For negative gearing Die Hards??

Discussion in 'Investment Strategy' started by MTR, 29th Sep, 2020.

Join Australia's most dynamic and respected property investment community
Tags:
  1. BunnyXiao

    BunnyXiao Well-Known Member

    Joined:
    27th Aug, 2020
    Posts:
    435
    Location:
    Estonia
    Nope not that property. Ballarat which I'm delighted with. And growth is fantastic even more so in corona times. Selling destroys everything. This is a cost of ownership and maintenance. I'm just annoyed by slowness and ineptitude there of legal and management processes and unfair policies to ex-pats. But I will find a way to access my equity one way or other
     
    kierank likes this.
  2. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,784
    Location:
    My World

    Got it
    Brilliant about the growth

    You will find a way I am sure:)
     
    BunnyXiao likes this.
  3. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    Happy to help.
    Yeah, after the $50K reno, the depreciation increased by around $3,000 that tax year - a nice little non-cash deductible expense :D.
    I am the same.

    With that $50K reno, I did an appraisal just before and just after the reno. The value went up $50K (I would have liked more :p). So, on Day 1, no impact on Net Worth - we just increased our debt and assets by $50K

    The good news was that the rent went up nearly 21% immediately, from $365 pw to $440 pw or an increase of $3,900 pa.

    I can't remember the interest rate on the LOC at that time but the the increase in rent would cover the interest payment on the $50K borrowed up to a rate of 7.8%. I know it wasn't that high.

    Then there is the increased tax deduction from the increased depreciation.

    I know some people want property to be a get-rich-quick-scheme :rolleyes:. I have never found it to be that but I have found it to be a get-richer-slow-scheme :cool:
     
    MWI, craigc, Lauren350 and 3 others like this.
  4. BunnyXiao

    BunnyXiao Well-Known Member

    Joined:
    27th Aug, 2020
    Posts:
    435
    Location:
    Estonia
    With the LOC my MB tells me its the same as applying for a new loan. I am also unimpressed with my current mortgage rates so will shop around soon. However being an expat im not give a fair go due to the sins of others gaming the system so now im in the all expats are dodgy basket so despite being in a very good financial situation vastly better than when I was in Au I will be put through the wringer .....thats my sob story and vent
     
    kierank likes this.
  5. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    Yep, it is a loan application.

    Main difference is that you only draw it down if/when one needs it.
    With interest rates falling like they have in recent times, I have never spent so much time requesting lower rates from my banks.

    If they don’t come to the party, they know I will refinance.

    Bur it is worth the effort - better cashflow in these uncertain times.
    Hang in there - persistence is a necessary attribute for people seeking success/creating net worth.
     
    BunnyXiao likes this.
  6. The Y-man

    The Y-man Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    13,436
    Location:
    Melbourne
    Given it's a new app, is it better to just get cash out and have it deposited in a 100% offset account? Esp since banks can "take away" the LOC at will.

    The Y-man
     
    MTR likes this.
  7. BunnyXiao

    BunnyXiao Well-Known Member

    Joined:
    27th Aug, 2020
    Posts:
    435
    Location:
    Estonia
    I've got a fair whack of change sitting in my loans I can redraw and a nice lump in my offset so I'm ok. I'm just trying to be financially smarter these days. This forum has been very educative. I am seriously considering pulling the redraw back out to the offset for what you said YMan - I know the banks can consider that their money rather than mine so I may do that yet too. For now I'm too stressed with other property issues to look at refinancing just yet. But my MB did get my bank to drop the rates a bit . I'm just one girl in the world - a force of one so sometimes it gets a bit tiring for me so gotta pick and time battles.
     
    The Y-man and kierank like this.
  8. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    I have done it both ways.

    The main thing one must remember is not to pollute the Offset by putting personal funds in the Offset while it still contains some investment/borrowed funds.

    Even accidentally!!!
     
    BunnyXiao likes this.
  9. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    Just ensure you don’t have any personal funds in the Offset prior to placing the redraw funds into it.

    Otherwise, the Offset will be polluted.
     
    Pingu1988 and BunnyXiao like this.
  10. BunnyXiao

    BunnyXiao Well-Known Member

    Joined:
    27th Aug, 2020
    Posts:
    435
    Location:
    Estonia
    Ok I will look at shuffling off personal funds in offset to another area if I redraw. Will check with the MB if it comes to it. Thank for the tip.
     
    kierank likes this.
  11. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    When I was in my accumulation phase, I had offsets for personal funds and offsets for investment funds (and the discipline not to pollute either category).
     
  12. BunnyXiao

    BunnyXiao Well-Known Member

    Joined:
    27th Aug, 2020
    Posts:
    435
    Location:
    Estonia
    I'm just at this stage now;-). CBA has a MISA facility I never used. So I can put my redraw funds there should I need to. And just leave my offset untouched. And your post helps as I was going to run that past my MB.
     
    kierank likes this.
  13. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    13,932
    Location:
    Brisbane
    I thought the tax deductibility of the loan depended on the purpose of the redraw?

    So if you redraw loan funds and sit them into an offset but don't use them for investment purposes for a year, two years, is that ok? As long as the redraw funds are eventually used for investment purposes, it is ok?

    I guess the interest paid on the loan won't change because it is still sitting offset against the loan.

    Is the major risk that somehow you withdraw or deposit into that specific offset accidentally, and then the offset is contaminated?

    If that is the case, and the loan remains deductible by redrawing equity and sitting it against the loan in a specific offset account, you'd need to do what I do...

    For the loans that I've fixed for two years, I go into the online banking area where I can give each loan its own nickname. For each fixed loan, I change it from "Investment Loan" or whatever name it has within the banking system, and call it "DO NOT TOUCH - $790 - 29th.

    We have seven loans, three offsets, and an everyday account. When I am transferring, it is very easy to click on the wrong account and contaminate an account or a loan. I don't have any automatic sweeps set up and transfer manually each month to cover the repayments, so I'm in control).

    Labelling each loan means I am much less likely to accidentally deposit into a fixed loan (I'm charged a break fee if I sit more than $30k against those loans). It also means I don't accidentally draw from a loan rather than an offset.
     
    Pingu1988 and craigc like this.
  14. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    That is my understanding. Hence, IMHO one should NEVER mix investment and personal funds in an offset.
    When I sold my last business, I set up a new loan and placed all of the funds in that loan's offset. Main reason I wanted cash on call in case the new owners got themselves into trouble, I could buy back the business immediately for cash (bit like Kerry Packer with Alan Bond). I left the funds there for 2 to 3 years (never touched it).

    One day, I got a phone call. The business was being placed into liquidation. It was so damaged/destroyed that it was too risky for me to bail them out/buy it back. Sad day as 80+ staff lost their jobs.

    I moved the funds from its offset back to the loan to pay it out.
    Correct.
    Yep.
    That is one way.

    Our approach was to deal with multiple banks - one for personal, one for business, a few for loans and properties.

    It is then pretty hard to contaminate accounts but still possible ...
    Exactly.

    That is why we were customers of multiple banks. It is a pain in the butt from an administration point of view but it is worth the effort from a risk management POV.
    At least you are aware of the situation and have worked out an approach that works for you.
     
    craigc, wylie and BunnyXiao like this.
  15. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,784
    Location:
    My World
    What Yman said
    This is what I did, got nervous, read a post somewhere about Banks and redraws. Funds are all in offset accounts now
     
  16. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,784
    Location:
    My World

    I meant can you refinance after building g/flat.

    So if you build g/flat $100K, do you think you can pull this out in equity?
     
  17. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,784
    Location:
    My World

    I had a terrible year in US, in terms of turnover of tenants as well

    Seems people can now buy homes, US interest rates so low, so they are now becoming homeowners.
     
  18. BunnyXiao

    BunnyXiao Well-Known Member

    Joined:
    27th Aug, 2020
    Posts:
    435
    Location:
    Estonia
    Dang girl! And here I was thinking US so much better. I'm sorry to hear. Listening to my favourite YouTube RE guy Meet Kevin I think there is going to be another property meltdown there soon like 2008 so cash up now whilst the prices and frenzy are still high ;-) For myself I'm over property for now. Trying to build up more in ETFs in my Super and buying the dips post USA election
     
    MTR likes this.
  19. BunnyXiao

    BunnyXiao Well-Known Member

    Joined:
    27th Aug, 2020
    Posts:
    435
    Location:
    Estonia
    I always look enviously at US property. So much, so cheap, so many beautiful places. And renno work seems so cheap as well.
     
  20. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,784
    Location:
    My World

    Do you want to hear the good news....:)

    there are much higher % of renters in US than Oz

    The other thing is prop markets are hot around US due to shortage of stock so prices continue to rise, including rents

    Go figure.... I think Georgia has one of the highest rates of covid but houses selling like hot cakes

    They use key lock boxes to view properties and by appointment

    I agree diversification, I started doing this
     

Build Passive Income WITHOUT Dropping $15K On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia