What to Buy?

Hello,

My income is expected to double from $90,000 to $150-$180,000 this financial year, so I am considering buying another IP (I currently have 1 IP). My budget is around $400,000-$500,000. In order to lower my tax, my question is this?

Am I better off buying a low-yielding IP (ie. old house in blue-chip location on large lot) or look for the low-yield, high-depreciation IP to benefit from say: $25,000 in deductions against my high income?

If I try to buy a near CF+ or neutral-geared IP, then my deductions won't be as high, is this correct?

Many thanks in advance.

Col
 
In order to lower my tax, my question is this?
I've said this before, but at the risk of repeating myself, Col, buying an investment that lowers your tax should be the icing on the cake, not the cake itself. ;)

If I try to buy a near CF+ or neutral-geared IP, then my deductions won't be as high, is this correct?
Correct, your deductions won't be as high :rolleyes:
Think of of it this way. If you are on say 50c in the $ tax bracket. You have to "lose" $2 to "save" $1 in tax. Now if you get CG of more than a $1 - fine - eventually. But I just don't get why people would buy a neg geared investment just for tax deductions. :confused:

If you make $1 on an investment then you pay 50c tax - yes? but you are still 50c in front. and $1.50 in front of a scheme set out to lose $2 to get $1 back from the tax man.

My suggestion would be to invest for cf neutral or +ve cf as Thann has said. Pay your tax and get your CG as well. There are a few types of property in a few areas that do this :) I'm all for having your cake and eating it too :D
 
My income is expected to double from $90,000 to $150-$180,000 this financial year, so I am considering buying another IP (I currently have 1 IP). My budget is around $400,000-$500,000. In order to lower my tax, my question is this?

Am I better off buying a low-yielding IP....

Col,

The main thing to consider is how long this income will keep coming in for.

One of the biggest learnings I have from the GFC is as follows:

In 2007 I had a great income of $Z.
Planning around this, I borrowed $(Z X 10) to invest in low yield high-CG instruments
In 2008, economy tanked, and I lost my $Z income
I was deep in poo because I still had to service the interest costs on $(Z X 10)

Cheers,

The Y-man
 
Col,

The main thing to consider is how long this income will keep coming in for.

One of the biggest learnings I have from the GFC is as follows:

In 2007 I had a great income of $Z.
Planning around this, I borrowed $(Z X 10) to invest in low yield high-CG instruments
In 2008, economy tanked, and I lost my $Z income
I was deep in poo because I still had to service the interest costs on $(Z X 10)

Cheers,

The Y-man

I have considered this situation above (highlighted) a few times. I'm predicting my income will go as high as $180k this financial year, but also budgeting for a $120,000 level income over the next few years as a minimum to work on. Personally, I'd prefer to buy an IP as close to CF+ or neutral as possible however property values at the moment I don't think have reached their bottom yet (probably another 2 years I think), so based on what others have said above together with my own knowledge, I think I'll start making some silly offers on IPs in order to get close to neutral-geared (CF+ would be even better :D ) in a high capital growth area.
 
Iproperty values at the moment I don't think have reached their bottom yet (probably another 2 years I think), so based on what others have said above together with my own knowledge, I think I'll start making some silly offers on IPs in order to get close to neutral-geared (CF+ would be even better :D ) in a high capital growth area.

Depends where you are. The country is made up of lots of markets within markets. West Sydney (where I am) is rising NOW.
 
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