Les
Reply: 1.1.1.1.1.1.1
From: Mike .
Re: Renting your own property
From: Les
Date: 1/26/00
Time: 11:18:24 PM
G'day Leon,
I LOVE a bunch of numbers - you have been very thorough in providing detail. And in so doing, you should find that the answer following checks out. Try this:-
Refinance your current P&I loan to IO and/or borrow up to 80% (or slightly less to save Mortgage Insurance) and you can release $165k, thus allowing 2 x $70k deposits for 2 Investment properties up to $350k each, with $25k left for expenses. Based on my observation of Sydney rentals, these $350k properties should rent for $360/week or better.
So, you now own 3 properties (all Investment) and own $1,100,000 worth of properties, with total mortgages of $880,000 costing (IO of 7%) approx. $63000 per year - with rental Incomes totalling approx. $60,000 per year.
Most authors (Jan, et al) recommend allowing 25% of rent to cover other costs (Insurances, Maintenance, Rates, etc.) so you are down by approx. $18,000 or $360 per week.
But, now comes the good part. Your Tax deductions on these 3 properties will come to over $300 per week at 47% Marginal Tax rate. These consist of Building Allowance (assuming all 3 are built after 1985 - if not, check with your accountant), Borrowing Costs, your rental costs, and depreciation of fittings.
Be aware, this latter figure will vary MARKEDLY depending on the various costs you ACTUALLY have, but I calculated them on the following (with all 3 included):-
Building Allowance $300k
Fittings $40k
Borrowing Costs $15k
Maintenance, Rates, etc $15k
I believe these would likely be conservative, thus you could likely get more of a Tax deduction than quoted.
There may be a small requirement for you to input to these 3 (my calculations say LESS than $50 per week NETT, as long as you are using 221D and putting all of the extra Tax into the equation too).
So, you now need to house your family with your quoted $350/$400 per week rent. So what are you gaining? Well, that depends on the current cost of the existing mortgage on your current home - I didn't see it quoted, but you won't be paying that now (it's been replaced, above) so that should cut down the amount you need to find for rent.
And, I've saved THE BEST for last - if property grows at 4% (how's THAT for conservative) your new portfolio of properties will be gaining equity at the rate of approx. $850 PER WEEK .... If Sydney sticks to its usual figures, 9 or 10% would be more like the true figure.
As far as "legal" the Govt. has determined that it will support anyone who is investing far more than it will support a home buyer. Check all of this with your accountant, of course, after you have verified that they seem to fit your scenario.
Hope that helps, Leon. If any queries, do come back - it is certainly more than a little "involved" ......
Regards, Les