Ask Margaret: Is it greedy to buy our 4th house in 7 months?

Hi Margaret,

If I put a deposit to buy a house before the new financial year, can I claim it this year tax time or is it to late to buy? Also, is it greedy to buy our 4th house in 7 months?

Regards,

Thor

Hi Thor,

To answer this question we must first work out what can and cannot be claimed against your tax.

The deposit on a house is not a claimable item. The costs you incur when you buy a property are able to be claimed, but each item is treated differently.  For example, all buying costs such as legal fees and inspections form part of your cost base, and serve to essentially reduce your payable capital gains tax when you sell, rather than provide an immediate deduction.  Borrowing costs are divided up over 5 years (or the length of time you own the property if less than 5 years) and claimed at the end of the year.

I think you are really asking me whether the interest on the deposit is claimable, and the answer is no, for two reasons.  The first one is that any deduction you claim against your income is only available on an 'income producing asset', an at the stage where you pay a deposit, this property does not produce income, for you.  The second one is that the deposit does not denote a transfer of ownership, and so you don't legally own an income producing  asset against which you are allowed to make these claims - the present owner does however, and they are allowed to make those claims right up until you settle the property.

As to your second question, it's not greedy to buy your fourth property in seven months, but whether it is wise to do so is an entirely different thing.  You need to ask the following questions:

• Do you know your personal risk profile and whether this number of properties is consistent with that?
• Have you had an independent, professional investment plan prepared for you by someone who is not trying to sell property to you?
• Have you analysed your capacity to meet your current debts and property costs should interest rates rise?
• Have you ensured that you have diversified your property portfolio across a number of markets? Some of our markets (namely, Sydney) will likely enter a protracted period of stagnation after this present frenzy, so you don't want all of your properties to be in such a market?
• Have you considered your financial future - is there any upcoming changes which may make a larger portfolio create extra stress on your finances?

You should not simply buy a property every time you feel like it, or each time the bank offers you more money - instead, your acquisition of property should be part of a carefully articulated plan which considers all of your personal financial circumstances, investing time horizon and risk profile.

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