First IP Questions

[IshQ]

Hey Guys

My first post! I have been on the forums for the last few months and read many many threads, both old and new.

So...I am about 2 weeks away from settling my first IP. I have a few questions i am hoping you guys can help me with.

The house is a 3 bedroom single bathroom with garage. Older house with potential.

My questions:

1) There is potential to seal the garage and make it into a 4th bedroom. It meets legal height etc. Would you recommend this? and if so, how do i seal it off (i.e would a sliding door be sufficient).

There is 1.5 carport on the side of the house.

2) I have noticed a lot of people talking about meeting interest shortfalls from a LOC. Can somebody explain how this works. I read the thread by Corsa but could not apply it to my process.

My understanding is that i setup a LOC. The rental income goes into the LOC, all expenses paid from the LOC and repayments made from the LOC. The interest paid by the LOC and on the LOC are deductible. Is this correct?

So, if you are receiving $15K in rent, have $4k in expenses and $30K in interest, you would essentially have a LOC balance of $19K after the first year assuming you met the interest on the LOC. When do you pay the balance of the LOC?

3) I would like to do some improvements to the house (e.g. install aircon, repair builtin, make garage into room etc). Is there any issues with doing this while the property is tenanted assuming i give sufficient notice.

4) This is a topic that has been bugging me. I have purchased the first IP which means that i will be funding a shortfall of about $350 per fortnight. I also have a PPOR loan which i am paying.

How do i go about getting my 2nd IP with such a large constraint on my CF?


Thanks in advance guys.

 

[skater]

Sheesh, so many questions.

Hey Guys

My first post! I have been on the forums for the last few months and read many many threads, both old and new.

So...I am about 2 weeks away from settling my first IP. I have a few questions i am hoping you guys can help me with.

The house is a 3 bedroom single bathroom with garage. Older house with potential.

My questions:

1) There is potential to seal the garage and make it into a 4th bedroom. It meets legal height etc. Would you recommend this? and if so, how do i seal it off (i.e would a sliding door be sufficient).
Different rules for different Councils. We did this on our house, didn't tell council. Really easy, but you will have to see what is doable in your area. With ours we just lined it & built a built-in wardrobe in the alcove & it still has the roller door, so looks no different from outside.

There is 1.5 carport on the side of the house.

2) I have noticed a lot of people talking about meeting interest shortfalls from a LOC. Can somebody explain how this works. I read the thread by Corsa but could not apply it to my process.

My understanding is that i setup a LOC. The rental income goes into the LOC, all expenses paid from the LOC and repayments made from the LOC. The interest paid by the LOC and on the LOC are deductible. Is this correct?

So, if you are receiving $15K in rent, have $4k in expenses and $30K in interest, you would essentially have a LOC balance of $19K after the first year assuming you met the interest on the LOC. When do you pay the balance of the LOC?Why not start a different thread. Put it in the finance section.
3) I would like to do some improvements to the house (e.g. install aircon, repair builtin, make garage into room etc). Is there any issues with doing this while the property is tenanted assuming i give sufficient notice. Personally I'd prefer to do large improvements when vacant, the smaller things can be done while tenanted, but if you are installing aircon & built-ins, you might want to charge extra rent. Talk to your PM.
4) This is a topic that has been bugging me. I have purchased the first IP which means that i will be funding a shortfall of about $350 per fortnight. I also have a PPOR loan which i am paying.

How do i go about getting my 2nd IP with such a large constraint on my CF?
For anyone to give you an answer on this, you will have to provide more details. Again, the finance section..


BTW - i managed to bargain the house price down by approximately $30K on the listed price or almost 10%. The final price is below the median price for the area. Had to share as i was happy with the result

Thanks in advance guys.

 

[Bazza]

2) I have noticed a lot of people talking about meeting interest shortfalls from a LOC. Can somebody explain how this works. I read the thread by Corsa but could not apply it to my process.

My understanding is that i setup a LOC. The rental income goes into the LOC, all expenses paid from the LOC and repayments made from the LOC. The interest paid by the LOC and on the LOC are deductible. Is this correct?

So, if you are receiving $15K in rent, have $4k in expenses and $30K in interest, you would essentially have a LOC balance of $19K after the first year assuming you met the interest on the LOC. When do you pay the balance of the LOC?

4) This is a topic that has been bugging me. I have purchased the first IP which means that i will be funding a shortfall of about $350 per fortnight. I also have a PPOR loan which i am paying.

How do i go about getting my 2nd IP with such a large constraint on my CF?

2 & 4. You don't pay off the LOC. Wait for the capital growth to increase your equity and do it all again. Revalue the IP and borrow on the increased equity in your first IP to put down 20% deposit on the 2nd and so on.

Cheers,

Bazza

 

[IshQ]

Thanks for the help guys.

 

[casper007]

With the repairs and add ons you are making check with your accountant if they are classed as capital works (which depreciate over a longer period of time) or improvements under $1000 which can be written off in the same financial year. The Aircon is depreciated over 10years (I think)

With the LOC ... you can claim the interest on the LOC payments as long as they are used for the IP outflows.

There have been clever uses in the past of LOC (ruled as OK by ATO) whereby the rental income goes into an offset for your PROR whilst the LOC keeps paying interest repayments and expenses.

The LOC debt grows more (Deductible debt) whilst the offset pays more off your mortgage (Non deductible debt).

You can look up on the ATO website for rulings on this kind of operation.