What do you think of my debt situation

Discussion in 'Loans & Mortgage Brokers' started by monty, 18th Oct, 2016.

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  1. Beelzebub

    Beelzebub Well-Known Member

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    Def get a depreciation schedule. House built in 1970s gave me 5k of deductions in the first year. Paid for itself.
     
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  2. Befuddled

    Befuddled Well-Known Member

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    furthering other's posts about depreciation schedules:
    1. The schedules themselves are tax deductible in the same financial year
    2. Some quantity surveyors guarantee you will get 2x the cost of the schedule as deductions in the first year, or the schedule is free. Coupled with point 1 means it nearly always makes sense to do them.
    3. I think you can backdate depreciation for the 2 most recent financial years.
    Do read up on the nature of depreciation though. It's not free cash. If/when you sell they are added to the sale price, thus increasing potential CGT.
     
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  3. tobe

    tobe Well-Known Member

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    What's the break up of your debt? How much is for the house you live in? I'd say repayments against your home should be less than 50% of your take home PAYG income. Repayments on investment debt shouldn't be much more than 150% of the gross rental income. Percentages might not work well in all situations, the first couple of negative geared investments and a big new ppor mortgage early in an investors career might push those percentages, but as time goes on rents increase as does payg income while debts are slowly repaid on P&I or money is squirrelled away in offsets.
     
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  4. Big Will

    Big Will Well-Known Member

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    If you think that is scary i know people far great than 2x PAYG.

    What would you call someone with millions (more than yours) in debt and no PAYG income? Further this person doesn't even want to get a job!

    Could you quit your job now? Very much doubt it as you would be eating into your cash buffer real quick.

    However as @Colin Rice has said look at withdrawing more money now (when you don't need it) and putting it into the offset. Cost you nothing more to have it sit there but having 200k in the offset will let you sleep at night a lot easier. Plus if you see something you can look at purchasing but you need to be comfortable where you are and what the property will do to you and your family.
     
  5. Perthguy

    Perthguy Well-Known Member

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    Is it bad that I don't know?
     
  6. Magoo

    Magoo Well-Known Member

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    Don't beat yourself up, I'm a lot more conservative than you & I sleep well. I carry few IP, however my game plan is different so I need a certain amount of equity. I keep an eye out for premium positions with old houses on them , hold them for a few yrs, then do the knockdown rebuild , sell my PPOR and make the new project my new PPOR.
     
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  7. monty

    monty Well-Known Member

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    I did not know that. Thanks for the heads up.
     
  8. Hodor

    Hodor Well-Known Member

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    You have saved about $10k in 6 months - $20k a year. On your debt that gives you the ability to absorb around a 2% rate rise all things been equal.

    Important numbes for me are how high can rates go while still keeping my head above water and is my buffer sufficient.

    I fixed some of our lending to ensure that we were insulated if rates went up (plus fixed rate was lower than variable). Rates would be around 10% before we felt the need to do something, hopefully we would have time to adapt before rates shot that high.
     
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  9. Beelzebub

    Beelzebub Well-Known Member

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    [QUOTE="Do read up on the nature of depreciation though. It's not free cash. If/when you sell they are added to the sale price, thus increasing potential CGT.[/QUOTE]

    Yep, my understanding is: if your building is worth $200k and depreciates by $50k (meaning you get 50k of deductions over however many years) the ATO basically says that the initial cost of the building was $150k therefore, you now have $50k more in capital appreciation that you get to pay CGT for.

    That being said, It's better to have the certainty of cash in your hand now than to not depreciate the asset due to the uncertain possibility of a sale that incurs CGT some time in the future. There's opportunity cost in not having that money also.
     
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  10. Phase2

    Phase2 Well-Known Member

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    Yep agree ^^^^^. My understanding (I could be wrong, it's been a while since I sold) is this :

    CG = Sales price + total claimed depreciation (for the duration that you've owned the property) - selling costs (agents fees, advertising,conveyancing etc) - capital expenditure (major repairs,upgrades or renovations) - buying costs (stamp duty, conveyancing, title searches etc, building and pest inspections etc) - purchase price

    @monty get a depreciation schedule ASAP. I've used both Washington Brown and BMT in the past, both are very good. Cost was around $600-$700 (deductible) and even on my 35y.o property I'm getting around $3k+ in dep'n.

    You're better off having cash in pocket now and sorting out CGT if/when you trigger it. If you do sell later, get some good taxation advice to make sure that you minimise any CGT. There's quite a bit that adds up to the "cost base".
     
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  11. Brady

    Brady Well-Known Member

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    If you don't plan on selling anytime soon I would be getting depreciation schedule done for sure. The costs are usually always made up in the first year even for very old properties - as really old properties usually have things replaced overtime. And if you have PPOR debt I definitely believe it's worth doing as the tax benefits can be used to continue to reduce/offset your PPOR/non-deductable debt, ideally you want to accelerate this as quick as possible. Look into debt recycling if you haven't already - in short using borrowed money to pay property related expenses and continuing to reduce your PPOR/non-deductable debt with your cash/offset funds.

    All in all as you said your overall cash buffer is increasing each year - so thats a positive sign. Rates are low but can't see them going up too much in the short/mid term - if they started going up might be worthwhile looking at locking some funds in, dont be too quick on this would be waiting for 2 - 3 rise of the fixed rates.
     
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  12. monty

    monty Well-Known Member

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    I am not debt recycling by the sounds of it. All my IP expenses are paid from the rental income or my cash. If I understand correctly what I should do is create an equity draw down and use that account to pay all my IP related costs. E.g. management fees, rates, maintenance, strata, insurance etc. This will then free up that previously spent rental income to be deposited into my offsets thus reducing my non-deducable debt.

    Since I purchased my PPOR in May this year I don't think I'll have much in the way of equity in it yet. The equity I do have will be in one of my IPs. Does that matter for debt recycling?
     
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  13. Colin Rice

    Colin Rice Mortgage Broker Business Member

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    Thats fine as the security is irrelavant, its the "purpose of the funds" thats important.

    Consider getting help to do this via a clued up broker.
     
  14. sash

    sash Well-Known Member

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    Stress test you portolio.....you have reasonable LVR...what happens if rates rise to 6.5%...can you cope with $1700 pw in repayments?

    The issue I see if $55k is low amount of cash ...perhaps look at keep a LOC in case of emergency now......
     
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