Hi all,
We purchased our first investment property in March this year and it is currently tenanted until May 2011.
The property is negatively geared to such an extent where we have to input around $25k per year to top up mortgage,property agents etc.
The mortgage is interest only,and due to the GFC is currently worth less that the mortgage by $25k
The area the house is in is only 3 k to Brisbane city and will in 3 years time be on a rail line.
Should we continue to take the $25k out of our savings every year or sell next year when liable for only 50% CGT?
Hope someone can help.
PmcdPM
Couple of quick observations.
$25K sounds like a lot of shortfall each year are you sure this is correct.
Are you sure this is post non cash deductions such as Depreciation / Building Write off as well as any Tax Credit.
Secondly if you sell the property for less than the original purchase price you wont be liable for any CGT rather you will make a
Capital Loss and this can be offset against furture gains.Richard Taylor | Australia's leading private lender
Thanks for your prompt reply Richard.Yes the figure for the 10/11 tax year will be between $20-$25 as estimated by our accountant.Should we sell or keep it..we don't want to lose our savings.
pamelaDont want to appear rude but i would check those figures yourself as i cant think of any property where you would loose $25,000 clear after Tax.
I am not doubting your Accountant but even if the purchase price was $600,000 and you were only getting $250 / week the loss would be nowhere near that.
If it is draining your savings by $25K per annum post Tax and you dont think the property will ever go up over the coming years then i guess selling it is an option.
Still cant get my head around those figures.
I have 1 or 2 properties in Brissie and not one of mine has falled in value since 2008.
Richard Taylor | Australia's leading private lender
Have you had a depreciation schedule done on the property? That'll claw back some tax….
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
How long can you hold it for before you have to sell it as a fire sale? How many other properties will potentially be on the market in the future the same as yours? Have you spoken to your accountant and gotten some other advice as well?
Maybe get 3 agents to value it as well you may find that the value you think it is worth is incorrect. You could pay for an independent valuation too.
I would get the depreciation schedule done as outlined above.
Good luck.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email Meis the property in yeronga….part of the new undergroudn rail link at all? i see they have the plans up on the website now.
Is it rented at current market rent prices?…any scope to increase that to improve your cashflow?
Hi dtrump,
No the house is in east brisbane,near gabba.
Rent currently $450 per week and fixed for 1 year,but mortgage $3500.
Not sure if it is worth dipping into savings that much every month.
Depreciation has been done.Hi, just curious what streets are invovled as part of this rail project?
Regarding your cashflow:
Income: $450 * 52 = $23,400
Mortgage: $3500 * 12 = $42,000
Rent minus Mortgage: -$18,600This is very broad calculations (excl, tax and all other csots, etc)…but i still dont see how that brings you to a $25,000 per year, i assume you must have quite high body corps? Are you on interest only?
Congratulations, you have discovered the market. You can’t hold the gfc to account as our property markets were relatively left unscathed.
But seriously, in a market which is generally rising in all states, how did you manage to get it so wrong?
Is this a new property, they generally depreciate for the first few years.
Get your tax adjusted to account for your Large shortfall.
hi dtrump,
the main street involved in the rail link is wylie street
the figures supplied are before tax,depreciation etc..isn't that still alot to find every month.Not sure how average income earners can manage if they have to put this amount of money upfront each month.How do we make this work to keep this one and get more properties?
Yes the loan is interest only.How do you keep this one and get more properties? the simple answer is you don't. How many of these can you pay for?
I am not being rude, I just don't think it is a sustainable way to go. That is a huge gap. This essentially means you are losing 18-20 odd k every year.
Seriously think about selling. Adjust your strategy to make money, either buy buying well or adding value, developing.
Just sayin..
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email Mepmcd wrote:hi dtrump,
the main street involved in the rail link is wylie street
the figures supplied are before tax,depreciation etc..isn't that still alot to find every month.Not sure how average income earners can manage if they have to put this amount of money upfront each month.How do we make this work to keep this one and get more properties?
Yes the loan is interest only.I agree with the other posts, i'd suggest you might need to take some specialist advice. Perhaps spend $300, to save $25k. In essense if it is costing you $20-$25k per year, you need to be comfortable tha tyou are going to at least make this back in growth in the coming years. If not, i can think of plenty other things to do with that money. Even if you do make it back in growth….the neg cashflow will hold you back in other areas moving forward (e.g. 2x years paying 25k could be ur deposit on IP #2)
Have you had any correspondance from the governemnt regarding if your property may be resumed and if so what sort of compensation you can get?
thanks for your feedback..
dtrump,
the house isn't on the proposed rail link,it s in east brisbane so it will benefit from the new rail link as is only 5 min walk to gabba
If you know of anyone looking for a renovated,3 bed,2 off street car park,3 kms to city let me know!
You can ask your accountant to complete a tax variation form for you so you pay less tax throughout the year – might make things a little easier for you rather than getting a lump sum at tax time
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