Help how to make PPOR into IP to buy new PPOR ‹(•¿•)›

Hi,

I need some help in determining the best way to turn my PPOR into an IP so that I can move and have a new (2ndhand) PPOR. Otherwise hubbie will make me sell PPOR to Buy new PPOR. Which is not my plan.

My situation is that I currently have a loan for $110K (Paid down to 75k) with 20K in redraw available, the PPOR is valued at 390K, but up to 420K+ if we tart up the yard and clear our kids toys and stuff out to make it more appealing.

 My aim is to buy a house (or land and then house) no more than $350K.  My hubbies salary is $65K and we will use this to borrow for the loan, but I would like repayment to the new PPOR of no more than $450/wk. The less the better, because who know what may arise. Also for spare cash/savings where should this money go?

If we rent out the PPOR/IP then we will get at least $300/wk (15.5k).

We have a very good cash flow week to week and rarely spend more than we make, because our mortgage is low I make double repayments.

Any advise or help would be greatly appreciated.

Also once I know what we want to do do i go to a property account, loans adviser (will the loans be through the same company?), financial planner?

Cheers

Why do you think your existing PPOR would make a good IP?  Prima facie - a return of $300 p.w is a gross yield on $420K of 3.7% per annum before expenses and you would be paying 6% plus on your borrowings.
What is it about your PPOR that makes it a good IP?  Is it a low maintenance yard, is it close to services, does it have good potential for capital growth.  Is there a demand for rental in your area?

If you sell and rebuy you are still likely to have a loan of $110K, because of selling costs and stamp duty when you buy.  Is the cheaper house going to be better in the longterm than your existing house?

If you are going to rent out a property with equity you should look at borrowing to pay the interest. Then divert all income and rents to paying down the new PPOR loan.

Terryw
Finance Broker
Solicitor

Making double loan repayments on a loan which will be an IP is not financially sensible especially when you are looking at going into a new mortgage.

Why not look at interest prepayment on the old PPOR or even a split interest / P & I loan on the new PPOR.

Many ways to structure the debt just a matter of fine tuning the details.

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.

Hi,

CRJ - I am in the inner west in Melbourne in an area that has had good growth over the last 10 years. My property has gone from 100k to 400k in that time Plus I would not be borrowing 420K, I would have a loan of 200k on the IP (old PPOR).  As I would like to keep it as a nest egg for my retirement as I feel that this will out perform any amount that i can earn and put into super.

TerryW -With borrowing to pay the interest (say I take out a loan of 200k on the IP worth 390k+) is the IP loan an interest only and the second loan a line of credit or an equity loan.  And do I take out a new loan every year for the $15,500? As i agree with what you are saying It is better to put everything into the new PPOR, I am just not sure of the way to best achieve this.

QLD007 - the extra that is in the old PPOR i will withdraw before I have nailed down the new loans and finacial details, so that money will cover moving cost and stamp duty etc (which is very hefty here in Vic).  Is there anyone that you could recommend here in Melbourne for me to consult  would i go to an account or look for a financial broker like yourself.

Cheers
Leah

For borrowing to pay interest you would ideally get a LOC and just borrow every month and let it capitalise until you reach the limit or until you have paid off your home loan. - but you need expert advice about this.

Terryw
Finance Broker
Solicitor

Thanks for the info Terryw

 - but what type of expert should i be seeking out?  A financial adviser, property accountant, loans agent? As i do not want to pay to see someone who just then reccomends me to another specialist.

Cheers Leah

You would need a tax agent/accountant to get taxation advice or maybe a tax lawyer.

see bantacs.com.au they can arrange a private ruling from the ATO for you for about $600

Terryw
Finance Broker
Solicitor

Have a similar query. We are looking to move from our current PPOR due to work relocation for hubby.
We have been planning to sell this, buy another PPOR and then look at purchasing an IP, so have been busy getting this ready for sale. 
Current situation:
PPOR value  $550K
Shack value  $150K (maybe more?)            One LOC @ 6.01%, $235K outstanding
We receive some tax benefits for the shack as an IP for interest on around $120K and repairs/maintenance etc and minimal income

New PPOR purchase price: $500K plus costs $25-$30K
New IP value unknown, but thought around $350K + costs

Just attended a short property investment course information session which suggest that the golden rule is never to sell.  It gave me food for thought.  A quick search suggests our current home may rent for around $450-$500 week.  It is large and about 35 years old (although we have maintained it well) so I'm not sure that its an ideal IP, but just trying to get a feel for options.

Any advice would be much appreciated before we go to the expense of involving taxation advice etc.

Thanks

grafty

Not sure whether Tax advise is going to help you that much because if you cant finance it it doesnt mean anything.

Why would you not consider selling your interest in the current PPOR property to your hubby and then use the raised funds as deposit on your new PPOR.

Then with the additional equity by all means look at a separate investment LOC to use as deposit for another IP.

Normally if it is done under the "Love and Affection" clause you may find there is no Stamp Duty payable but this varies from State to State so a quick call to your OSR should answer that one.

By the way having both an IP loan and your PPOR in 1 LOC is not particulary smart going forward especially if you are trying to convince the ATO that you want to claim the interest on the property. Split loans always work better and I would use an LOC for your own PPOR.

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.