Recently i put my property up for rent and am now paying interest only with my loan.
The interest i paid last financial year totalled $16, 725. My property is going for $400pw, so total rent earnings for the year is $20, 800.
Does this mean my property is positively geared?
Fearing to have to pay the government tax in the next financial year… although considering i'll have a few deductions due to the expenses ive incurred on the property it probably wont happen.
Cheers for the advice,
Ryan
No – not necessarily.
How much were your other costs such as:
property management fees
rates
land tax (if applicable)
insurance
maintenance
body corporate (if applicable)
other….
You need to factor in ALL of the costs associated with holding the property. If the rent coming in exceeds the total costs than the property is positively geared.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Cheers for that,
In that case its definately negatively geared. Already paid $2k in rates, and property management fees for just the first month are about $1k due to the leasing fee and the property getting cleaned. Plus other ongiong costs in the next 10 months should definately up my deductions.
Thanks
As a rule of thumb if total incoming rent is greater than your Interest rate + 1% on remaining loan amount, then your place may be positively geared.
I have a feeling that you are almost hoping a property is negatively geared? Even if the property is positively geared, you can still claim all of the expenses you have? And you will still have to declare your rent on your tax return anyway?
I mean sure you may pay more tax with a positively geared property, but you will still come out on top.
On a side note – don't forget to claim depreciation as well.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
streamlineinvesting wrote:I have a feeling that you are almost hoping a property is negatively geared? Even if the property is positively geared, you can still claim all of the expenses you have? And you will still have to declare your rent on your tax return anyway? I mean sure you may pay more tax with a positively geared property, but you will still come out on top.From what i read i believe a negatively geared property is more suitable to lower the amount of tax you pay and is more likely to appreciate in value over time.
So from that perspective I do hope my property is negatively geared.
cs_rlewis wrote:From what i read i believe a negatively geared property is more suitable to lower the amount of tax you pay and is more likely to appreciate in value over time.So from that perspective I do hope my property is negatively geared.
Well to claim back on tax, it means you are making a loss. Your property would have to go up considerably to offset that loss and also consider your reduced ability to purchase more property in the meantime.
Further to what Jamie said, he is referring to a depreciation schedule. A quantity surveyor can do this for you. I use BMT. You give their report to your accountant who uses it to reduce your taxable income on your tax return for the next 10 years or so.
Jacqui Middleton | Middleton Buyers Advocates
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Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
NHG wrote:cs_rlewis wrote:From what i read i believe a negatively geared property is more suitable to lower the amount of tax you pay and is more likely to appreciate in value over time.So from that perspective I do hope my property is negatively geared.
Well to claim back on tax, it means you are making a loss. Your property would have to go up considerably to offset that loss and also consider your reduced ability to purchase more property in the meantime.
Lewis read something else. NHG is right. Just because you're making a loss EVERY year it doesn't mean you'll catch up on the roundabout.
Remember -if you are paying tax you are making money.
Hi all,
Sorry, but can you please tell me why a negatively geared property is more likely to appreciate over time?
I hope you are paying 48cents in the dollar tax to want to pursue this avenue of investing! Even then why you would actively enjoy losing money every month has me scratching my head!
Have a read of Steve McKnights book, it'll open your eyes to other ways.
Cheers
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeThere is a school of thought that advocates buying inner city properties at the expense of yield that are probably negative geared at least in the early holding years. They also argue that you need to buy too many cash flow properties to create serious wealth. They also say that inner city investing is safer as the owners in these areas tend to have multiple sources of income and wealth as opposed to cheaper areas where the majority have typically all their income coming from a single wage.
Some also say that the growth rate for property may now reduce down to about 5% and in some cheaper places will only mark inflation. So lets say you bought inner city, brand new and were high income then after depreciation you would still be negative cash flow, but might be in a better long term investment. This investment could be set up so that once you retire it turns positive and pays an income.
Personally speaking, I am not fussed either way but there are some reasons why investors knowingly get into negative geared housing investments.
Personally I'm on the positive geared camp, like Steve McKnight. I also advocate reading his book. It's a good philosophy.
I don't like losing money and negative geared is more risky in my opinion because you're hoping that appreciation will occur and will make you money some time later down the track. I like the passive income aspects of positive cashflow properties, and the fact that it puts money in your pocket month after month – that's one avenue that you can get serious financial freedom.
But each to their own, I guess. Different people have differing risk profiles and preferences and goals.
"they" do say lots of things.
The problem is people tend to lump property into 2 baskets
1) high CG negative geared
2) low/no growth, positive geared.
While there are loads of properties that fit this criteria there are a lot more than 2 baskets.
If the "they" that Bardon is talking about are correct then over time city apartments will double in price and western city property will remain the same price. This will never happen.
Also a property that has been negatively geared for years doesn't magically turn into a very positive property to live off. Sure "IF" the CG is there you could sell it and have equity to live on.
Everyone has their own strategy and if you have time on your side you can wait for (possible) CG. I always wonder when people mention how much their property is worth now compared to when they bought it if they even know how much they have "really" gained considering the losses every year.
Being a number cruncher I know this which is why I changed tactics. I buy low, manufacture equity and cash flow. So I am CF+ AND have equity from the beginning. No "hope" in my strategy.
M.Investigator wrote:Personally I'm on the positive geared camp, like Steve McKnight. I also advocate reading his book. It's a good philosophy.I don't like losing money and negative geared is more risky in my opinion because you're hoping that appreciation will occur and will make you money some time later down the track. I like the passive income aspects of positive cashflow properties, and the fact that it puts money in your pocket month after month – that's one avenue that you can get serious financial freedom.
But each to their own, I guess. Different people have differing risk profiles and preferences and goals.
Getting a bit confused here. In theory if you have a cash flow positive property, wont you have to pay more tax when you lodge your return? Because you have to report all the income you are earning from the property….
Nothing wrong with either way and certainly buying low and manufacturing equity is something many a negative gearing investor will entertain.
I must admit that I have been pleasantly surprised how much my negative geared joints have became less negative geared in the last year alone. This has came about with a combination of dropping interest rates and rising rents. When the majority of your income is taxed at 45% and you are happy getting your cash flow from work then it really does dull the impact of a mild income loss as the short term price to pay for holding the asset.
One of the reasons that my properties are negative geared is that they were initially purchased as a family home when I relocated for work reasons. It just happened that the yield was fairly low on them but I think in the long term this strategy has worked for me in terms of getting to live in a nice house in the inner city, short drive to the office and then converting it into an investment for the benefit of other families that prefer to rent.
Getting a bit confused here. In theory if you have a cash flow positive property, wont you have to pay more tax when you lodge your return? Because you have to report all the income you are earning from the property….[/quote]
Hi all,
Some great explanations here.
Basically, if you make money you pay tax. The more money you make the more tax you pay. (The more you pay your accountant to minimize this tax for you.) If you think of property investing as a business you would never want to make a loss, because the more losses you made, would mean you would eventually go bust.
It depends on what you want to do going forward, I have negative property, but it's for development, so a short term loss doesn't matter. But long term investment has to be sustainable, and depends if you love your job and you want to keep working there to pay the mortgage, while you wait in hope for the property to go up in value. That's why a property that gives you cash straight away in your pocket every month can be a good thing! Think about it!
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeAlso Bardon, you have hit a key point here which is "manufacturing equity". Buying and holding and hoping for capital gain isn't really a way to get rich, it's what 99% of people do……..
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeNot sure about 99% of people doing the buy and hold thing.
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