If anyone would be able to help it would be great i have recently, broke up with my partner and have the load of a mortgage on my back owing $280,000 property is valued around $340,000. Im 24 yr old and only earning 45k+super. Now i have the chance of moving back in with my parents and renting this property. I have changed the house into my own name with someone as gurantour i can only JUST afford the repayments on my own paying minimum P&I. Thats with the interest rates at the moment on 6.46% variable. If i move back in with my parents it will be rent free i will only have to share the bills. Im aiming to stay there 4 yrs and move back out.
Whats your advise? What should i do? I also would like to make money , not just have this one debt lurking over me for years and years to come. Would it be smart to invest in another property and rent it out soon as i move back in with my parents? PLease tell me some tricks or systems that i can use.
Well I'm no expert and can't advise on the intricacies. But looking at that info, if you're having trouble making repayments, I'd be switching to an interest only loan attached to a 100% offset account, and then save every single cent and rent into this offset account. There's obviously no point in trying to fix now because the fixed rates are going to be unaffordable (as they are usually higher than current variable rates), and at least based on my mortgage, it may not be possible to have an offset account.
100% offset accounts are great. It's like a savings account with the money freely accessible at all times, but the money within earns interest at the same rate as that of your mortgage rate. So if you keep $20K in the offset account it effectively reduces your outstanding loan to $260K and you only pay interest on this amount.
And as and when you want to negatively gear your property to the max, draw all money out of that offset account and you're left with $280K deductible debt. This is assuming you are on an interest only loan.
If you are already up to your eyeballs in debt trying to service the mortgage of just this property, I don't think it'd be a great idea to get another rental property unless of course you find something that is positively geared.
Try to hang onto the property as a investment/rental asap and as fWord has suggested change to Interest Only and get a quantitive surveyor to do a depreciation schedule for you.
It is only a couple of months until the eof fy. When you lodge your tax return your accountant will be able to assist with lodging a tax variation form to lessen your salary tax, resulting in more take home pay."get a quantitive surveyor to do a depreciation schedule for you."
Sorry to ask but what does this mean?
If you are renting out the property you can claim expenses associated with renting it out such as
1. interest paid
2. Water rates
3. Council rates
4. On top of this you can claim 'depreciation' on assets in your rental property (pretty much everything which has a useful purpose on its own can be depreciated) such as the fridge, hot water system etcI've never gotten a Quatitive Surveyor but I'm assuming he comes in and makes a checklist of everything that is able to be depreciated.
Hope that helps
Scab
Good question. I would also like to know about the depreciation schedule. I also agree with fWord. And moving back into your parents rent free for a while would be a financial blessing. Interest only loan with offset account sounds great. I'm in a similar situation to yourself and planning to do the same, but still just learning the ropes and reading as much as I can first. I am only looking at a positively geared properties too.
Ok well i guess i can go in and to the checks myself and take it to my GOOD tax guy
Well the house im in is pretty much neutral geared once i move out, So i was thinking why not take the opportunity and buy a 2nd investment???
Wouldnt that be a smart idea? But then again would i be in over my head when i want to move out lets say 4- 5 yrs from now. Although my wages will be higher id say rent higher aswell… HMM i think its a go ahead, what do you guys think?
what a quantity surveyor is
http://www.aiqs.com.au/What_is_QS/index.htmEach fitting in the house reduces in value over a life span of the item (Carpets, Vinyl floor, Hot water service, Ect)
The quantity surveyor works out the life span, as this is a hard thing to find out from the ATO.
Then the devalued amount is able to be claimed as an incurred expense in earning the rental income.Depending on when the building was built you may be able to claim the devalue amount on the construction costs of the building if built recently. The quantity surveyor works this out sometimes as to when a building was built and what the construction cost was.
This can be claimed over 40 years if renting out the building. This is 2.5% of the construction costs each year.The quantity surveyor then creates a depreciation schedule report to you that you can give to your accountant to do the depreciation component of your rental property at tax return time EOF.
So if you built a house recently and it cost $200,000 to construct then you could claim depreciation expense to increase the expenses by 2.5% of $200,000
which is $5,000 a year, however this $5000 is taken off the cost base which means you pay more capital gains tax in the future.
So $5000 * .30 (tax paid on wage 30% )= $1500 is what you could get back in the tax return from this depreciation.why would someone claim this ?
To increase their cash flow by $1500 a year through a tax refund or via tax variation.In straight line depreciation the amount depreciated each year = original value / life span in years
so 40 years is 100% of original construction cost / 40 years
this equals 2.5% of construction cost per year for 40 years.Fitting depreciation is different as the life spans are usually shorter and it is not subtracted off the cost base but at the end of the life span the item is worth zero and usually needs replacement anyway.
If the house was your main residence it may be able to be claimed as your main residence as you are living with mum and dad for 6 years even though it is rented out ,
check with your accountant on this one as the asset has been split and it may be only for 50% of the propertyI think moving in to your parents is a great idea. Shop around and get a good rate for a interest only loan and pump all your cash into your offset account. Come tax time once you get back the percentage of your costs save that and use that when you are short. You can then also look setting up a tax variation to help with cashflow.
You could also re finance and get a LOC or the like and sit the equity in an offset account to help with costs and or buying another property (don't pump your own money into this offset if you go this option.
a QS report will cost you about $500 and is well worth it. They will find things that you hadn't even thought about and increase your deductions and save you tax. A report or estimate made by yourself or an accountant wouldn't be acceptable anyway.
I would also suggest the IO loan with the 100% offset. Try to save as much as possible in the early stages as it will give you a buffer and save you interest at the same time. Maybe even consider doing the income tax variation so you can reduce you tax each week rather than waiting for up to a year to get your tax back. THis money saved each week can go into your offset and save you even more interest.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi all I’ve notice a lot of people onthis forum say same thing which is get interest only loan and have offset account. All sounds good to me except remember this u MUST HAVE DISCIPLINE and not always tap into it as it sits there like a savings being too easy to access. However if u rnt disciplined such as me ill keep it interest and principle and any xtra money I pump in cannot b taken out. I specifically made it clear to banks so I can’t take bak out so hopefully finish paying off house one day
very True Ninh.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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