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From: Mike .


Am I Number One?
From: EAB
Date: 8/31/99
Time: 5:16:35 PM

This forum is welcome indeed and I thank Ian & Jan for the effort in creating it. I live in Darlinghurst Sydney and have many stories about property investment over a ten year period ie: buy refurbish & sell, dual occupancy and the land & environment courts, renting, and just holding a property vacant for nine years due to bad neighbours. Anyone else wish to join in a chat?
 
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Chris H

Reply: 1
From: Mike .


Re: Am I Number One?
From: Chris H
Date: 9/2/99
Time: 11:29:37 PM

Sounds like you have a lot more experience than me in property investments. my wife and I have one rental property at present and are considering buy elsewhere and renting our own home out, any tips / pitfalls ?
 
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Mark Noonan

Reply: 1.1
From: Mike .



Re: Am I Number One?
From: Mark Noonan
Date: 9/11/99
Time: 4:58:45 PM

Hi Chris,

I just copied this from the Q&A on this site, which may help with some of your questions:

We own our own house but want to borrow money against this house to build a bigger and better house in which to live. We would still like to keep the one we're living in now as a rental property. Is the loan tax deductible?

The short answer is no, the loan is not tax deductible. This is a classic situation in which many property owners find themselves when they first decide to upgrade. Assessing whether interest on a loan is tax deductible depends on the purpose of the loan – not the collateral for the loan. In this case, the purpose of the loan is clearly to build a new home and not for the purpose of producing income. This situation is a double loss. Not only would the interest on the loan not be tax-deductible, but the rent from the investment property would be taxed at the highest marginal tax rate.

A simple solution could be to sell the first home and put the proceeds into the new home; you would then borrow to buy a rental property, using the equity in the new home as collateral. The interest on the loan would then be tax-deductible and instead of paying tax, a tax refund would more likely result.

However, there may be alternatives. For example, if the first home had been bought in the wife's name only, the husband could borrow the money to buy the property from his wife, and she could put the money she receives towards the new house. A legally binding contract is needed, and stamp duty must be paid, however, the tax benefits may far outweigh the transfer costs. I would recommend that you check with both your solicitor and accountant before you attempt any transaction of this nature. ------------------------------------------

As you can see there are catches to doing what you want!

Cheers, Mark
 
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Chris H

Reply: 1.1.1
From: Mike .


Re: Am I Number One?
From: Chris H
Date: 9/12/99
Time: 1:26:39 PM

Thanks for the reply Mark, I think I should have explained a bit more. We plan to switch our present home to Interest Only. We use no money from this house at all as we have enough in personal saving to pay the deposit and legal fees on new place. Therefore our current place would be cash positive and would pay itself and our other investment with out us having to put our hands in our pocket.

We would then reduce the debt our new place (using job salaries) to a level where that then if rented would produce a neutral or positive cash flow. We currently have about 140k in equity in our current place, its worth about 250k and we owe 110k on it.

I intended to have it valued using certified professional in order to ascertain depreciation claims etc. The equity we leave in this house to be used at a later date for more property. What do you think ? We really don't want to sell as it's very close to ocean and in a good suburb with consistent growth.
 
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Les

Reply: 1.1.1.1
From: Mike .


Re: Am I Number One?
From: Les
Date: 9/19/99
Time: 12:32:22 PM

G'day Chris,

Just watch out for that "other hand in your pocket" in the form of the Taxman. I understand not wanting to sell your current property - capital growth sounds great - but, maybe you should consider having one or two negative cash flows to offset the two positive cash flows you currently have.

Also, don't forget CGT (see my answer to Mike further down the list) - it doesn't have to be a problem, but be wary.

Other than that, you sound like you are in great shape, and looking to your future - great stuff!!

Les
 
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Mark Noonan

Reply: 1.1.1.1.1
From: Mike .


Re: Am I Number One? CGT
From: Mark Noonan
Date: 9/23/99
Time: 7:30:41 PM

Hi Chris,

Les mentioned CGT implications of turning your current house into a rental property, but that may not be such a big problem now, with the new Ralph Report recommendations. As I think the CGT would be capped at 25% regardless of your current income.

Just an FYI. Cheers, Mark
 
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