All Topics / Help Needed! / About to purchase first investment property and I am already confused

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  • Profile photo of megb6806megb6806
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    @megb6806
    Join Date: 2014
    Post Count: 2

    Hi. I am wondering if someone can help me out here. My wife and I put a offer on a property we are purchasing, two days ago. (19/04/2014), The contract for sale of land has been signed by wife and I and we are about to pay for the deposit, around $1000. We still haven’t applied for bank loan, we are doing it tomorrow through a local broker.

    I have read on a forum that there’s not much point in putting a negatively geared property in joint names when the wife is not working. In my particular case my wife only works part time and she doesn’t earn much, only $25000 a year.

    Do you think I should change the contract for sale and have it only under my name as I pay more tax in order to maximise negative gearing of an investment property????

    This is my first invesment property and as you can see I might be asking trivial questions but at this stage I am abit confused.

    Profile photo of wilko1wilko1
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    @wilko1
    Join Date: 2010
    Post Count: 510

    Providing your income alone is enough to fund the purchase, then yes,

    but you have to think a bit more long term then Just the first 1-4 years of the property.  Whilst it might be negatively geared upon first purchase.

    what is going to be the case in a couple years time.  It could be positively geared, so would be better to be in your wife’s name as lower tax bracket.

    but I think in this case depending on how high your income in best to buy in your name. Seek a accountant to have them run some numbers with depreciation and other costs involved against your current wage.

    Profile photo of wilko1wilko1
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    @wilko1
    Join Date: 2010
    Post Count: 510

    Plus another advantage is whilst you might be able to afford to buy using in your own name currently. you might only be able to support a couple of negatively geared properties before you cannot service anymore debt, which is when you can add your wifes income into it and buy in joint names from then. You wouldn’t be able to do this the other way around (Would have difficulty servicing the debt in own name after several joint name purchases)

    Profile photo of JpcashflowJpcashflow
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    @jpcashflow
    Join Date: 2007
    Post Count: 575

    HI and welcome :)

    before you put an offer on any property it is always important to do your due diligences:

    1) speak to a lawyer and accountant

    2) see a broker ASAP either Jamie or Richard on this site can look at your situation.

    Also on the contract have you put a subject to fiancé clause?

     

    Jpcashflow | JP Financial Group
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    Your first port of call in finance :)

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Meg

    Welcome aboard :-)

    I’m not an accountant so recommend you seek professional advice on the matter.

    Generally speaking, if a property is going to be negatively geared then it’s ideal to have ownership (or a large portion of) in the higher income earners name as they pay more tax. Likewise, if the property is positively geared then it’s best to have ownership (or a large portion of) in the lower income earners name because they currently pay less tax.

    However, keep in mind that rents tend to go up over time – so a property can be negatively geared today but move into positive down the track.

    When it comes to borrowing, you can have both of you on the application (for borrowing capacity purposes) but just have one of you on the contract/title of the property (it just needs to be clearly explained to the lender that you’re doing so for tax purposes).

    Lastly, if you own other properties, please make sure that they are not cross collaterised with this purchase. Also make sure that you maximise the deductions against this IP purchase by using borrowed funds to cover the deposit/costs rather than cash (this only applies if you have equity in another property already).

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of megb6806megb6806
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    @megb6806
    Join Date: 2014
    Post Count: 2

    Hi. Thanks guys for your responses.

    Yes the contract has the clause “subject to finance”. This will be our first property and I am planning to get an interest only type of loan.  In this case how can a property move into positevely geared if I am only paying interest? The current tenant pays 350 a week and according to a preliminary calculations the interest only loan will have a monthly repayment of around $1800, so I would have to pay from my own pocket. I dont earn that much only 62000 a year so I dont think I will be able to get a loan by myself without my wife salary (25000), our own home is valued around $550000 and it has been paid off. ah and have to dependants, 8 and 11.

    So do you think a  broker should be able to give some good advise or an accountant?

    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
    Join Date: 2009
    Post Count: 2,539

    Technically only an accountant or financial planner can give you “advice” on financial position.  However the cashflow position of the property will be obvious to a good broker.

    Generally a property on an interest only loan can become cashflow positive either by starting out as a positive cashflow property (sounds like this property is not in that category); or by you piling money into an offset account against the loan in order to reduce the interest payable; or by letting time do its thing and increase the rent each year; or a combination of these things.

    Jacqui Middleton | Middleton Buyers Advocates
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    In this case how can a property move into positevely geared if I am only paying interest?

    Usually due to the rent going up over time.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,018

    Nether of you are in a particular high marginal tax bracket so i think it is relatively immaterial.

    As Jacqui mentioned without any current PPOR debt your broker will i assume split the loan up between the property being purchased and your PPOR and link an offset account to one of these splits.

    The loan can still be in joint names even though the Title is in one name only.

    There are other considerations especially if you are happy living where you are and are interested in paying the IP debt down to generate more cash flow. If so then a DFT structure comes into consideration.

    Not a black and white answer.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,190

    As I mentioned on somersoft there a many different implications as to which name you buy in. far reaching conseequences which you may not be thinking of. Changing things later will be costly and have further consequences.

     

    You should speak to a solicitor rather than an accountant and you should also speak to a broker regarding the loan consequenccess both now andn into the future.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of fsatarfsatar
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    @fsatar
    Join Date: 2014
    Post Count: 17

    To get the maximum benefit (if buying for tax reasons) you should also look in to buying new properties as you will also be able to claim against the depreciation of the property.

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,018

    No sensible investors buys for tax reasons alone so i think it is best if we ignore the last posters comment.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of fsatarfsatar
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    @fsatar
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     @Qlds007: did you read all of the original question carefully? If not here it is:

    • Participantmegb68062nd paragraph: I have read on a forum that there’s not much point in putting a negatively geared property in joint names when the wife is not working. In my particular case my wife only works part time and she doesn’t earn much, only $25000 a year.” 

    So obviously this person is looking to do negative gearing on his investment property, specially when he is in the high tax bracket which is a very wise move, unless you totally disregard the user’s aim as well as my comment. Now if you knew anything about negative gearing you would not put such a reply on my comment: “No sensible investors buys for tax reasons alone so i think it is best if we ignore the last posters comment”.

    ALL sensible investors in the high tax bracket negatively gear their properties and put the savings back in to the property as its a way of paying off the property sooner. To be more effective in the negatively gearing process  any sensible investors and/or their advisors must look at how to reap the maximum benefits of this process. To do so any professional accountant will tell you that its best practice to go towards a new property and claim back the depreciation. Please look up this subject before you reply back.

    By your signature I can see that you work in financial solutions but by your last comment I sense that you really do not have sufficient knowledge about this subject therefor I suggest that you do some more research before giving anybody advise on this matter. If you are a professional please look this subject up before you reply and/or delete my comment as you so happily suggested to do on my other post about capital gain.

    Regards,

    Frank Satar

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    Ah folks another come and go newbie with wares to sell so be careful.

    Seriously sunshine if you think the poster is in a high tax bracket then I think your total understanding of the negative gearing is flawed.

    Just we move ….

    Oh by the way suggest before you come in trying to throw your weight around you have a look at where you are trying to throw it.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Little_StoneLittle_Stone
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    @little_stone
    Join Date: 2014
    Post Count: 17

    it is always important to do your due diligence

    I agree with the above ^^^

    megb6086 – $350 a week on what seems to be a debt of $430,000 or there abouts is quite low in my eyes. (Happy to be corrected by other members if i am off the mark here).

    Aside from tax reasons etc, the main question is, “Why this property/area?”. Are you expecting a large growth in the area to stimulate the rent going up with it for it to become cash positive without the need to dump cash into an offset to get it there?

    With curiosity,

    L_S

    • This reply was modified 5 years, 11 months ago by Profile photo of Little_Stone Little_Stone.
    Profile photo of jmsracheljmsrachel
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    @jmsrachel
    Join Date: 2012
    Post Count: 711

    Richard pretty much owns half of Qld and is very successful.  He wouldn’t have what he has if he doesn’t know what he’s talking about.

    Must admit he has been grumpy past few weeks.  I hope it’s not old age getting to him!

    Profile photo of fsatarfsatar
    Participant
    @fsatar
    Join Date: 2014
    Post Count: 17

    @richard: My dear apologies mate.  It was late at night here when I was reading this post but now that its morning I can see I was way off with reading the figures. Oops…I apologies for my mistake. Just learned that I should not be giving anymore feedback on any posts past 12am !!! lol :)

    Cheers

     

     

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    It is fine fsatar.

    I do some of my best forum work after midnight.

    Cheers

    Yours in Finance

     

    y

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

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