How do I purchase a 2nd home using equity?

HI All

Hoping someone can point me in the right direction? 18months ago my husband and I purchased our first apartment.  It was very under valued at $415K and we used the FHOG back when it was just $7k.  We have done a lot of work to it and have just rented it out last week for the next 12months at $580 per week.  Our mortgage at present is $382K. The rent goes straight to our mortgage and we have not stopped our payments either.  We pay more than the minimum, so the monthly amount being payed off our mortgage combined is $5650. As of this month.  Our mimimum monthly payments are $2203.

At present we are living rent free in our parents empty house and just paying utilities.  We can do this up to 2 yrs if we like.  We have had a real estate value our property at minimum $550K.  So at present this is not an investment property but our main residence.  In 12 to 18 months we would like to buy another house to live in.  The house that we would purchase would properly cost approx $650K.  Our combined income varies as husband is self employed carpenter and I am a shift worker, but the minimum per year would be $140K.

We would like to buy again and keep this apartment as an investment. Do you think we could comfortably afford to do this or would we have to sell our penthouse first?  Also I know I can avoid the capital gains tax as its my main residence but we would have to move back into it for 3 months.  Is that correct?

Thanks Kylee

Hi Kylee

Welcome to the forum and i hope you enjoy your time with us.

Couple of things I would be doing to almost straight away to avoid further issues down the track.

1) You mention that you would like to maybe buy another PPOR down the track and rent out the current property.
If this is the case you certainly dont want to be increasing your loan repayments or paying the rent into the loan.

My suggestion would be to switch this loan to an interest only loan with 100% offset account and pay your rent and salary and 
every form of income into the offset savings account.

This will preserve the Tax status of the interest on the loan as well as minimise the interest being charged.

2) Might be an idea to get the Bank to revalue the property and put a line of credit in place so that you have something to draw  down on when you want to buy again.

Issue in the current climate is that lenders can change policy on the run so often best to take what you can even when you dont   need it as when you do it may not be available.

3) Presume you have arrange to have a Quantity Surveyor undertake a Depreciation report on the property in readiness.
Dont forget your 221D

Any questions ask away.

Hope this makes

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.

Kylee,
Do you mind telling me the suburb your apartment is in? That's quite a good rental return...(You can PM me if you dont want it public..)

Thanks :)

hi kylee

the question of whether u can service the loan of 382k plus 650K or not is up to you.. you need to work out your income and expense to decide it for yourself. No one can answer it for you.

You have to pay CGT tax on the apartment if u are negatively geared it when u sell it. So if you dont want to pay CGT on the apartment then either u dont negative geared the apartment or you never sell it.

hope that make sense.

You also have to pay CGT on the apartment if you positively geared it when you sell it.

You have to pay CGT tax on the apartment if u are negatively geared it when u sell it

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.

Wow this is great information thanks.  Because this is my main residence at present and not an investment property. I thought if I moved back into it for 3 months before I buy a new main residence and then turn this into an investment property I didnt think I would pay CGT.  Is sort of a loop hole.  But only while I have the one property.  i thought you could do this for up to 6 yrs?

As it is now, Kylee can still rent this unit out and sell it without paying CGT at all by using the absence from the main residence concession in the tax act. (assuming she lived in it first)

Terryw
Finance Broker
Solicitor

Kylee,

Lets clear this up, You do NOT have to move back into your home for the three months. You will maintain the owner occupied status for six years (you may only have one PPOR exempt). The 6 year exemption rule will provide you with the opportunity to get a good feel for investing and creating wealth - it will give you time to absorb the question of will I hold or will I sell (YOU WILL HOLD -  WHEN YOU UNDERSTAND THE RULES TO CREATING $$$). Given your income and other details you have disclosed here, you will be in a position to hold this first property and purchase several more. This early stage of  your property investing is where you will create the platform for a very healthy life. 

www.birchcorp.com.au

Thanks to everyone this is great information.  And Number8 from Birchcorp thank you for clarifying the PPOR rule for my main residence.  I would like to hold on to our property and buy another, its a scary step and I dont understand exactly how to do it.  I will now go and find the right people to talk to.  Can I just ask is it a Broker that I need to contact now to point me in the right direction with regards to managing our money and a 2nd property?
thanks again this forum is awesom

Hi Kylee

Yes a good mortgage broker should be able to assist from here on in.

Guess first hurdle is the valuation on your current property as this will determine how you can go forward from here.

Just had a valuation back this afternoon from a forum client in Sydney and it has come in a lot higher than she expected so was extremely happy so another investor on the wagon.

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.

Thats good news, my property is in the Sutherland Shire, South of Sydney so I think its an area that will keep progressing at a good rate in the property market growth. Fingers crossed.  thanks for your info, I will get it valued and get back to the forum with my next challenge.

cheers for now Kylee

Same Shire as my client seems like the area is certainly progressing at a good rate.

Drop me an email if you would like a Residex report done on your property as they produce some interesting statistical information and useful when arranging a valuation.

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.

will do.  Not sure what that is but will think of you when I am at my next stage.

cheers k

On this topic. My wife and I now both own property. She purchased 1 before we got married, lived in it for 12 months and has recently rented it out. Her property was purchased 18 months ago.  And we are settling on a PPOR this week. Does this mean potentially we have access to 2 6 year exceptions from CGT, as the PPOR will be my first property ?

No.

As you are buying a new PPOR, and you can only have one PPOR at a time. Also, a married couple can only access one main residence exemption; they can not have two PPOR's.

Your wife should get a valuation done on her property, because there would be no CGT up until she has a new PPOR. But there will be CGT from the time she has a new PPOR.