claimed as well over 40 years. 

But I just want to confirm if I incure any loss through Property investment as well as capital costs using quity, it will be set against my annual income of that year, thus reducing my gross taxable income is that correct?

thanks
Saurin

Hi Richard Taylor,

thanks for you response. I am single earner in house, my wife doesn't work. I earn 86K gross. 258K existing morgage. no credit card. Please tell me if any other infromation you require to give meexact guide.

Hi Terry, I think your approach to arrange a Loan is not to do Cross Collateral (am I right?). But I have heard from people who tried to follow my scenario that bank refused to give them seperate loan as 79.5K (Loan all they were offered was to top up their existing morgage (Loan A). It seems like bank forces consumers to cross collateral. what is the best way to get away with that. what is the criteria that bank follows and refuse consumers to not to borrow equity as seperate loan

thanks
Saurin

Hi there,

thanks heaps for your response.

Response to Terryw and Lincoln Haugh, My current income is 86K gross. It was very interesting that if bank allows me to borrow 90% compare to 80% then my borrowing power will change dramatically.

Terryw you have advised "Make sure you get this equity as a separate loan, ie don't increase your current loan but get a separate one. Then use this 2nd loan as deposit for the new property and get a third loan for the remainder."  I am bit confused about this.

Let's assume that bank will allow me to borrow 90%, so most I can borrow as equity as 79.5K. and I buy the investment property 300K
Please confirm that my Loan srtructure would be something like this.

Existing home morgage: 258K
Equity: 79.5K (which I'll use for deposit and stampy duty if possible) (wouldn't this equity will be added my existing morgage 258+79.5)
Investment property: 240K (I used 60K as deposit and 19.5K as stamp duty from equity 60+19.5 = 79K)
New Existing home morgage: 258K + 79.5K

Please advise if above could be aranged in any better way

Response to Catalyst, I am 27 years old plenty of time for retirement, I have read this book from Michael Yardney (how to grow mulmillion dollar portfolia in spare time) through this book I understood that over the time when I reach to retirement age I can use my equity as living cost (which would be tax free, ofcourse more debt) compare to cashflow (which will have taxon that). I recommend you this book. it goes in very details how to live off your equity.

thanks a lot for all your response.
Saurin