Hi all,
I finished reading Steve’s book a month or so ago and am really keen (as we all are)to get out of the rat race. I want to buy my first rental property, and am continuing my slow search to find a passive income property. The housing prices in Adelaide are quire inflated for the population here so I have come up with a plan. I will be moving interstate soon and will rent out my home which will be positively geared after having lived in it for 10 years.As I have quite a lot of equity in my current home, my question is this, if I borrowed say $50,000.00 to put towards purchasing a second property, making them both positively geared, is this a better outcome rather than having one really excellent passive income property and one negatively geared, or does it really make not difference?. I’m not sure which way to go tax wise for the best outcome.
Any comments greatly appreciated.
Goldie[blink]
Hi Goldie,
Before I give your question too much thought, can I be so blunt as to ask you about where you will be living, that is, are you yourself going to be renting???? If so, this may affect the decision of what you buy.
Jo
Hi Jo,
thanks for your reply. I will by moving to Cairns and plan to rent myself, as I’m not too sure where my life will lead over the next 12 months.
Goldie
Well here goes Goldie, (for what it’s worth)
First of all, make sure that the rent you pay is less than the rent you receive from you former PPOR (that is, the house you are leaving behind). That is very important, at least it puts you in front before you’ve even started considering any investment opportunities.
Following this, look at the pros and cons of borrowing agains your home (the 50K) as you indicated, using it as your deposit on your IP. If possible, try to ensure rental return on the IP you purchase will cover the mortgage repayments, and you should be pretty set. If this is not possible, at least try and find a property that can be negatively geared (with as little out of pocket expenses as possible to you).
It sounds easy enough, and certainly these are not the only options. Depending on what your future plans are…you may be better off selling your current home before you move. There are many questions that need to asked, and things to be considered before you decide one way or another.
Please don’t take my words as gospel; it is only one opinion (and by no means, the correct route by any means). Talk to those in the financial know who are better equipped to advise you on such matters as mortgage costs etc etc.
All the best, if you need to feel free to ask for further clarification.
Cheers,
Jo
Hi Jo,
thanks very much for your valued comments.
Goldie
If you are borrowing $50,000 to purchase another property, then the interest on this loan to be attributed to the new property. But in the end, the overall figure would be the same.
ps I’m no accountant.
Terryw
Discover Home Loans
North Sydney
[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
Hi Goldie
It doesn’t really matter if individual houses are positive or negative. I would look at the overall portfolio, and try to ensure that is where you want it to be (either CF+ or neg gearing to save tax).
Cheers
Mel
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