17159 Albion St, Detroit

Not a single misrepresentation at my end mate. That's all you. Every last bit of it. Post after post . You claimed the property that you posted on the thread which you started would pay itself off in 3 years and a bit. No one else did that. You did. Don't you dare try and make out that I misrepresented anything. The extent of my involvement in this misrepresentation was catching you in a lie and calling you out.

Finally. Except that you don't get a credit for the Michigan State Tax - you only get a credit for the Federal Tax. So you pay your 32.5% here or your 37% here or your 45% here , PLUS 4.25% to Michigan . That means you are paying an effective rate of 36.75%, 41.25% or 49.25% in taxes. It's irrelevant whether you paid 10% or 20% or 30% in the US, and the balance here, or whether you paid 0% there and the balance here . You'll still pay 36.75%, 41.25% or 49.25% on the Gross profits- between the two countries and the two tax collection agencies.

 

DETROIT (Reuters) - Buying a property in Detroit a few years ago seemed like a steal for overseas investors – as little as a few thousand dollars would get them a house in a city that had hit rock bottom and could only see better times.

Yet the promise turned into a nightmare for many and stories of properties vandalized, ransacked, left untended and un-rentable have sapped the interest from overseas buyers, real estate brokers say.

Scams, ignorance burn foreign buyers of Detroit properties

 

At 32.5% Australian Marginal Tax Rate + 4.25 Michigan state tax rate you’re losing 36.75% of the $4850 - leaving $3067.62 . That’s a net return of 9.3% on 33k

At 37% MTR + 4.25% state , 41.25% tax leaves $2849.37 - 8.63% net return on 33k

At 45% MTR + 4.25% state, 49.25% is lost to taxes , leaving $2461.38 7.46% net return on 33k

These are impressive returns, but however you cut it this thing isn't being repaid in 3 years and some change .

And this is assuming full tenancy - a big assumption when vacancy rates exceed 5%

And it’s also assuming no major repairs - an even bigger assumption in an extreme 4 season climate like Detroit’s , with old buildings like these .

I lived in Chicago for 3 years . I know what happens to houses in these climates . Especially basement plumbing and central heating systems

 

Incorrect. ATO does give you a Credit for all payments to IRS as a Tax deduction.
It does not distinguish between Fed tax or State tax.
It is an expense item to you and ATO recognizes it.
Check with a CPA qualified accountant.

 

In your example, did you mean to say $10,000 of income, and $5,500 of expenses, so net (taxable) income is $4,500. I am assuming that any taxes in US would naturally come off gross income for the purposes of determining assessable income in OZ. You then determine OZ tax on the assessable income, and then add back any tax credits you get from tax already paid in US.

Or am I also missing something?

 

Got it. Yep, not all expenses are tax deductible. Thanks Geoff.

 

What I really find amusing about this thread......is...…. wait for it.... Roll Drum...….

With Australian property, cash flow returns/yields are always calculated on GROSS returns.... ??? How does this work??? it does not in my books.....

Why because it pumps up the numbers but no where close to the actual returns, money in your pocket. .....my pet hate.


mmmm, interesting how this one works. Throwing the cat amongst the pigeons....

how are gross returns going with product in Australia?????...… anywhere close to the net returns in US...… ME THINKS NOT.... considering average yields in Australia today are around 3-4% gross


MTR

 

This thread would really benefit from a comprehensive worked example (in excel) of a property purchased in Detroit by an Australian resident showing all cash flows.

 

The "Double Taxation Taxes On Income Convention Between The Unites States Of America And Australia " says that the relief exists for Federal Tax only


The ATO's website specifically states that local and state taxes are not eligible for offsets in Australia

Guide to foreign income tax offset rules 2018






Either way, the state tax is only 4.25% of the equation... so even if I gave you that as a concession, you have still misled readers for months about the true amount of net income these properties generate. That is not up for debate

 

Its a forum, dig deeper, forums are just that.

no one has any obligation to share anything, its choice. I started a thread... way back...…"Too Lazy to become Rich"..... what I mean about digging deeper, not referring to anyone in particular.... If investors are hungry for more info then work it.

Last time I shared my development numbers on Thomastown, Melbourne, I was trolled, forums are a double edged sword. Have no control on how the person behind the keyboard may react.... the good, bad and ugly of forums.

I get lots of pms and have helped many investors on this forum that is my choice.

From my experience In Oz net returns are rarely stated upfront.... gross BTW is meaningless because you don't have the real numbers, in fact sometimes they use depreciation to get the numbers to work....hikes.

Many investors would not get this, in particular newbies. Its a marketing tool, that simple.. to sell product and it works well.

Investors get sucked into gross yields every day of the week. Mind you they wont be attractive in Oz today.

There should be a caveat buyer beware....absolutely.....

I started a thread...…."what they don't tell you on forums"....

 

Anyways, "Post-Tax" income is a figment imho.
Tax rulings change all the time. With every government change.
We Australians were always made to believe that making Losses upfront was good (Pre-Tax). But Post Tax you would make the money.
And that was good.
Times have changed now. Capital Gains stagnate.
And investors holding an asset that drains funds from their employment income does not allow us to retire, does it?

Unfortunately, people who retired with Pre Tax losses found their way back to employment agencies, when they realise unknowingly, that they were caught up with the fad that it is "Okay to lose money upfront".
Because you will make it back at Tax time!
One can NOT retire with income the ATO promises to credit you back.
Rulings Change every 5 years. Or even lesser.

Much like Living on Equity strategy (LOE strategy) which was the rave of the day back in 2005s. I hoped to do that! Can anyone expect to draw down equity every 5 years now and live off that with banks changing rules from IO to P&I.
Those days are long gone. What happened to those investors?

Make money upfront my friends. With rents.
And Capital growth to boot.
Pay your taxes,
And don't expect a handout.
Simple advise to retire free of hassles.

...

 

No Geoff, Please, we Love you. To be honest I followed you from Somersoft since early 2000s. You had the friendly green frog Logo in somersoft which is missing now! haha,

And your posts are thoughtful are very inciteful.
And analytical.

If you wish, meet me in my home office in Sydney if you like, or a professional setting at my Norwest office. And you will get a fuller picture into our Detroit operations. And I will introduce this Northern suburbs based SMSF investor (with their permissions ofcourse) who have bought double-digit properties in Detroit with us. They are a fabulous couple. Even others I can introduce - several Aussie SMSFs too who have bought multiple homes, they can tell the REAL side of their story.

I kindly and humbly suggest that you also speak to your Aussie accountant, and get the whole picture. And I can put you onto our American accountant Mark Heisey of Dalon Tax services. He can guide you on the intricacies of a Trust structure/LLC structure etc from here.

Why just listen to Aussie based US investors, who find the going Great.

Someone will try and muddle a 4.75% State Tax figure and et al and throw us off guard and claim that that the numbers missed the mark by a little 40% bit!

 

It was Price to Rent ratios.

Purchase price = 33,000
Rent per annum = 10,800 (which is 900 per month)

That is the background story.

(As Bunnings says, if you find a better deal we will beat it by 10%)

 

When I read this forum, I cannot but think that investing in Detroit has many advantages, particularly if you take a long term view, and believe that the general area will recover (which I do). I would say however that it is quite disconcerting when basic questions are not resolved. Does an OZ resident get a tax credit/offset for all US taxes or just Federal taxes? One person says yes, another person says no, and then it just goes round in circles. This may not be a big issue in itself, but it does leave doubts in people’s minds about whether other things have been overlooked. I understand the role of the investor is to make their own enquiries, but investors will seek help from companies and organisations that just know this stuff back to front and make the investors job that bit easier. I am not meaning to be critical, but I think it does no one any credit when questions like this cannot be answered in any definitive way.

 

Yes, and I say Yes emphatically. I have been an investor in US for 8 years now.
Whatever you pay in the US (which is genuinely considered to be expenses for holding your rental property) is Tax deductible by ATO.

Don't take my word for it, check with your accountant, and he will be puzzled and say the same thing. Why should Federal taxes be deductible but not State taxes?

Check with your accountant. Mine is clear.
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