I have about 3million in property and debt of 2 Million. we have just had a baby and my wife has stopped working.
We have had a string of bad tennants and property repairs that are causing us a fair bit of financial pain. we have a line of credit for 50K for property expenses almost maxed out.
We dont meet servicability because our rents meet the mortgages, and some property expenses.
I think the bank takes 60 percent of you income for serviceing your loan. Our rent are more then our income. with us 100% of the rent repays debt , (not just 60%).Is there anyway i can unlock some equity without selling one or some of our property, I really do not want to sell then pay CGT.
Banks generally work off a net surplus figure.
E.g. “Wages, 80% of gross rental, other income” less ” tax, living allowance, existing and new debts”…
If you have $1 surplus your are pretty much OK.
80% of rental income is based on the gross weekly or monthly rent. The 20% allows for agents fees, repairs, rates and maintenance etc. Repayments are usually based on rates above the current market to ensure you can afford a few rate rises.
most majors will also take into consideration tax benefits re deductable interest via reduction to the tax in the income calculation.
You need to run your figures through a few bank calculators.
Banker
Not much you can do if you cannot demonstrate serviceability. Best to try different lenders as all of their servicing calculations differ
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
thanks this is very handy.
the bank has said a big no to increasing our LOC. most of our loans are fixed so penalties will be incurred if we refinance so i guess we may have to sell 1 to reduce pressure and gain cashflow.What about getting a second job, even temporarily?
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
– Sell your PPOR so you get financial relief without paying CGT
– Work with another lender, non banks work well for not so strict valuations.
– Apply for the PAYG Variation to get more money in per pay. That always helps.if you have an investment property in both your names as joint title then time the sale for the financial year your wife is not working.
If you own it in both your joint individual names for more than 12 months you get 50% discount.
So if you have one property that has a lot of capital gain it may be better to sell it and cop the capital gains tax.Lets for an example say you had a property with say $300,000 in capital gain joint owned by the two of you sold for $600,000
300,000 / 2 for 50% discount = 150,000 gain
150,000 / 2 for joint ownership = 75,000 gain for both of you.
for an example say you earn $80,000 plus another 40,000 rent so total 120,000
Tax at 120,000 is 38%
say wife earns 40,000 from rent
tax for wife is 30%
So add 75,000 to each income
you pay 75,000 * 0.43( add in medicare) = 32,250
wife pays 75,000 *0.30 = $22,500
Total tax for cgt approx $54,750
so $300,000 minus 54,750 = $245,250if you pay down debt with proceeds pay off LOC and part of your mortgages
2,000,000 – $245,250 = $1,754,750 debt
3000,000 – $600,000 = 2,400,000 value (if prop was worth $600,000)
1754750/ 2400000 = 73 % LVR
so 2400000 * .80 = 1920000
So $ 165,250 breathing space on your debt.I read somewhere in steve's book that sitting on equity can be a waste as you have these serviceabilty problems
where as if you release the equity ,cop a capital gain and pay the CGT it can improve your overall LVR, reduce your debt and reduce your interest costs. When your wife starts working again you are in a better position to buy another investment property as your debt is less and LVR is lower.
thanks for all the comments/advice.
We will sell one of our positive geared property (positive because we have owned it for 9 years) pay down debt on LOC and set the rest in an offset on the ppor ( holding on to the cap gain tax until tax time ),
we may evensell one of the IPs that has made a capital loss to ease the cap gain.
may do an income tax variation to make life easier.
Hi Luke,
Just wondering why you would sell a positive geared property (instead of a negative geared property) if you are concerned about serviceability.
Andrew
itsandrew
Go as far as you can see and you will see further.
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