Is it just me, or is there a change on this forum?

[ChrisA1]

LoC thread

Rolf / Y Man,

Agree that a new thread is required on this - I use my LOC with CBA for buying residential IPs. Does the aforementioned imply that I am precariously placed, or that I need to do something subsequent to the purchase - Rolf's mention of a term loan with a 10 year IO period - to ensure a bullet proof outcome?

Just to divert this thread again (sorry see_change!), just wondering if anyone has set up a new thread about using a LoC as other posters have stated. I am also looking into setting up a new LoC against my PPOR and think that a lot of others have/will look to (especially in this low IR climate) without knowing/thinking of the points that Rolf raised.

If a separate thread has been set up, could someone please reply with a link to it. If a separate thread hasn't been set up, I will as it would be great to investigate this more.


Oh, but on the topic of this thread, I am certainly seeing more ads on TV about seeing the big mortgage brokers to 'use the equity in your home to buy an IP' or 'see us for an investor pack', so there must be increasing interest there.

 

[Deltaberry]

Can a $3m, house in a decent neighbourhood rise massively in price? Maybe if its on a huge redevelopable block. Or maybe if local salaries rise exponentially.

Personally I'm a bit sceptical of the capital gain opportunities of the top end.

I have bought property, mostly ugly old low-end houses on large blocks, that went up 8-fold in as little as 13 years. Without a doubt, I'm a low end fan. The only problem seems to be the tenants - at the low end of the market, one usually has to deal with bogans and ferals. Not easy.

Yea it can go up massively, but not sure if it can do 8-fold - possibly depending on the time you buy and sell.

Eg if you bought in 2000 (13 years ago), you can probably get a reasonable sized house in say a top end suburb for around $1m. It's probably worth around $4m now? So 4-fold. 8-fold is probably a bit harder.

An example in that range would be a house my friend's parents bought in 2001. They paid around $950k. I think it's worth around $3.7m now.

 

[Shadow]

Now we just need to wait 12 months for the influx of new bears (or recycled bears with new identities) warning us about the imminent 40% crash and telling us to SELL NOW!

 

[heroine]

As an aside, but quite relevant to the "newbie" topic/ idealogy you wont use your big LOC to buy a place will you ?

Im sure the banker advised you that once you have drawn the funds to switch and split out all the used component into a Term loan with a 10 year IO period.

You already know the reasons and probably asked the banker the same about the "reviewability" of the LOC product - because some lenders even have "repayable on demand" in their LOC product contracts.

BTW, when you get your CIP, being a risk cautious fellow, perhaps look at smaller brands of money that offer NON reviewable loans CIP loans which your current bank does not

ta

rolf

It's posts like this that make me like this forum. Thanks Rolf! I learned something today

 

[BayView]

Just to divert this thread again (sorry see_change!), just wondering if anyone has set up a new thread about using a LoC as other posters have stated. I am also looking into setting up a new LoC against my PPOR and think that a lot of others have/will look to (especially in this low IR climate) without knowing/thinking of the points that Rolf raised.

If a separate thread has been set up, could someone please reply with a link to it. If a separate thread hasn't been set up, I will as it would be great to investigate this more.

I would have thought there is already one in existence in "Property Finance"?

If not; against our PPoR we have:
1. an Investment LOC - used for anything investment based basically - initially for deposits and purchases costs.
2. an Everyday LOC - all wages and rent go in here, and all personal living expenses are paid out of this account,
3. an Overdraft for use in the Workshop business,
4. a loan for the purchase of the business.
5. a Visa card for the business.

There is also a separate loan for the (last remaining) IP and is secured by it. All other IP's we owned had separate loans secured by the respective property.

 

[china]

I would have thought there is already one in existence in "Property Finance"?

If not; against our PPoR we have:
1. an Investment LOC - used for anything investment based basically - initially for deposits and purchases costs.
2. an Everyday LOC - all wages and rent go in here, and all personal living expenses are paid out of this account,
3. an Overdraft for use in the Workshop business,
4. a loan for the purchase of the business.
5. a Visa card for the business.

There is also a separate loan for the (last remaining) IP and is secured by it. All other IP's we owned had separate loans secured by the respective property.

Why doesn't the rent and wages go into an offset for the invesment LOC and the separate loan for IP?

 

[BayView]

Why doesn't the rent and wages go into an offset for the invesment LOC and the separate loan for IP?

It can, but the whole idea of putting all the rent and income into an everyday LOC account or offset etc is to reduce the non-deductible debt if there is any, while maintaining the maximum percentage of debt in the deductible areas.

Of course; the whole idea is eventually cut out ALL debt, but work on non-deductible first.

After this, then the rent and whatever excess money from PAYE income can be directed to decreasing deductible debt.

With an offset, the money is not actually paid off the investment loan, but held in the offset account. The overall equity position is still the same, but the deductible debt is still there for tax benefits.

Some folk are happy to never pay down the deductible debt because they have the perception that deductible debt is good for tax minimisation.

I think this is idiotic.

The whole idea is to make loads and loads of profit, and try to then minimise tax on it...not to perennially stay in a negative just to save on paying any tax at all.

 

[china]

Of course; the whole idea is eventually cut out ALL debt, but work on non-deductible first.

After this, then the rent and whatever excess money from PAYE income can be directed to decreasing deductible debt.

With an offset, the money is not actually paid off the investment loan, but held in the offset account. The overall equity position is still the same, but the deductible debt is still there for tax benefits.

So your goal on retirement / cessation of active income earning, would be to have say, an unencumbered PPOR and 2m worth of unencumbered IPs ?

If you had zero non-deductible debt, would you consider using your PAYE income and rent to pay off the principal in your IP / increase the equity in your IP, rather than just holding in offset - this too would also reduce the deductible debt?

 

[datto]

Some folk are happy to never pay down the deductible debt because they have the perception that deductible debt is good for tax minimisation.

I think this is idiotic.

The whole idea is to make loads and loads of profit, and try to then minimise tax on it...not to perennially stay in a negative just to save on paying any tax at all.

I am surprised the ATO hasn't cracked down on people negative gearing their properties over many years on the basis that it is a tax minimisation scheme.

If an investor just negative gears, accumulates property for the purpose of making a tax loss, and never churns out a profit either through cashflow or capital gain then surely this is a tax scheme. (sorry to anyone called shirley)

 

[ChrisA1]

I am surprised the ATO hasn't cracked down on people negative gearing their properties over many years on the basis that it is a tax minimisation scheme.

If an investor just negative gears, accumulates property for the purpose of making a tax loss, and never churns out a profit either through cashflow or capital gain then surely this is a tax scheme. (sorry to anyone called shirley)

The ATO cracked down on 'Pitt St farmers' a few years ago being the wealthy in the capital cities who bought a farm for the tax benefits but didn't know what end of the cow the milk came from. These farms were always making a loss for tax purposes (or never actually made any money)


I'm surprised the ATO didn't crack down on negative gearing at the same time. Maybe it was easier to sting the farmers first... or maybe too many pollies owned negative IPs and therefore they would have been stinging themselves

 

[BayView]

I am surprised the ATO hasn't cracked down on people negative gearing their properties over many years on the basis that it is a tax minimisation scheme.

If an investor just negative gears, accumulates property for the purpose of making a tax loss, and never churns out a profit either through cashflow or capital gain then surely this is a tax scheme. (sorry to anyone called shirley)

The ATO encourage us to invest, and therefore provide the encouragement via tax deductions.

Whether the investor is doing it solely for tax minimisation (idiot if they are) or to become wealthy is irrelevant to the ATO.

The rules are there, and we play by them for our own purposes.

 

[datto]

Chris I think those Pitt St farmers from the late seventies, early eighties knew they were being naughty. They got walloped by the tax office. I heard some were kicking and screaming their "innocence" to the bitter end.

"Bottom of the Harbour" was another naughty activity being promoted at the time.

I think negative gearing is different because of the way it has flourished and has become a norm in the property investor's world.

We have had the Henry Review of tax, what we need is the Datto Review (abolish neg gear and replace it with a one off $20K payment for all property investors...yeeha!)

 

[BayView]

So your goal on retirement / cessation of active income earning, would be to have say, an unencumbered PPOR and 2m worth of unencumbered IPs ?

If you had zero non-deductible debt, would you consider using your PAYE income and rent to pay off the principal in your IP / increase the equity in your IP, rather than just holding in offset - this too would also reduce the deductible debt?

If you have zero deductible debt, then your next move should be to continue to decrease overall debt, but at the same time use the increasing equity for acquiring other income producing assets.

Holding more in your offset doesn't decrease the deductible debt. It is still whatever level it is, but the equity in the overall financial position increases. It's sorta like cheating, yeah?

I have no goal or number in my plans.

I am simply trying to direct as much of my very limited income towards investment and becoming wealthy as I can.

One of my investments has gone terribly bad (the workshop purchase). it was a strategy to increase the income in the short term, with the view to invest the extra income it was to provide towards more income producing assets such as another business, and then into other real estate ventures.

In hindsight I should have put the equity into a small subdivision or something similar, but hindsight is an expensive item to buy, and I needed/wanted more income straight away. I didn't have the luxury of a six figure or more income to make the whole thing a doddle/shooting fish in a barrel.

 

[ChrisA1]

The ATO encourage us to invest, and therefore provide the encouragement via tax deductions.

Whether the investor is doing it solely for tax minimisation (idiot if they are) or to become wealthy is irrelevant to the ATO.

The rules are there, and we play by them for our own purposes.

Yes, I could agree. By encouraging investors, you are also making properties available to those who can't afford to buy (ie through investors making the houses available for rent). As the property market continues to spiral, it keeps many employed - REA, PMs, builders, (smart) investors.....

 

[datto]

The ATO encourage us to invest, and therefore provide the encouragement via tax deductions.

Whether the investor is doing it solely for tax minimisation (idiot if they are) or to become wealthy is irrelevant to the ATO.

The rules are there, and we play by them for our own purposes.

Sorry, but ATO is impartial and doesn't encourage investment IMO. They (ATO) have anti tax avoidance rules which they can use. They probally don't use them because of politics.

 

[BayView]

Sorry, but ATO is impartial and doesn't encourage investment IMO. They (ATO) have anti tax avoidance rules which they can use. They probably don't use them because of politics.

Correct about the ATO not encouraging investment, but I'm pretty sure they couldn't give two hoots about the PC of their rules on avoidance.

I should have said the Gubbmint is the one who encourages the investor to buy IP's.

Doesn't mean we have to be neg geared.

If anything, the Gubb would prefer we are pos geared so they could charge us more tax.

Based on that, you would think if the Gubb had a prob with greedy, tax avoiding scum LL's, they would have shut it down already.

 

[Deltaberry]

People negatively gear because interest costs are high, and rent is not high enough.

Simple as that.

Reduce interest rates to 1% and I'm happy to pay whatever tax on the difference.

 

[redwing]

I am surprised the ATO hasn't cracked down on people negative gearing their properties over many years on the basis that it is a tax minimisation scheme.

If an investor just negative gears, accumulates property for the purpose of making a tax loss, and never churns out a profit either through cashflow or capital gain then surely this is a tax scheme. (sorry to anyone called shirley)

I'm surprised the ATO hasn't cracked down on cash only, or sideline cash businesses

Or businesses that make losses year on year

Businesses that buy new vehicles etc, rather than make a profit

Businesses that suddenly pay more in wages etc, rather than make a profit

There's a reason Berkshire Hathaway doesn't pay dividends

 

[Shadow]

..........

 

[Aaron_C]

Last weekend's Melbourne results were astonishing....particularly for inner-city. Crazy prices being paid.