First step strategy

A

Anonymous

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From: Anonymous


I feel that perhaps I should rethink my strategy, rather than seek solutions to it.

Current property value 500k, loan P&I bal 65k with redraw to max 190k, rented at 1,280 p.m.
No significant other Australian income.
I am a self employed English teacher in Japan.
2000 income (total 64,057), declared 41,509, tax paid 2,262, refunded 2,262.
2001 income (total 78,058), declared 47,723, tax paid 2,984, refunded 2,817.
My outgoings are not excessive due to free accom., etc.
Cash in Japan 61k, in Australia 43k.

I intend to buy an IP in the 200 to 300k range sometime soon.

I feel my situation requires lenders to spend more time on the application, with a much higher chance of refusal. So I was wanting to organise a LOC for an additional 200k by refinancing my current property and being ready for any opportunity that comes along. But without using the income from the future (unknown) IP, and being non-resident causes problems with approval.

Wanting to slowly purchase more IP thus I seek opinions on the best way to START, not simply get past this first loan approval. It seems that Rolf Latham or Frank Shead are the brokers I should use, but how about strategy ? Or will they assist in this planning too ?

xxsan
 
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Reply: 1
From: Mike .


Hi xxsan,

Living and working overseas means you can't deduct any negative gearing losses against your overseas income which is a real impediment on the cashflow side. You have loads of equity so shouldn't have a problem securing loan funding for first IP.

However, you won't go much further if you buy a negative geared property because your income won't go far in paying the loss difference between the interest rate and 80% of the rental yield. My calculations show your limit is two $300k IP's.

Therefore, ensure any purchases are positive cashflow ie rent is greater than interest repayments. If paying P&I, rent should cover entire repayment. That means you have job income left over to pay off remaining balance of first property.

If bank sees loan balance coming down, this should assist your future loan applications. Only buy positive geared properties until you relocate to Australia again.

Regards, Mike
 
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Reply: 1.1
From: Always Learning


Just to pick up a point from Mike.
<p>
In Japan "negative gearing" is possible, even for property located OS (i.e. in Australia). In Japan you can claim the tax loss for all costs associated with the non-land component of an IP. (ie everything except the interest on the nominal land value at the time of purchase).
<p>
As for strategy, I am in a very similar position to you in Japan. I agree with Mike a positive cash flow property if wisely purchased couldn't hurt. Your current property is positive geared due to your high equity and low level of finance, but returning a rather small 2.9% gross return. Which leads me to think:
<ol>
<li>Using Interest only loan's you are in a healthy position to purchase negative geared property anyway.
<li>What can you do to increase the returns on your current property? Can you extend/renovate and get a better return?
</ol>
<p>
Since I am in Tokyo Japan, if you want to meet and have a drink then I would be happy to meet you and talk about IP. I am in a very similar position to you and are looking for someone to exchange ideas over beer.
<p>
 
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Reply: 1.1.1
From: Mike .


Hi AL,

I said:

Living and working overseas means you can't deduct any negative gearing losses against your overseas income which is a real impediment on the cashflow side.

Your statement:

In Japan "negative gearing" is possible, even for property located OS (i.e. in Australia). In Japan you can claim the tax loss for all costs associated with the non-land component of an IP. (ie everything except the interest on the nominal land value at the time of purchase).

AL, your statement says the opposite of mine. My statement refers to expat Aussies working overseas. My accountant said:

If there is a net loss from the rental of your property, you will be able to carry forward this loss to future years. You may offset this loss against other taxable income after you resume Australian tax residency.

AL, are you refering to Aust expats or Japanese nationals buying property in Australia?

Regards, Mike
 
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Reply: 1.1.1.1
From: Always Learning


Dear Mike.

OK, my statement was only from the Japanese Tax office point of view, thus only applicable if you are living and earning money in Japan. For expat residents of Japan for the first 5 years you don't have to declare foreign earned income, but from the 6th year onwards must declare foreign earned income.

<p>
However my understanding of the tax credits for future years in Australia is the same as yours!
 
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