Hi Everyone
I have a little scenario I would like everyone to comment on if they can.
We are living in a rural zoned area, have just submitted an application for a line increase, and the lender has said that they will only go to a 60% lend in this area, I have done some research and discovered that other lenders may do up to 70% but that seems to be it. I am thinking of doing the following:
Selling our current PPR and renting whilst using the profits to invest with (If others are renting out there, do you have a limit of rent that you will pay? and a time limit, I know this is different for everyone, but would still like the feedback)
OR
Sell this one and purchase another PPR that is in a non RURAL area!
I shall look forward to everyone’s comments!
Thankyou…
[
]One advantage of selling and renting is that you will have access to 100% of equity. Whereas, if you purchased again you would have to leave 5% to 20% of equity in the property. Notwithstanding that fact that you would have to pay stamp duty on the new purchase.
From an investing perspective I would sell and rent.
However, if you are weak on the income side of things then renting may not be the way to go because the lender will take account of your rental expense. This may reduce your serviceability. If you are self employed then you could use a low doc loan.
Some info on the value of your equity and your income and employment position would help with this analysis.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.au
One advantage of selling and renting is that you will have access to 100% of equity. Whereas, if you purchased again you would have to leave 5% to 20% of equity in the property. Notwithstanding that fact that you would have to pay stamp duty on the new purchase.From an investing perspective I would sell and rent.
However, if you are weak on the income side of things then renting may not be the way to go because the lender will take account of your rental expense. This may reduce your serviceability. If you are self employed then you could use a low doc loan.
Some info on the value of your equity and your income and employment position would help with this analysis.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.au
Hi Stuart
I am self employed under 2 years, my partner is on $100k PAYG. 1 credit card which is swept every month and our home loan the only current debt (155k) val 260k. That’s it!
Thankyou!! []
Hi Rstarr
As you are reasonably strong on the serviceability side of things then selling and renting will maximise your borrowing capacity.
Note: your partner will essentially be qualifying for the loan as most lenders will not consider your income if you have been self employed for less than 2 years.
On a personal note I will continue to rent for the next few years as I would rather invest my equity/money in investment property rather than have 20% equity sit in my PPOR. But that’s only my view of the world.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi RSTARR,
Another possibility, (one which we are considering) is if you have a trust set up, purchase a property in the trust’s name & rent it to you. That way you can have your cake and eat it too.[^]
There is a recent post headed “I want to rent it from ME”, (a couple of days ago) about this, and it has really got me thinking. No tenant / landlord / property manager hassles !!![8D]
Good luck,
Del
I don’t understand how renting is a good strategy. Stu or somebody can you explain?
Sorry if it is a basic thing I’ve missed but I am new to this and we are paying 12K pa out in rent and that is really bugging me as I would rather spend it on a mortgage.
We are trying to save for a PPR and I have one IP we are trying to hang on to rather than sell for the deposit on the PPR. At the moment it seems that our savings can’t keep up with the growth in Perth so I am very tempted to cash in the IP even though everyone says to hang on to it.
Maybe I wouldn’t feel so bad about that $1020 we pay our landlady each month if I thought it was part of a plan
Hi Del,
Another possibility, (one which we are considering) is if you have a trust set up, purchase a property in the trust’s name & rent it to you. That way you can have your cake and eat it too.
Just a note I recently read something on purchasing a residence by a family trust and then the subsequent leasing of it to family beneficiaries in the trust. In cases such as this the deductions and income claimed by the trustee have been reduced.
I just dug it out and the date is 1985 so maybe it is a bit old, however it goes on to say,
In the meantime it should not be accepted in cases of this nature that the rent payable by the parents (or trustee who is beneficiary) is assessable income of the trustee or that the losses and outgoings attributable to the residence are allowable as income tax deductions.
Maybe it has changed but something to consider
Cheers Will[]Hi Will,
Thanks for that. I will check it with my accountant.
Thought it was sounding too good to be true….
Will & Del
Hi Caz in Perth
Renting is not a good strategy for everyone. The difference between you and me is that I don’t want to buy a PPOR whereas you do.
You see if I had $100,000 I would rather buy an investment property rather than a PPOR. If I purchase a PPOR for $500,000 then my $100,000 deposit would not be working for me (as I have leveraged up to 80%). Notwithstanding I have $400,000 of bad debt! I would prefer to go and buy $500,000 worth of investment properties. But that’s only my opinion and that suits my objectives.
If your objective is to own a PPOR then of course renting is bad and doesn’t suit you. I would agree with “everyone” and try to hang onto the investment property.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auIf you aren’t happy handing over >$1k/month to your landlady, could you get a new one and pay less?? Moving is rarely considered fun, but savings may be worth it.
Just a thoughtCaz,
Many people feel the way you do, so dont feel alone. However, look at it this way. If interest rates are 6% and you have a $200k property you are paying $12k interest (rent) to the Bank. If you are renting in a low yield area (as I do) at say 4%, then you are only paying $8k in rent.
Until such time as you build enough equity to purchase a property then renting is not a bad strategy at all.
As others have suggested, one alternative is to set up a Trust and then purchase the property you want and rent off the Trust. The loan interest is then deductible for the Trust. If your other investment properties are cashfolw positive, then you can have the surplus cashflow go into the Line of Credit for the property you are living in thereby reducing the debt earlier. Your other investment properties should be interest only loans.
Hope this helps.[8D]
reading with interest as thinking of doing just that, selling our beautiful home and freeing up 300,000 for multiple deposits.
We have a lot of money in our home and potential for being sued, as professionals.
so far, just about all of our investments are in trust.
We have never rented in the past, always living in our own accom., but one benefit of renting: it is very cheap and competitive at present, as per above 100% of money is freed up and you can buy invest.property in trusts and some protection.
Another consideration for us, is, our home is rather large as is the garden, so we are very bound to it, and getting older and less energetic.
We would prefer to free up time and focus our energy on investing, renovating and making money to retire on.Hi RSTARR
Personally I would rather have a PPOR but that’s just my choice at the moment. Just got sick of the 3 monthly inspection thing when some sticky beak landlord/realestate agent gets to wander through your home and invade your privacy and you really don’t have a choice.
Agree with Stu that it’s bad debt but I’m happy to live with that. Guess I like to have a little bit of control as to when and what I can do around the place. For example if I want to make an improvement to the place I don’t have to ask anybody else if it’s OK to do so.
Just my thoughts…………
Take care
Dave []Hear what you are saying Dave but for me the financial benefits of renting and investing would make sense. Unfortunately the decision to sell and rent is one I have been vetoed on. My wifes nesting needs far outweigh my investing sense and therefore I am happy to stay put…for now. I guess it comes with knowing that I am the weaker sex….I know my place….
Enjoy
AD [:0)]
(Andrew)“Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, ambition inspired, and success achieved.”
Hi Everyone!
Thanks very much for all of your opinions, I guess what it comes down to is what is comfortable for you and where you are headed!
Thanks again!
[]I also rent while at the same time owing many investment properties.
One good idea is to live in one of your rental properties as your PPOR for a short time. It is then CGT free if you sell (within 6 years)-even if you rent it out. At the same time run some sort of business from home so that you can claim part of the rent as a tax deduction. And you will be able to rent for a fraction of what it would cost you to own the same property.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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