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What do you think of my debt situation

Discussion in 'General Property Chat' started by monty, 18th Oct, 2016.

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  1. monty

    monty Well-Known Member

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    I'd be interested to hear opions about my debt situation. The one thing that raised my eyebrow was that my repayments are more than my after salary income. Of course I have rental income as well but on the other hand interest rates are very low at the moment.

    If you've been in a similar postion what did you do? Maybe if you could go back you would do something different?

    Please, no comments like "the amount of debt right for you is what you can sleep with" or "talk to your mortgage broker". I'm really after opions from people who've been in a similar situation.

    Here are the figures:
    3 properties (PPOR and 2 x IPs)
    Total debt: $1.2M
    Estimated value of properties: $1.8M
    Cash: $55k. Since purchasing my PPOR in May this year I have saved around $10k
    Weekly repayments: $1,100 p.w.
    Salary (after tax): $1,000 p.w.
    Rental income: $590 p.w. (This value is 60% of weekly rent to account for expenses and a little vacancy)

    Thanks
     
  2. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    66% LVR and cash in the bank of 55k is a reasonably good position. I would focus on getting a bigger cash buffer (depending on your risk profile) so you can debt recycle against you PPOR debt which is non deductible.

    The rental ratio is no big deal. I have clients with 1.5 - 2 times rental income v payg or business income so your ratio is fine.

    I would also look to accessing, serviceability permitting, the 14% equity to take the LVR to 80% as these funds can be used for further acquisitions, pay costs associated with holding the IPs (this will help you bolster the cash 55k cash buffer) or an emergency cash buffer as life can throw some curve-balls like health or job loss.
     
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  3. thatbum

    thatbum Well-Known Member

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    My own loan repayments are double my take home income. Just depends what you're comfortable with. I have a lower salary, higher LVR and higher total debt than you as well.

    What sort of opinions were you looking for exactly?
     
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  4. Stoffo

    Stoffo Well-Known Member

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    Wishing my lending institution was so generous :rolleyes:
     
  5. monty

    monty Well-Known Member

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    Thanks Colin. Did you mean you have clients with repayments 1.5 - 2 times payg?
     
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  6. monty

    monty Well-Known Member

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    Your reply is exactly what I'm after. The fact you have repayments twice as large as you take home pay is good information for me.
     
  7. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Correct.
     
  8. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Who you with?

    Likely there are other lenders willing and able.
     
  9. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    I've done my numbers just like you did and overall they come out a bit stronger than yours. (More debts and higher repayments but also more income). But some of my rental income is Airbnb money, and so those properties are positively geared even without even considering any tax benefits. The others are negative but might actually be positive/still a little negative after taxes.

    Question for you @monty, have you lodged a tax variation? It could result in less tax being withheld.
     
    Last edited: 18th Oct, 2016
  10. thatbum

    thatbum Well-Known Member

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    Shrug. I don't think it necessarily means that much. We could both be in financial trouble for example.

    Also, I don't have a PPOR and my gross weekly rent is around $2,100/week - 60% of that is still $1260/week I guess.
     
  11. WattleIdo

    WattleIdo renovating Premium Member

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    Do you feel any more comfortable when you take the ppor out of the equation? What is the rental income like to IP IO repayments only? You will always be motivated to work for your ppor no matter what happens.
     
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  12. wombat777

    wombat777 Well-Known Member Premium Member

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    @monty adding to @Gockie's comment, also make sure that you have depreciation schedules for both of your IPs to increase the benefit from a PAYG variation. Better to get any savings as early as possible rather than waiting until tax time.

    If your IPs are under 7 years old or have had extensive renovations then the depreciation can be quite 'hearty' and make a big difference to cashflow. Even if your properties are older depreciation will help. Extra cash from the depreciation will make you feel more comfortable and increase the amount of cash that you can pump into an offset account against your PPOR.
     
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  13. Jingo

    Jingo Well-Known Member

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    Total Annual Income: $82,680
    Less Annual Repayments: $57,200
    Less Annual Prop Costs: $8000

    Leaves cashflow of: $17400

    A little close to the bone for me and I couldn't survive on $17400 to fund living expenses, vacancies, holidays etc. Looks like you'd get a tax return to assist as well....
     
  14. monty

    monty Well-Known Member

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    No I haven't. I will bring it up with my accountant when I do my tax retrun soon.

    My accountant did mention depreciation schedules last year but if I remember correctly he was a little luke warm on the idea since the outlay may not have been worth the investment in a surveyer. Both IPs are over 7 years old but one did have some fairly major renos back in 2014. I'll talk to him about it again this year.
     
  15. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Definitely look at doing both.... normally a Depreciator can tell you over the phone whether it's worth getting a schedule done. And in my experience, it's worth having done. Even on an older property. There's always going to be some aspects that are depreciable.
     
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  16. WattleIdo

    WattleIdo renovating Premium Member

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    omg. It's always worth it. You need a new accountant.
     
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  17. monty

    monty Well-Known Member

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    I'm fairly comfortable with where I am, especially since I can see my cash buffer increasing over time. One property is in Sydney and that has obviously done well over the past few years. The main reason I posted this thread is that I consider myself a bit too conservative and adverse to risk. So I thought I'd throw some figures out there to see what people thought.

    Ha ha, don't blame him. He did suggest it; it was my decesion not to proceed.
     
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  18. monty

    monty Well-Known Member

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    Possibly. The fact Colin has clients in that situation as well is a bit more evidence to me that I might be being a bit too conservative. There are other factors to consider as well of course.
     
  19. NewGuyACT

    NewGuyACT Member

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    In case you're still thinking about the depreciation schedule - get one.

    In regards to your question it would be above my risk threshold but i a wife and kids, if i was single i might do it.
     
  20. Angel

    Angel Well-Known Member

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    Depreciation Schedules usually pay for themselves in the first year even with older properties. I do my own Tax Variation forms each year. They take about half an hour and I use the exact data from the previous year's tax returns. Much of it auto-fills. The first year we had IPs I paid our accountant several hundred dollars - neh.