I Need Financial Advice

smith1286 on 27/11/2018 - 12:10
Last edited 27/11/2018 - 15:56 by 1 other user

Hello Everyone,

I am looking for your expert opinion/advice and suggestions on my current situation. Please excuse me for bad English.

My Current Situation:

  1. Earning $7000 monthly (After Tax 7k) .(Single income)
  2. Bought a house in March 2018.
  3. Borrowed 520k from bank and paying 2800 monthly ( Loan is for 25 years. 3.99% interest)
  4. Expecting a baby in May 2019 ( Wife not working currently)

I am paying 30k as annual tax and I am looking for your expert advice to save this tax money. Do you think buying a land or house as investment property will be good idea as per my current situation.

How much tax I can save by investing in property land/House.

Thanks in advance.

Thanks,
Smith

Financial

Comments

  • spiff on 27/11/2018 - 12:14
    +7

    Don't invest if your primary goal is to save tax. Negative gearing isn't an end game, it's a rule (one which can be altered or abolished) that assists you while you are on your way to capital growth or positive gearing.

    • bemybubble on 27/11/2018 - 12:19
      -6

      With all do respect spiff minimising tax and creating wealth go hand in hand. If you're primary objective is to minimise tax then in my opinion you have to create wealth.

      The key to minimising tax is THROUGH creating wealth. Speaking from 30 years of experience this is the key message we tell all our clients and use in every day life ourselves.

      Just remember Smith it boils down to where you and your wife feel comfortable putting your money. Worst case scenario is if it impacts your quality of life and standard of living you will at least have an asset that has grown for you to turn to.

      • spiff on 27/11/2018 - 12:22
        +2

        we tell all our clients

        So you have an agenda, to sell. Need I say more?

        • bemybubble on 27/11/2018 - 12:24

          What agenda?

          'Just remember Smith it boils down to where you and your wife feel comfortable putting your money.'

          I didn't suggest anything apart from they go out and create wealth.

          • spiff on 27/11/2018 - 12:28
            +4

            @bemybubble: It's abundantly clear that OP has no idea about the very basics of investment, including the purpose of such an investment. This could easily lead to purchasing the wrong house or land for example, so they are in a worse scenario than when they first started. Zero understanding means you should take the least risk until you understand what to invest in, why you're doing it, and how to execute it. But your agenda to sell services means that you probably give the same vague and utterly useless responses to your clients, telling them to go face first into the unknown.

            • HighAndDry on 27/11/2018 - 12:35
              +1

              @spiff:

              Zero understanding means you should take the least risk until you understand what to invest in, why you're doing it, and how to execute it.

              I feel like that's what OP is doing.

              But your agenda to sell services

              I mean - yes, can you believe that some people's jobs are to provide financial advice? The very financial advice that OP is asking for?

              • rompastompa on 27/11/2018 - 12:42
                +1

                @HighAndDry:

                The very financial advice that OP is asking for?

                You can't give a blanket response with such limited information though. I believe spliff is trying to say that just purchasing an IP for negative gearing may be worse off due to the economic climate (location, trend etc).

                I'm sure bemybubble's answer is correct when they're offering advice to their clients, however they'd know more about the client's situation than OP. Giving blanket advice might lead to wealth degeneration instead.

                • HighAndDry on 27/11/2018 - 12:49
                  +1

                  @rompastompa: Subject to my own comment below on whether OP should be investing at all, the blanket advice is pretty on-point, because it's almost always (and this is rare, because finance is very complicated as you're alluding to) better to defer tax expenses by putting current (surplus) income into an asset and turning that into capital gains.

                  But yes, from tsunami's calculations, I'm not sure OP is in a position to invest right now.

                  I don't even think spiff and bemybubble are necessarily even disagreeing, they're talking past each-other for the most part.

                  • spiff on 27/11/2018 - 12:53
                    +1

                    @HighAndDry:

                    turning that into capital gains

                    This is the hardest part, and given OP is on single income, risking hard earned money on investments that may or may not pay off is not the smartest thing to do.

              • spiff on 27/11/2018 - 12:59
                +2

                @HighAndDry: OP said that they want to buy property to minimise tax which I think is the wrong motivation. Their "why" is wrong. So no, that's not what they're doing.

                • HighAndDry on 27/11/2018 - 13:15
                  +1

                  @spiff: Eh - I assume the reason behind wanting to minimise tax is to maximise wealth. It makes very little sense to minimise tax if OP is going to, for example, just burn that money instead anyway.

                  I do think you and bemybubble aren't really disagreeing, more disagreeing on how to approach OP's issue - you're addressing the first step, which is if OP should be investing now (which I agree with), whereas BMB is addressing a longer-view question of whether OP should invest at all (the answer to which BMB says "yes", and with which I also agree).

                  You are disagreeing on whether minimising tax is a part of wealth creation, and honestly that's such a broad and vague question I don't really want to address it. But - all things equal, the less tax you pay, the more money you have and can put towards savings (or an asset). Yes, there is a break-even point where if you're spending more money on say, maintaining an asset than on taxes saved, you're going backwards.

                  On the other, related point, minimising tax is not only a short-term issue. Over your working life, if you can shave a few percentage points off your tax rate, that's a LOT of money you can put into savings or other assets instead. Even better if you're making (smart, duh) investment decisions which get taxed only when those gains are realised, and with some planning, which will happen after your working life when your other income is lower, meaning it will be taxed at a lower marginal rate than if that income was taxed at the peak of your working life.

                  • bemybubble on 27/11/2018 - 13:18

                    @HighAndDry: Well put H&D. I am not once commenting on whether to invest now or where to invest. As I said in my original response, that is up to the OP to put their money where and when they feel comfortable.

            • bemybubble on 27/11/2018 - 12:37

              @spiff: what agenda? I have no solicited anything at all in any of my responses. And you know nothing of my dealings with my clients so why say something so baseless?

              This guy is trying to have a go and the first thing you say is don't invest if your primary goal is to save tax. That is just factually wrong and hence why I am pointing that out to the OP.

              He hasn't asked for where to invest, merely the tax consequences. It is then up to the OP to decide and seek advice/do their own research on where.

              • spiff on 27/11/2018 - 12:56
                +1

                @bemybubble: Primary goal of investment should be capital gain or positive gearing, even if that is 5, 10, 20 years down the track. There's no point having an asset that is negatively geared for life, otherwise where do you reap the benefit from that? Tax saving is a short term benefit. Property isn't a short term investment. The fact that you don't understand that is concerning considering your business.

                • bemybubble on 27/11/2018 - 13:16

                  @spiff: Primary goal of investment is to provide for quality of life and standard of living. But it also means living for tomorrow but not at the expense of today.

                  In most cases the tax savings are the difference in cash flow to be doing something vs doing nothing. It also gives the individual the capacity to create stepping stones to invest more in future and thus can create 'negative gearing for life' as you put it.

                  Now before you go on about where to invest, risks of investing etc that is all part an parcel of the due diligence the OP needs to do before committing. All i've done is point out that investing and tax minimisation go hand in hand and that him thinking that way isn't doom and gloom as you put it.

                  There is one thing we can agree on spiff, it's that property is a long term investment. I understand this quite well as you are quite right, it is my business. The fact that you can't appreciate tax and investing being harmonious is where opportunities lie for people like the OP.

                • HighAndDry on 27/11/2018 - 13:30

                  @spiff:

                  There's no point having an asset that is negatively geared for life, otherwise where do you reap the benefit from that?

                  When you sell it and realise the capital gains. It's not an invalid approach, so long as those capital gains (inflation adjusted) keep pace with or exceed the immediate negative gearing expenses.

                  E.g.: If you have a $1mil property, and its value increases at an inflation-adjusted 2% per year (all hypothetical numbers), then you can theoretically be losing up to $20,000 on it per year and still come out ahead, and indeed even more because you'd also be saving the tax on that amount, whereas if you structure it right (principal place of residence exceptions, for example), you could get the capital gains not taxed at all.

                  • bemybubble on 27/11/2018 - 13:32
                    +2

                    @HighAndDry: Also look at it from the other way too H&D,

                    If you borrow a $1mil the loan value is actually decreasing by the inflation figure (assuming $20k off 2%) each year :)

                  • Quantumcat on 13/12/2018 - 14:22

                    @HighAndDry: You missed the first part of his reply

                    Primary goal of investment should be capital gain or positive gearing, even if that is 5, 10, 20 years down the track.

                    • HighAndDry on 13/12/2018 - 16:57

                      @Quantumcat: First, this is a really delayed reply.

                      Second, I did read it, but I was responding to this point:

                      Primary goal of investment should be capital gain or positive gearing, even if that is 5, 10, 20 years down the track. There's no point having an asset that is negatively geared for life, otherwise where do you reap the benefit from that?

                      It's really a bit of a non sequitur, but "gearing" refers to cashflow. A property can be negatively geared 'for life' and still deliver valid and profitable capital gains on sale.

                      • Quantumcat on 13/12/2018 - 17:23
                        +1

                        @HighAndDry: My interpretation was that meant never producing a profit (otherwise it made no sense with the beginning part).

                        And oops I didn't realise this thread was so old!

                        • HighAndDry on 13/12/2018 - 17:30
                          +1

                          @Quantumcat:

                          otherwise it made no sense with the beginning part

                          You're right there - it doesn't make sense with the beginning part. And just personally, I wouldn't be aiming to negative gear investments, it leads to risky cashflow situations.

      • [Deactivated] on 13/12/2018 - 15:00

        due*

  • tsunamisurfer on 27/11/2018 - 12:37
    +10

    I don't think buying an investment property right now is prudent for the OP.

    1) $7k/m - $2.8k/m (PPOR mortgage) - $2k/m for all expenses = $2.2k/m disposable. $2.2k is probably not enough to service another mortgage (remember rent is NOT guaranteed), and een if it was it leaves the OP with little buffer for life's events.

    2) The market seems to be trending down.

    3) OP could be better off putting the disposable income back into the offset, create that buffer and save interest tax free.

    4) Wait until the OP's wife is back into the workforce where 2 incomes can more safely service a second loan.

    • altomic on 27/11/2018 - 12:41
      +4

      ^this - especially offset.

      every $1 paid now offsets $3 at the end of the loan.

  • HighAndDry on 27/11/2018 - 12:39
    +3

    OP: How much in savings do you have and how much are your current (and expected after baby) expenses? How stable is your income (e.g. are you full time salaried, part-time, contractor, own business, etc?)

    Property has historically always been a relatively safe bet in terms of investing, but it does depend on the market, where you buy, what you buy, and how you structure it.

    But before you look into how to invest your money, you need to figure out whether you're in a position to be investing anything at all, so:

    1. Do you have an emergency fund of approx 3-6 months expenses? (include baby expenses, babies are expensive)

    2. How much extra savings do you have on top of your emergency fund?

    3. How much discretionary income do you have on top of your expenses/expected expenses?

    • spiff on 27/11/2018 - 13:02

      These are exactly the right questions to be asking.

      • HighAndDry on 27/11/2018 - 13:32
        +1

        Yeah - especially in the last few years, too many people definitely jumped way too fast into the property market without doing their due diligence.

  • RockyRaccoon on 27/11/2018 - 13:09

    ARE you really serious?

    If have after my declared income and basic expenses (house and tax only) about $316 a week left

    (7K per mth = 84k PA less 30K tax =54K less Mortgage 2.8K PM 33.6K PA = 20.4K thus divide by 52 and get $316 per week

    I wouldn't want to save tax by buying an investment property with negative gearing.

    I couldn't see the banks lending me the money with $316 PW left over income (before other living expenses), a loan shark may? but not at 3.99% interest.

    If I had a baby on the way and was clearing just over the single pension rate.

    I would really need financial advice NOW before even looking at negative gearing.

    BTW I have had babies (via the Missus) and $316pw wouldn't have cut it

    • mrtin on 27/11/2018 - 13:20

      It's probably 7k net as opposed to gross.

  • [Deactivated] on 27/11/2018 - 14:30
    +2

    Should you buy another property? No, it sounds like for your income you're already in debt to your eyeballs and will already be in an incredibly poor position if your wife isn't working again quickly after having the baby and interest rates go up.

    I'd be putting as much money in an offset as possible as that's 3.99% TAX FREE, and will only go up as rates do. Think about how much return you'd need on an investment to get the same once you take into account tax. At this stage I'd say that is impossible in property and less likely than average in the stock market. At this stage on one income I'd be shocked if you were able to refinance if you had to.

    Note this is assuming 7k is after tax. It's much much worse if that was before.

    An offset is also a great emergency fund. If you were in a position where you lost your job or ability to work it gives you something to draw on, especially important when you have one income.

    If you want to save on tax look at making contributions to your wife's super while she's not working, (there's a scheme around for that somewhere). If you were self employed see about income splitting.

  • johndowy on 27/11/2018 - 14:55
    +5

    Live happily and comfortably.

    You have a house and a baby coming along. I would focus on paying off your house as soon as possible and keeping money for the baby. Babies/ children are expensive. Its always best to have a large emergency fund for you, your wife and child.

    After the baby is a bit older, and if you wife goes back to work and your house has a bit more equity and a lower loan, then you can start looking at an investment property again.

    • gimli on 27/11/2018 - 21:43
      +1

      Good advice.

  • jackofspade on 27/11/2018 - 15:45
    +1

    Salary sacrifice into super?

  • theHMASfriendship on 27/11/2018 - 17:38
    -1

    Invest everything into cryptocurrency

  • meumax on 28/11/2018 - 09:33

    I'm assuming the house you bought in March is your primary residence. Seriously consider if it will be suitable for you over the next 10 years. Are you stopping at 1 child? How many bedrooms does the house have? Will there be enough room down the track?

    The reason to do this is I think you are at real risk of having negative equity in your house at some point in the next 10 years (loan amount is more than the value of the property) because we have passed the top of the property market and everything seems to point to big declines going forward.

    If this happens to you, you would be unable to upgrade your house if you find it's not big enough due to changing circumstances (i.e. having more kids etc) because you won't be able to sell the property and have enough money from sales proceeds to pay out the loan.

    This situation is actually what happened to a lot of young couples in Ireland and UK during their property crash. They are living in 2 bed apartment which they bought at the top of the market and then they go into negative equity when the market crashes. Then they have children and find they are "mortgage prisoners", unable to upgrade to a bigger residence.

    So my advice is if the house you bought will last you 10 or more years, then you might be ok to just stay put and hope to hold on to your job. If you are feeling bold, you might take the following advice. Sell your house now and rent for 1-2 years. Then when the market has dropped a lot, buy back in to a much nicer property for you and your family.

    • smith1286 on 28/11/2018 - 09:47

      Thanks for your detailed reply. The house we bought in March is our primary residence and its good enough for 3 future kids.
      The idea to look for investment property is to save TAX money. Every year I end up paying 30-35k as TAX so I want to use something from
      there.

      Also, For primary accommodation loan is for 25 years and I am not sure if I will work for another 25 years or not. The idea was
      to buy investment property , Save some tax by using in investment property. Sell the investment property in next 6-7 years and then pay
      off the loan for primary accommodation.

  • meumax on 28/11/2018 - 09:58
    +5

    Then I think you should stay put and pray you can hold onto your job. Are you private or public sector?

    I don't think 6-7 years is a realistic time frame for a property investment. 6 - 7 years is more or less a coin flip (heavily weighted to the downside based on the current state of things) as to whether you make any money at all.

    Having said that, I don't think stocks are good either. I don't think there are ANY assets to invest in at the moment that would give a good return over the next 10 years. Stock market is just as inflated as the property market. History suggests that if you buy in now, you will see very poor returns over the next 10 years. So my advice would be to throw every spare dollar at your mortgage in hopes of paying it off sooner.

    Remember, money to your mortgage offset is a guaranteed return equal to the mortgage interest rate. It might seem low at 3.99% but it is 100% guaranteed and a lot more than any other 100% guaranteed investment such as at call high interest saving account.

    Also, and this is the BIG one. STOP obsessing over paying TAX!! Repeat after me. You DO NOT invest money with the primary goal of reducing tax. Paying tax should be seen as a sign of success. Turn your thinking around and say instead: If I am paying tax, it means I am making money. If I am not paying tax, it means I am not making any money. Do that and you will feel much better about tax.

    • woody007 on 12/12/2018 - 21:33
      +1

      Level headed advice, Smith i make over 180k and i pay about 55k tax, i was fixated on what your trying to do, the tax bill seemed like i was throwing that money away. My situation currently i have my first home valued 420k i owe 294k and rent it out. I find the only way i can get anything back from it is a rise in house price which i won't see in this era of my life so it's stale, yes it does help with my tax return but for what? (worth 8k to me) i put money in on a flat ended asset, just because you put into an investment does not mean the tax is matched dollar for dollar a misconception people get confused with, I'm ready to sell it off and put it on my current home as offset. I have another home that i built and now i focus on paying it off and tighten up my budget, I've got 1 kid and another coming, i feel paying down my own house then not having to bound by the banks would put me personally at ease and focus on my kids and if i lost my job i'm okay to work wherever kind of attitude or study. My wife works part time and runs her own home business, which helps.

      I believe the time now is to reduce debt and live more within our means, be prepared for that rainy day, try not to "Keeping up with the Joneses" mentality.

      • Yarra Warrior on 02/03/2019 - 18:06

        Well said, Woody and I do agree with you.

        OP, this is one of the exact good example in my opinion by comparing your situation.
        Often short view on how to minimize your tax may not worth the hassle and perhaps unforeseen risks you might experience later.

        However, if you could secure a better rate and guaranteed return then it might be worthy to try with lots of good assumption but the choice is really limited.

        I have a friend who have got another IP with ongoing tenant and he still looks a bit nervous about the upcoming election/outlooks.
        If things go wrong a bit then it might turn him upside down. FYI, he also goes down in his lifestyle with tightened budget. His family household earns similar figure as John.

        OP, this is just another general view and do not quote on me. Hope this helps giving you a different view.

  • brad1-8tsi on 13/12/2018 - 10:56

    While I don't think anyone should pay more tax than they should, I do think that people should pay a sufficient amount of tax so that they contribute fairly to society.

    Investments should be made on the merit of the investment with any tax savings as an added bonus.

    I have made investments in the past that have (unfortunately) been mainly driven by the tax advantages (almond farms, timber plantations, superannuation and other follies) and what tends to happen is the government changes the rules when all the plebs find out about the investment scheme and the investment becomes a steaming pile of excrement.

    I also don't think now is the time to invest in property. The market is still on the way down (I know my principle place of residence that I bought in April is in freefall) and there are going to be a lot of really cheap "investment grade" (ie: you wouldn't want to live in them) properties available in about 6-12 months unless interest rates drop a bit.

  • Sofie519 on 13/12/2018 - 11:52
    +1

    Invest in yourself, and claim self education expenses. https://www.ato.gov.au/Individuals/Income-and-deductions/Ded…

    Raise your own financial literacy, a Certificate/Diploma in Financial Planning is one of the most valuable financial skills course you could do.

  • iand on 13/12/2018 - 21:26

    Don't forget Shortarse has already signaled that after he wins the next election he will trash negative gearing and capital gains tax exemptions

  • [Deactivated] on 01/03/2019 - 11:10
    +12

    In hindsight I think you should invest in a student apartment.

Login or Join to leave a comment
Login Join