Hi there. A while ago I downloaded Jaffasoft’s calculator ( I was the one whinging about spelling ). Not until tonight did I seriously sit down with all the correct figures and place them in the calculator.
Much to my surprise, I have found that my IP is negatively geared. Looking at the raw figures, the deal seems good. But when all expenses are taken into consideration, the goodness fades very quickly. This is not what I intended. I have a couple of questions regarding this.
1 – How will this effect my taxes etc ( $532 loss per year ) considering I was under the impression previously that it was positive when I completed my tax returns.
2 – The loan is for 62K, valued at 85K. Would I be better off selling the IP and looking for a +ve cashflow one?
Everything bar new flooring has been done to the unit. The rent is on market rate. As far as my knowledge goes, no further value can be added.
The thing that kills it is the body corp fees per year – $1600.
If I sold, I’d get approx 22K, but to release equity up to 80%, only 8K.
Any suggestions?
“Looking forward to the day when I can tell the boss where to go”
Originally posted by Myydral:Much to my surprise, I have found that my IP is negatively geared. Looking at the raw figures, the deal seems good. But when all expenses are taken into consideration, the goodness fades very quickly. This is not what I intended. I have a couple of questions regarding this.
Without casting aspersions or arrows at Jaffa’s calculator I suggest a second check (Ez-Rent also has a calculator) and balance be done to ensure the new calculations are right. Either way you move (sell or keep) the decisions are significant and as such a second opinion is warranted.
1 – How will this effect my taxes etc ( $532 loss per year ) considering I was under the impression previously that it was positive when I completed my tax returns.
You are not too badly off here. Don’t forget the $500 loss is reduced somewhat by some reimbursement from the ATO.
If you have previously overdeclared income as part of the PAYG 15.15 section adjustment then the ATO will make a correction when your end of year return comes in. Overdeclaring projected income and underdeclaring projected expenses will give you some leeway at the end of the financial year. Doing the opposite is another matter.
2 – The loan is for 62K, valued at 85K. Would I be better off selling the IP and looking for a +ve cashflow one?
Ultimately the course of action you take is best determined by you revisiting why you bought the proeprty in the first place and whether or not it will do what it is designed to do over the long term.
For me a ‘$500’ loss is inconsequential if the property is growing more than that – having said that I would want a lot more growth than $500/annum too.
Everything bar new flooring has been done to the unit. The rent is on market rate. As far as my knowledge goes, no further value can be added.
The thing that kills it is the body corp fees per year – $1600.
If I sold, I’d get approx 22K, but to release equity up to 80%, only 8K.
Don’t forget to factor any CGT liability into your calculations. If you have held the property for 12 months or less then you will incur CG on 100% of the gain.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Just some more info for you Derek.
The IP was previously my PPOR – that’s why I bought it [blush2]
It was bought in 1998, turned IP in January 2003, so no worries about CGT there. What would b the CGT at this time if I sold?
I followed your advice and just put all the details into ez-rent. The result is worse – $700 per year the unit is costing me. [ohno2]
“Looking forward to the day when I can tell the boss where to go”
Hi Mydral,
As the property used to be your PPOR (and assuming you don’t have a new PPOR) then you will have a 6 year exemption before any CGT kicks in.
If however you bought another place to live then any CG will be apportioned over the period of ownership. Eg 75% of the time the property was your PPOR then 75% of the gain is exempt from tax.
It would seem the property is going to cost you between $540 – $700 (I won’t recommend a third assessment – the figures are getting worse [biggrin]) – the questions become – is this manageable for you (no answer necessary)? Is the property going to perform long term? If you sold and realised any gains, can you use these funds for better purposes?
I suggest, if you haven’t already, you work out your investment plan and then see if the property will help or hinder your movement towards the end point.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Myydral, remember that if it’s only costing you $500 a year to own, that as soon as rents can be increased, it’ll take a rise of only $10 and you are owning a free IP!!
As it was PPOR, i assume you are paying P&I? Maybe you could make it IO if it’s an issue for you.
You may find that it is positive when you complete your tax returns as you’ll get some money back, and maybe some depreciation? Or did you mean when you submitted all costs etc. it was positive?
One of mine was ‘positive’ in the eyes of the ATO as some expenses were capital rather than repairs, so I couldn’t claim them all. But to me it was slightly ‘negative’ which was fine by me, as it had quite a bit of growth too.
Cheers
MelMelbear, I refinanced in January, from IO to P&I. I was not happy with the way things were going. I am not naturally “thrifty.” I saw that to actually make progress, I needed to make the loan P&I as I wouldn’t have to worry about making sure there was enough in the account to pay on the set date.
Now it gets paid every fortnight, the same that I get paid – I don’t even have to think about it. [blink]
“Looking forward to the day when I can tell the boss where to go”
Hi Myydral. I don’t know your exact position re finances, but $500-700 is not too bad as far as negative gearing goes. It averages out to about $13 a week. I’d love some neg geared properties at that rate, PROVIDED IT HAS CAPITAL GROWTH, which, if you are are hanging on to long term will not be a problem. Me, I’d hang on to it. Just my thoughts.
Regards
MartyG’day get a quantity surveyor to look at your unit you should would get more than $500.00 back through the tax savings eack year costs about $660.00 with gst once only
i get discounts on depreciation schedules. Email me if you want to chat. Also where is the IP if you sell I can find buyers.
I also have currently 11 of 16 townhouses left in Tassie which are break even or better depending on what each tenant is paying.
75k ppurchase $120/rent $1000 rates etc. All via email if yu need it.
DD
Don’t sweat the small stuff,and it’s all small stuff!!
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