Hi all,
I’ve seen a bit of discussion here regarding problems obtaining finance for wraps and I was wondering if the same problems exist when doing Lease Options. My first impression is that it shouldn’t be any different from a normal investment loan (from the lenders point of view) as you are only leasing the property to your tenant up until the option is exercised. Is your lender really likely to care under what terms you tenant your property.
Does this sound right or is it just wishful thinking?
Hi RC,
One of the advantages of lease-options is that because you are just setting up a normal residential lease, it is much easier to get finance as banks assess the loan under normal lending criteria.
So, you’re right!
Bye
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Steve,
Just quickly, thanks for fixing my little login problem earlier [
]In regards to a lease option, as it is actually being rented with an option to buy, is it possible and/or advisable to depreciate the property in this circumstance (assuming it is of an age that allows depreciation)? What are the benefits/drawbacks from this situation?
Cheers,
Matt. [
]Hi Matt,
Interesting question.
I’d imagine that:
1. since you retained ownership until the option was exercised
2. since the option cannot be exercised retro-spectively
I’d be claiming the depreciation up until the option was executed.
Can’t see any drawbacks and the benefits would be the usual tax offset.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Thanks Steve,
Would there be any depreciation recover tax relevant when the option is excercised, or does that not apply to Australia?
Cheers,
Matt. [
]As I understand it if you have claimed depreciation on capital items, then at the time of selling the ATO adjusts your cost base subtracting the depreciation from your initial cost.
Property cost =$100,000
Owned for 5 years depreciation = $5,000
Cost base for CGT calculation = $95,000
so effectively adding $5,000 to your taxable income before the CGT rebate.
Steve may want to verify this
Cheers
Hi Ziz,
So by depreciating the property on a L/O may well put me in a worse position for taxation as my intent is to sell and the depreciated amount will go on to my taxable income?
I hope I understood it right. If anyone is actually doing this, I’d love to hear what the outcome has been.
Cheers,
Matt. [
]As the full depreciation is claimed at the marginal rate whereas you only pay CGT on 50% of the gain you’re probably ahead by claiming depreciation.
Rod.
RC,
The way around the depreciation write down of the cost base is to assigned contract values for the land, buildings and chattles seperately.
As such, and getting a bit technical here, you could assign an ‘at written down value’ for the fixtures and fittings and have no problem with the chattles.
Re: the building, if you purchased it for $100,000 and then used the 2.5% writedown and sold 2 years later (value now $95,000) and then sold it for $105,000 – you would have a capital gain of $10,000.
$5,000 of this gain would be the recoupment of the writedown.
But as RC has said, the 2.5% write down would be at your marginal rate whereas the capital gain could attract a 50% discount.
Conclusion –
Depreciation is a tax deferral rather than a tax saving strategy.
Matt – once the property has been sold you are no longer on title and depreciation benefits now vest with the new owner.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
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