Hi john
we have been down this path before- with talk about banks asking for revaluations and then asking for top up to restore equity in the loans. I believe that they can’t do it. Providing the loan repayments are being met it isn’t a concern. I suspect it is a bit of an urban myth that banks were doing this in the late eighties.
By the way a lot of your concerns about property can be aleviated by the following techniques so that if there was a downturn you can ride it out.
1. fix interest rates.
2. buy cash positive properties ones showing 10% returns.
3. make sure you buy properties that are well priced, as you said the profit is made when you buy. Which is part of the truth.
4. put in at least 20% into the deal
5. buy a property that you can add some value too.regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
John,
I’m wondering what your situation is. Have you been involved in RE and have decided to cash in and put your money elsewhere (ie shares)? Have you not been involved in property? Knowing where you’re coming from makes it easier to understand your perspectives.
I agree with westan’s ideas on how to keep abreast when property might be facing a downturn. Westan’s rents cover his mortgage, and mine don’t, so as a negative gearer, my ideas would be to ensure you have a job to make up the shortfall between rents and mortgage repayments- AND pay extra onto your mortgage to build equity. A shortfall to me is no big deal, because I get it all back in tax anyway.
I’m not sure why you’re panicking Mr Howard. Property is a long term business. I mean, you wouldn’t go into a small business and necessarily be expecting to make millions in the first year. Same with property. You just have to buy well, pay it off as quickly as you can, watch the equity grow, the mortgage reduce, and buy again! I doubt values of property will fall so much that everyone will be in a desperate panic. There will always be those who have overextended- who are not really in a financial situation to be investors, but who have been encouraged into the market, and whose creality means they will make losses. But aside from them, if you work with fundamentals, and don’t have a get rich quick mentality, you’ll be fine
kay henry
A shortfall to me is no big deal, because I get it all back in tax anyway.Wouldn’t you would just get back from the ATO, at the most 48.5% of that shortfall, depending on your tax bracket.
Cheers,
J.
Originally posted by p0sitiveCasHfl0w:A shortfall to me is no big deal, because I get it all back in tax anyway.Wouldn’t you would just get back from the ATO, at the most 48.5% of that shortfall, depending on your tax bracket.
Cheers,
J.
LoL Kay uses different fundamentals[biggrin]
Positivecashflow,
No. If you can reduce your taxable income by a great number of tax deductions, then you move down to pay less tax percentage. Depending on your income, you only need to reduce your income by a few tens of thousands, to change brackets. Depending on how you structure your finances, you can pay very little tax at all.
kay henry
Unless your tax deductions are “non cost” deductions like depreciation for example, then it is self delusional to say that reducing the tax you pay such that you end up in a lower tax bracket is effective.
You are in effect spending a dollar to get 48.5c back in the top bracket, and spending a dollar to get back even less in the lower tax brackets.
The balance of those dollars spent has to be recovered sometime in the future presumably, by means of capital growth, which is not always guaranteed.
There is an optimum time to negative gear, neutral gear, or positive gear.
A word with a good financial planner will clear this up for any confused bunnies out there.
As for the property market going into meltdown, it,ll never happen.
Not unless people decide to stop living in houses.
There is more to the market then a few overstretched investors losing their properties, or their shirts off their backs, or their jobs, or, whatever…
Even rising interest rates will not cause a property meltdown.
The market operates in a cycle and this part of the cycle and what is to follow has been seen before….many times.
Take a Bex and have a lie dow John H, it will all be over soon.KP
Originally posted by kp:Unless your tax deductions are “non cost” deductions like depreciation for example, then it is self delusional to say that reducing the tax you pay such that you end up in a lower tax bracket is effective.
You are in effect spending a dollar to get 48.5c back in the top bracket, and spending a dollar to get back even less in the lower tax brackets.KP, I am not an accountant, but that would have to be one of the most intelligent, financially down-to-earth statements I have read in this forum to date!!! [medieval] You’ve made my day!!! [thumbsupanim][laugh4][lmao][laugh4]
Actually, kp, I get more back in the lower tax brackets, not less.
kay henry
What kind of fundamentals are you referring to SuperTed???
Thanks Monopoly,
I thought it made sense.
Kay H, can you clarify what you mean by “you get back more in a lower tax bracket”
Its a serious question, as I don’t understand what you mean… unless I have nissed something..KP
Originally posted by kp:can you clarify what you mean by “you get back more in a lower tax bracket”
Its a serious question,Think in gross dollars rather than percentages.
You can still make a great deal of money in a flat market. Enough doom and gloom, the market hasn’t crashed at all. For a crash to occur, prices need to fall 30% or more across the board, hence resulting in a recession. Are we in recession?
$0 – $6,000
Nil$6,001 – $21,600
17c for each $1 over $6,000$21,601 – $52,000
$2,652 plus 30c for each $1 over $21,600$52,001 – $62,500
$11,772 plus 42c for each $1 over $52,000Over $62,500
$16,182 plus 47c for each $1 over $62,500__________________
If I am in the highest tax bracket, I am paying 47 cents tax in the dollar, viz a viz, I can get back 53 cents in the dollar; if I can reduce my taxable income to, for example, 20k, I am only paying 17 cents tax in the dollar, which means I get 83 cents back in the dollar.
kay henry
Personally, I couldn’t reduce my taxable income to 20K if I tried, and even if I could, don’t know that I’d really want to!!!
Sadly, 20K is just not going to keep me in the lifestyle to which I have so fondly grown accustom to!!! [blink]
Monopoly,
How much tax do you think Kerry Packer pays? Probably very little. Taxable income has nothing to do with gross income. All negative gearers are trying to minimise their taxable income to get back a fat tax return.
kay henry
If I am in the highest tax bracket, I am paying 47 cents tax in the dollar, viz a viz, I can get back 53 cents in the dollar; if I can reduce my taxable income to, for example, 20k, I am only paying 17 cents tax in the dollar, which means I get 83 cents back in the dollar.Um…the Gov. will only give back what you have PAID in tax. If you have deductions and you are on the 17% bracket, you will receive back 17 cents in the dollar, not 83.
Cheers,
Chris B
http://www.tradingsecrets.com.auok Chris, but as an example, a person who has a 100k income, who has paid around 40k tax, and who can reduce their taxable income to say 20k… will only pay around 2.5k tax. In that scenario, there is very little tax paid.
kay henry
The problem with reducing your income from a high figure to a low figure is that the money has to go somewhere….
So by reducing, say, from $80K to $20K – you’re not getting 83c back on every dollar over the $20K – you’re spending 100c in the dollar!!!
Also, if you reduce your income that far you’ll only be legitimitely able to borrow via lo-docs or face some serious fraud issues at one point or another.
Negative gearing is fine in small quantities, but having too many tax deductions is a sure way to reach bankrupcy!
If you want to increase your income, increase your income.
Cheers,
Aceyducey
Kay,
Just make sure you are comparing apples with apples.
If a person earns $100k and reduces their income to $20k, they must have spent $80k on something for which they can claim a ligitimate tax deduction. Using your example, they have spent $80k to save paying $37.5k in tax ($40k minus $2.5k).
This is all well and good provided the $80k has been spent on an asset i.e. something that makes even more money than it costs. When people have expenses that provide a loss they, for some reason, only focus on the 47 cents they are not paying “that nasty tax dept” and forget about the 53 cents they spent on a losing deal (Also, if you are only on the 17% bracket, you have then spent 83 cents on a losing deal).
Don’t get me wrong, I am all for reducing the tax I have to pay, but I prefer to be investment focussed first and tax-saving focussed second. To think that you…
…get it all back in tax anyway.is incorrect. At best you only get half back.
Cheers,
Chris B
http://www.tradingsecrets.com.auOh Dear,
I wasn’t going to buy back into this..and neither were you Monopoly (bad gurl)
So from your example Kay, a gross taxable income of $100k reducing to $20k (difference of $80k) results in a tax difference of $40k to $2.5k.( tax refund of $37.5k)
Therfore you have to fork out anything up to the $80k ( admittedly less with depreciation expenses) to get back $37.5k.
There is still a HUGE shortfall between the two, which unless you manage to recover at some point in the future, means that you are going backwards in real dollars!!
And cramping your lifestyle by the reduced cashflow, in the process, for the sake of what ? paying less tax ?? This is not REAL investing….KP
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