Steve,
In your book you talk about CoCR and +ve cash flow etc.
What I do not understand is why you do not promote the use of claiming tax deductions off the loan (interest) repayments. (I know you mention them, but it is brief and I missed it 1st time round).
Using the tax deductions of the loan (interest) repayments, you can find many more properties that would not normally fix the 11 sec rule, but at the end of the day give you more $$$ in your wallet to spend.
However, to be a devil’s advocate, the problems I can see with this approach is:
– Your taxable income must be high in the first place (i.e. a significant proportion at 47%)
– You cannot ‘retire’ until the majority of your debts are paid off, because you rely on your tax payments to offset your interest repayments
– You are ‘limited’ to how many of these types of property you ownBut for someone like me, when I WANT to work in my industry for the next 10 years (because I enjoy my job and wouldn’t have anything else to do), I can find properties which only just meet, or just fail to meet a +ve cash flow (i.e. $100 total at the end of the year) but then claim some tax back off the interest repayments and end up with $4,000 a year (after tax).
In one recent scenario of mine:Purchase price 275K + 15K stamp and other costs thus $290K outlay for a 3 year old house.
Rent $420 pw on a lease for 5 (yes, five) years with an option of another 5 year lease.
At first this does not meet the ’11 sec’ rule; however my outgoings (including 20k interest repayments, repairs, rates etc) are 22k, while my income is 22.5k ($500 profit per year).
But now it gets interesting. I depreicate the house etc and get another $1000 ‘on-paper’ loss to claim. But I should also be able to claim the interest only portion of the loan, getting back a total of 11K after tax, because the loan is for investment purposes.
This 11k can now be added in my principle repayments, and in 5 years time (with an additional 55k in repayments) lowers my interest repayments (and yes – also my tax deductiblity), which means I worked out I can have interest rates rise to 9.5% and still come out $100 in front! (I have a fixed loan of 6.5% for 5 years).
I am not saying that this is correct, rather I am asking am I missing something here?Thankyou for both your time and advice,
Cheers,
Laurence Ioannou.I totally understand what you’re saying. I have software that works it all out for me before i even put a bid in. This give me a fairly accurate account of how much i will get a week. I still have to crunch the numbers everynight but the 100 – 10 – 3 – 1 rule still applies. (where you crunch the numbers on 100 properties, 10 get you interested in them, 3 you will put a bid on and if your lucky you end up buying one. I dont know what problems there are with this. so anyone out there who could enlighten me would be great. Although i have been told not to build my wealth base on this strategy, but to do it until the market levels or drops, then go in with plenty of cash and clean up using the 11second rule.
well thats my two bobs worth anyway.Hey Shaun,
What software do you use to calculate your return?
Thanks,
LuckyoneHi,
I need to be quick…
The reason why I don’t believe in the tax deduction side of investing is that it justifies a valid reason for making a loss or having -ve cashflow.
As for depreciation – see my thoughts at: https://www.propertyinvesting.com/depreciation
Depreciation is tax deferral, not a tax saving.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Shaunwalker.
I’ve been sitting here for hours reading all these posts, this is the first i feel worth a question[
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I’m also interested in what software you use to crunch your numbers, be that a retail programme or home made.Regards
VeeR
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