Forums / Property Investing / Help Needed! / CF+ Rental, what to do?

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  • Profile photo of sjk333sjk333
    Participant
    @sjk333
    Join Date: 2016
    Post Count: 9

    Hi,

    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?

    Thanks

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post 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.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    You should aks your accountant 2 questions:
    1. Why
    2. Are you wanting me to spend $10,000 to get back $1000?

    and maybe a third

    3. Are you an idiot?

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post 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.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of TheNewGuyTheNewGuy
    Participant
    @thenewguy
    Join Date: 2014
    Post Count: 151

    Accountant != investment advice.

    The accountant is wrong. If you have spare cash flow there is probably better ideas!

    Profile photo of BjoernBjoern
    Participant
    @suoksa
    Join Date: 2015
    Post 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, 4 months ago by Profile photo of Bjoern Bjoern.
    Profile photo of sjk333sjk333
    Participant
    @sjk333
    Join Date: 2016
    Post Count: 9

    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.

    Profile photo of Tri Nations PropertiesTri Nations Properties
    Participant
    @shjw
    Join Date: 2016
    Post 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.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi SJK,

    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).

    Benny

    Profile photo of sjk333sjk333
    Participant
    @sjk333
    Join Date: 2016
    Post Count: 9

    Thanks Benny, good advice

    Profile photo of wadezwadez
    Participant
    @wadez
    Join Date: 2013
    Post 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.

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