What should I do? I currently have to pay $1668.73 every month on my investment property that is on an interest only loan. The rental income I receive is $1428 every month. This is a loss off $240.73 per month. This does not factor in the quarterly bills of rates, water and body corps and monthly insurance. How can I turn this positive or should I just sell? I looked into vendor finance but I can’t seem to get my head around it or where to start.
This was my first property which was a rookie error i think. Thanks if anyone can help
Can you tell us a bit about the property? ie Which suburb & state is it located in? Is it near public transport? Near schools? Near uni? Near hospital? What type of dwelling is it? eg a 3bedroom house? What is the approximate age of the building? Size of land? Size of backyard?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Have you got a depreciation report and submitted a PAYG tax variation. This will ease the pain and may alleviate the need/desire to sell.
JacM wrote:Can you tell us a bit about the property? ie Which suburb & state is it located in? Is it near public transport? Near schools? Near uni? Near hospital? What type of dwelling is it? eg a 3bedroom house? What is the approximate age of the building? Size of land? Size of backyard?Its a fully furnished two bedroom one bathroom unit. Its newly renovated. Its located in Alderely 6km away from Brisbane city. Very close to public transport, schools shops and uni. Its actually in a really good location. Downside is that is on a main road.
Derek wrote:Have you got a depreciation report and submitted a PAYG tax variation. This will ease the pain and may alleviate the need/desire to sell.Haven’t done my tax on it just yet it was originally a PPOR. Need to use my FHOG out of the way lived in it for six months. It was always going to end up an investment property though. It only been an investment property since OCT 2011.
PAYG Tax Variation is a forward estimation of your tax position and differs from your annual tax return. After completing and submitting your PAYG tax Variation the ATO wil send your employer a letter advising them to reduce your pay period tax by the determined amount.
If the property is relatively young the depreciation deductions could be quite significant and worthwhile.
To put a little more perspective on this what is your annual income and how old is the property?
Hi Josef
As your property is not as 'negative' as some I see, I would definitely look into the PAYG tax variation mentioned above, along with some research into how much a depreciation schedule may help.
To help with get your head around vendor finance and where to start, our website http://www.negative2positive.com.au may help.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Derek wrote:PAYG Tax Variation is a forward estimation of your tax position and differs from your annual tax return. After completing and submitting your PAYG tax Variation the ATO wil send your employer a letter advising them to reduce your pay period tax by the determined amount.If the property is relatively young the depreciation deductions could be quite significant and worthwhile.
To put a little more perspective on this what is your annual income and how old is the property?
Thanks for the advice. Im on about 72k per annum however this will increase to 90 to 100k in a 1.5months time. I think I have heard about the tax variation you speak of. I also have a positively geared property so I don’t know how this effects the tax. I only bought the possitive property three months ago.
PaulDobson wrote:Hi JosefAs your property is not as 'negative' as some I see, I would definitely look into the PAYG tax variation mentioned above, along with some research into how much a depreciation schedule may help.
To help with get your head around vendor finance and where to start, our website http://www.negative2positive.com.au may help.
Cheers, Paul
Thanks Paul!
Josef,
ATO will only approve your PAYG Tax Variation based on your previous year's tax return. if you did not get any tax return last year, you would not get any tax variation this year. That also means, if you used your IP as PPOR last year you wouldn't be able to claim your IP losses for this year's tax variation.
Besides, the PAYG Tax Variation only helps with your cash flow, but doesn't solve your negative gearing problem ie. you will still lose money.
The only ways to make it positive are:
1. to reduce costs – anything you can reduce. Maybe self manage your property rather than use a property management company?
2. to increase income – can you increase rent? Rent will increase through time. So eventually your IP will become positively geared. Question is, how long is that gonna be and can you absorb the losses until then?What ever the self proclaimed experts tell you, it is mathematical logic. Either reduce cost and / or increase income.
They'll offer you bells and whistles leading to nirvana – keep a cool mind and an eye on the fees they are charging.Hope this helps.
Catts.
Cattleya
Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.
Cattleya wrote:ATO will only approve your PAYG Tax Variation based on your previous year's tax return. if you did not get any tax return last year, you would not get any tax variation this year.The PAYG ta variation is a forward estimation of next (or the current) year and has no relationship with the previous years return.
While last years return MAY give an indication of what may or may not happen there is no direct relationship as people's situation can change, The key issue is to make sure your forward estimations are as accurate as possible so that you do not end up owing ATO money when your actual return is submitted.
At the moment the OP is only working on cash income and outcome. It is also possible there are non-cash deductions available to the OP through depreciation. If these are significant enough then the property can become cashflow positive (after tax).
For example – if a depreciation report recognises $7000 claimable depreciation then this figure is used to reduce the amount of tax payable. The key issue is the $7000 has not been first paid – hence the phrase non-cash deductions.
Back to opening comment – while the first property you asked about has negative cashflow you may find that, by looking at your overall portfolio, the situation is closer to neutral/positive thereby minimising your total outgoings.
Might be worth stepping back and looking at your whole portfolio position rather than just each property individually.
Firstly what are your capital growth expectations for your location. That is, why did you buy there in the first place and what will make the area grow. Capital growth is the end game and the cash flow of your portfolio is merely the fuel that drives the car.
On an IO loan depending which institution you are with you could probably save around 1% by switching at the moment or go to your existing lender and see what they are willing to do for you. Talk to your broker.
Review your rent. Is there room for an increase? Would the tenant pay extra for chattlles such as a washer and dryer. You only have a small gap to close here which is very doable. Sure you can put in the taxation variation but it does not plug the hole.
Do you have enough equity to build a secondary dwelling – granny flat etc to increase value and maximise the cashflow. Think outside the box -once again it is a very small cashflow gap to close.
Could you release enough equity to purchase another income producing asset of another class outright that would balance the cash flow?
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