Hi Judith,

Yes it seems like they will cross collaterise. This may be good or bad. (Yes there is a good to it) But in your case it would be bad.

You want each mortgage to be seperate. So this is what you may want to do.

Ask your bank to revalue your property an borrow the 20% you need to purchase your IP. (I would recommend a LOC but you can do it with your existing loan. A LOC is a bit more flexible and will allow you to get more IPs in the future without having to revalue your PPOR all the time.)

OK Here is an example.

Let’s say you have borrowed 200K on your PPOR which is valued at 400K. This means that the bank will allow you to borrow a maximum of 400*80% = 320K. This means that you can have access to an extra 120K. Depending on how much you need for your IP you can ask the bank to give you the money you need from you PPOR.

I hope this all makes sense. (This may be what they are going to do in the first place. Just make sure…)

APIM

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APIM: http://www.apim.com.au

APDM: http://www.apim.com.au/apdm.htm

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Hi Cris,

Like Saskatoon and Peters have already mentioned the ATO does not like Split loans because of the capitalised interest on the IP loan.
However I did some calculations using split loans WITHOUT claiming the capatilised interest and you still come out miles in front.

The good thing about split loans is that they help to reduce the loan on your PPOR much faster, therefore when you sell your PPOR you will have a greater NET profit that is not subject to CGT. (Whereas your IP is, at least 50% if you keep it for more than a year.)

Also if you structure yourself properly you could have an IP so that you can claim all the interest against your income (therefore paying less tax) and transfer the rent to your wife. (Because she does not have a wage she will only pay a little tax on this.)

For example let’s say you get two IP such that the rent is about $15,000 per annum each and the interest repayment is $15,000 per annum each.

Therefore if you structure yourself correclty you could transfer the $30,000 to your wife, so that she only pays $6,000 tax (so you SAVE about $8,000 per year.)

On another note, if you were just to move your existing loan to a LOC you could nearly halve the time it will take to repay your loan. Basically what you do is that you use the LOC as a great big credit card. (This can be very DANGEROUS if you can not control yourself and can leave you worse off if you are not careful.) So if you have a loan for your car, and have debt on your credit cards you want to pay them off using the LOC. Once you have “consolidated” you debts with the LOC (Remember that the interest rate on a LOC is MUCH less than a credit card.) you want your employer to pay you DIRECTLY into the LOC account.

Some people (Depending on the type of LOC you have) also use a credit card with a 44 days interest free on it. SO you buy everything with the 44 days interest free and when the time is nearly up clear the whole lot using your LOC money.

This is the strategy that some people sell for $3,000!!!! Feel free to think about it and ask questions. If I can help people reduce their PPOR loans I am more than happy to help, especially if they have 4 kids! []

Also I have done some sums for your situation Cris, so if you want send me and email at [email protected] and I will give you the info.

Cheers,

APIM

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Australian Property Software

APIM: http://www.apim.com.au

APDM: http://www.apim.com.au/apdm.htm

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Hi Cris,

How much do you owe on your property?
What is your income roughly? and how will you finance an investment property?

This will help me answer your question.

APIM

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Hi Novice,

Actually your deal is not as bad as you may think.
From the quick calcs that I have done it looks like it will cost you a bit over $2,000 dollars to keep AFTER tax. (If the interest rate doesn’t go up etc…)

Make sure you depreciate the property and claim all expenses. (including interest. The stamp duty is a capital cost NOT an expense.) (See your account to see what you can do.)

Positive geared properties are nice but hard to find. I personally think that negative gearing has its place in property investing.

Put it this way. The property you have bought will be worth say $550,000 in 7 years time (7% growth p.a). It would have cost you 7*2000 = 14,000 to keep over this period but your capital gain will be 550,000 – 340,000 – STAMP DUTY (This is where you get some back) – Agents comission – adverstising etc… = 180,000. (Ok you will have to pay tax on this too.)

So your net profit of this period will be around 165,000. (without tax. To avoid the tax don’t sell the property!)

Let’s say you buy a positive geared property for $80,000 which puts $1,000 in your pocket every YEAR. (Yes PER YEAR, and I am being realistic, maybe a bit generous…)

In 7 years time the property will be worth $140,000 so your net profit will be $67,000 (without tax.)

However with this method you could have 5 or 6 or whatever positively geared properties, whereas you can’t afford to have too many negatively geared properties.

What I am saying is: the deal you made is not bad. (You will still make a healthy profit (hopefully) in due course.) However there might be better stratergies. It all depends on the invester.

Also for positive geared properties you will need to have 4 or 5 to make it worth while and therefore a lot more admin work.
It all depends on you, your goals and your situation !

APIM

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Hi Trying,

One thing to keep in mind is that if you have property (or land) in the trust you will have to pay land tax on the total value of your holdings. There is no threshold as for individuals.

This isn’t really a problem since the advantages far outway the disadvantages. (just something to be aware of.)

APIM

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Hi,

quote:

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To have the house you live in classified as your PPOR you need to live in it for 12 months before you can sell it. Correct?

---

Not exactly. You can live in it for 2 or 3 months and then move on, but you would have had to have the intention of it being your PPOR. (You would have to get your mail delivered there. etc..)

Also if you do it too often the ATO will investigate.

See your accountant but as a rule of thumb don’t do it more than 2 times in a 3 year period.

APIM

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Hi mh,

Do you have a PPOR, or is this going to be your “PPOR” so to speak?

There are significant implications depending on your answer. Let me know and I will fill you in.

APIM

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Hi Quentin,

Good work. How about underlining the titles and putting the authors in italic so that it is easier to read.

This should be on a page of its own and it would be great if people could vote and put reviews on books (a bit like Amazon.com)

APIM

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Hi Soosh,

I need a bit more info.

– The interest on your loan

– Council rates

– Water rates

– Insurance

Once I get these details I will be able to have a closer look.

A good deal is a good deal, and I think this is a good deal. (so basically you can’t loose. You just have to decide which is the BEST way to proceed.)

Based on my quick calculations and knowing that the area you purchased the property is going to get better with time I would defenitely rent the property now, (keep it do NOT wrap it, since you will be able to cash in when all the old houses get pulled down.)

The property IS already positevely geared and is EVEN better AFTER TAX!!! (you will be able to net about $800 per year.)
OK this is nothing great but it is not costing you a thing! In 2 years time you will be able to sell the land for $200,000 and then keep the profits. (hopefully)

If you can find a tenant for $130 a week WITHOUT renovating anything, then I would suggest you rent it out.

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Hi Everyone,

Thought I might add a bit more:

1) Getting a good “team” together is a must (i.e lawyer, accountants, banks, real estate agents etc…)

It takes time to get a team together, but is worth it. An important thing is that your team will start to know you better and learn how you operate.

The two MOST important people are BANKS and LAWYERS. Make sure you have good ones and that they understand what you are doing.

One thing I find important is having to say things only once and not have to waste time chasing things. (I always double check anyway, just to make sure that things are moving along.)

2) If you are going to have more than 5 properties make sure that they are BRAND NEW (or nearly new), so that you don’t have to fix them all the time. (If you are going to negatively gear make sure that the properties are worth it.)
From what I understand if you wrap it is a different story as you get the “tenant-wrapee” to fix the problems themselves.

3) Try and streamline things as much as possible. Setup internet banking, it can save you A LOT of time, when you know how to use it properly.
Pay your bills using Bpay because you can do it all with a click of a button (from your internet banking that is. I presume most banks allow you to do this.)

APIM

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