Hi Everyone,
Been reading these forums for over 4 months and have taken so much information in.
Just last week I rented my PPOR out and moved into a rental with friends to save money for another house.
I decided to do all the paperwork and advertising myself as it seemed easy and faster.
I advertised it last Wednesday through a website and had 12 emails of interest within 12 hours. The first people to contact me viewed it the next day and filled out the application of interest. Provided photocopies of license, bank details/income and references. Family of 4 two kids who want to rent the house for a long time. Lease is 12 months for now.
Called the references the next day and asked them the standard questions which were fine. Called the new tenants and said i was happy for them to move in. They paid the bond and two weeks rent by bank cheque which clears in two days.
I moved out last Friday, they signed the lease for 12 months and bond form and moved in on the Saturday.Three days seems really quick to do all this and i hope i got everything done correctly.
Main questions i have are:
1. Does anyone have problems with getting bond and 2 weeks rent by cheque which takes time to clear? Weekly rent will be by internet transfer
2. When would be the first time i should be an inspection? 2/3 month?
3. Should i create a separate bank account for the rent to come in? I've given them details for my savings account
4. Any rules on picking up my mail that i've missed out on changing the address. Should i just get them to tell me by email when they have some? Not a fan of PO box or giving them my current address?
5. Should i change my loan to interest only and how much would this save me a week?
6. I've got mortgage insurance which covers building, tenants defaulting or rent if the house becomes inhabitable. All this is tax deductible but should i keep it for the whole period of the lease?
7. Gearing. Below are the figures for my mortgage, rent and landlord insuranceDescription Weekly Monthly Yearly
Rental Income $450pw x 4 = $1800pm = $21600pa
Mortgage $445pw x 4 @ 6.9% PA = $1780pm = $21360pa
Landlord Ins $018pw x 4 = $0072pm = $00864pa
Total Rental $ $013pw x 4 = $0052pm = $00624pa
This will still be just negative geared as landlord insurance just puts it over is that correct?
The loan is 300K for 30 years, 2.3 years into it. Have 252K left. 30K is with drawable with no costs. Should i do something with this? Problem with my loan is i can not get an offset account as it is a staff type loan.
Should i go to another bank to get an offset account but i dont know if i can get the same rate of 6.9% with no account fees and interest paid every three months, interest calculated daily.
Any suggestion would be great. Sorry about the long essay.
Dear RyanJD,
You kinda lost me somewhere… but here’s some thoughts about your questions:
1. Does anyone have problems with getting bond and 2 weeks rent by cheque which takes time to clear? Weekly rent will be by internet transfer
I don’t understand the question, Ryan. So I will leave it. For myself, all my tenants direct deposit their rent into my home loan account.
2. When would be the first time i should be an inspection? 2/3 month?
I think you do an inspection within the first three months in the beginning. Once you have established that they are good tenants, you stretch it to six months. Once they’ve been there over a year, and you’re still satisfied, you do it once a year.
3. Should i create a separate bank account for the rent to come in? I’ve given them details for my savings account
Personally, I get my tenants to bank it straight into the home loan. But that’s just me.
4. Any rules on picking up my mail that i’ve missed out on changing the address. Should i just get them to tell me by email when they have some? Not a fan of PO box or giving them my current address?
PO box is a good investment. However a request to redirect your mail via Australia Post would be the best option.
5. Should i change my loan to interest only and how much would this save me a week?
You can change your loan to interest only to give you more disposable income. To find out how much you are going to save simply multiply loan balance with your interest rate and divided the answer by 12. The difference between this and what you’re paying now is what you save. Example: $100,000 loan balance x 7.09% = $7,090 / 12 = $590.83. If you were originally paying $700 per month, this is a saving of $109.16.
6. I’ve got mortgage insurance which covers building, tenants defaulting or rent if the house becomes inhabitable. All this is tax deductible but should i keep it for the whole period of the lease?
Yes, always always have landlord insurance. Never, never go without one.
7. Gearing. Below are the figures for my mortgage, rent and landlord insurance
To simplify: You are negatively geared if you are out of pocket. Example: If the income from the rent is $100, and your costs (mortgage interest payment + out-goings) amount to $105. You are negatively geared by $5.
I hope this helps.
Take care
angel
Hi Angel, thanks for the quick reply and information.
With the cheque, i mean do people have problems with letting the tenant moving in before the cheque clears or afraid the cheque could bounce?
With the bank account i didn't know if people have separate ones for security reasons or because its easier to keep records for personal and tax purposes.
Australia post redirecting mail is a great idea thanks, cant believe i didn't think or read about it.
With disposable income do you mean as i only pay interest on the loan the principle amount i can use for something else?
so $252,000 * 6.09% = 1534680 / 12 = $1278. Monthly repayment of $1925 – $1278 = $647 / 4 = $161 pw saving.Is that correct? sorry im really bad at maths.
Also does that mean i can claim the $161 on tax because it is interest?Hi Ryan,
Generally, rental managers only accept bank cheques so tenants can move in straight away without having to wait for the bank cheque to clear. Personally, I wouldn’t allow anyone to move in until the personal cheque clears.
The bank account issue is really up to you. What will make it simple for you? Managing the property takes a lot of time. If you can make things simple, you will benefit from it. I choose to get my tenants to bank to the home loan because it is what works for me. There is no right or wrong approach.
The amount you “save” by switching from P and I repayment to Interest only can be used for whatever you want, hence called disposable income. It also helps with having some “extra cash” available if you are looking to add to your property portfolio. This means you can borrow a little more for the next property if you have some cash left after servicing all existing loan commitments.
You can’t claim the $161 on tax. That $161 is simply cash you get to keep by reducing your repayment to the bank.
You can claim the $1,278 because it is what you paid as interest. For negative gearing purposes, you add up all your mortgage interest repayment and all out-goings and subtract this from the rental income.
Example:
Total rent received: $100. Total interest and out-goings $105. You are able to claim a tax deduction on the $5 loss you suffered.
2nd example: Total rent received $105. Total interest and out-goings: $80. you will be taxed on the income of $25 you made. This is what is known as positively geared.
Hope this helps.
Angel
Without going through points 1-7 i will comment on a couple.
Point 3) The loan should be changed to interest only. Ideally it would have a 100% offset account attached to it although this i understand is not possible (unless you have other non deductible debt) so maybe have the rent paid into a high interest bearing account.
Do not have it paid directly into the home loan as when you draw the rent out it is only deductible if the purpose if for investment.
You take out $100 and go out for dinner and you have just contaminated the whole loan.An offset account not only protects the status of the loan but also reduces the interest payable.
You cannot redraw $30K and claim a deduction on it now.
It sounds like you work for a Credit Union if payments are credited in quarterly rests. Hate to say the effective rate of interest will be higher than quoted. Maybe worth switching depending on the lvr.
Point 6) Mortgage insurance does not protect you at all and is an insurance you pay for that protects the lender.
I am assuming you are getting confused with the cover.7) In your negative calculations you have made no allowance for Building Write off and Depreciation claims.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Qlds007 thanks for the info
Yeah I've mixed up a few words.
Number 6 i mean landlord insurance not mortgage insurance.
Number 7 i still need to sort out depreciation as i did renovations a few years ago when i lived there.
What do you mean by building write off? how would that work?With the 30K it is extra i've payed into the loan but i can take it out whenever i wont without any changes. How does the interest work if i take it out. Would it stuff up anything? I work for a Bank.
When i purchase another investment property i wanted to use the 30K as a deposit.
Dear Ryan,
Richard has a point regarding an account for rent payment. Mine only works for me because I don’t use the rental payment for anything else but mortgage payment.
Take care.
Angel
Well done Ryan
And don't forget to take into account the council rates, and any other expenses you incur – repairs too.
I think it is a bit dangerous in accepting cheques these days, but hopefully it won't bounce! I would suggest IO loan too.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
ah yes Terry, thanks for that forgot to add council rates. Anything else besides repairs?
I've got a redirection on my mail to my new address any chance that can be put as a tax deduction?The cheque cleared today so all is good.
The main reason i decided to do this all myself is that i got two real estate agents to do a free apraisal on how much rent i could get, first said $350 2nd said $360-370. Seeing my tenants offered $450 for 1 year i thought i better do it myself seeing they got it so wrong.
Does anyone know a bank i could get IO loan, interest rate 7.0% or lower and 100% offset account for free or cheap per month?
Ryan
There are a few lenders that meet your criteria as long as you meet there's.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi everyone thanks for the advice, I've just got a few more questions.
I've got my home loan changed to a new product with the same bank. Its gonna take about two weeks to change it all over. The bank doesn't need any information or appraisal on the house as i work for them.
The loan is 7.10% PA, 100% offset and also to interest only for 5 years. No application fee, monthly fee and my everyday account is changing to the offset account.
The question i have is that I've moved all the extra money on the loan to my everyday account. soon to be offset account.
Can i still claim it as a deduction since the loan is new/changed?I've also been approved for an additional loan to purchase another investment property. I'm gonna start looking for properties but with all the news reports about property i don't know weather to wait a few months. Even though i don't take news seriously since they change there mind every couple days.
Last question that comes to mind is with the negative gearing is all of it given back on tax or is it a certain percentage?
Hi people just two more questions,
1. Is it best to have two separate loans for easier tax recording or have one large loan so the offset account goes to the one.
2. Can you have one offset account for two loans?Yes i would separate the loans in fact i would have 3 loan splits otherwise you are going to end up cross collateralising the loans and that certainly is a big No no.
You could have 2 offset accounts depending on the lender but the question is why would you bother unless you have a decent amount of money sitting in the account and needed to offset more than the first loan balance.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard how do you mean split it into three loans?
My current loan is getting switched into a new loan and when i purchase another property ill get another loan for that?
What do you mean with the third one?As the loan is new can i just start recording interest and deductions from then to make it easy for who ever is going to do my tax?
The tenants only moved in last week so wont make much difference?
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