Terry ,
You are right that for tax purposes the effect is the same, however I suspect there are other financial implications in this scenario.
By making the tenant pay for expenses and reducing the rental income that you recieve, you are effectively reducing your assessable income. Your assessable income is not what you pay tax on. It is simply the sum of all you income (it is not net of expenses).
Now there are various rebates etc that are determined by your assessable income. For Example the governments co-contribution scheme for Superannuation, where the threshold (currently 58k) is based on assessable income. Therefore a low income earner, that owns an investment property is better off getting the tenant to pay as much as possible to keep their assessable income below the threshold, thus becoming entitled to pro-rata co-contributions.

Why is assessable income use for these schemes ? to stop people who use investment strategies such as negative gearing, being entitles to such rebates or handouts.

Dazzling, it wasn’t a silly question at all. But I suspect that your assessable income exceeds all the relavant thresholds.

Note: I am not authorised to give tax or financial advice, I could be full of sh!t, so seek advice from someone authorised to do so. Above is my interpretation of information provided by the ATO.

Mal

Getting out of your comfort zone, can help you become comfortable

Don,

I haven’t played lotto myself in about 10 – 12 years. I figure if I can afford $10-20 a weeks that some people put on ( I’ve even see people hand over $50-80 a week, which horrifies me), that I can buy a CF- property to that value per week.

My wife now puts in a couple of dollars into a group syndicate at work, and it’s just a bit if fun for them, they won about $150 which means they don’t have to put in for a couple of months.

A guy I work with, very much an investor, still puts his lotto in, has been doing it for years. He recently had a 60+k windfall, it paid for his reno’s that he did a couple of months earlier.

It’s not about achieving goals through lotto, just a bit of fun and for some a small outlay that can reap considerable returns. But you are right there are some that see a potential windfall as their way out. They will likely never be a successful investor, unless they hand it over to someone else to manage for them.

Mal

Getting out of your comfort zone, can help you become comfortable

Hi Spoodle,

If you PM me with some details, I.E a couple of months of a statement, I’ll try and work it out for you. Different institutions have different ways of when and how they apply interest, so there is no simple answer. But I can generally figure it out.

Mal

Getting out of your comfort zone, can help you become comfortable

Check out this weeks BRW titles “Unreal Estate” it highlight the expected top 10 performers in each State. The cover story is about the expected million dollar suburbs in 2010.

It highlights St Kilda West as the top growth suburb.

Mal

Getting out of your comfort zone, can help you become comfortable

JES,
Don’t be so sure!!
I recall buying my PPOR in Sydney in 2001 when things were going beserk, properties being snapped up at the first open house, or before being advertised. After this frenzy started, the market did not top out for another 2 years. In that time I had 50+% growth. That has since slipped back to about 40%, but by refinancing for investment purposes while it was at the top, gave me money to play with in areas still to take off, including Perth which I believe will still see some good growth before slowing, by which time I’ll have refinance, and started buying in Sydney which will hopefully have bottomed out.

Mal

Getting out of your comfort zone, can help you become comfortable

I believe that there is more use of Promissory Notes under the corporate structure as a way to raise fund without the regulations imposed by ASIC on other types of fund raising. It started to become popular in 2003 and companies like Westpoint used Promissory Notes for building residential appartments. The regulators have since steped in where possible to deem the some use of promissory notes such as that used by the likes of Westpoint, as a Managed Investment Scheme, and require prescribed disclosures statements be issued.

Like Mezzanine financing it is a high risk investment.

Mal

Getting out of your comfort zone, can help you become comfortable

WA Real Estates will start to feel the pinch just as Sydney and Melbourne Agents did after things slowed down there. Agents will eventually not only have to work hard to get the listings, but will have to work considerably harder to sell the listings that they do have after a slow down. You will see independants, acquired by larger national Real Estates Agents.
Sure buying isn’t slowing down at the moment, but it will.

Mal

Getting out of your comfort zone, can help you become comfortable

You answered your own question Mitchy,

You can apply the rule, it just does not come anywhere near meeting the conditions of the rule. Thus most investers are no longer investing in Murray Bridge SA if they want positive cashflow property.

What you have to consider is – can a property which does not meet the 11 second rule, become positive cashflow. How long do you expect it to take ? or will improvements make it positive.

Example.
I purchased a unit for $87,500 2 years ago its now rented at $175pw, guess what ? that meets the 11 second rule. And it only took 2 years.Now some would not be happy with that but I am, because I bought it in a place that I thought was going make capital gains also, and it has. It’s now worth $135-140k + it’s going to start paying for itself. Now considering that I borrowed every cent to buy the place, to me that is a pretty good return on investment.

When I bought it the rent was $105pw, no where near positively geared, but on doing some homework I found out the rent had not been increase in 4 years and was 25-40% under the market value. Over the 2 years rents have gone up further.

By the way 1 year later I refinanced the property and bought the place next door also. It’s not positively geared yet, but time till tell + it’s had 25% growth in 1 year.

The moral is: don’t stick to the rule for the sake of sticking to the rule, find out what can or will make the deal good with in a reasonable time frame and at an acceptable short term expense to yourself. Remember property is or should be medium to long term.

Mal

Getting out of your comfort zone, can help you become comfortable

Have you thought of renting it out??
Claim the interest, High Depreciation (as it only a couple of years old). Then if you decide to sell it , you can claim some of the loss if you end up taking a loss on sale.

Mal

Getting out of your comfort zone, can help you become comfortable

Foundation,

as DIY says,
if assuming at the end of 30 years and assuming that property doubles every 10 years
couple 1 now own
House $1,200,000
Cash $ 350,000 (assume they paid 30% on interest income)
Total $1,550,000

couple 2 own
House 1,640,000

And remember in the scenario, there was no pain for couple 2’s gain, because they both had the same budget.

If however a 3rd couple decided so suffer in the short term and commit themselves to an extra 50 per weeks (over 30 yrs) they could afford a place worth 235,000 which will be worth $1,880,000 at the end. Less of course the additional $78,000 they paid in interest, they are still well in front. The short term pain, can pay off.

Mal

Getting out of your comfort zone, can help you become comfortable