Howdy,
I’ll put on the country drawl – because that’s where I’m thinking of buying, basically.Background
I have an IP in Melbourne (Richmond) worth approximately 300K of which I owe 167K – it’s practically positively geared as I’m getting $320 p/w in rent.
I bought it without too much thought 5 years ago – and it’s currently locked into a fixed rate loan for another 12 months.Question
I have a relatively simple question – the answer of which I haven’t been able to find on the forum – (but please point me in the general direction if it’s been covered before):
Would it be better for me to keep the IP and borrow against it? I don’t really comprehend the equity aspects of it – it seems like a lot of cash to have tied up in something and should be useful for what I’m thinking of doing.What I want to do…
I want to buy some land and build a modest house – in a place called Thora (Northern NSW) – I think the land will be somewhere in the vicinity of about 160K and not sure of the house (haven’t looked into that – as yet – maybe $200K).I have a minimal deposit – probably in the realm of between $20 – $30K.
What kind of strategies should I be considering?
[strum] (think banjo)
You have a lot of equity and in the absence of any other info I would suggest you keep the IP as the cashflow is handy and you can use the equity..
There are a lot more variables that you haven’t given us so the advice is very general.
I would draw the IP loan up to provide a 20% deposit plus costs for the PPOR.
Is it a long term PPOR? ie your forever home? If so then it may be worth considering selling the IP to minimise non deductible debt.
All loans should be IO with all excess cashflow being directed into an offset account against the PPOR. This combined with additional cashflow investments should see non deductible debt gradually minimised.
Sorry – without knowing your situation and goals better I can offer very little advice.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks Simon,
It’s definitely the long term option (PPOR).
Stupid question time:
Could you explain this with a little more detail“I would draw the IP loan up to provide a 20% deposit plus costs for the PPOR.”
I’m pretty ignorant of the vernacular, and this is where I get confused.
Sorry (o_+)
Sorry – I meant to borrow the 20% deposit plus money for purchase costs from the IP loan. Ensure you have a split loan showing the two different amounts as the loan for the home wont be deductible.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
I would certainly set up a line of credit rather than sell the asset. However why country NSW. The market has been overheated in the cities but many regional areas have also gone up a lot in many cases well past there real value. I would stick to main cities or if you need a better return look off sure to places such as New Zealand where you can still get a good return in a major city.
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand The United States Property Researcher and education
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Hi Strawberry,
I thinkl you should strongly consider selling the Richmond property. Whatever cashflow you get from it will pale into insignificance against the “after tax saving” you will make by having a lower loan amount on your new PPOR. Do the maths on a spreadsheet.
If you would like to have an IP borrow against the large amount of equity you would then have in your PPOR, but don’t have any cash in it and make sure the loan is interest only.
Regards
Alistair PerryHi Strawberry,
Just a question..
You have an IP in Melbourne (Richmond, do you also have a Principle Place of Residence or are you currently renting?
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorOriginally posted by Nigel Kibel:However why country NSW.
Errrrrr – it is going to be Strawberry’s PPOR.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958Sorry
I thought your were buying investment in the country not owner occuping. In terms of whether to sell your Richmond Investment if you can hold it I would if it makes it to tight financially then sell. However ven in a flat market the Richmond property should still perform well
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand The United States Property Researcher and education
One Day property investment research workshop The United States. Please register your interestNigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
I’m currently renting in Sydney (Bondi Junction) – and of course paying exorbitant rent.
I don’t have a PPOR currently.
The rationale for living in the country is pretty much the incredible value comparison with Sydney (East), which is ridiculously expensive (unless you’re a merchant banker, Jamie Packer or an ex-premier – god knows how others can afford it).
Hi Strawberry,
I would counsel you to carefully think through what you are considering doing as trying to reenter the Sydney market after a period of time out bush may be even harder than it currently is.
Just imagine how you would stand if you moved to Thora and for some reason/s did not like it or found it wasn’t what you wanted. Is it possible to try before you buy?
Irrespective I would retain the Richmond property as it something that will largely track the capital city markets of Sydney and Melbourne.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958Strawberry,
The advice re the try before you buy is sound, and i also think that a property in Richmond will be a good investment long term. However, structuring your finances with a stack of equity in an investment property and none in your PPOR is not a sound debt strategy and, depending on the capital gains consequences and your tax rate, could cost thousands in cashflow per year.
Without having run the figures I am almost certain that selling the Richmond property and using the money to help pay for the PPOR and then purchasing another IP with 100% finance would lead to substantial savings long term. You need to go over both scenarios with your accountant so that you can quantify the actual cost of each.
Regards
AlistairYeah – I was thinking that selling made the most sense. I wasn’t sure if there were some magic that I had overlooked.
Having an IP more or less positively geared (still claiming depreciation) is OK at the moment – as I’m in the 3rd year of a new business (so haven’t needed to negatively gear) – I’m hoping that will change in the coming year, although it will be tight with moving to the country at the same time.
I’m not sure how much I’ll be penalised by the bank (B o Melbourne/Westpac) for selling during a fixed term – would it make any difference if I sold and transferred the loan to the PPOR? (It’s an investment loan)
Thanks again for all the great advice – I’m taking it all on board.
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