Hi everyone,
Thank you in advance with help.
My story is:
I have:
2 Bedroom Unit in Emerald QLD – PPOR ( Loan P+I @185K owning $185K) never valued but is around $310K
New house in Narangba QLD 4/2/2 ( Loan IO @ 447K) Split $400K 3 year fixed and $47 K variable. Never valued. Tenants paying $410
We are moving to Mackay next year and Emerald will become IP. Tenants ready to pay $500/week.
Both places are cross-colateralised with NAB :mad: and have Offset accounts attached.
The problem is that Emerald unit is Positively geared when Brisbane is negatively geared. I am not sure what to do ! I need strategy !
I am on $100K + so Negative gearing strategy make sence but I am not big fan of it.
We realy need a car in Mackay so my idea is to get equity from Emerald unit and buy a car and max loan to $240 K and make it IO so it is slightly Positively geared but I am not sure will ATO like this. I know it's sounds like bad idea to get car in this waybut when I can buy outright but I have $40K in offset account that I want to use as deposit for new PPOR in Mackay with different lender.
I am open to any ideas because I stuck atm
Thank you
Sounds wrong on so many levelz (sic).
If you have $40k in the offset, use it for the car and avoid contaminating your loan with non-deductible debt. Then get a LOC from the Emerald Unit for your $40K deposit.
This avoids having to work out how much of your loan is not tax deductible.
What's wrong with having positively geared property? Will you be buying in Mackay or renting there – how is this to be funded?
If all else fails, see a financial planner or accountant to assist.
Thanks Scott No Mates.
Yeah I made few mistakes here and there…
Never though about LOC- need to research. So I just ask NAB to open LOC for say $50K. and use them as deposit with another lander ?
I want to buy in 6 months in Mackay.
Nothing wrong with Positive gearing but I am paying too much tax every year ~ $ 30K and if it is Positive I will pay even more!
Yes, however you will be clearing out your offset account (or leasing a car as part of your new package with your employer), so you will either reduce your taxable income by paying more interest (less from offset) or additional deductibles (car lease).
car is for wife and I don't think I can get novated lease with my company.
if I leave this set up the way it is I will get $200/ week in profit – means more tax
Most companies will allow you to package your salary. Why wouldn’t they allow it?
You might even benefit from a lower tax rate
Hi Devliz
Since your looking to purchase a new PPOR, I'd convert the Emerald loan to interest only now so you don't continue to pay down any more of this deductible debt.
Scott is bang on the money. Increasing a deductible investment loan (which Emerald will become) to purchase a private vehicle (a non deductible expense) will contaminate this loan.
As he said, use the funds from the offset instead so it doesn't contaminate the loan and then access equity against one of the IPs to cover the deposit/costs on your next PPOR. You need to make sure that this loan is set up as a separate split so you can distinguish your PPOR debt from your IP debt.
Be careful with NAB, they'll try and cross up your next PPOR with your existing IPs.
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]
Hey guys thanks for input.
@ Scott: company will issue me a work car and knowing my company they will not accept Novated lease unless I am manager.
@jamie M: Yes Emerald will become interest only IP.
I can't use any equity from any of my IP because they cross -coll and Narangba house is locked for 2.5 years now on fixed term. Scott suggested LOC – thats what I will research soon. I don't want to deal with NAB when buying Mackay PPOR.
My problem is that I stuck between two worlds: Massively negative geared house in Brisbane and massively positive geared Emerald unit. So I need to make choice what strategy to use later.
Hi Devilz,
As others have mentioned, don't pay for the car via a loan, as it isn't deductible debt since it is being used for personal purposes.
I think you may overestimated the positive gearing, with both your properties rented and claiming expenses, your net profit would be in the region of a few thousand for the year, not $10K. Unfortunately we all have to pay some sort of tax.
Cheers
Tom
my math:
Emerald unit $ 900 / month – interest only x 12 = 10,800
tenants rent $450 / week (after real estate fees) x 52 =$ 23,400
Profit= $12,600 – 2K strata – 2K council rates – 1K insurance – 600 extra = $ 7K
Brisbane house: $2400/ month – interest only x 12 = $28,800
tenants rent: $1500 / month (after real estate fees) x 12 = 18,000
Profit: – 10,800 + (-2K council fees) + (-1K water) + (-700 insurance) = -14,500
So I got both words: ( Positive gearing and negative gearing) and I stuck between
But you’re only $7.5k up. That’s likely to come down too if any repairs/maintenance need doing, a tenant leaves etc etc.
It’s better to earn more money and pay tax on it, than to earn less! And you said yourself you’re not a fan of negative gearing.
Can you spend less on a car for now and still afford house deposit with money from offset/loc?
May be able to refinance when you come out of the fixed rate later on.I recommend you to buy a car first with your offset money and then think about a new investment. Good luck!
Hi Devilz
I think the guys above gave great suggestions & advice.
It appears to me that your property portfolio has a (combined) negative return at this point in time.
My understanding on your Math:
The Emerald unit gives you net positive "profit" of $7K.
The Brisbane house gives net "loss" of $14.5K
When we combined both property, you have a net "loss" of $7.5K, which I think what you are after in terms of paying less tax?
You make no mention of depreciation on either of your properties yet the "Narangba" property is new. There should be some mileage in revising the depreciation for both of these assets and getting amended tax returns submitted through your accountant.
My calculator gives you a $7.5k loss as well (more if you haven't taken up any depreciation) – unless of course you own the properties within two separate trusts and can't distribute the loss.
I'd still persue your HR manager with regards to getting a novated lease, many companies do it regardless of position, there will be FBT to be paid (esp if it is 100% personal use ie a car used solely by your wife).
Thanks guys ! Love this forum. it is unbelievable what you can learn from few posts in short period of time.
I forgot to mention: Emerald Unit is 1 year old and fully furnished. Yes Narangba is brand new.
Ok I will use offset money to buy new PPOR in Mackay with different lender.
Car can wait ( see what happens with novated lease)
I will leave Emerald – Narangba pair as it is because I can't do much with them atm.
Totally agree with most of what has been said in previous posts but you have to say what was your NAB Banker or Broker thinking of when they set the loan up like this.
I guess they were not thinking of any benefit to you merely themselves as C/C and a fixed rate.
Certainly have tucked you up good and proper if you even want to move forward.
Don't be thinking NAB for your next IP that's for sure.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
$750k in capital invested and you’re loosing at least $7500+/yr.
I can only suggest you don’t go into business with numbers like those.
Hey Richard, I sent you e-mails before about this story. It is pretty messy…
I spoke with NAB and they said it will cost me $8.5K to brake fixed loan so I can uncross-coll
The story is that I bought second house from so-called investment guru and financial adviser in Emerald who works with NAB only and sells expensive houses with his builder mate and tells everyone how awesome negative gearing is. So I pretty sure he made good money on me.
As first time investor I didn't know anything about investing so made a lot of mistakes with that purchase and I am pretty keen to fix them ASAP and improve my knowledge and experience with your help guys and forums.
Hi Devliz
Sounds like the damage is done with the current loans.
Just make sure they're structured correctly from now on – and avoid using them for your next PPOR purchase. They'll tell you that there's nothing wrong with cross coll and if you take out the next loan with them they'll give you a rate discount on all of your borrowings, etc etc – but don't listen to them, I'm sure if given the chance, they'll make a mess of your next on as well.
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]
Thanks Jamie,
I spoke with NAB before and HAHAHA that's excactly what they said !
I have couple of questions about Emerald unit:
1) It will become IP with IO loan in the end of December – do I need offset account for it ?
2) I have $3000 on Emerald loan that I can redraw before it becomes IP with IO – is it ok do redraw money now?
Thanks everyone
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