Already invented? D'oh!
Well, it seems that my idea for a single-source fundseeker/VC collector and filtering service already exists in the form of matchmaking services. Still, they've only been around for a decade or so, so at least I wasn't trying to reinvent something from 2000BC.
I hope.
On another note, I wonder what legal rulings apply in Australia to two people who each own the house the other one is renting? On the surface, it would seem to be an ideal arrangement, as the benefits of negative gearing and property equity increase could be much greater than the associated paperwork costs of being a landlord AND a renter AND the additional 'income' (and therefore taxes) generated by the arrangement.
If, for example, the rental income was $25,000 a year on a $500,000 property, and both owners already made $50K each, they would get charged around $12,000 in extra tax every year on top of the approximately $13,000 they already paid. However, if the interest rate on their mortgages was 5%, they'd pay $25,000 per year in interest (and possibly something additional in principal reduction, depending on the loan), and all of that would be deductable from their tax. That means that the tax office would charge them zero tax on their "effective" income of $75,000, and they'd be $13,000 per year better off.
So -
Before:
+$50K real income
-$25K mortgage interest (nonclaimable if living in mortgaged property)
-13K tax
========
=$12K left over to live on.
After:
+$50K income
+$25K rental income
-25K tax
-25K rent
-25K mortgage
+25K tax return (claimable if not living in mortgaged property)
=========
=$25K left over to live on.
That's more than doubling their effective income, simply by living in each other's houses.
The extra cash could be put into either paying off the mortgage faster (although a reduction in the interest charged per year will reduce the corresponding tax rebate), or put into a long-term high-interest account. Eventually (in about 10-15 years), the amount of money in that account will be sufficient to pay off the rest of the mortgage in one fell swoop. And of course, it makes a great nest egg.
At this point, they could use the accumulated equity in the primary property (which may now be worth more than $500K) to purchase or partly finance a second property, and use the same strategy. Only this time, the rental income from that second property will be 'real', ie above and over what they're paying in rent to the person living in their fully-paid-off property. After all, what's the point in paying tax when you can claim it all back on an appreciating investment asset?
Is this a loophole? Are there laws in place against this? Are my calculations off? Do you know anyone already doing this?
I hope.
On another note, I wonder what legal rulings apply in Australia to two people who each own the house the other one is renting? On the surface, it would seem to be an ideal arrangement, as the benefits of negative gearing and property equity increase could be much greater than the associated paperwork costs of being a landlord AND a renter AND the additional 'income' (and therefore taxes) generated by the arrangement.
If, for example, the rental income was $25,000 a year on a $500,000 property, and both owners already made $50K each, they would get charged around $12,000 in extra tax every year on top of the approximately $13,000 they already paid. However, if the interest rate on their mortgages was 5%, they'd pay $25,000 per year in interest (and possibly something additional in principal reduction, depending on the loan), and all of that would be deductable from their tax. That means that the tax office would charge them zero tax on their "effective" income of $75,000, and they'd be $13,000 per year better off.
So -
Before:
+$50K real income
-$25K mortgage interest (nonclaimable if living in mortgaged property)
-13K tax
========
=$12K left over to live on.
After:
+$50K income
+$25K rental income
-25K tax
-25K rent
-25K mortgage
+25K tax return (claimable if not living in mortgaged property)
=========
=$25K left over to live on.
That's more than doubling their effective income, simply by living in each other's houses.
The extra cash could be put into either paying off the mortgage faster (although a reduction in the interest charged per year will reduce the corresponding tax rebate), or put into a long-term high-interest account. Eventually (in about 10-15 years), the amount of money in that account will be sufficient to pay off the rest of the mortgage in one fell swoop. And of course, it makes a great nest egg.
At this point, they could use the accumulated equity in the primary property (which may now be worth more than $500K) to purchase or partly finance a second property, and use the same strategy. Only this time, the rental income from that second property will be 'real', ie above and over what they're paying in rent to the person living in their fully-paid-off property. After all, what's the point in paying tax when you can claim it all back on an appreciating investment asset?
Is this a loophole? Are there laws in place against this? Are my calculations off? Do you know anyone already doing this?