A Slight Change In Plans!

[RubyRS4]

hence the reason the 33 might have to go to make way for the next property.....

well, thats what our broker says, i just give him evil looks everytime he brings my car into it

Stab him in the eye for even mentioning it ...

I've already planned to sell the silver Stagea and one of my bikes. Those funds will go in to top up the offset account and repayments increased to absorb the sale of the vehicles over 2 years, so we don't break the $10K limit on the extra repayments. If the house extension calls for it, those funds will assist there too.

The way I see it, its a small sacrifice for long term benefits. I may need to offload some toys, but the financial situation will only get better over time as my capital increases.

[4door_Sleeper]

If your land agent hasn't already suggested you might want to look into getting a qualified surveyor to do a 'Capital allowance & Tax depreciation report for ya.

Don't even consider entering into the property market without this - expect to pay around $600

Factor in the extras: land taxes, council rates, water, emergency services, insurance

You can get some protection for vacancy with insurance

Shop around if you are going to use an agent for rentals. (They have some advantages but it comes at a cost - $200 to $300 rental fee and 6-7% of the rent, and check for other fees such as inspections, bad tenants etc)

Reading the first post its unclear if this will be one loan or 2 separate loans - always go for 2 separate loans so your rental is at arms length.

Don't do anything to your new house until you have the rental ready, then claim expenses such as paint against the rental

The obvious - don't rent to friends or family if you can help it.

Its a rental, not your house so you don't need to be as fussy, (but don't become a slum son of rajab either.)

Make sure you have clauses covering gardens and the standard of maintenance needed (assuming your gardens aren't too bad now, you may have to give a larger water allowance)

[SLED]

I've just read through all the posts on this thread and the best advise has come from Nene & Guy, no doubt.

Definitely 2 loans....never mix personal debt with investment debt.....never throw extra cash into investment debt if you have personal debt (make the investment debt work for you)

and when you finally get into multiple property investment, consider setting up a family trust, consider putting properties in different name combinations (otherwise values get lumped together and land tax can be a serious biatch once you go over the threshold of approx $600K) and never put them in a company name (for capital gains tax reasons).

Good luck Ruby and don't over commit yourself on your 1st investment.

[RubyRS4]

Thanks for the advice guys. I've taken it all on board. I'm also consulting a few of those areas to do it right. There will be a few contracts drawn up over the weekend

Oh, and just to go against some advice, I'm renting the investment property to my mum Mum and I have a great relationship, and she's just as good with money and assets as I am. I know I'll prob get alot of "no not family" concerns, but my mum is 100% reliable. We're drawing up an agreement anyway and seeking advice from the Residential Tenancies Tribunal so we can keep it purely a professional (not personal) relationship anyway.

[pkblade]

If you're renting it out to family, a simple independent evaluation from a land agent for an appropriate weekly rent amount should suffice. Usually involving a bit of market research of various factors (eg. a listing to see what others are charging in the area or of properties that are similar, property value, the availablilty of housing in the area, the various utility costs, your expectation of final selling price etc). You could do it yourself & document it but, land agents have more resources & can do it quicker.

and when you finally get into multiple property investment, consider setting up a family trust, consider putting properties in different name combinations (otherwise values get lumped together and land tax can be a serious biatch once you go over the threshold of approx $600K) and never put them in a company name (for capital gains tax reasons).

In SA having several properties under the same name isn't much of a prob, cos Revenue SA dissect the Land Tax payable between your properties for you. Unlike QLD where they just lump them together, but with them it's usually just a matter of apportioning the payment amount based on a % of the 'relevant unimproved value' of 'total taxable value' .

[SLED]

Patrick I'm actually going by personal experience and in SA they do lump properties together when calculating Land Tax, hence the reason why future properties were bought with a slight variation in title name......ie. my name, wife's name & combined names, which allows at least 3 groups for splitting combined property values.

Like I said, its not too bad until it gets over the threshold and then they murder you due to the way the tax compounds itself.

[pkblade]

Pete one of the things I do is help manage the business affairs of clients - this includes individual investment property owners to multi-million dollar property developers from various states, and with all the statements I've received from Revenue SA they've dissected the Land Tax amounts associated with each property. Anyways even if they do pool the amounts together it's not such a big hassle or difficult working it out for each property unless you have a large portfolio of properties.

[SLED]

yeah I see what you're talking about now and I think we're talking about 2 different things.

You're right about the values being individually calculated and the tax on those values shown individually on the one bill (right hand side Under "Taxable Site Value"), but if all the properties appear on the same bill, the values are lumped together when the final amount is calculated.

I'm looking at one of my past bills right now and comparing it to a previous year's bill. Over that 1 year period the values rose slightly but enough to put me over one of the thresholds.....the tax actually more than doubled though. The following year the tax thresholds were raised and even though my values rose again, my bill was approx $2000 cheaper that year. I wish I could show you one of my bills somehow so you know what I mean but its a bit hard to do without revealing private stuff.

Look at the table below and see what happens once your combined value exceeds the $750K & 1 mill thresholds.....its criminal!!!

Remember up to 100K is tax free so if you have 1 mill worth of properties its calculated at $11,420 plus $3.70 for every $100 but if you split the combined properties between yourself and your partner, you'll have 2 separate bills and 2 charges at $720 plus $0.70 for every $100

I learnt the hard way when I bought a property off my dad in 2001 where he paid a few hundred bucks in land tax for it in the previous year (it was only one 1 of 2 properties that he owned at the time). Once it was added to my portfolio (and combined with the existing stuff) it put me over one of the thresholds and the individual tax for that property alone quadrupled, yet its value only went up slightly that year.

I ended up writing a letter to my MP who passed it on to Nick Xenephon who was driving a campaign against land tax at the time. My letter was one of very many brought up in discussion on 5AA when Leon Byner interviewed him about land tax a few weeks later. The following year, thresholds that were very old, were reviewed again........they are still way too high IMO and there's no incentive to put too much away for your retirement.

Land Tax is calculated on the basis of the total taxable site value of all land owned (by an owner or a group of owners) as at midnight 30 June 2007.

Land Tax rates are:

Total Taxable Site Value Rate

Up to $110, 000 Nil

$110,001 - $350,000 $0.30 for every $100 or fractional part of $100 over $110,000

$350,001 - $550,000 $720 plus $0.70 for every $100 or fractional part of $100 over $350,000

$550,001 - $750,000 $2,120 plus $1.65 for every $100 or fractional part of $100 over $550,000

$750,001 - $1,000,000 $5,420 plus $2.40 for every $100 or fractional part of $100 over $750,000

Over $1,000,000 $11,420 plus $3.70 for every $100 or fractional part of $100 over $1,000,000

Where an owner owns more than one taxable property, Land Tax is apportioned to each taxable property within the ownership based on the taxable site value of each taxable property (see example).

Example

A person owns two taxable properties: Property A (with a site value of $200,000) and Property B (with a site value of $300,000). Land Tax on $500,000 is calculated as follows:

Tax on $350,000

=

$ 720

plus Tax on $350,001 to $500,000 (i.e. $150,000 @ $0.70 for every $100 or fractional part of $100)

=

$1,050

Total Land Tax payable

=

$1,770

The total Land Tax payable ($1,770) is apportioned on the Notice of Land Tax Assessment as follows:

Property A =

site value of property ($200,000)

total taxable site value ($500,000)

x $1,770 = $ 708

Property B =

site value of property ($300,000)

total taxable site value ($500,000)

x $1,770 = $1,062

Total = $1,770