I guess i ahve a few questions
I am a sole parent newbie with equity
but only centrelink child support income. will i lose this centrelnik child support income when i invest.I was told that if i put the properties against an investment property then i wont lose the centrelink a they then look at the loan and not the rent
but that if i do it agaisnt my home then they count the rent as income and not the loan as loss.does anyone know about this to verify it .
otherwise do i need to first hav ea differnt soruce of income before i start investing as this source i may lose if i start investing
or can i take a line of credit and use some of it to rfinances the shortfall between lan and rent. I am worried aobut not hveing enough income to invest in property.
is it true you cant find positive cash flow properties now as easilly asyou could a few eyars ago as that would solve my problem possibly if i could go int opositve cash flow properties taht still ahd growth. is there such a thing still and in melbourne wher ei live.the centrelink and child support incomes wont last forever only a few more years so how should i go about this should i first finda better source of income or how can i go forward.
jasmin.Boy do I know about this situation AND I found out the hard way. At least Centrelink warned you upfront about the cross-collatorisation ruling. Initially Centrelink told me it was ok (just some pleb at the end of the phone not a centrelink financial planner) and I went ahead and bought two houses using my own home as equity.
By the time Centrelink discovered teh situation, there was enough equity in the new houses to uncross them but I owed Centrelink a debt of over 8 grand that Im still paying out of family benefit. I was pretty stressed and peeved about it at the time but now I look at it as a cheap loan.Since that time, (buying in 2003 and centrelink catching me out a yr or two years later), house prices continued to increase in SEQ and I have bought a few more houses. I had to quit centrelink because I was over the asset level. This was bloody scary and it is still a huge gamble so not for the faint hearted but gees it was liberating to give centrelink the flick Now I had to look at high growth as well as yield in my purchases.
I do the big no no as far as steve McKnight's book says, I live off equity and use it to pay debt on any neg geared houses. That is, as my houses increase in value, I refinance and have that money to pay shortfalls in mortgages and fund my lifestyle. If house prices do not continue to rise then I've lost but property is my passion and I keep notice of the market.I have four kids and in 9 yrs they will all be grown. After that I hope to rearrange my strategy to a safer one.
Also I have had a parttime job and renovated houses to increase equity.My advise to you? Go for it. Get your line of credit and find a high growth area. I doubt you will be able to find a CF+ in melb . If you bought a house for 400k and it costs you $5000 a year in rent shortfall, but increases in value by 5% you are still way ahead. Try to find a house with self contained grannyflat for extra income. Or something that you are able to renovate to increase its value. AND make sure it is a bargain to begin with. Take your time and just make low offers till you find someone who HAS to sell.
Keep in mind the Centrelink's asset level of 166k. If your IP is valued at 400k and you put in the 20% deposit and aquire a lowdoc loan, the part you own is $80,000. You could do this twice if you have the equity but it doesnt leave any room for growth, if you want to stay with centrelink payments.
goodluck JasminOH i forgot that you would still have the 80k mortgage on your own home. You could consider downgrading but it is still doable depending on the value of your house and the growth you expect. A loan of 80k would cost you conservatively around 8k/ year which is fine if your house value goes up 20k/yr.
Jasmin,
Centrelink look at the net rental loss of you IP and add that back into your income stream to asses as taxable.
i.e. Interest + costs etc say $20k on your IP
Rent $10k = you lost $10k on that 'business that year'
CL will add in $10k into your taxable income to assess which means an adjustment to your FTax for sure.
If you are going to do it the numbers need to be right so that you come under the FTax B threshold etc.
Send me the numbers you are working with if you need a hand.
The negative loss was the one that really blew me out of the water. Centrelink deem negative loss as income so your centrelink income payment gets reduced.
I had a conservation with Centrelink on how this can be justified and their answer was that you get a rebate from tax and then I responded with how do you get a tax rebate when you do not earn enough to actually pay tax. After talking with centrelink I realised that the rebate is not 100% so why is 100% deemed as income,
I sold the negative income property as I couldn't afford the repayments due to no income and then Centrelink deems the capital gain as income as it was in the same financial year as my payments , so I had to pay back Centrelink for payments I shouldn't have received due to my sudden increased income. Strange how you can't reduce income with a capital loss but Centrelink can deem a capital gain as income.
I call this paradox the Centrelink Welfare dependancy trap.
I also was running a business that wasn't making a profit and they wanted me to fill out another set of forms.
So I stopped filling out their forms and stopped getting welfare payments because it really makes it hard to invest and getting a loan will be hard as they are reluctant to use welfare income in their assessment for a loanThank God, I've not yet had to deal with Centrelink and I hope I never do! These paradoxes of logic would just totally "do my head in" and I think I'd end up speaking "less than politely" to somebody….
Good on you, duckster, for freeing yourself from this cycle.
Jasmin, I don't know how much benefit you're receiving, but if you have some reasonable equity (as I'm assuming that you do if you're considering investing), it seems to me that you could fairly easily replace it by investing, and also "lose" Centrelink. Like Milly, I think that living off equity can be done prudently. By prudently, I mean drawing off only a few percent of the property's value each year – significantly less than the average long-term capital growth level of 8%. That way you should still be increasing your equity.
But don't forget to have split loan accounts – one for the deductible portion (ie the initial loan and for paying mortgage interest, rates, property management fees, repairs etc) and one for your living expense drawings. The interest on that second loan is NOT tax deductible.
Best wishes, Tracey in Brisbane
Hi Milly, congrats. on leaving the Centrelink treadmill. Well done! I've a small experience with Centrelink when I 1st came to Australia when I applied for jobs & no one would help me unless I was registered with Centrelink. I had a fair bit of money but they still gave me $240 per fornight which made me feel terrible as I lined up where I felt I didn't belong.
I accepted 2 payments & decided that I didn't want any of that.
I suggested to a friend that he should buy an IP & he said he'd lose his pension benefits if he did that.
I continued buying IPs while working at a high income job & have amassed enough to have tax problems while my friend still works until his pension arrives.
Jasmin, congratulations on having the courage to think about buying IPs. One word of caution: we're currently in a peak market. IPs still work but you need to find one that is correctly geared & income level allows a safe entry for your current position. The 1st one is TOUGH but at least you have this forum to help you.
Good luck,
Kum Yin
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