Hi all, I'm new to forum, pls bear with me. Visited my accountant yesterday re advice but I'm still unclear on some things. My partner and I own a rental property in Melb worth about 750K with a 200K mortgage. We rent ourselves (interstate) and have decent incomes – so we pump lots of extra cash into the mortgage. This year it looks like we'll break even re negative gearing. Consequently, we are thinking of purchasing another investment property. How can we raise the debt (eg. redraw??) from the Melb property to put towards the 2nd property,- so that we can negatively gear both properties??? Should we have separate loans? (that's what accountant said) Is there a benefit to this? We'll probably move into the Melb house in a couple of years so we'd then like to move any redraw available from 2nd property to Melb one. Accountant says this isn't acceptable to ATO bc the redraw funds would be used for private purpose and so this won't help us claim more from 2nd property come tax time.
Any help is very much appreciated.
Your accountant is correct.
Interest deductibility is determined by what the borrowed funds were used for, not the security offered. To but another IP, you could get a line of credit secured against the Melbourne house, to cover the deposit and fees, then get a new loan for 80% of the second IP. I'm sure the mortgage brokers on this site will have some ideas for you.
Guys, the goal to wealth through property is too make money. Buying to create a negatively geared property results in you paying lots of after tax dollars back into an investment that is losing money – cashflow negative for covering rates, b/coporate fees, insurance, maintenance, and property managment fees. The only way you are going to make money thru negative gearing is by relying on capital gains that may or may not occur in the future. At some point in time you will not be able to feed the negative cashflow, which gets frustrating to buy another property – my experience.
My suggestion is you look at how a property can be cashflow positive. You wouldn't buy a business such as a newsagency or cafe if it was going to lose money, so you might want to rethink your strategy so property is generating an income that pays for all or at least most of the outgoings from the outset.
All the best.
WGordon wrote:The only way you are going to make money thru negative gearing is by relying on capital gains that may or may not occur in the future.This seems to be the assumption inherent in the 'positive CF' strategy too. Cash flow is definitely important but capital position (i.e, your wealth) is the bottom line for me.
Paul
You must be logged in to reply to this topic. If you don't have an account, you can register here.
