Hello All,
I have a negatively geared IP. Of late, the tax return has been diminishing because I have been paying interest and principal (I do want to pay the principal) and a little bit more – whenever I find any spare cash.
Now I have enough equity in there (approx. $100k) and I want to get more tax return. But I am nervous given the economic condition, can lose my job, etc, etc. So what do you think I should do?
I thought of shares because it is more liquid. But am not familiar with shares and the going ups and downs make me nervous. Besides, Super is already in equities so in the interest of diversification I thought it's probably better to think of something else.
Any suggestion is much appreciated.
Thanks,
Catts.Cattleya
Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.
Hi Catts
Without knowing more information in regards to your Financial position, risk appetite etc it is impossible for any of us to make a suitable comment however I wouldnt suggest buying another IP merely because your tax deductions are falling.
Look to buy the IP or other asset class because you believe it will give you a decent cash flow with the possibility of long term capital growth and the Tax deductions come as icing on the cake.
I can understand why you would want to pay down the principal on your current loan but if you are concerned about your own employment position etc i would have thought that an interest only loan with 100% offset account would have been the preferred way forward. Any surplus funds could be used to cover personal expenses and provide a financial safety net whilst at the same time offsettting the interest charged.
On a separate note remember there are a few things you can do to offset some of the risk when buying an investment property
i.e Fixed rate of interest / Landlords insurance / Income protection etc etc.Whatever you do make sure you do it because you believe it is right for your circumstances and not because you are being sold something by someone else.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Cattleya,
I have also considered the share market also but after a couple of years of watching and learning the markets I have decided I really don't want to gambling with our money, or endure the constant stock market review every 10 min's.
If you are not familiar with shares, leave them well alone.
Cattleya wrote:Hello All,I have a negatively geared IP. Of late, the tax return has been diminishing because I have been paying interest and principal (I do want to pay the principal) and a little bit more – whenever I find any spare cash.
Now I have enough equity in there (approx. $100k) and I want to get more tax return. But I am nervous given the economic condition, can lose my job, etc, etc. So what do you think I should do?
I thought of shares because it is more liquid. But am not familiar with shares and the going ups and downs make me nervous. Besides, Super is already in equities so in the interest of diversification I thought it's probably better to think of something else.
Any suggestion is much appreciated.
Thanks,
Catts.Hiya Catts
Any particular reason why you're investing to bolster your tax return? That implies you're making a loss.
Don't get me wrong – I like the benefits of negative gearing but I wouldn't use this as the major driver behind my investment decisions.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
My strategy / risk appetite:
1. Risk averse – after all I am an accountant and work in a Bank. I understand the risks associated with Banking, gambling shares, etc. Hence, I like to see my wealth grow steadily though somewhat slow but I don't want to get short term shocks / sharp decreases.
2. I like to have a lot of buffers – I like to have approx. 6 months worth of cash. I currently have a little bit more than 1 year buffer.
3. My investment is for long term ie. to generate retirement income. So I keep what I have and add more, rather than swap what I have for bigger ones. Besides the costs are so high (stamp duty + solicitors fees + agent fees, etc etc) why bother swapping? Just get more new ones.
4. Quality is important, but quantity is definitely desirable. So rather than have 2 big houses in say Kensington and Vaucluse (blue ribbon suburbs), I'd rather have 1 house in inner west (still very good but much more affordable) with apartments in various blue collar and white collar suburbs.
5. I like a simple life. Simple also means flexibility. Bells and whistles usually comes with higher fees and difficult to monitor. So I do not cross collateralise, etc. The only bells and whistle I have is 100% offset facility. Everything else is simple and cheap.Income is $110k. Total purchase price $1.5mil, bought between 2002 – 2007, never been refinanced ie. I've never dipped into the equity. LVR at the moment is 72%. Last year I got $21k tax return and this year I am struggling to get the same amount though income has been static.
I do have 100% offset facility, Landlord insurance but not income protection. This is because I have 1 year buffer ie. I can not work for 1 year and should still be able to pay off my dues.So the way I see it, I am too liquid and need to invest again. I'd be very interested to know if you think otherwise.
To answer Jamie's question on negative gearing:
Yes, I am losing money, but only part of it.
My cash flow analysis show that on average, I pay a third of all costs, tenants pay the other third and tax return funds the last third. Yes, I am losing money, but I hate paying too much tax. And too scared to do any tax fraud. So I am honest, just taking what I am entitled to.Any comments is much much appreciated.
Catts
Cattleya
Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.
The key to investing is to ‘make profit’ … pure and simple. It’s always a good idea to continually and consciously remove the emotional attachment from investing and understand that it is about the profit. Emotion can easily creep in and cause you to make mistakes.
I have assisted clients with solutions to cash-flow issues …. one client changed their portfolio by buying a cash-flow business to support the investment property portfolio. In their case they purchased some ATM machines that required no time on their part and provided them with suitable cash-flow they required. There are many other great solutions if you know who to talk to and where to look.
Obviously everyone’s situation is different and all factors need to be considered and it’s important to gain advise by a licensed, qualified and experienced professional
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