My investment background:
I bought my first IP late last year using the equity in my PPOR and an 80% loan against the IP. I bought my second a month later using the equity in my first IP and an 80% loan against IP2. I will soon settling on my third IP and this has been funded by an equity release on my PPOR, an equity release on IP2 and an 80% loan on IP3.
My loan/account setup:
All the loans against my PPOR are with one bank – I have a loan offset for my PPOR and a loan offset for IP purposes (linked to the equity release). This setup keeps personal and investment payments separate. All loans secured against my IPs are at another bank along with 2 offset accounts and a credit card that is used for IP purposes only.
My dilemma:
When I do all my sums ie. total loans used for IP1 and IP2 minus full cost of IP1 and 2 (incl all fees etc.) and minus the fees and deposit I have so far paid on IP3 I should have $10,000 left. But I don't know where it is. I haven't spend it on personal items as it has been kept apart from my own savings and spending accounts. I'm assuming I have used it to pay loans and other bills etc. (although rent should have covered this and even if it didn't in 6 months they shouldn't have amounted to $10000).
My question/s:
Am I going to get into trouble when it comes to tax time — how will I display what I used this money for if I'm audited? Its driving me crazy trying to chase up where all the money has gone especially as its spread out over 3 banks accounts.
How do other people keep track of their finances? It seems it should be a simple case of I spent this, I should have this much left but clearly that's not working for me.
Regards to All
Anthony K
Hi Lila 77 and All,
I see you are past retirement Lila (77) or your still a young filly?
Congratulations of your investment progress,
Don't know where your $10K has gone Lila but here are some points to note.
1. Don't get all your loan money from one lender, Why?
Because all your assets are tied up and if you get into bother they can just grab all you have.
You have no room to move or negotiate. you are better off separating your loans and do not give cross collateral security.
Also avoid personal guarantees whenever possible.
2. Your IO account for the IP is costing you money, Why?
Because if you put that cash into your home IO it saves you interest + personal tax, and while you will not reduce interest on your IP loan the interest is deductible.
You see Lilla it is not necessarily smart to use the same financial strategy for two very different situations.
Regards to All
Anthony K
Hi Lila
I can't comment on where the $10k has gone because I have no idea.
It's probably not necessary to have offset accounts set up against each loan.
Generally speaking, you only need one offset and that should be linked to your non-deductible PPOR debt. You don't need offset accounts against each equity release – you can park the equity release funds back into the equity release itself and redraw later for IP purposes (hope that makes sense).
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]
Anthony K: I appreciate your advice but just want to clarify.
I hope I'm doing the right thing as I have a great and experienced team behind my investing.
I have 2 lenders because they are the ones that would lend me money. I'm expecting to purchase many more IPs so the amounts I have with these 2 lenders will soon be replicated with other lenders. I have threatened to leave bank 2 recently and they came up with a better offer. I stopped borrowing from Bank 1 because they basically stopped negotiating (I left my PPOR though because in some cases the easiest way is also the best way!). I have bank3 waiting in the wings if i need to use them.
I'm definately not cross-collaterising, each loan is separate and secured against one property only.
To clarify the four offset accounts: I have the bulk of my money (ie.99%) in my PPOR offset. Bank number 2 (my broker insisted that when I take out a new loan I open up another account, I argues the point but on this one decided to leave it and close it in the future) – no money goes in or out of this account it just sits there. I don't pay fees for any of my accounts. The offset against my IP that I use generally only has enough money in it to cover loan payments.
As for keeping my personal and investment monies separate I have had trouble keeping track of my money so far (remember the lost $10,000!!) if I combined everything it would be even harder.
Jamie, the parking of equity release does make sense, I didn't do this because my first accountant suggested against it. Since then I have changed accountants!
I'm hoping I might get some replies about keeping track of finances. Are there easy to use programs available for investors?
I keep it pretty simple and use an excel spreadsheet for almost everything – IP balance sheets and household expenditure.
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]
Hi Lila,
$10K in approx 6 months (?) – you need to get to the bottom of this sooner rather than later as it may be an early warning sign of something not being right.
Things to look for.
1. I would go back through each account separately to see if any have seen an overall increase in debt. It could be one of your loans (LOC) is capitalising without any contribution from yourself. If you do this on an account by account basis then any oversights will be easier to detect.
2. Check your initial loan statements with mortgage documents. You may have incurred lenders mortgage, additional fees, establishment fees, valuation fees which you haven't considered.
3. You say 'rent should cover this' – is that gross or net rent. Sometimes management, leasing, letting fees can erode your gross fairly significantly.
As stated earlier start with one account at a time and work out whether it balances. If it doesn't then get onto the lender – I have seen instances in the past where banks have made errors. It took my book keeper (who helped a friend out) sometime to work out where the money was.
Hope this helps.
Jamie: That's basically what I do too. I have a spreadsheet for each loan that is a download (from my online banking) of the interest paid on each loan and the total interest for all IP loans. Another spreadsheet includes the rental income and bills for my IPs. These seem to add up.
I can't help thinking that my first conveyancer has somehow taken too much money. They gave me lots of receipts and I paid them a cash amount (bank transfer) and then the rest was from a bank loan (paid by the bank). On paper it seems it add up but I feel like I'm missing something. They had to return a sum of money to me because they couldn't give me a final figure in time for me to transfer the money for settlement and I remember thinking that they didn't return enough but I justified it somehow at the time.
This solicitor was recommended to me by someone that is a big investor so should have been reputable.
Still need to investigate further.
I've also emailed my new accountant to see if they can go through everything for me. I'm really worried that this is going to come back and bite me at tax time if I can't account for it. Plus I'd like to use this money for another investment.
Wouldn't worry about the tax thing other than the missing 10k could be an expense you can't claim. ATO couldn't give a rats about that. They're only interested in undeclared profit and over claiming of expenses in general.
You'd be surprised how many businesses have an accounting system based on the old shoe box method.
10k is a bit of coin to just disappear of the radar like that. At the end of the day you're probably going to have to do a slow methodical audit of everything to track it down. I'm no bean counter myself so I absolutely sympathise with you on this one.
Maybe the $10k was spent on stamp duty? Post your calcs if you like and we'll see if we can see any obvious gaps
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I am with Jamie i have a couple of IP's and still use Excel to track the income & expenses.
I employ a property manager and she pays all of the expenses checks the income and emails me the spreadsheets.
I then put this information into a simple online Cashbook called Cashmanager which works well.
Have to say whilst i sympathiise with you really you should never be out a dollar.
As Freckle mentioned i think it is a matter of starting from square one and going thru ever entry.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
$10k is a mysteriously round number. Is it exactly $10k you're out, or a number near $10k?
If it is exactly $10k maybe it's due to a typo in your spreadsheet/calculations somewhere?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
JacM wrote:$10k is a mysteriously round number. Is it exactly $10k you're out, or a number near $10k?If it is exactly $10k maybe it's due to a typo in your spreadsheet/calculations somewhere?
Jeez Jacs.. this could turn into one of those Pommy WhoDunits…
I have finally got everything to tally.
The problem was each loan amount was entered into the spreadsheet as the whole amount. I thought that I had included all fees into the capital costs list but I hadn't (only included solicitor fees, utility bills and stamp duty). So this added up to $4500, I have another $3500 in my IP offset account that I hadn't included. I also 'borrowed' $2000 from my myself and its sitting in my PPOR offset account and the final $500 is the amount that I've so far been out of pocket between bills, interest payments and rental income. These amounts have been rounded, it was never exactly $10,000.
I feel a little stupid now but because I have gone through everything with a fine tooth comb I now have accurate spreadsheets and new helpful information added to them too. I've also downloaded electronic account statements so that I no longer have to search through my over full filing cabinet.
The only bad news is I could have done with another $10,000!!!.
Thanks everyone.
Its good when it all adds up ! here is another $10,000 for ya
Good to hear it is tallying now.
If you don't have a depreciation schedule on each property, look into that. Lovely free money. I use a company called BMT (Quantity Surveyors). They will generally give you an estimate over the phone of how much tax deducation they will find you over the phone.
Free money is good
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Dubstep: thanks, I'll PM you my address so you can post it over
Jacqui: I've got a depreciation schedule on one of my properties but I used Washington brown as BMT wouldn't honour a previous quote they had given me – even though I had it in writing. My accountant also said it didn't really matter which company I use (washington brown vs BMT) and I should choose the cheapest. Once my third is settled I'm going to organise both at the same time. I'm hoping for a reasonable tax return this year!
Exciting times! Bring on June 30 then!
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
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