Very inexperienced and unknowledgeable person in real estate here. First time poster. My husband has income of 200K per annum, I’m stay at home mum. We have two rental properties in rural VIC which are currently CF+. They are old houses and have no depreciation that is claimable. Our accountant has told us to invest more money into improvements to the houses in order to make them negatively geared, without over-capitalising. My question is, why? From my understanding if we spent say 10K on the houses in improvements, we would get less than 10K back in tax return, so what’s the point? Aren’t we better off to make money, even if we have to pay the tax man part of it?
We are also considering buying a holiday apartment to use as a holiday let. My hubby says we can claim expected losses the same as a permanent rental, as long as it is genuinely available to rent. What are the pluses and minuses for this?
ThanksJamie MooreParticipant@jamie-mJoin Date: 2010Post Count: 5,069
My question is, why?
My question is the same – why?
Nothing wrong with an investment putting some money in your pocket.
Maybe look at getting a second opinion from a new accountant.
JamieTerrywParticipant@terrywJoin Date: 2001Post Count: 16,190
You should aks your accountant 2 questions:
2. Are you wanting me to spend $10,000 to get back $1000?
and maybe a third
3. Are you an idiot?Corey BattParticipant@cjaysaJoin Date: 2012Post Count: 1,010
What to do? Time to get another accountant.
Generally I find they’re not the best bunch for investment advice – very conservative and not very forward looking. Not their job to provide investment advice in any case, that’s the realm of financial advisers.TheNewGuyParticipant@thenewguyJoin Date: 2014Post Count: 151
Accountant != investment advice.
The accountant is wrong. If you have spare cash flow there is probably better ideas!BjoernParticipant@suoksaJoin Date: 2015Post Count: 23
Definitely not an expert myself, so just thinking out loud ;-) But wouldn’t it still make sense to spend the $10k assuming you can find something that really adds value? After all, it’s not like you pay the $10k and don’t get anything back, the property will be higher in value (ideally even more than $10k higher) and – as a bonus – you will also have something to depreciate. You said, they are old houses, so surely there must be some way value can be added?
- This reply was modified 3 years, 11 months ago by Bjoern.
Bjoern, yes it seems that way, but these properties are located in a rural town in Victoria so we have to be very careful not to overcapitalise. There are plenty of things to do to these houses but whether it actually adds value on resale is the big question, as they will be hard to resell anyway. Yes, there will be depreciation benefits, but still not sure its worth the outlay of 10K. Thanks for your reply.
Thanks for everyone’s reply. It all helps.Tri Nations PropertiesParticipant@shjwJoin Date: 2016Post Count: 5
In addition to the other comments (which I agree with), the renovation will increase the rent, and thus should make the properties even more CF+. You would only do the renovation if this is the case. And generally this is one of the reasons for doing renovations. Your rental yield should incerase.
The second reason you would do a renovation is to increase the value of the property. The value should go up by more than the cost of the reno.
If your accountant did not explain the above then don’t bother asking them for any further investment advice.BennyModerator@bennyJoin Date: 2002Post Count: 1,376
You sound very sensible – and I agree that spending money on regional properties would have to be carefully considered. I think you can do far better by looking in other directions to grow your wealth.
e.g. Rather than spend too much time trying to engineer a Tax Benefit (where you might get back 40 cents for every $ you outlay….), it would seem better to look at offsetting the positive income from these with a Growth investment – perhaps a City property with some future benefit. Perhaps purchase an old house on a large block of land that can be developed down the track, or even one needing an immediate reno. You buy the house cheaper, spend money on the reno, thus adding value and creating more rental income while also benefitting from the existing Negative Gearing laws.
Thus you have a “cordial” of positive and negative gearing, and making the most benefit by using the extra rental income to pay expenses on the negative property. This grows your Equity, your growth prospects, and allows the current laws to help you build wealth.
Re your accountant – I believe they are doing the “best they know how”. Whether that best is enough for you is up to you. See, it might be this accountant is EXCELLENT in all other aspects of the accounting work that they do – so don’t throw the baby out with the bath-water.
Perhaps look at using another accountant JUST for property investing – or, “go your own way” in getting around the positive income problem, then get your accountant to manage the bookwork side of things (that is what they are good at).
Thanks Benny, good advicewadezParticipant@wadezJoin Date: 2013Post Count: 18
I think a simply way to look at it is to compare increase in rent divided by cost of renovation (they tend to cost more than first plan) vs your 10k return in a term deposit or ect.
Simple and straightforward.
Oh yes please make sure the tenant intend to stay with the increase in rent.