Cost of owning a rental property!!!

Thanks - I think I did include this in the first dot point, under PM's fees and other costs involved for PM - I added on extra to the 9% charge, which covers lease fees, inspection etc...

 

No problems, your welcome. And I appreciate the lengths you go to, to ensure you pay more than your fair share of tax. It is much appreciated. I am sure the government will reward you with an order of Australia or some other expensive non essential waste of money ceremony they can come up with to ensure that put your extra tax dollars to good use

Never said it was smart to base an investment strategy on losing money. All of my investments are cash flow neutral or positive as I add value. They do however incur net losses after depreciation. I do clam these losses.

Don't forget Positively Geared properties can have Negative years due to Depreciation, Vacancy, Repairs etc.

Its not smart (IMO) to go into any investment on the basis of planning to lose money in the blind hope that the asset will increase in value. It is however smart to utilise the deductions available to you when you file your tax return.

Again not necessarily economic misadventure, is it misadventure for a company that manufactures widgets to close dow their plant and invest $2M on upgrades that will mean they make a loss for the next two years but make a greater profit over 6 years and into the future? Is it wrong for them to claim depreciation on the expense?

Your forgetting tax ultimately gets paid on the NG'ed property/income associated.

NG is not only available to an entitled few.

You were refering to not claiming NG losses in your post actually.

Weird karmasutra positions with Irish and Dutch people is not my fortay. As for transfer pricing systems I dislike this and believe the ATO/Government should do everything in their power to ensure that legislation prevents this and chase the Avoided Taxes. I believe they are making inroads in this area. This however should not enter an argument on legally claiming expenses related to property investment.

Not true. Owners of business can and do structure their busines to reduce personal income and increase wealth creation. However just like Negative gearing eventually if your repatriate the money to yourself you pay the tax.

Again I have no problem with an objection to the policy of NG and calls to change it. What I have a problem with is arguing that people shouldn't claim the legal deductions they are entitled to.

keep counting!

 

I have not voted as I have not 'rented' my PPOR yet. Have been thinking to rent it out, though.
The land tax alone jumps up (from $2084 to $7764) so much that I had to put the idea or moving out of my PPOR altogether. Then there are other things mentioned above.
I am emotionally attached to my PPOR, but it is not my dream house. I was thinking of selling an IP instead (similar land value, but PPOR is better condition and would get better rent).

 

• Since the investment is positively geared and the investor is tax savvy, why hold it in individual name or trust where the marginal tax rate is much higher than company tax rate ? NG and CGT exemption maybe. Numbers do not line up without these two rorts.

• Only 5% of Australians use this rort and it has a tax bill of almost 4 billion.
• By all means claim depreciation and expenses. Just do not claim it from the Tax payer aka NG.
• How does the tax get paid on the NGéd property ? Tax payer has paid negative gearing till it becomes positive or sold. What is the tax payer's contribution classified as (a) Equity in the property or (b) loan on which the investor pays interest.

See our discussion above. It is not me but you has referred to NG as a structure (in the same sentence). I do not understand the confusion.

So what you are saying is that it is unacceptable for companies to use transfer pricing to minimize taxes, but it is acceptable for individuals to structure their property holdings through complex incestuous labyrinths of trusts, companies, individuals to do exactly that.

Isn't the difference not evident.

• An owner paying a salary to himself is a business expense like it would be to pay any other employee.
• An individual claiming a NG loss is not claiming the loss against the business or investment, but rather against his income.
• Please read up on active and passive incomes and their differing treatments.

By all means claim the deductions, just against the business activity.

 

Yes I said it is NOT an elaborate tax structure, it IS a simple legal way of investing & reducing ones tax position.

 

Very convincing indeed.
Happy Easter holidays to you as well.

 

Your Source?

But regardless of your source, AVERAGE australians not an entitled few are utilising the benefits of NG. Not just an elite few. Majority are Nurses and Teachers, not Doctors and Lawyers.

Job Number negatively gearing Ave net rental loss Ave individual reduction in tax liability
Cleaners 6,330 -$201 $41
Sales 16,060 -$206 $42
Hairdressers 1685 -$812 $166
Nurses 49,535 -$715 $254
Teachers 63,805 -$921 $327
Emergency 18,995 -$2137 $768
Lawyers 585 -$3846 $1788
Mining 2135 -$3469 $1335
Finance 7385 -$3239 $1247
Surgeons 990 -$8947 $4160
Anaesthetists 885 -$7208 $3351
Source: Grattan Institution analysis of ATO data.

Ok so can I carry forward the loss? until such time as the investment becomes positive? then when i sell can i claim the CGT exemptions?

So I still pay the same tax, your argument is just with the cashflow timing.

Tax gets paid when the profit is realised or if not realised when the rental yield becomes positive.
Secondly when people make more money in their life they either spend more of which a lot of this gets collecting by the government in consumption taxes and creates jobs which means more income tax as well, or alternatively they don't spend it, and they retire in a position that they can self support and not live of welfare.

 

Happy Easter!

Which part of what I said is not convincing?
I think your confusing your dislike of the current tax system with people legally abiding by it.
If you want to have a debate about the inefficiencies of our tax system, I will be standing beside you.

 

Can't be bothered responding to the rest, as it will become quite repetitive.

I would be a big supporter of a simplified tax system in which companies and individuals all paid 25% tax regardless of how much they earn and no deductions allowed. For people that earn to little then there can still be welfare assistance rather than tax relief.

But as I have to work within the system that is here, I will do so to the best of my ability at the lowest tax rate i can.

 

What sort of strata property attracts $2500, $2500 in maintenance & $2000 in rates?

Smoke alarm maintenance is only $99/yr

 

• Source:
  
  • Bill shorten poised to take negative gearing.. Statistics from the petition trying to save NG.
    
  • You can add yourself the no of people claiming NG and divide it by 24 mill
  • Alternately try Fact check: Do most negative gearers earn a modest income?. I am sure there is a better use of this 11.4 billion pretax money.
• Carry forward the losses: Yes, offset it against the profits when sold or income when positively geared or when the estate is wound up. If losses are quarantined against the profits/income of the investment, majority of current crop of investors (@ 2-3% yield) will not last till next financial year. You might be an exception. Labor policy is still a bit lenient as it allows (a) grandfathering and (b) deductions against all investment incomes.
  
• NG is not repaid: The interim period for which NG has been claimed is down the gurgler never to be seen again (compare with HECS). To add insult to injury the profits have a 50% tax exemption. Can you get a JV partner, willing to pay for your losses and then when finally profits materialize, you tell him that you will take away 50% of his entitlement for the privilege of incurring your losses.
• People do not spend more. They buy the next NG property, to keep the taxes low. There is enough literature on the corporate behavior and cost of tax minimization. Compare the amount of NG claimed by lower earners vs higher earners in your own statistics and you will get the answer.
  
• NG does not create jobs, just shuffles the existing stock around to the bigger sucker. You can look up the lending statistics yourself.
• They retire in a position that they can self support and not live of welfare:
  
  • The mindset of maximization of deductions shifts to maximization of government pensions.
    
  • The property is left to the next generation of parasites to suck on tax payers teats. There are enough tips and strategies on this site itself to do it. And the kicker is, it is done by just a change of company ownership, thus evading the tax again.
• I have concerns with the depreciation as well, but we will leave it for another day.

It is not about you and me, and I apologise if I have inadvertently personalised the debate. Legal compliance is the lowest common denominator of society's acceptance, all can go beyond it. Profits and morals are not mutually exclusive.

 

I am the opposite....I really wish I had of kept a few of them, could easily have done so, got side tracked with other things so did not replace.

Your calcs are not right, but your right in that there is a lot of costs & it can be right pain in the rear with some PM/tenant combos.

PM fees should be 5-8% ( 8+ is regional or other areas where there may be no competition)

In some places, like a lot of QLD, your rates are higher as an investor, which is just crook really.

The cleaning should be tenants, you just have to have the place clean initially, and most PPOR's probably already are clean ?

Your accountant and tax matters etc really have nothing to do with home, this is just a cost to do any sort of business.

Maintenance can be a killer, PMs also can be sloppy with your money, need to be watching what happens here till you know the PM is ok.

 

PS don't forget you need building insurance...

PS PS don't forget your miles ahead with no mortgage, have a think how much many of us end up with or losing after all the costs

 

Thanks for your comments. It's really interesting hearing people's views and how different states work. In the ACT we unfortunately have to pay rates and then extra land tax on top of that for any rental property. It's a total rip off. PM fees are a lot here and then there are all the added costs (reletting, inspection report, monthly fee etc.), all of which I factored into my calculation. Strata Management fees are usually about $700 per quarter = $2800 p.a. and I was averaging out all the maintenance costs for the property (plumbing, repairs, painting, curtains, fencing, carpet etc. etc. that I have worked out I will have to fork out for). Plus water and sewerage charges. As I said in my initial post, it was an estimate only - but a pretty reasonable and fair one based on the information I have at hand. God help me if the tenant does any malicious damage. You guys must be tough as steel. Or maybe it makes a difference if it wasn't your PPOR to start with - no emotional attachment. Not sure I'm cut out to be a landlord now

 

Since you have fully paid it off and you arent claiming an interest expense, i'm not sure this stacks up as an investment so much for you. For me, the power of leverage, banking off growth (or manufactured growth) makes it worth it.

The land tax is not something that is so much of a burden everywhere else in Australia. If you were in NSW you wouldn't be faced with land tax payments on a lower priced property (generally speaking) and you could own a few units before you hit a threshold.

For me the question whether to keep or sell would be, how much growth do you see in the next 1 year and next 5 years? If not much then the reasons for holding would well be diminished.
This is my view only of course.

 

The nearby properties have gone up a lot and are achieving good numbers at sales (one guy bought a place for $410,000 down the road and sold it for $525,000 2 years later). It seems to just be rentals that are not doing so well right now. People in Canberra tend to get quite scared before an election too and that can affect the property market. Looking into my crystal ball, in 5 years I expect the property will go up quite a bit in value if I hang onto it. I will be making a small amount of money on it if I rent it out, but is it worthwhile dealing in the meantime with PMs and the demands of tenants? Not sure...not sure. Any psychics on here?

 

yes ACT is a rip off..the reason why i would never recommend anyone buy in canberra (whilst there are other reasonable choices)..

i dont think dealing with pm's etc is that much work...not a reason to sell

 

1. Keeps PM employed, some goes back to federal Government
2. Local council
3. State Government
4. Keeps insurance company employing, back to fed Government
5. Spread the love around, back to fed government
6. Keeps accountant employed. Back to fed Government
7. Keeps depreciator employed. Back to fed Government
8. Keeps some employed, tax paid. Prevents Government paying benefits
9. As above

What the Government giveth with the left hand, it takes from the right...

 

Can you please elaborate on this?

 

Anyway, for me to answer the poll, the answer is, do I see future capital growth for the property and, can I afford the holding costs?

So, the first PPOR which was a 2 bedroom unit, I held because the property hadn't gone up much in the 3 years I owned it. I held for about another 2.5 years and we had a boom in that time! Went up 40%. Then I sold. In the meantime it was a good rental, negatively geared but I could cope with it. With the proceeds I went on and bought another investment so it worked out quite ok, though I incurred buying and selling costs and some CGT as I said the next PPOR is the PPOR and you can't claim 2 PPORs for that amount of time.

Second PPOR, we are planning to sell it as we just had a huge boom and we've nearly doubled our money in 7.5 years. Sure it could go up again but now the growths will likely be just slow and gradual. And it won't be any good as a rental with about 2.5% yield (and that's before agent management fees and rates etc!) and land tax would be an absolute killer as the land values have gone up so much. When we first bought the land value was something like 450k and now that's well and truly subject to land tax assessment. Not worth it.

Anyway, if anybody wants to buy a house in beautiful North Epping or knows someone looking I have one for sale....