need some explaining

[WebBoard]

From: Tristan Newman



Hi everyone it's me again, sorry for these silly questions,

what i like to know is: if i buy an ip and the final calculations is that it will cost me $40 per week to service the loan, after all the tax benefits etc, does that mean all my other ip that i purchase will also cost me x amount of dollars to service each week.

if this is the case and i purchase 10 or more, i could be paying anywhere up to $400 a week I really cannot afford this but i want to buy property, how do i rectify this situation.

I am a bit disillusioned about this prospect, especially after paying many dollars to do a henry kaye seminar, can someone help me with this problem.

 

[Peter_Tersteeg]

Reply: 1
From: PT Bear


The simple solution to this is not to negatively gear your properties. Ideally you should make sure that your income (rent) from your property is greater than your outgoings (mostly interest and agents fees).

Remember, you get most of the tax deductions because you make a loss. If you break even here, you will actually make money when you start count your other detuctables, such as depreciation.

If you make a profit from your rent, you will have to pay tax on it, but that's because you're making money.

On some properties, negative gearing can be unavoidable due to market realities. The main idea is that the growth is greater than the loss from negative gearing. A good solution when you've got multiple properties is to have some which are positively geared, so the profit from them offsets the loss from the negative geared properties.

I read a great quote somewhere: "If negative gearing is so good, why don't landlords drop the rent so their IP can be more negatively geared".

PT_Bear

 

[Rolf Latham]

Reply: 2
From: Rolf Latham


Hi Tristan

Its worse than that !

Unless you have a taxable salary of 200 k + + the tax benefits wear out very quickly as you aquire more losses.

Say losses from IP1 get your taxable income to below 60 k then IP2 will cost you more than 40 per week simply because you are now in a lower tax bracket.

IP3 would cost truckloads more etc

All assuming that IPS same value


Ta

Rolf

 

[WebBoard]

Reply: 2.1
From: Gee Cee Cee


Great posts by P.T.Bear and Rolf. Very much the situation.

However for a fraction of the cost of a seminar I think I could set up a far better investment situation.

Gee Cee

Old conservative unemployed / bum

 

[WebBoard]

Reply: 3
From: Terry Avery


Assuming you put the figures into the Somer's program and came up with a
cost of $40 a week then adding negatively geared IPs will be limited. This
is because the more deductions you get the lower the tax bracket you move
into. For deductions of $10,000 you will get a refund of:
@ 47% = $4,700
@ 43% = $4,300
@ 30% = $3,000
@ 17% = $1,700
@ 0% = $nil

So the more negatively geared properties you add the smaller the deductions
and the more that comes out of your pocket. If you have 10 or more IPs then
it won't be $40 per week for each IP but more like $40 for the first, $100
for the second, $250 for the third, $400....

As someone else pointed out your ability to service multiple loans gets
harder and the banks get twitchy when you have a few IPs.

You rectify the situation with patience, let the equity build up through
capital growth, rents increase and salary increases into higher tax
brackets. Alternatively look at other structures such as companies/trusts.

Cheers

Terry