A Sea Change

Buying a sea change (actual case study)

About six months ago, a client came to us wanting to take advantage of the property market and purchase a small 2 bedroom unit, at the coast (South Tweed Heads), for retirement in 3 years’ time. She found just the place, but was concerned about her ability to service a substantial loan at this late stage in her working career.  She was in full time employment, and owned her house in Dalby, which was valued at around the $295,000 mark. She was also servicing a personable loan for $30,000 which she had used to invest in solar hot water, inverter system and repainting of the house. This loan was presently costing her $800 a month and had $20,000 remaining debt.

Looking at her intended purchase, the property was listed for $290,000, she submitted an offer of $275,000 which was accepted, and the total commitment therefore was.

Purchase price                  $275,000

Purchasing costs                   $9,663

Legals                                      $1,100

Extras for upgrades             $3,000

Consolidation current    $  20,000* (this portion cannot be claimed as an investment)

TOTAL BORROWING       $307,633   on an interest only loan, fixed for three years $1,280 per month *$15,360 per annum

In addition she has the following operational costs,

Body corporate fees          $2,380investment-property-tax

Rates                                    $1,800

Insurance                            $650

Management fees              $1,143

TOTAL   (costs)                  $ 5,973 + *$15,360 = $21,333

Property generated incoming

Rent                                      $14,560

TOTAL                               $14,560

Holding costs $21,333 – $14,560 = $6,773 or $521 per month (*less almost $3,500 in depreciation each year over the 3 years)

*Depreciation is actually tax credits and is based on your actual tax rate of each individual claiming depreciation.

Note. This is an interest only loan compared to her existing loan, the purpose is for her to take advantage of the present real estate market and pay off the loan with the sale of her existing home when she retires in three years’ time. Hopefully her home and the unit will have increased in value, a very nice retirement package indeed. One can see by this example the benefits of claiming tax depreciation and dealing with professionals in real estate, making dreams a reality.

a blog written by, James Hannah Tax Depreciation Specialist.