[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

January 6, 2013 - 10:22 am

Your 50% will be private as you live in the house.

Your ex's 50% can be rented out. The tax treatment for them is pretty much the same as if the whole house was rented, they claim 50% of expenses etc.

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

January 6, 2013 - 10:05 am

Example Scenario:

You have a 3 bedroom house. You have the master bedroom and rent the other two rooms to your best friend and another random person found from an online property investing forum

The master bedroom is slightly larger than the other two bedrooms. The master also has an en suite bathroom.

The common areas such as lounge, kitchen & bathroom are shared equally. Total house floor plan is 130m2.

• Master bedroom #1 (20m2) inc Ensuite
• Bedroom #2 (10m2)
• Bedroom #3 (10m2)
• Remaing house area (90m2)

Market rent for a similar house in similar location is $470 per week.

Fair market rent;

• $170 p/w for bedroom #1 (Master)
• $150 p/w for bedroom #2
• $150 p/w for bedroom #3

I only charge by best friend $100 p/w

I charge the other tenant $150 p/w

Tax deduction for interest, council, depreciation/capital works etc;

Total house area = 130m2

Rented house area = bed 2 + bed 3 + 2/3rd common area = 10 + 10 + 60 = 80m2

Rented house area @ market rates = rented area x actual rent / market rent = 80m2 x (100 + 150) / (150 + 150) = 66.67m2

% claim for expenses = total house area / rented @ market rates = 66.67m2 / 130m2 = 51.28%

Also 51.28% would be subject to CGT for this year, but thats another calc upon sale (not counting any PPOR exemptions that might be available here)

Clear as mud?

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

January 6, 2013 - 9:32 am

Your intention and actual use of the property also comes into account in determining whether or not you can claim GST.

If you do a substantial reno which results in a 'new building' (as determined by the ATO) and you originally intend to, and in fact do, sell the property within 5 years you can claim GST. You also have to pay 1/11th of the sale price as GST.

If you do a substantial reno which results in a 'new building' (as determined by the ATO) and you intend to rent the property and in fact do rent the property you don't claim GST. If you were to sell the property within 5yrs you will still have to pay some GST on the sale.

Things get even more complex if you intend to sell but later down the track you decide to rent.

Two key things you need to be across if you are doing a reno regarding GST;

• will the reno result in a 'new building' in the eyes of the ATO
• what is my intention once the reno is complete, rent or sell (document this in case of ATO audit or your intention changes i.e. you reno'd to sell but the market was terrible when you finally completed the reno)

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

January 6, 2013 - 9:13 am

Very unlikely to be in business.

Also even if you could somehow wrangle it to be running a business of holiday rentals you can end up in business banking with higher interest rates and lower LVRs.

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

January 6, 2013 - 8:33 am

I agree with PLC, reno sounds like a capital improvement, tax deductions over time via depreciation/capital works deductions.

Can move in and do the reno, then move out and rent out.

• Reno costs are capitalised into the cost base of the property for CGT purposes
• Property will be eligible to be claimed as your PPOR for up to six years after you move out (though remember you can only have one PPOR at any point in time)
• Once the property is rented get a quantity surveyor to assess the construction cost of the buildings etc (this will capture the reno costs) and start claiming depreciation/capital works deductions (capital works deductions reduce your CGT cost base)

If you rent the property out first, then move in and reno, CGT will apply on the value increase from the time purchased to the time you move in and claim PPOR exemption.

Also this is your first home! You don't want to miss out on the FHOGs which you might if you don't move in straight away.

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

January 6, 2013 - 1:27 am

Yes, just make sure the unit trust doesn't have any borrowings or lends money

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January 6, 2013 - 12:54 am

"I swear, the car was dusty, I just needed to drive it to the car wash. The only car wash I trust with my car just happens to be along the Great Ocean Road…"

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

January 6, 2013 - 12:44 am

Generally you can continue to claim the interest on remaining loan funding the loss on an investment provided these points are met;

• All the proceeds of the sale of the investment is used to repay as much of the loan as possible (don't go on holiday with the proceeds)
• You are unable to repay the loan from other assets, other than the family home (the tax office isn't THAT cruel as to make you sell your home to repay investment loans)
• Don’t refinance the loan to extend its term or increase the interest rate.  You must appear to be doing all that is possible to eliminate the loan.  So refinancing to reduce the interest rate is ok

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

January 6, 2013 - 12:33 am

Agree here, you want the agent to be friendly. When I make an offer that is significantly below asking price I make sure I explain why the offer is so low. Being reasonable in a negotiation rather than just  trying to rip off the vendor.

For example, my partner and I recently purchased a modest block of land in a regional town. Our offer was $30k, $10k below the asking of $40k (25% discount).

Explaining the offer;

• this is the most we can afford to pay for the land, when building a house to rent out profitably
• we purchased similar land near by last year for a similar price
• we had a bank valuation for a refinance on the similar land (with completed build) that came in quite low
• it has been on the market for a long time and we can settle in 60 days
• there is other land we can buy and other offers we have made

That being said, don't be too afraid that'll you'll piss off the agent. Negotiation can be uncomfortable but $10k is a high price to pay for a warm fuzzy feeling

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

November 21, 2012 - 1:04 am

Thanks Jamie. Did you design the spread sheet yourself or use a template?

If you get time it would be great to add your results to the survey. Only if you've got time though, I understand the "I need my finance before Xmas" rush.

Cheers

Richard

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

November 21, 2012 - 12:34 am

Hi Propertyinvesting.com'ers,

This thread has peaked my interest, and I was wondering what method everyone uses to track their investment income & expenses?

I've knocked up a quick 6 question survey,  if you can give me 3 min of your time I'll post the results up here. Should be interesting.

http://www.surveymonkey.com/s/F3FYPTK

Cheers

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

November 19, 2012 - 12:29 pm

No CGT rollover relief available? I suppose he needs to pay this out in cash?

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

November 19, 2012 - 12:20 pm

$100k p.a.? Not bad work if you can get it.

Maybe Steve can add that to his list of  "income accelerators"?

propertyinvesting.com/dating-for-profit ?

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

November 19, 2012 - 12:14 pm

Renting your PPOR to your spouse so you can claim a tax deduction for rental outgoings and mortgage interest is a big no no.

First the tax office would likely argue that as you are living in the property yourself the tax deductions are private in nature. As Terryw states you cannot rent property to yourself, so the tax office would deny the deductions.

Second the tax office could try use Part IV A of the tax act. Very big for potential for Part IV A to apply here.

Where you do something for a tax benefit and it can be said objectively that the dominant purpose is to obtain a tax benefit, Part IV A can be used by the tax office to deny you those tax benefits.

Why would anyone rent their own house to a spouse and continue living in it…? Why not just let your spouse move in…?

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

November 19, 2012 - 11:53 am

5 Bedrooms likely to be rented to 5 tenants (students)?

Hard to find finance for student accommodation?

Is there better cheaper student accommodation coming online soon?

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

November 19, 2012 - 11:47 am

Discretionary trust for future creditors, but make sure you don't have any outstanding unpaid beneficial entitlements.

Pre-nuptial agreement for future ex-spouse? But I don't think these work much in Aus?

Terryw or someone else have any war stories about pre-nups?

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

November 17, 2012 - 8:42 am

A financial advisor might be overkill. You might also struggle to find someone to do this quickly and cost effectively.

The majority of financial advisors are more interested in selling financial products in my experience.

Your mortgage broker should be able to help work out changes in repayments for changes in interest rates or if you're IO just times your loan amount by the change in interest rate to work out your additional repayments per annum.

You can use comparisons from realestate.com, real estate agents, bank valuations etc. A good property manager might be able to help you consider all the rental outgoings and you can get quotes for insurance etc fairly easily.

If you are using a spread sheet or other program to crunch the numbers it might be worth getting someone else to cast their eye over it all (mortgage broker, accountant, experienced investor or the like) Changing the inputs and analysing the outcomes is a good way to start as well.

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

November 17, 2012 - 8:16 am

"I'm also newly graduated from Uni and awaiting more significant employment so beside my part-time position, finance is tight at the moment. I have managed to save a modest sum of $15k and wish to break into property."

$15k with a uni degree at the age of 23 is hardly modest! You're being too hard on yourself! 

Yes, $15k is not likely to be enough to get started in property just yet, but the first one is the hardest in my experience.

In my experience getting full time work was key to starting. Getting pay rises but not increasing my spending habits by as much.

Also joining forces with a partner can help you start. I purchased my first property with a close friend (which is not without it's dangers, though perhaps not as dangerous as never starting?) and continue to invest with my partner today.

I remember it being very hard to stay motivated to learn and research deals whilst not having the means to actually execute them. However, I believe this pays off and helps you start to identify the good, bad & ugly deals.

Keep hustling and don't forget to give yourself a pat on the back now and again for all you've achieved thus far:)

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

November 17, 2012 - 7:42 am

"How can I prove to them that this is a safe method of investing and there is minimal risk involved with the right deal being purchased?"

Investing is always risky, that is why we generate a return. Key is to manage the risks. Try documenting all the risks associated with your deal. Try to access the financial impact of these risks, the likelihood of the risks actually occurring and how you might mitigate the impact of these risks should they occur.

i.e. what happens if;

Interest rates go up? How likely is it that interest rates go up by 1%? What is the dollar impact on your repayments? How can cover the additional repayments? How high can rates go before you are in trouble?

House prices fall?

You lose your job?

You cannot find a tenant?

You under cost your deal and have unexpected costs?

etc…

Don't let the risks scare you or your investors off, have a plan to assess and manage the risks.

Example:

Identified risk – Cannot locate a tenant

Likelihood – Low, vacancy rates in area = 1-2%

Financial impact – $230 p/w whilst untenanted

Mitigation strategy 1 – a use a property manager, who can help find good tenants

Mitigation strategy 2 – lower rent, we can afford to go to $255 p/w

Good luck

[Kohlhagen GroupMember@kohlhagen-groupJoin Date: 2011Post Count: 58]

November 9, 2012 - 4:50 am

Far out! So many issues with 10% of the purchase price at stake.

Like Scotty says go see your accountant asap.

Issues you should be discussing with your accountant;

Are you required to be registered for GST?

Should you have back dated your registration to 5 Nov 12, can this still be back dated?

Did you register for GST on a cash basis or accruals basis?

Was the margin scheme used?

Did you purchase the commercial property as part of a going concern?

Per the ATO;

You cannot claim GST credits if any of the following apply:

•     the seller used the margin scheme to work out the GST included in the price
•     you purchase property from someone who is not registered or required to be registered for GST
•     you purchase the property as a GST-free supply
•     you are not registered or required to be registered for GST.