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From: Mike .


Refinancing Advice
From: Rae
Date: 3/20/00
Time: 1:21:01 PM

Hi, I'm only new to the Forum, but what I have seen so far is great. My delemma is that I too purchased an overpriced townhouse in Slacks Creek almost 4 years ago. It has a negative cash flow (no 221D inplace). The flight from Sydney to Gold Coast was very nice. Sucker! As a novice, I switched over to P&I once the first year was over. Having no other commitments except for entertainment and cheap living I thought I should try to pay off the place as quickly as possible to gain some equity to purchase my second property.

I have recently purchased a house in Rochedale South (which has a positive cash flow) with a cash deposit (payments in advance on first property). I was going to use the equity in my first property. However, on valuation, it came in approx $25,000 shy of what I still owed on it. I want to build up my IP portfolio as quickly as possible. What I would like to know is:

1. Is it better to refinance the first property back to I/O and save for a deposit (paying tax on interest received) or continue paying P&I and take longer to save the deposit drawing back the payments in advance when I buy my third property?

2: My second property is approx 25 years old. How do I go about compiling information for a depreciation schedule?

Since buying my first property, I have lived in Sydney, Darwin and now Wagga Wagga as I am in the Army. I am almost 29yrs old. Due to moving around so frequently, I find it difficult to find good tax advisors, accountants and knowledgeable people with IP experience.

Any assistance will be greately appreciated. Ta muchly.
 
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Les

Reply: 1
From: Mike .


Re: Refinancing Advice
From: Les
Date: 3/20/00
Time: 10:19:07 PM

G'day Rae,

No doubt you have read the forum entry "Strategic Advice on a worrying situation"? If not, start there. Several people put out some good ideas in that entry that may help you.

However, assuming you have read it, and your case is different, here are some ideas:-

1. Look at IO loan for this property (ALL investment properties!!). It's cheaper, maximises Tax Deductions, and allows you to buy more, sooner.

2. Rather than saving in a Bank Account, see about setting up an Offset account against one of your mortgages (Interest is effectively paid at the rate of the mortgage - 7%? - and is NON-Taxable). Also, it is your own Savings account, so the money may be withdrawn at any time for any purpose (another deposit?). Check it out carefully, though - it is not available against some mortgages (fixed?).

3. You mentioned not using 221D - but do you claim ALL costs in your yearly Tax Returns? (Building Allowance, Borrowing Costs, Depreciation, Insurance, RE fees, etc.) - you SHOULD be getting a VERY HEALTHY cheque back from the ATO every year!! Look at getting 221D into action (unless you like loaning money to the Govt. interest-free ;^)

4. Can you realistically raise the rent on the "non-performer"? Anything that helps to make it cashflow positive ....

Re your question regarding depreciation:- At 25 years old, you cannot claim the Building Allowance, but, if you get in a Quantity Surveyor, you can likely claim Depreciation for carpets, stove, water heater, curtains and (maybe) a Capital Allowance if major works were carried out within the last 12 years or so.

Check out the forum entry "Depreciation Allowance" (Jan 2000) - it gives the URL and "roadmap" to find the ATO's Rental Properties Handbook. In it, (pp5 - 7) it talks of how to value fittings for depreciation. The ATO wants "arm's length" valuations, or other justification that the values you provide are valid. The Quantity Surveyor is the common "accepted" provider of this information.

I can recommend a Surveyor that did a good job for me in Brisbane (cost $500, found $5000 more than I had projected).

Maybe others can provide some more ideas for you, too.

Regards, Les

Disclaimer: I'm not an adviser, just a bloke with an opinion, so check out all advice before implementing.
 
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