We have recently built a new house in Shailer Park, QLD and have moved on from our three bedroom, two bathroom two level townhouse in Springwood(Logan City). We owe $80,000 on the townhouse and it is presently valued at $160,000.
Rental returns are expected to be $180 week.
With the market being extremely strong for sellers in Springwood, especially townhouses, we are wondering if we should cash in and dump the money into our new house mortgage or should we hang in for a few years, as we will definately be getting a positive return. We can comfortably take either course of action, but which will benefit us the most???I would re-finance the townhouse and inject the extra funds into your new house, remembering that interest on an investment is tax deductable but interest on where you live is not…
hope it helps
Jason.
I agree with the Jason. Selling in queensland is a big mistake. Especially outer Brisbane as it is just starting to take off. Refinancing is a good idea so that your borrowings are on the investment not the home but I’m not entirely sure it is leagal from a tax point of veiw to increase the loan on a preowned propety. Maybe a tax guru could answer this one.
MJK
Thanks Jason and MJK…I will investigate legality with my accountant/guru and post results.
Rosscoe
I agree with the Jason. Selling in queensland is a big mistake. Especially outer Brisbane as it is just starting to take off. Refinancing is a good idea so that your borrowings are on the investment not the home but I’m not entirely sure it is leagal from a tax point of veiw to increase the loan on a preowned propety. Maybe a tax guru could answer this one.MJK
Hi MJK,
As I live in outer Southern Brisbane, (although the other side of the highway to Springwood) I’m interested in your thoughts.
Property values have been accelerating around here, especially over the last twelve months, but is there any particular reason why you think there is a lot more to come?
cheers,
Darren.Hi
Yah pls.. let us know how u go as I am in the same stituation. ie I’ve got a hse valued @ 300K and I owe the bank 150K ( difinetly positve geared). Question is what do I know knowing that the can redraw on my equity. !
any tips will be appreciated.
It would seem we should stop considering Qld and start buying properties up there, it seems like it will follow syd and melb.
ROSSCOE888 You can’t increase the borrowing on your townhouse and have it all tax deductible. You will be able to claim a deduction on the interest on your 80k once you start renting it. (I’ve checked with my accountant on that) You can borrow against the equity in your townhouse for a new IP, which would then have deductible interest.
It all depends on how much you will owe on you new PPoR. It really may be better to sell your townhouse to rid yourself of the ball and chain around your neck in the form of a non-deductible home loan, so that you can borrow against the equity for a new IP. It’s going to cost you a bit in stamp duty etc, but at least you shouldn’t have to pay CGT if it was your PPoR the whole time. If your new PPoR loan isn’t too massive, then of course you could direct your positive IP cashflow into paying it off asap. Leave the townhouse loan at interest only.
Just a few thoughts, but its really up to you.
Regards, Jim.
I would re-finance the townhouse and inject the extra funds into your new house, remembering that interest on an investment is tax deductable but interest on where you live is not…hope it helps
Jason.
This is wrong. It is the purpose of the loan that determines tax deductability not the security. So if you borrow to put into your PPOR then no deduction allowed. Regardless of what that loan is borrowed against.
Same if you had a home loan and drew $50K from it.
If the purpose is a pool in that home or a car etc then no deduction. But if you use it as a deposit on an IP or to buy shares etc then it is deductable even though it has been borrowed against your home.
One way to get around this is to sell the IP to your partner or to a trust controlled by you and borrow at 100% plus costs to do so. You will do this CGT free as it was your home. Borrow at the highest valuation you can.
These funds can then go into your PPOR. You will incur stamp duty on sale but it may well be worth it and will be deductable.
Don’t do it on my recommendation – see your accountant.
But don’t borrow against the IP to put into your home expecting to be able to claim this interest!
Cheers,
Simon Macks
Mortgage Hunter
[email protected]
0425 228 985Yes I totally agree with Doogs and Mortgage Hunter.
Jason advice is not correct. It is a common trap for inexperienced investors.
For people who currently live in there own home and intend in the future to buy a new home and keep the old one as an investment property, you should consider getting an offset loan account.
In this situation you would make the minimum loan repayments on the mortgage loan and any excess payments would go into your transaction account. The interest on your loan would be calculated on the mortgage loan less the amount of savings in your transaction account. But if this property then became an investment property you would be able to claim interest on the current balance of the mortgage loan.SPOT ON DAVID.
Well explained too. Better than I could.
Cheers,
Simon Macks
Mortgage Hunter
[email protected]
0425 228 985Your info and help is GREATLY appreciated, thanks guys…I will be taking these ideas to my accountant. Will post results along the way for those interested…
You just HAVE to love QUEENSLAND!!! []Just to reply to Darren about Brisbane future.
Brisbane is undervalued compared to Sydney and Melbourne due to being stagnant for some time.
Lots of people will find Queensland a more affordable place to live so Brisbane will benifit from interstate migration.
Vacancy rates are low in Brisbane.
And my opinion is that Brisbane is probably about mid cycle( upwards ).
Subdivision rules are alot tougher in Qld so we wont see as much over developement as in Melbourne.
Know I havn’t got a crystal ball but the realestate people I know in Brisbane are pretty excited.
Be carefull though because you cant get in at the bottom anymore.MJK
Thanks for your thoughts MJK.
Our property surge did start later than the other major cities. The thing is prices are accelerating so fast I don’t know how much longer the current advantages will still be around.
Already the infrastructures are buckling. The SE freeway is probably as bad as Sydney traffic now. Schools and hospitals are full. The cost of living is lower for now, but so are the wages.
Interstate migration between Sydney and Melbourne has shown that people tend to return to their home towns when fortune favours them. At some stage Brisbane is going to have negative migration.
I don’t doubt that you’re right, and that we’ve a way to run yet though, but the speed of the boom and the amount of interstate money surging this way has me concerned for the future though.
cheers,
Darren.You may think Brisbane is moving fast but you should have been in Melbourne in the last five years. We all thought the boom had peaked 4 years ago. Brisbane is just catching up.
MJK
Well I haven’t been to Melbourne or Sydney for a while so I didn’t get to epxerience it there. I’m sure you’re right, I think this is the longest RE boom in history. I was reluctant to buy here 12 months ago as I thought the end might be in sight. How glad I am I didn’t listen to those particular doubts!
I wonder, since the boom started sooner in the South, I assume it will end first in the South. Do you think this will impact Queensland if prices strart to drop off in Sydney or Melbourne? I assume it will at least be a signal that the market will turn.
On an aside, a friend of mine offered $350k on a $359k property with a (very long distance) view of the bay yesterday. Befoer the offer was even considered another buyer offered $400k, and it sold for $459k shortly after that. $100k over the asking price! I guess it’s like that everywhere at the moment?
cheers,
Darren.What I would do, assuming you have a mortgage on your PPOR in Shailer Park,
Sell Townhouse, pump all remaining money into mortgage on PPOR, which is not tax deductable.
Use equity now in PPOR to get new loan/s for purchasing IP’s.
Tax dept in interested in purpose of the loans.PD[
]All good ideas. Your call.
If you do sell then consider putting the money into an offset account. Avoid this happening again [
]Cheers,
Simon Macks
Mortgage Hunter
[email protected]
0425 228 985Woops!!!
Sorry Rosscoe, as other ppl hav mentioned my info was incorrect, i guess i should hav looked into it b4 opening my mouth… hmmm i was going on what a friend told me he did with his place, sorry
Jason
Darren,
Suburban prices in Melbourne havn’t dropped, only slowed from say 30%pa growth to 5%pa growth. So Brisbane is still well behind, but like I said if you buy now in Brisbane youre far from getting in at the bottom.Since you already have a property I personally would hold it for a year and then sell it if you think its a good idea.
I had a property in Byron bay I bought for 140K, sold it for 210k seven years later, but two years on it would now be worth 350k +. I sold too soon. When a market is moving no amount of tax deduction or intersest saved will be greater than your capital growth.
Some say one of the main reasons investors fail is selling too soon.
This is my opinion. I’m not a financial adviser. you need to be happy with your own descisions.MJK
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