Hi There…..
My situation is as follows. I bought a unit about 3 months ago with the idea in my head to make it into a investment unit later down the track and then use the money I get back from the unit when I refinance to do the next deal and go on from there. I am using the FOG to do my renovations and I have a little bit of that left. I got the unit for 112k and I am fixing the place up, paint etc, new tiles and bathroom fixtures, it’s got a lockup garage and a extra store room. The unit above me is on the market now for 159K and it’s not renovated. I spoke to the agent a couple of weeks ago and they have had 2 contracts on the place but both fell through. I think it’s because the banks don’t value the place that high, am I right to assume that?? I want to do my next deal now but not sure if I will have the finances to secure the next deal? The moment I am finished with my renovations I will move out I will rent the place out. Most unit’s in the place rent for $170 per week, but I might get a bit more because my unit is the only one with aircon and security screens on all the doors and windows. So lets say I get $180 a week for the place that means it’s nearly positively geared…but not 100% I will prob have to pay some money into every week to keep the bank happy. But then again if the place above mine sells for 159k does that mean my place will be worth roughly the same amount and then it will be far from positively geared??
So I guess the question I am really asking is will I get like a 100% loan from the banks to do my next deal?
Thanks
Hi cornel
The test of whether your property is positive or negatively geared comes from how much you get in rent versus the costs. It won’t matter as to what the value of the place is.
If the one above does sell for $159K that is good for you, but for the banks to value it at that they will want more evidence than just one sale.
The contracts could have fallen through for any number of reasons – lower valuation could be one of them.
As for 100% loan for you next deal, it depends how much it will cost. Assuming you do get a valuation of $160K for yours, the bank will lend a total of $128K without mortgage insurance. You can use the extra cash as a deposit for the next deal, but for the financing of it will depend on the purchase price and subsequent valuation.
Congrats on the first property!
Cheers
MelCornell said:
But then again if the place above mine sells for 159k does that mean my place will be worth roughly the same amount and then it will be far from positively geared??Cornell said:Cornell,
Your place will receive the return on the price you paid for it, not on the actual value of it. so it’s $170/wk on 112k, not $170/wk on 159K. The extra 47k is equity- as in, it’s yours! You’ll be able to borrow on that equity.
If you sell under 12 months, you’ll be subject to 100% (of your profit) capital gains tax- so it will be 47k taxed at your current taxation rate. If you wait for 12 months, you’ll only pay CGT on 23.5k.
If your return yield will be so high, why not hold onto the place instead of eating away at your profit by taxes and agent selling costs?
kay henry
G’day CornelBasson,
You might find that there are other implications as well :
Such as rules regarding the FHOG… I think that you may need use your original unit as your principal place of residence for at least a year before moving out. See your friendlt Tax Accountant for further info.
As mentioned also, CGT may or may not be the downer on the quick sale party…
Hope this helps,
BDM
Yep, BDM is right about the FHOG. You need to live in the place for one year or the gov might want their money back!!
Gracey.I have heard that there is allot of people that just take the risk and just write the 7k FOG from the start and if they get away with it then it’s a bonus. My plan is to stay in the place and serve my 1 year term and then get out…but hopefully I can pick a couple of properties up in that time and borrow against that unit…will this work?[
]BDM and Gracey,
Not true on the one year for the FHOG. Check it out at http://www.osr.nsw.gov.au
All states are the same legislation.
I will reply further to this post later tonight.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
CornelBasson,
Work out your pos/neg gearing on your purchase price. That was the cost to you. You should add the cost of the reno to that to indicate it’s true cost.
If you have lived in this place for three months as a home then you shouldn’t have too much trouble with the FHOG. There is no set timeframe required for residing in the place and anectdotal evidence suggests any auditors will ask for three months proof of residency – I trust everything is in your name and you get your mail there?
If you have any concerns then check with the Office of State Revenue or your state’s equivalent.
Don’t make any assumptions as to why the sales on the other apartment fell through – ask the agent why. It may be because of low valuation but it also may be a number of other reasons.
However a sales price of another unit will indicate the value of yours. Valuers use comparative sales to set their valuations. Sales in the same building will have a strong influence on their assessment.
Can you get a 100% loan for the next deal? If your place is worth $159 000 that means you should be able to readily access up to 80% of it’s value or $127 500. This will form the deposit and costs for the next purchase. Of course your income and the rental income will influence how much debt you can service. If you want specific advice then drop me an email with your financials.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
[
][]Thanks for all the info, it’s all very new to me esp all the terminology and structuring of deals etc etc. Okay it does look like I won’t get in trouble if I move out before one year is up and rent the place out as soon as I move out. At the moment I have a friend that lives with me that pays me rent, but it’s cash in hand sort of thing. When I apply for loans will I be able to put that down as income or not…I don’t think that I will be able to because I am not paying tax on that…am I right to say that..will I be better to keep that to myself, any suggestions? I guess now I will have to go and talk to the banks and see what sort of loans they can offer me. I spoke to St-George today and they do 100% loans but you have to have more than 175k in net assets and I don’t even come close to that with the mortgage on the unit and a car loan and a low income…so I am a bit screwed I think. Can someone please give me a couple of good banks to deal with, I am with ANZ at the moment. Also is it better to go into a branch or just do it over the internet or phone….? Maybe if I go into a branch with all the paperwork from valuations etc they might take me serious
Talk soon[
]
CornelYep Im with Kay on this one,
If you only get 170 PW in rent thats still 8% yeild. Why not hang on to it, hit the loan hard and borrow against it when you can. Depending on your expenses and Tax bracket it may come close to having positive cash flow, but I dont think it will be positively geared.
If you do decide to refinance, go to every bank you can with your Assets/Liabilities and Income/Expenses reports to get the best deal. Play them off against each other.[}
]Cheers
J
“Success comes from having the proper aim as well as the right ammunition”
Cornel,
The banks will not be able to use this informal rent unless you have declared it on your tac return. There are a few lenders who do but they are in the vast minority.
Let me suggest that instead of trudging from bank to bank you avail yourself of the services of a good mortgage broker.
Please call me if I can be of service.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
I have one more question on my loan I have at the moment. I am paying interest only for one year so that I can do my renovations..once the place becomes a investment property what should I change it to? Also I heard that there is some sort of tax reduction form that I can get from the ATO as soon as you have a investment property so that you get taxed less from you work pay. Can anyone shed some light on this please..
Thanks[
]Well your repayment choices are P&I where you pay down the principal or remain IO where you don’t. IO can be paid for up to five years with most lenders.
It is really your choice. If you have any non deductible debt then I would strongly consider you stay IO until that is paid out.
IO also has the advantage of maintaining cashflow.
Many people prefer P&! as they enjoy the knowledge that the debt is being reduced.
Re the reduction in tax.
http://www.ato.com.au/businesses/content.asp?doc=/content/31199.htm
PAYG income tax withholding variation (ITWV) is what you need. I still know it as the old section 221D but the name has been changed to the above.
I have elected not to use it myself as I prefer the lump sum refund as opposed to a weekly instalment that dissappears into our living expenses[
]Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
]
]
You must be logged in to reply to this topic. If you don't have an account, you can register here.
