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From: Mike .


Self employed vs paid employee and IPs
From: Janice
Date: 7/20/00
Time: 7:14:18 AM

Hi all, I've been away on holidays and have just returned. I am trying to wade through all the posts on this forum. For anyone one who has contacted me privately by email, it will take me time to answer you. However, I have a question which I hope some people out there can answer.

When a person is a paid employee, tax is removed as you work each week(PAYE). When tax time rolls around people try to claim any tax deductions (which usually is not a lot) to try to reduce the amount of tax you pay. Therefore, taxable incomes may be high or lower depending on the income and allowable deductions made. On the other hand, self employed people can earn money and claim far more in taxable deductions and reduce their taxable income to a lower level.

When one starts out on the self employed road how can one convince lending institutions to lend money for IPs when the taxable income is low? Has anyone started investing in IPs as a self employed person and not an employee?

I would be pleased to hear from people who have started this way.It may also help other people who are in this position too. Thanks Janice
 
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Gary

Reply: 1
From: Mike .


Re: Self employed vs paid employee and IPs
From: Gary
Date: 7/22/00
Time: 10:48:43 AM

Not really sure I follow your theory. If you are self employed and have a low taxable income that just means that your income minus expenses doesn't leave much. You can 'fiddle' things a bit with cars and home office expenses, but in the main your deductions are expenses resulting from running your business - it isn't money you can put to other purposes.

Its been my experience that if you are self-employed then banks will take your taxable income as reported to the tax office as your income when deciding on a loan. They do make considerations about investment income and deductions as well - I guess a lot depends on how much investment income you get in relation to your business income. The bank wanted to see the last two tax returns and current years figures, signed by my accountant.

I don't know how you would go about getting a property loan if you'd been self employed for less than two years, but my guess is that it wouldn't be easy, though being for investment should make it easier because you can then add the rent (or at least a percentage of it) to your income.

Gary
 
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Scott

Reply: 1.1
From: Mike .


Re: Self employed vs paid employee and IPs
From: Scott
Date: 7/22/00
Time: 1:42:35 AM

Janice

If the banks won't lend you money why not try to find another way to get into IPs?

Tell me why this would not work:

If you were to find partners for your future IPs. You should easily be able to find people who have a high salaried income but don't have the time and/or the inclination to go out and look for quality properties themselves. You could do their leg work for them and possibly manage the property. In return for this work you could take some equity in the property. You would be helping them make sound investments while at the same time helping yourself to get around the problem of borrowing from the banks..

Otherwise...

Why not try to find properties where the vendor will finance your purchase - they're out there...it's just a matter of asking.

Scott
 
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Janice

Reply: 1.1.1
From: Mike .


Re: Self employed vs paid employee and IPs
From: Janice
Date: 7/22/00
Time: 12:08:56 PM

Thanks Garry and Scott for your suggestions. I will work on your ideas and other "creative" solutions.
 
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