Swerv-o

Hey Folks,

My GF is considering buying a new property, but wants to keep her old place as an investment, and plans to negatively gear it, as the rental income won't cover the loan payments.

From the ATO factsheet, I seems that she can claim relief on the loan interest without changing the loan, however, I felt sure that in order to negatively gear a property, then the loan had to be specifically for the purpose of purchasing an investment property - you can't just start negatively gearing an existing owner/occupier funded loan.

I've done quite a few searches on this, but can't find any mention of loan purposing - have any BE folks been through this scenario? It would be great if anybody has knowledge of any private rulings etc. I really don't want her to make a mess of it all


S

bingobob777

why

she can get 6% return on the proceeds of the sale in the bank, that's more than house prices will rise for a while.

she's 10 years too late to use a house as an investment.

Swerv-o

Yeah, I've tried to explain this a couple of times, but she is reluctant to sell it for some reason.


S

Techno Freak

Have a wonder over here, it's the equivalent of BE but for all things property investing related.

http://somersoft.com/forums/

It's been a wealth of info for us.

jimbo_d

It's pretty common to have an investment property not for the investment in the property iteself, but for the reduction in tax you pay.

Swerv-o

Yes, that's what she's after, but it looks like she may have stuffed herself with the overpayments she has made to the principal - if she re-mortgages now, then the overpayments will count against her potential tax relief amount.

She should have made the overpayments into an offset account instead.

It looks as though she can convert the PPoR loan into an IP loan though.


S

bingobob777

It's still daft when there is little chance of the property increasing in value in the short to medium term

http://www.smh.com.au/money/investin...203-1oc58.html

Bermudashorts

And the tax benefits are only to to the tune of the expenses, i.e. yes I can offset this $1000 of interest expense against my income, but I would still be better off by not incurring the expense in the first place. not unless I think there are other advantages in investing in property.

jimbo_d

Depends where you are, if she was in Perth or Sydney for example she may be onto a winner, not so if in Melbourne. Also the tax issue really comes into play when you can down a tax bracket on the portion of your income over a certain threshold.

jad n rich

Not 6% any more, savings rates dropped with the interest rate cuts.

You might get around 5% as an introductory (3-4 months variable) rate, other than that is more in the 4% now, once you minus tax you will probably be behind inflation.

Swerv-o

Yeah, I've never understood Term Deposits - You usually end up behind inflation, even if you are on a low income. I really don't understand how they expect you to save for retirement when they are busy dipping into your money whenever they feel like it


S

Margaret3

You've just pointed me in the direction of a new love affair.

Craig Vaughan

Hi there,
You can definitely claim this as a tax deduction. It is around the purpose but the purpose can change. The purpose of the loan is now for investment purposes. If you went and increased this loan to fund a deposit for a car or another owner occupied property, then that portion that you increased would not be deductible. But the original debt certainly is.

As to whether its a good idea, each to their own on that. As someone who owns a number of investment properties I firmly believe in investing in the real estate market. I have done ok out of it and continue to do ok. Im not in it for the short term and im confident over time the gains will be there. Properties i purchased 3-4 years ago are now positively geared and paying the principle as well (yes, mixture of rent increases and low interest rates). So in 20 years time those homes will be paid off and I wont have put in another cent between now and then. Yes, you could put the money in the bank at 5% or in shares, but that for me takes too much dicipline (ie, the money is too easy to spend!! .

So each to their own but i always find it intriguing that people will outright state that buying property is a bad investment. Something like 90% of the richest people in Australia made their wealth from property. The rest from cattle, facebooked type inventions - very few people make any real wealth by putting the funds in the bank.

Hey, in 10 years time i could be bankrupt on the street - so lets see where we are in 10 years time.

bingobob777

I said it's a bad investment now. It's also immoral by the way, every $ you make is out of someone elses pocket, yet you do nothing to earn it. every investment property you own denies people the chance to buy their own home outright.

EvannTel

Had similar issue. We ad to move from our primary property to another place. We choose to buy again. We had wanted to release the equity we had in the original property so we a) reduced our new mortgage on the. New property we were in and b) increase the mortgage on the old place so we could gear effectively. The ATO will not allow this and I think that's the issue your GF faces. No way round it I'm afraid. She can still rent but she will have higher less effect mortgage on property she lives in.
I have no idea why people negative gear to just reduce tax, negative is negative - unless you think ultimately you will make money through capital growth it's a fallacy.