Hi Guys,
I was after your opinions of what you think could be the best option in our position.
My wife and I are keen to get an investment property. We currently have a mortgage on our house, about $175,000 in the red and we have at least $60,000 in equity built up.
With the investment property we are either looking at:
Purchasing a little unit or townhouse and renting it out (buy and hold) – and hopefully in 6/8 years time we could sell at a nice profit (either sell our house or the investment house?) in order to buy a new larger house for us as we’d have additions to the family by then! If we do this option obviously we’d need the investment property to go up in value considerably in order for it to be worth while. Alternatively if we sold our current house as we know that we’d definitely be making money as we’ve had it 4 years and it’s gone up 60,000 and should go up a lot more over 6-8 years.
Another option is to purchase the larger house now (that we will move into later in the future) and rent it out for 6/8 years. By then we’d have additions to the family so we’d move into the larger house (and we could then rent out our current house). As this type of house would cost a lot more than a little unit we’d be out of pocket every month as the rent would no where near cover the repayments, however it could still be an option as they assist in paying it off??
So what are ppl’s thoughts on the best option?? Or other possible options
Cheers
Hi,
All the strategies you mentioned are sound. A smaller IP will likely give you better cashflow now, but buying the larger house now and moving in later may save you more money over the 6-8 years, assuming prices appreciate over this time.
One thing you should most certainly do though is to make sure the loan on your current property is interest only if there is any chance you will use it as an investment property in the future. You can use a 100% offset account to reduce the interest payments just as effectively as paying down the loan, but this will allow you to position your equity most tax effectively in the future.
Regards
Alistair Perrythanks Alistair
i noticed that our financial institution offers interest only loans – only for 5 years however. When would u suggest to change our loan from on off set loan to an interest only loan? ASAP or when we move into the new place?
If you think you might swap the PPOR into an IP, the sooner you swap the loan to IO the better. The reason being, if you have a mortgage on your new PPOR, the interest after tax is going to cost you a lot more that the interest on the IP, the difference depending on your tax rate. If the money is in an offset you can use it for whatever you like, eg to reduce the loan required for the new PPOR.
I have no problem with fixed rates, but don’t fix the rate until you have decided for sure what you want to do in terms of your loan structure.
Regards
Alistair Perrypay your mortgage out first
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