What will you do when/if negative gearing goes?

Or negatively gear established property against other investment income (Labor policy only stops negatively gearing established property against salary/wages).

 

It looks like labor is getting traction........thar goes Neg Gearing.......looking forward to increasing rents. ........its getting interesting.

 

So is this what the effect if Labor comes to power?
1. New property bought after 1 July 16 - You can claim NG against your salary.
2. Established property after 1 July 16 - You can claim NG against your other income.
3. Properties bought before 1 July 16 - No change
Is this right?

 

Not to forget that the CGT exemption is cut from 50% to 25%, will that discourage investors from selling thus cutting supply?

Which investors are more likely to sell, rich investors that are storing wealth or the Mum and Pop investors that are trying to self fund their retirement.

Another belt around the ears for the Mum and Pop investors.

 

AFAIK yes, but on 1 you can NG against salary or other income.

& think Labor is proposing the change to occur in 2017.

 

I'll keep doing what I do. Buy properties under market value that need a lot of work. Renovate them and put them on the rental market with a much higher return than before (positively geared).

 

This is assuming that Short Billy becomes PM.

Because the ALP will grandfather NG on all properties bought before July 2017, my plan is:

1. Turn my positively geared portfolio (which has taken me over 20 years to build and I pay tax on) into a negatively geared portfolio by withdrawing all my funds in offset accounts and buying more IPs with good CG potential.
2. Run up tax losses for the next few years so that, when the new portfolio becomes cashflow positive (which it will in time), I can run down these tax losses and never pay tax again.

By that time, Labor won't be in Government. Deficit will be a lot larger but who cares. We get the Government we deserve.

So much for a quiet retirement. On the other hand, if Malcolm stays PM, ...

 

The main impact for many will be the reduction of the CGT exemption/discount to 25%. It may become a lot more profitable to change yourself from investor to developer and pay income tax on profit rather than CGT.

Personally
- all my project sites which are established (ie prior to demolition and building) will be grandfathered so no different
- my existing end product holders will be grandfathered so no different
- future project sites after policy will be able to NG against Trust income so AOK, then will be able to NG against trust income or personal income after projects is built

In terms of the market we may see a mini boom to buy established to get things grandfathered.

 

I will read. And read some more, and read some more. And something will pop up. There are many smart people on here and I'm sure you will post some interesting strategies.

I love corner cases Corner case - Wikipedia, the free encyclopedia and this could be one.

 

If the market goes to pieces I will quit my life-zapping job , take that long-yearned for year of travel and then jump onto the dole queue. Why should I bother to try to improve my situation when every step of the way I get the rug pulled out from under me? Two more welfare recipients than you had before.

Seriously. We could sell up everything we own and probably be no worse off than we are already. No point owning property that is mortgaged to the hilt when renting is looking more and more attractive every time a Populist Leftie throws a curve ball at Mum and Dad investors.

If there is further upturn in the (outer) Brisbane market (not likely) I will stay around for a few years and then sell up everything, take that long yearned for year to travel and then fund a tiny crappy house in the bush somewhere before going on the age pension. No point in working any longer in a life-zapping job that pays peanuts when one can live a frugal life on welfare and not have to spend my money every year placating new government laws about safety for tenants, water for tenants, new ceiling fans for my tenants, new dishwashers and stoves and everything else I have to supply for my tenants that I don't get for myself.

It is not quite half way through May and already this year we have provided affordable accommodation to a single low-income middle-aged male with 'personal issues" who is living in our gorgeous sea side townhouse where it has already cost us $6000 more than the rent received for his new stove, water, rates, insurance and PMcosts. Shortly I will have to fork out for (probably) new smoke alarms (nothing wrong with the old ones), several security screens ( I really do love you if you own a screen manufacturing company) (no one has fallen out of the windows in 30 years) and that is all before I get to buy new carpets for the other house on its fifteenth birthday next year.

So with rents going down, values going down and costs going up, why should anyone bother? Maybe land lords make huge profits in other locations or at other times in history, but just not now, right?

 

I'd expect a boom as people rush to buy property before the deadline . Might unload some to pay off others . Might accelerate retirement .

Cliff

 

I would think there would be just as many people off loading in case things go bad. At the same time we will have all those empty city apartments wanting to be filled.

 

Only 7% of investor loans were in building new supply. 93% was buying established homes.

So any increase on that 7% currently is going to mean more supply, not less. And investors leaving the established house market doesn't mean rental stock vanishes... a renter becomes an owner, no net change.

So how will rents increase if new builds are up?

 

Increase rents

I don't negative gear anyway

 

How does discouraging investors from selling reduce supply?

The property is either a rental, a PPOR or vacant.

What do you think happens to a house an investor holds on to? Does it vanish from the rental market?

93% of investors buy established homes. Those transactions do virtually zero for supply (except in the knockdown subdivide scenario). They don't increase, they don't decrease.

It's more accurate to say they displace a potential homeowner, who then becomes a tenant. If investors reduce their participation in the established market, those homes they would have bought don't vanish - they're bought by a renter who was formerly displaced.

 

The short term change will probably be all the ex-rentals will be bought by O/O's as you said.

But; the rental market keeps topping up every year...it never ends.

Without an increase in rents, and if interest rates were to rise again, and without any tax deductions for an IP; very few investors would be buying...less rentals available.

Who would buy an IP if the rents didn't cover a decent chunk of the loan repayments without the tax deductions? Very few folks are cashed up enough to do it and carry a severe negative cashflow...they may do it for one IP, but the downsides of owning a resi IP are so great that the upside would not be worth the bother.

The medium term result could possibly be a shortage of rentals, but an increasing demand of renters.

Rents go up.

Another side effect; less sales will mean more unemployed r/e agents, Quantity Surveyors, builders and tradies, etc - more renters to add to the pool after they lose their houses?

 

If Labor get in then NG is available on new builds. Currently only 7% of investor loans goes to new builds.

Any increase at all means more supply (this is on top of foreign supply). More supply means rents are flat or go down if we hit oversupply (likely in apartment markets).

Of that 93% who of loans that were buying established homes, we only need 7% of the total to go across to new builds and we've doubled the rate!

 

Business as usual for me. This year my tax refund was less than $300. I suspect next year I'll have to pay tax on my rental income...

...If NG goes it will create an excuse to increase rents. Then I'll definitely end up having to pay some tax.

 

This will mean a lot of investors - who are mum and dad investors - will be looking to buy yer tract home builds by Jennings et al out in the new estates in the boondocks.

Typically; these are bought by yer younger families - not sought after by younger family renters.

The majority of mum and dad investors are buying at the lower end of the market where they can get a decent return and some deductions as well.

How many younger families are going to be renters out in the Metricon elcheapo homes out in the new estates?

If these are the only places a mum and dad investor can buy due to Billy Bob's new idea, and the main demographic of people in these estates are going to be O/O's; then we are going to see a glut of IP's in these areas with no-one to rent them.

Possibly mum and dad investor may be able to buy the $850k-$1m townhouse developments in the inner-city and middle ring areas, but the pool of these investors is small, and the rent returns on these types of places are so poor that yer mum and dad investor will not be able to play at that entry level for a start, and will not be able to carry the neg cashflow second.

They may be able to buy into the 1 bed and studio type apartment complexes that often rent out in the inner-city/middle ring areas, but then you have Body Corp etc which kill the returns.

Meanwhile; the closer-in established rentals (unless owned by cashed-up high income earners - a small demographic of our society, and/or existing investors who are already enjoying a pos cashflow) will disappear due to crippling neg cashflows.

Billy Bob's idea will not work.