What To Do...?

Current Situation

Age: 24
Annual Income: 100k pa
Rental Income: 15,600k pa

Properties

3 Bedroom House (1)
Purchase Price: 316k March 2008
Current Value: Unknown
Loan Value: 245k
Current Status: Rented for $320 p/w

2 Bedroom Apartment + Study (Brand new, Toorak, Melbourne) (2)
Purchase Price: 535k August 2009
Loan: Haven’t got the loan yet, but likely be around 482k mark.
Current Value: Unknown
Current Status: Under construction to be finished in late 2010. This will be my PPOR.

2 Bedroom House (3)
Purchase Price: Unknown
Current Price: Approx 300k
Loan: 0
Current Status: Part of a family trust which I can not yet access or do anything with this property.

Shares/Managed Funds

STW: Approx 8k worth
SLF: 2k worth
Cash: 6k

Macquaire Small Companies Growth Trust: 5k

Current forward plan

- Continue to invest in to STW/SLF
- Buy in to new managed fund: Macquaire Managed Growth with 1k initially and 250 p/month contributions
- Save additional cash to make loan on the apartment as small as possible.

Questions

- Generally, given my current situation, what would you be undertaking over the next 12 months in order to set yourself up for long term growth? Risk profile is relatively high.

- Is there a way I can refinance so that I can utilise any increase in value of property number 1 in reducing the loan required for the apartment?

- I will be getting an offset account with ING for the loan for the apartment? Is this the best way to go? Are there any other products you can recommend?

- What is the best way to determine the current value of property number 1? So that I can determine how much equity I can release? What are the costs involved with this?

- Do you recommend the current funds I am using/looking to buy in to?

- Does a depreciation schedule need be drawn up in order to claim this? Accountant didn’t seem to think so.

- What are some ways I can reduce the amount of tax that I am paying?

Many Thanks for any advice provided.

This is very hard to achieve if you don't have a business.

My suggestion? you're young so use the opportunity to travel and enjoy life
while you have money and time.
Otherwise, keep doing what you are doing.
Even if funds get a short term hit they'll recover and should do well over the long run.

If you're scared to invest more and you're not going to use your after tax $ why share your pay with the taxman?
Salary sacrifice $2k/month into super for a while.
It all helps in the long run.

cheers

I see putting more money in to super a bit of a waste at the moment, I think 9% is enough at this stage. Paying 20k tax is killing me.

The only option I can see at the moment is withdrawing equity from my rented property and investing in shares (probably the ones outlined above), so that I can claim the tax deduction. I should hopefully be able to claim a bit on depreciation as well, but accountant doesnt want to draw up a schedule says I dont need one, so not really sure how this works.

Thoughts?

Cheers.

Is the property very old?
Has it had any renovations done?
Maybe he's too busy but you can try a dedicated company
Depreciator: Tax Depreciation Schedules Prepared By Australian Quantity Surveyor

Thanks Bill, the house is probably 3 years old, so fairly new.

How much does a depreciation schedule normally cost?

Just got a quote for $660, is this reasonable?

It's reasonable, but price will depend on location, who is asking etc.

If you are getting a price from depreciator ask to speak to Scott
and tell him Bill from the forum told you to ask for your forum member discount.

He'll understand and will look after you
For such a new place you would be getting atleast $3K pa of depreciation, (probably more)

Masterchef,
You are in an interesting position.
First I would get another accountant, anyone who says you do not need a depreciation schedule should be sacked. I agree, get a quantity surveyor, the one I use or recommend to clients in Melbourne is Michael from MIK Enterprises, cheaper ($450 perhaps) than many and a better report than most and he knows the ropes (he does other stuff so do not be confused by his website). Let him know I suggested you contact him (I am not paid referral fees, he just does a good job)
It will save you $'000 especially with the building allowances. You can go back up to 4 years to retrospectively amend your previous tax returns for the building allowance and depreciation components if you have not included them.

You could look at renting the apartment out as an IP as it seems a reasonably high LVR rather than using it as a PPOR. Go rent somewhere else. The after tax dollar saving will be significant especially in higher interest rate cycles. Do an income tax variation and it will reduce your weekly/monthly PAYG deducted. I have a spreadsheet template used to compare OO vs IP purchases so you know the numbers (I can do if you send details offline)

To estimate the value of IP#1, get a Residex report done (I can obtain one if you send me the details offline), get a real estate agent to do a market estimate or pay a valuation company, cost around $350 to $400 for a one-off but request it for bank refinance mortgage purposes.

You could possibly revalue and refi IP #1 to extract equity which may be used on your PPOR to reduce possible LMI fees on the PPOR but the interest would not be tax deductible. It will depend on the lender and the valuation on completion if the LVR > 80%.

My knowledge is not in the share or managed funds area so cannot assist there.
I hope this helps.

Good luck and look at options outside the box sometimes to find solutions. Using a forum like this is a great idea. There will be other posts with good ideas as well.
Greg

While I agree for a newish property ... if the property in question is more than about 20 years old there is probably not much depreciation left to make it worth the cost. One of our properties is now 85 years old and another was approaching 50 years.

That being said, any of the fittings or appliances which have been replaced more recently may have some depreciation left in them.

Our 50 year old property had a new kitchen recently installed when we bought it. We got a licensed builder to estimate the cost of the installation and appliances and used that for depreciation purposes (you don't need to use a quantity surveyor - a licensed builder is acceptable to the ATO, but a QS may be more appropriate depending on the nature of the property).

Hi Masterchef,

The best advice you could get from this forum would be to get yourself a good accountant, and a good financial planner.

Look for a financial planner that will charge you a reasonable (and by reasonable I mean something which makes you consider that this person values their time!) fee. It may sound strange, but a planner who knows the value of his/her advice will have no issues charging people for it. Beware the 'commission' based planner.

To reduce the amount of tax you are paying you will need to ensure that you are maximising deductions where applicable (such as depreciation). Given you are looking to grow wealth you may also consider using equity in your properties to borrow against for investment purposes (perhaps diversify into more shares), or if not available then a margin lending facility may suffice. Just keep the LVR's nice and comfortable in case you are not able to work. And on that note, make sure you have the right insurances in place (Income Protection etc). The game is over if you can't pay your bills...

Best of luck, Lloyd.