How is interest returned?

[Lauren_274]

I'm new to property investing and am trying to figure out how everything works. I was wondering how do you get the interest back from the loan? Do you just get it straight back as a tax return or how do they work it out and how do you work out in advance how much you will be getting back?
Also what calculations do you do before you buy a house?
Thanks in advance and sorry for the long post.

 

[Terry_w]

I'm new to property investing and am trying to figure out how everything works. I was wondering how do you get the interest back from the loan? Do you just get it straight back as a tax return or how do they work it out and how do you work out in advance how much you will be getting back?
Also what calculations do you do before you buy a house?
Thanks in advance and sorry for the long post.

You don't get interest back. It is an expense you pay the lender.

You can claim it as an expense.

e.g $20,000 rent = income
$20,000 interest = expense

Net tax position = Nil
So no effect on your other income


e.g. 2. $20,000 rent
$20,000 interest
$2000 rates

= $2000 loss

This loss is added to your other income

if your income was $50,000 then $50,000 + ($2000 loss) = $48000

but you have paid tax on $50,000 when you only earned $48,000 so you will get a small amount back on your tax.

 

[C Stewart]

Hi Lauren, congrats on your 1st post

In terms of interest back are you talking about interest as a tax deduction?

If so there are quite a few variables to consider. The interest you pay on your investment property will be tax deductible (along with other expenses), just as the revenue your IP generates will be taxed. Depending on whether your positively or negatively geared, your IP can both increase the tax you pay or decrease it. This is often one of the early decisions an investor makes about what type of investment is most beneficial to their personal circumstances.

Keep in mind tax is only 1 part of the calculation for your properties cash flow.

 

[Redom]

Hey Lauren - this certainly isn't a long post! Welcome to the forums.

Calculations can be summarised into: upfront cost (including deposit, closing costs like stamp duty, solicitors, etc) and ongoing costs (interest, rates, water, taxes, etc).

Terry and Stewart have both outlined how tax works - particularly for investment properties.

If you could lay out more about what your looking for from a property purchase - as in whether you want it for yourself to live in or as an investment - i'm sure others would be able to respond with more targeted responses.

Cheers,
Redom

I'm new to property investing and am trying to figure out how everything works. I was wondering how do you get the interest back from the loan? Do you just get it straight back as a tax return or how do they work it out and how do you work out in advance how much you will be getting back?
Also what calculations do you do before you buy a house?
Thanks in advance and sorry for the long post.

 

[Colin Rice]

Money in v money out.

More money in than out also called positively geared.

More money out than in also called negatively geared.

....all things considered.

 

[Lauren_274]

Hey Lauren - this certainly isn't a long post! Welcome to the forums.

Calculations can be summarised into: upfront cost (including deposit, closing costs like stamp duty, solicitors, etc) and ongoing costs (interest, rates, water, taxes, etc).

Terry and Stewart have both outlined how tax works - particularly for investment properties.

If you could lay out more about what your looking for from a property purchase - as in whether you want it for yourself to live in or as an investment - i'm sure others would be able to respond with more targeted responses.

Cheers,
Redom

I'm looking for an investment property to rent out and thanks everyone for answering.

 

[Lauren_274]

When you are calculating if the rent is going to cover the bills how do you know how much the rates and property management fees will be?

 

[tobe]

When you are calculating if the rent is going to cover the bills how do you know how much the rates and property management fees will be?

the rates are disclosed in the contract of sale. the management fees vary from agent to agent. You should also allow something for vacancies, repairs, insurance and other stuff like that.

If you want a rule of thumb, most banks use 20% of the gross rental to cover these other expenses.

 

[Paul@PFI]

I'm new to property investing and am trying to figure out how everything works. I was wondering how do you get the interest back from the loan? Do you just get it straight back as a tax return or how do they work it out and how do you work out in advance how much you will be getting back?
Also what calculations do you do before you buy a house?
Thanks in advance and sorry for the long post.

I recommend you d/load the trial PIA software on the main Somersoft site. It will demonstrate some of the issues in numerical format and how a profit /loss works and how small growth compounds over time.