hi, I am new to this investing. Just turn down a job offer as agent rept, so trying to figure out how to make some $$. I have A$30k on hand, owing a house worth A$500k, with A$300k mortgages. I was thinking what's the best option for this A$30k :
1. reduce mortages and save around A$120 a month on interest
2. buy a property worth around A$300k, pay A$15k as deposit, A$12k for stamp duty and tax, and rent it out at around A$1200 a month. With interest only payment, this is just enough for monthly payment. Then sell it off in 3 yrs when property prices went up
3. buy a property need work done at around A$300k, spend A$15k refresh it and sell of at A$360k.
What will be the best option, and how can any of this help with tax deduction?
Start by sticking the $30K in a 100% offset account linked to the mortgage.
This gets you the best of both worlds. Reduce your non tax deductible interest payable as well as having the funds on call if you need them.
Do not use the funds for investment where you have non deductible debt.
Long term if you decide to purchase a new IP.
Take out a separate Line of Credit against the current PPOR and use this to fund the deposit and acqusition costs on a new IP.
Fund the IP separately using a standalone loan facility.Richard Taylor | Australia's leading private lender
hi, I don't quite understand, why do I have to take out additional credit on my current PPOR? can I just use this 30k to purchase another IP and have another loan on this IP? I can't put this 30k in another account to offset mortgages as my mortgage plan wasn't allow..
If you use your own $30K as deposit then you will loose the Tax deductability of the interest.
If you borrow $30K with the purpose of using the funds for a deposit for an IP then the interest becomes deductible.
You are unable to pay down the current PPOR loan and then redraw the funds as this again fails the purpose test.
A separate new loan would be required to satisfy the ATO.If your current home loan does not have an offset account then it might be time to consider switching lenders to something more suitable to your current circumstances.
Richard Taylor | Australia's leading private lender
Assuming the situation is as simple, I'd get a job first, unless I pursue option 3. A steady income just help so much with future IPs. $30k is not a lot to live on after funding a property. (again assuming situation is as simple)
Agent Rep (RE?) job seems quite flexible timewise and is perfect for you to learn about real estate at the same time. Why did you turn it down?
(rhetorical question)Richard is spot on with LOC on PPOR. I'm financing a purchase entirely with the credit facility in LOC for deposit and costs. In other words, I use $0 of my own money to buy this house.
Hi, we're usually very hopeful when we start out. There're serious objections to the 'plans' above.
1) no problem except that you no longer have the use of the 30000. Offset is the best way.
2)Negative gearing at best.
3)You'll get into serious trouble. Even if the 300000 includes closing costs, you're looking at $60000 max 'profit' of which you spend 15 thousand on reno 10000 sale costs, 10 thousand holding costs. There's 25 thousand profit in your scenario. The downside is that it's quite hard to find such a property.
Can you re examine the mindset of you can meet your living costs with the 30thousand you currently have? Traditionally, the yield of 5% means you get 1500 a year from that.
Maybe others can give you better advice but looks like earned income is necessary.
KY
sorry I didn't make this clear enough, I do have a job now, about A$70k a year, that's why I turn down REA offer as I think I have to work a lot harder with a lot more time to get the same amount..
point taken, thanks for all the info..
hi, different story then.
Option 3 is more viable when you're on 70K p.a.
Depending on where you're, there are always opportunities. I thought that house prices can't go up any more than they've already done but just last weekend, I went to an open inspection. Big old house needing update sitting on a 1200m2 block. Based on the price quoted by the agent, there's a fair amount of equity once the subdivision is done. Of course, that's based on today's prices & rents. If those go backwards, then the +ve cf & equity would evaporate.
Just goes to show that risk starts on the day we buy but if it's calculated, it shouldn't cause too much concern.
You're well placed to start your investment journey. Good luck,
KY
(rhetorical question)
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