Hi all. im slowly learning all i can to do with property investing.
just wondering i some of you could give some feedback in regard to my current situation!living in PPOR – loan 300k – property value 500k.
current repayments 500pwplan on moving into friends house (very cheap rent) and renting out house for $350 pw – leaving me $150pw short of repayments.
with a bit of luck i was hoping to borrow a further 200k to buy apartment and rent it out – possible rent return of 150pw – leaving me approx 200pw short of repayments.
this would mean that i had two properties…with 350pw of repayments. obviously my aim here is for good capital gains.
i cannot afford any more than 500pw in repayments.
i would love to hear any suggestions or advice that anyone has. i am always looking for different or creative way to take my property investing further!
cheers
Lyndon
Why not change your current loan to interest only. This would reduce the repayments to $425 per week. You could also set up a 100% offset account and keep all spare cash in there to save interest. This will also keep tax deductions high in case you never move back in. You may still be able to claim the place as your main residence and sell it CGT free for up to 6 years too.
You should also get back some money on tax by claiming borrowing costs, building depreciation and depreciation of fittings.
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.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
thanks for the advice terry!
can you please explain how the offest account works ?
regards
Lyndon
Offset account is simply a bank account linked to your loan. What funds you have in it “reduces” your loan balance and you save interest. But the funds are never in the loan so they can be drawn out for any purpose with contaminating your loan in the eyes of the ATO – it is the best structure for most people I believe.
ie if you have a $300K loan and have $100K in savings. You will pay interest on $200K only. Should you draw that $100K to buy a Lexus then your original $300K loan remains 100% deductible. If you had kept the money in the home loan and redrawn it then you will now have a loan with $200K deductible and $100K (for personal use) not deductible.
I know my example is extreme but substitute new HOME for the Lexus and you will see that it is a common trap many fall into.
I also agree that IO is the best option at this stage where you are investing for growth. Inflation will reduce the loan balance faster than you can pay it off so best to use saved money in the offset for other investments. I use managed funds and shares and leave equity to buy more IPs – but that is not advice for you!!
Hope this helps,
Simon Macks
Residential and Commercial Finance Broker
[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 think your plan sounds good. If you are single and not needing a big house then why not look at doing this. Short term pain for long term gain.
If I was single with no kids, I would do the same to set myself up for later. But make sure that if the living with friends thing doesn’t work out, you have an exit strategy that will not leave you scraping around for money.
Wylie
Thanks for all the great responses!
Originally posted by Mortgage Hunter:Should you draw that $100K to buy a Lexus then your original $300K loan remains 100% deductible. If you had kept the money in the home loan and redrawn it then you will now have a loan with $200K deductible and $100K (for personal use) not deductible.
in reference to the above quote, when you say “deductible”, are you saying that this is the amount on which interest must be paid?
and if for example you take the 100k out of the offset account for shares etc, then why wouldnt you then go back to paying interest on the full 300k loan?
i am beginning to understand it, though there are still some grey areas that im not sure of yet!
cheers
Lyndon
The Offset is a savings account so you do not effect the loan in anyway apart from offsetting against the loan. Therefore if you have 300k loan and 300k in the offset the interest would be zero.
Once you take the money out of your savings account (offset account) interest is charged on the remaining balance. Therefore if you took the 300k out for whatever purpose interest would be charged on the full amount of the 300k loan
It is worth noting not all offset accounts are 100% offset therefore ensure you choose the right product.
It may be best to speak with your accountant re the shares issue as may be better to take add a split in your loan for the shares for tax purposes.
Wayne
Mortgage Adviser
Email [email protected]
http://www.alphamortgagesolutions.com.au
Refinace, Loan Consolidation, Owner Occupied or Investment Finance. Free Service we come to you!Originally posted by lyndon_g:Thanks for all the great responses!
Originally posted by Mortgage Hunter:Should you draw that $100K to buy a Lexus then your original $300K loan remains 100% deductible. If you had kept the money in the home loan and redrawn it then you will now have a loan with $200K deductible and $100K (for personal use) not deductible.
in reference to the above quote, when you say “deductible”, are you saying that this is the amount on which interest must be paid?
and if for example you take the 100k out of the offset account for shares etc, then why wouldnt you then go back to paying interest on the full 300k loan?
i am beginning to understand it, though there are still some grey areas that im not sure of yet!
cheers
Lyndon
Hi.
‘Deductible’ in this instance refers to the amount on which the interest paid is tax deductible. You can (generally) tax deduct the interest on money borrowed for investment purposes. So, if you have a $300K loan with the bank for investment purposes then the interest on this $300K is (generally) deductible from your taxable income.
I should point out that I’m just an investor and not a tax professional. This is just general, theoretical info.
Cheers,
Art‘Great spirits have always encountered violent opposition from mediocre minds.’ – Albert Einstein
Oh yeah…and another thing,
You say you can’t afford more than $500pw repayments but don’t forget when working out your figures that stuff like insurance, rates and maintenance have to be paid on your properties as well. This will increase the annual (and therefore weekly) amount you’ll be paying out of your pocket on top of loan interest.
Because these are costs incurred in the course of generating income (ie rent) they are generally tax deductible but still have to be paid out of your pocket when they are due.
And never, never, never underestimate the value of spending time (and money) talking to professionals. This forum is a great place to throw ideas around and get a feel for various things but when it comes down to specifics you really must talk to a professional (or professionals) about your SPECIFIC needs.
Please understand that I’m not trying to chuck a bucket of cold water over your ideas (far from it, it sounds like you’ve got some great plans), I’m just putting it out there for you to factor into your vision. Better to make a smaller, well planned move than to boldly stride forward having neglected to pull your pants up.
Cheers,
Art‘Great spirits have always encountered violent opposition from mediocre minds.’ – Albert Einstein
Thanks Art, your suggestions have been very helpful. Thanks also to everyone else too!
Hopefully i can work all my stuff out in the coming months. Now i just gotta finish off my house so im not walking round on concrete floors anymore!
Cheers
Lyndon
You must be logged in to reply to this topic. If you don't have an account, you can register here.
