Buying in one name or two???

[robbo67]

Hi all,

New to this site and have learnt many things which has helped me to finally get myself into buying an investment property. Looking at an IP at the moment to purchase which will be fairly neutrally geared and not sure if I should buy it in my name only or with my wife also.

questions....what is the formula to work out if it is positively geared? or can i get some help with this? Purchase price $295,000 + costs $12000 = loan of $307,000 at 5.5% fixed for 5 years on Interest only loan, rental is $375 per week. Strata $460 per quarter plus water rates agents commission on rental. I'm thinking fairly neutral but can someone please help me out with this. Thanks.

Also we will be borrowing 10% for deposit plus stamp duty and fees using an equity loan which will be in both names as our home loan is in both names. The remainder loan can be in my name only. We are happy to pay the morgage insurance as we only want a small deposit & fees loan. Is morgage insurance tax deductable at all?

When and if i sign the contract (if our offer is accepted which looks likely) should i sign it in my name only or in joint names with my wife? Is it best to do a 50/50 split? 99/1 split? or just myself?

I am the main income earner and my wife only works part time and probably only for another 2 years or so....so not sure if its worth putting her name on it at all?

Cheers, Robbo67

 

[Aaron_C]

The benefit of having both of you on title / as borrowers means you are able to borrow more. If she isn't really working or contributing to the servicing then you have to question why she should be on as either. May be best to save her up for later when she is working so she doesn't get burdened with additional debt/guarantees and so you can invest in more. Of course, there are more things to consider than just borrowing power but it is one factor to think about.

 

[Roosterman]

Hi Robbo,

You will be cashflow negative with those numbers. Depreciation may help but you have not mentioned the type of property/whether there is any depreciation.

Here are the workings:

Income

Rent $375 x 52 = $19,500

Expenses

Interest on 307k = 16885
Strata (pa) = 1840
Rates (guessing) = 960
Water (guessing) = 600
PM fees (guess) = 1560
LL insurance = 300
Repairs = 355

Total expenses = $22,500

So it's $3k you need to stump up each year. This will effectively be a tax deduction for you, so you'll get back around $1140 depending on your tax bracket. Depreciation will make these numbers slightly better.

So you are right - it's practically neutral

Hope that helps

 

[robbo67]

The benefit of having both of you on title / as borrowers means you are able to borrow more. If she isn't really working or contributing to the servicing then you have to question why she should be on as either. May be best to save her up for later when she is working so she doesn't get burdened with additional debt/guarantees and so you can invest in more. Of course, there are more things to consider than just borrowing power but it is one factor to think about.

The bank said she needs to either go on the deposit loan or be a guarantor on it. Main reasoning was i read on a previous post if a property is negatively geared suggested main income earner only but if its neutral or positively geared to go 50/50.

Just had the call now that my offer has been accepted and informed i will be in tomorrow morning to sign contracts.

My wife only works 10 hours a week which is only for the next 2 or so years then she will pretty much retire. So if we were to sell after 10 years or so any capital gain will be split 50/50 if we signed like that and would pay less CGT if she wasn't working?

 

[Aaron_C]

Your wife will only need to be a guarantor / borrower if a) she is on the title and/or b) you need her income for servicing.

If she is not working and you sell the property she will get half the capital gain and it will be taxed according to her marginal rate. If she isn't working she will get taxed less but it all depends on how big the gain is.

 

[robbo67]

so there would be a definate benefit when we sell to half the CGT as by then she won't be working. That's hoping that the property increases before we sell it.

Also so if its 50/50 share when we do our tax can I just claim everything...all deductions, rental income etc on my tax or does it have to be split 50/50 too every year?

 

[Aaron_C]

Also so if its 50/50 share when we do our tax can I just claim everything...all deductions, rental income etc on my tax or does it have to be split 50/50 too every year?

Both get 50/50.

 

[devank]

From emotional point of view I believe it is best if it is 50/50 if you are married. This may avoid 'yours' vs 'mine' mentality. You never know, you might be able to accumulate more IPs and your wife end up managing them all!

 

[robbo67]

From emotional point of view I believe it is best if it is 50/50 if you are married. This may avoid 'yours' vs 'mine' mentality. You never know, you might be able to accumulate more IPs and your wife end up managing them all!

No plans on buying that many. Just one more which will serve as our retirement property in 15 years or so. No problem with Equity, have enough to service another 2-3 but happy to have 2 in total.

Re Yours vs mine....it's all hers she says! Actually will refraise her reply to that...the debts yours and the properties are mine. She's a good sport...happy wife happy life

 

[Rixter]

Robbo, why dont you purchase the PIA Sofware. Its a fantastic tool and written by Ian & Jan Somers who kindly provide the Somersoft Forum for us all.

It will answer all your questions plus heaps more that will pop up along your investment journey as you build your property portfolio.

Hi all,

New to this site and have learnt many things which has helped me to finally get myself into buying an investment property. Looking at an IP at the moment to purchase which will be fairly neutrally geared and not sure if I should buy it in my name only or with my wife also.

questions....what is the formula to work out if it is positively geared? or can i get some help with this? Purchase price $295,000 + costs $12000 = loan of $307,000 at 5.5% fixed for 5 years on Interest only loan, rental is $375 per week. Strata $460 per quarter plus water rates agents commission on rental. I'm thinking fairly neutral but can someone please help me out with this. Thanks.

Also we will be borrowing 10% for deposit plus stamp duty and fees using an equity loan which will be in both names as our home loan is in both names. The remainder loan can be in my name only. We are happy to pay the morgage insurance as we only want a small deposit & fees loan. Is morgage insurance tax deductable at all?

When and if i sign the contract (if our offer is accepted which looks likely) should i sign it in my name only or in joint names with my wife? Is it best to do a 50/50 split? 99/1 split? or just myself?

I am the main income earner and my wife only works part time and probably only for another 2 years or so....so not sure if its worth putting her name on it at all?

Cheers, Robbo67

 

[Terry_w]

You should get some advice before signing that contract as the ramifications will be great.

If you are using a LOC as the deposit then both names would need to go on this loan. The new property could be in your name only or joint names -either tenants in common or joint tenants.

Consider the effects of ownership
1. Income tax
2. CGT
3. Estate Planning
4. Asset protection
5. Land tax
etc

 

[devank]

If you are using a LOC as the deposit then both names would need to go on this loan.

Is that a problem? I take out LOC from a join account but then use that to buy shares individually. During tax time I simply do a bit of 'spreadsheeting' to calculate the proportion on interest amount. Can't you apply the same to IPs as well?

Another point to consider is the 'refinancing'. I believe it would be difficult to join two mortgages if one is joined and the other isn't.

 

[Terry_w]

Is that a problem? I take out LOC from a join account but then use that to buy shares individually. During tax time I simply do a bit of 'spreadsheeting' to calculate the proportion on interest amount. Can't you apply the same to IPs as well?

Another point to consider is the 'refinancing'. I believe it would be difficult to join two mortgages if one is joined and the other isn't.

Hi Devank

For tax purposes it wouldn't be a problem. The money is borrowed by wife and onlent to husband who owns new property. husband claims all the interest.

Refinancing wouldn't be an issue either as the mortgage doesn't really matter.
eg. say $20,000 LOC on property A
$80,000 loan on property B.
Property B increases in value to $150,00 and extra funds are borrowed to put back into the LOC - refinance this $20,000 loan.

LOC is with Bank A who have a mortgage over property A.
Loan B is with bank B who have a mortgage over property B.
No mortgages are discharged and no loans paid out. Can't see any issues.

 

[benwise]

Hi Devank

For tax purposes it wouldn't be a problem. The money is borrowed by wife and onlent to husband who owns new property. husband claims all the interest.

Anything needs to be done to legitimate/record this "on lent" activity? I've also refinance for a new loan on the existing ppt under joint names with my partner. This new equity loan is also under the same joint name. I thought I can only claim half of the interest if I buy the new IP under my name only using this new loan as a the deposit unless the new equity loan is under only my name with my wife as the guarantor -- A newbie to ppt investing.

 

[HotRod]

You can use a 99/1% split if you want to put it into "one" name and the bank demands a guarentee.

Gets around those issues.

 

[Aaron_C]

You can use a 99/1% split if you want to put it into "one" name and the bank demands a guarentee.

Gets around those issues.

You don't even need that. Have both as co-borrowers.

 

[HotRod]

You don't even need that. Have both as co-borrowers.

Many ways to skin this cat.

 

[Terry_w]

Anything needs to be done to legitimate/record this "on lent" activity? I've also refinance for a new loan on the existing ppt under joint names with my partner. This new equity loan is also under the same joint name. I thought I can only claim half of the interest if I buy the new IP under my name only using this new loan as a the deposit unless the new equity loan is under only my name with my wife as the guarantor -- A newbie to ppt investing.

The right knowledge can save you a fortune. Ideally a loan agreement is needed.