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- Quote:As the title suggests, what would be a realistic IP value I should target? ie. 500K 750k. I am trying to minimise tax, as at the moment, payiong tax on 120k is not pretty, and would like to negative gear using my equity in my home. I am 33 and so looking to a long term plan, not just a quick term solution ie. margin loan for a quick fix. Any idea? BTW I am looking at property in the SE seburbs of Melb. Would people go for land value or new units (ie. to maximise the depreciation and minimise the tax)? Thoughts would be greatly appreciated.
Everyone has been saying buy 2 cheap ones but why not go for a well located penthouse maybe in the CBD. Usually they have much better growth than 1 or 2 beddas and your depreciation will be high aswell.
Going for tax benenifit only is sucide. So make sure you invest in something that will appreciate in value as well.
I did an Investment Analysis for you by using a penthouse as an example. Now remember if you buy a brand new penthouse you'll be paying atleast $1mill. If you buy one OTP in Melbourne then you can get away with the building stamp duty. That's savings of atleast $30k. 3beddas in a higher level is also a good option.
I had a look at Melbourne Docklands Penthouses and they are renting atleast $1200/week so I'm using that as a guide.
I think your tax payable should be $35k something but it says $37,500 so we'll just go with that.
If you multiply $358/week by 52 weeks then you'll have to pay $18,616 out of your pocket. That might seem alot but if you add that up with the NEW TAX PAYABLE it adds up to (18,616 + 13,246 = $31,862 ).
(Old Tax Payable) $37,500 – $31,862 (New Tax Payable + Repayments) = $5,638
So you’re actually better off by $5,638 by investing than if you don’t. But if you do invest then the guys at the tax office definitely wont be happy since you’re gonna rob them of precious tax money.
Also if we calculate the growth of your property at 10% p/a then in 10 years time your $1mill property will be worth $2,593,742. That’s a cool $1.5mill by doing nothing.
If we break that $1,593,742 in to 10 years then on average you would have made yourself $1,593,74. Let’s say your property also works 52 week every year so we’ll divide it by 52 week which comes up at $3,064/week.
Now lets say your property works only 5 days a week like yourself I’m assuming. $3,064/5 = $613 per day. Even though your property is working 24/7 to make you money but lets say it also works 8 hours a day from 9-5. $613/8 = $76.6 per hour. Your property is actually making more money than you are by earning $76.6/hour.Now imagine if you have 5 of these over the next 20years. $76.6 x 5 = $383/hour. If you buy one every 2.5 years and nothing after the 10th year.
Obviously the analysis below is just an example. If you want me to make any changes to it then let me know.
Astrawan wrote:Great advice there Paul – certainly help to expand my blinkered vision of investments.. btw, any advice on commercial property thrown into the mix here anyone?
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AstraOnly if you can handle the risks involved. Commercial property is very much dependant on the economic and business growth of that particular area, state or country. If those two are down then there will be less demand for commecial properties meaning: lower rents, longer vacancies (upto a year), low capital growth. Usually with commecial you have to give free rent periods such as 3months or 6months and maybe 1year depending how long the lease is for.
And certainly not for newbie investors. If if you have atleast 3 or 4 residentials with a good income to be able to make interest repayments without getting any rent for those long vacancies then you can give it a try.
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