Hey,
So some advice from anyone who has been close to my situation would be very much appreciated…. In a nutshell:
Started building a PPOR 2yrs ago – got screwed over by dodgy builder who stole money and lacked the skills to sufficiently perform required tasks. After lengthy delay with BSA (QLD) finally got house fixed and finished but due to timeframe and stolen funds this is our situation:
Mortgage – $400k
Business overdraft & CC (to cover lost/stolen funds) – $75k
Total debt – $475kWe now have to rent out the house as cannot afford it as PPOR, can rent it for $475/week
I estimate the house to be valued @ $550-600k (still waiting on valuation)
Accountant believes that with a $475k mortgage, rent @ $475/wk and all tax write offs associated with a new home that I will still be out of pocket $1160/mth…..(30c tax bracket)
Was the $577 bill for 1.5hrs worth it…?????
Are they on the money….????
After the numerous books I have read I thought it would be a lot closer to $0/wk than $300 out of pocket
Can someone with more experience than I have shed some knowledge on where I stand and some options to move forward so I can purchase some more properties…..
cheers…..
Depends on the expenses you incur !
You could be out of pocket by that much475k mortgage at say 7% interest = $640 dollars a week
Expenses like insurance, council rates, water rates = $2000 guessimate per year could be more ! $40 a week
Now up to $680 a week
Rent was $475 a week
So net income = 475 – 680 = minus 205 a week
$205 * .30 = $61.50 back on your tax a week $143 loss from your wallet a week after tax return refund worked out as a weekly value.
Also note you have to repair anything that breaks down. this has not been accounted by me into expenses.
Your rates may be more , insurance may be more , water may be more
What your accountant may have not told you is you can claim an extra expense on paper
The cost of the building can be depreciated over 40 years at 2.5% a year but the drawback is that you reduce the cost base of the property and eventually increase capital gains tax if you sell it later on.
As an example say it cost you 200,000 to build the house you multiple this by 0.025 (2.5%)
this example it would be $5000 a year in extra paper expenses
5000 * .30 = $1500 a year however you need to be $15660 over the marginal tax threshold for 30 % to get 30% back as a refund
$28 dollars extra a week
You may be able to claim fittings also
You should employ a quantity surveyor to advise you on what you can claim as depreciation on your investment.
They can work out a depreciation schedule for you to give to your accountant.unfortunately property is a long term investment
and cash flow can not seem attractive at first
but this loss is offset by hopefully
a capital growth in the property.
This is where the risk is if you do not make the gain in value to offset the losses incurred.Also 7% interest doesn't factor in principal payments that your loan may be charging as part of the repayments at this moment.
the repayments are not tax deductible only the interest.Not advice rather information to check out to help with options to make a decision.
vendor financing this out may be a solution !
see https://www.propertyinvesting.com/forums/property-investing/help-needed/4335800?highlight=vendor#comment-231536
pauldobson
http://www.jvpropertypartners.com.au/Thanks for the reply, accountant based it on 8% (forgot to mention that first post.) Also plan to get quantity surveyor in.
Just got freaked out at having to potentially pay $1160/mth after rent coming in and deductions coming out…. Our plan is to hold on for the long term – especially in this market as rural/residential sales in our area seem to be quite slow…..
It is a green home made from polyurethane sandwich panels, on tank water, biolytix wastewater (although they are now bust) with plenty of fruit trees with solar coming soon…. trying to create a potentially sustainable green rental which is an avenue we want to pursue…… anyway,
Are we better to keep business overdraft separate and just refinance from construction loan ($400k) at 80% to give us approx $40k available ($440k loan) to try and get 2nd IP? and pay off business overdraft slower @ higher interest rate..???
Any more advice would be much appreciated….
HI Ramayne,
Ducksters a numbers look pretty close to the mark so I reckon you could 'run' with those.
As for refinancing and looking at number 2 V paying down overdraft.
I think you have just had a major fright with cashflow and your first post suggests the property is yet to be rented (it should etc etc) under these circumstances I would try and do the refinance thingy + pay down the overdraft. I expect the O/D is at a higher interest rate than a housing loan so this will also save a few bucks.
Then, when the dust settles, you have a tenant paying rent and you know exactly what you have then ask the question once again. You will then be dealing a known quantity.
Hey Derek,
Yeah house has only just been finished (yesterday) and is available from monday…. Just had meeting with the bank and their figures were pretty consistent with Duckster’s so yeah – sighs of relief all round…..
I agree about consolidating because of higher interest rate on OD, but on the other hand if I keep business OD separate it may give me access to more equity to be able to purchase 2nd IP….????
Saying that though, nothing will happen till next financial year, just learning, learning learning……as I have found out with the build, there’s a lot that people won’t tell you that you have to find out for yourself – sometimes the hard way…!!!!
cheers….
Other costs you may have to consider
* Property Manager costs, unless you manage it yourself.
* Landlord insurance
* Land Tax if relevant
* Rent you have to pay, because you cant live there
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