Hi everyone,
Ok, so firstly, I live in Australia in Brisbane.
I currently have a house worth $430,000 (bought for $210,000), with $185,000 mortgage.
I am currently living in this house.
I would like to move to Melbourne. But as most of you may already know, Melbourne is a bit more expensive than Brisbane!
The thing is, what would be the best option for me to do this???
I can sell my Brisbane house, get taxed, get a further loan and then start looking for a place to live in Melbourne. But then all my equity will go to waste…
Alternatively, I can rent the Brisbane house ($420/wk), and then get a bit more of a loan using the equit of the house (430k-185k=$245k of equity), use this to get a place to live in Melbourne. Then I would say my Brisbane house is positive cashflow, and my melbourne house…well, I am not sure yet, because judging by what I can probably afford over there, it'll probably be a unit or an appartment, which I don't think will be good for capital growth…
What I would like to do is have a house to live in, and an investment property (or properties) with positive cash flow.
I was thinking maybe sell the house in Brisbane, get a house in Melbourne with 3+ bedrooms near a uni/tafe, and rent out the rooms I am not using to get cashflow.
Alternatively, live in a 1 bedroom appartment in Melbourne, and use the Brisbane house as my positive cashflow property…
I am thinking of going to a financial planner to see if they can help me figure out what the best option would be, but I thought I might post here and see what you guys think first!!
I'm sure there are many people out there in similar situations who might have some great advice for me!
Any thoughts would be much appreciated.
Thanks!
Scotty
Hi Scotty
Renting your Brisbane house out is simple but it's made easier by making sure you get a great Property Manager (PM) to look after your asset. I'm sure our fellow forumites will be able to direct you towards a great PM in your area of Brisbane.
I would be very wary of advice from any financial planner whose only investment advice to you is to buy into managed funds. If you are going to visit a financial adviser, possibly ask forum members here for referrals.
Also, it's worth talking to your accountant about the Capital Gains Tax issues involved in renting out your Principal Place of Residence (PPOR). There are also a lot of threads on this forum that cover this subject. A search should turn up quite a few.
You mentioned the possibility of renting in Melbourne. Instead of paying out dead rent money and if you can't buy a place in Melbourne traditionally, you might want to look at buying a Melbourne property with vendor finance. They're not available everywhere and you do pay a premium price for the properties but you can usually get them with a very small deposit and you get the benefit of the capital gain on the property after you move in.
A pretty good list of available vendor finance properties can be found at:
http://www.renttoownhome.com.auCheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
have you ever lived in Melbourne? If no, it may be worthwhile renting or boarding for six months (renting)or three months (boarding) to get a feel for the place and to decide whether melbourne is where you really want to be. Are you going to be a long way from family and friends? These issues may change your mind. Also if you are actually living in Melbourne you will be able to visit potential suburbs and check out the propertoes available, get a feel for the streets and amenities etc. Rent your Brisbane property out and use the income from this to offset your living costs in Melbourne, buying and then discovering you miss Brisbane or dislike the area where you are living could be a very costly mistake.
Good luck, SonyaSonya,
That's a great idea. It's so difficult to try buy a place at another state when you can't stay there for very long!!
I went there for 5 days last month and loved the place. But renting will be a great option to suss the place out, and seek the right suburbs.
As for friends and family, I'm not too worried about that right now. I just want to go there early next year!!
Thanks again for your advice!
Paul,
Thank you for your input!
Yeah I am definately going to see accountants and planners before doing anyting with my money.
And I will definately ask around in this forum for good financial planners. Especially after all the news articles with commission based planners and so forth.
I have read Steve McKnights book on Vendor Financing, but because deposit isn't an issue for me (because of my high equity), I would've thought it would be more beneficial to just try purchasing a place if I don't want to rent??
Hi Scotty
I agree. If you have the deposit and can get a "standard" home loan, buying traditionally will normally be your first choice.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi scotty,
One thing I'd watch is your access to equity. The figures you show (430k owing, 185k loan) will not necessarily give you access to the remaining 245k in equity. Loans will typically go to 80% of the value of the property but you can go higher with mortgage insurance. Just how high you can go I am not sure (90%, 95%?), I'm sure one of the finance brokers on the site can give you better information on the actual amount of euqity you can realistically access. Just something to keep in mind when you start crunching your numbers.
Andrew
itsandrew
Go as far as you can see and you will see further.
Hi Andrew,
Sorry, I must have misinterpretted what I was trying to say. I bought the house for $210,000, and got a 95% loan at the time.
Now the total of the loan has gone down to $185,000, but the house was actually refinanced a month ago, whereby the value of the house was deemed to be $430,000.
So that's what I meant when I said the house is now worth $430,000, with a mortgage of $185,000. And I thought equity was what the house is worth minus what you owe, so that leaves 430-185=$245,000 of equity?? Maybe I'm wrong…and my LVR seems to be 43%…??
What are your thoughts? Does this make sense?
Hi Scott
Is the property solely by you or jointly.
Why did you refinance the loan? Was it to draw out some cash, pay off a loan or otherwise.
Sounds to me like the loan was a P & I loan so hoping it now it is Interest only.
You might have an interest contamination issue if the refinance was to pay out any external debts or raise additional funds.
Also your future action will depend on your current Marginal Tax rate etc so a few more bits of the puzzle would be needed to provide a structured answer.
Richard Taylor | Australia's leading private lender
Hi Richard,
The house was bought under my mother's name over 5 years ago. Because of this, we went with a private finance company, who we thought we weren't getting the best service from. She initially paid interest only, but about 2 years ago, started to pay both interest and principal.
Now that I have graduated uni and got myself a job, I have refinanced the house with a bank, and the house is now under both names. I am currently paying both P&I.
My salary is currently just above 90k excluding super.
Any extra advice would be much appreciated.
Thank you
Ok makes sense.
Couple of things I would do immedately:
1) Switch the loan to interest only with 100% offset account.
2) Assume the property is owned as Joint Tenants / Tenants on Common as the PPOR for both of you. Look to maybe increase the loan to purchase your mother interest or majority of her interest out in the property and increase your borrowing accordingly.
Place the balance of funds in your offset account so then if you decide to move to Melbourne and rent or buy the interest on the increased balance is deductible.Richard Taylor | Australia's leading private lender
One thing I would do immediately…
Save your petrol…… Why go all the way to Melbourne when you can take a left to Sydney?
Hi Richard,
Thank you for your reply. I don't fully understand the purpose/benefit in your suggestions! Realestate is farely new to me, so you'll have to help me out with abbreviations and yeah… Why only pay the interest? 100% offset account? Basically I have turned my mother's savings account into our offset account, and i have a separate savings account.
Your suggestions sounds like a great suggestion but only if I could understand it better!!!
And as for moving Sydney number 8, haha, I actually preferred Melbourne!! I thought it had a nicer atmosphere than Sydney…But maybe that's just me haha.
Richard,
I am hopefully asking the following question on mine and Scotty’s behalf, I am hoping that I am confirming info I have received from a fellow investor.
The purpose of having the interest only loan with the 100% offset account is a matter of having control over your money? In principle having this configuration achieves the same result as paying P%I but prevents you from having to speak to the bank in order to gain access to the additional funds you have paid down off the loan.
So in effect rather than having to refinance or redraw on the loan where costs may be involved, you simply withdraw the cash from your offset account?That is my basic understanding of the scenario, please correct me if I am wrong, I have a thirst for knowledge and would like to figure this one out as much as scotty.
cheers
Shane
Well, the impression I got from some of my initial readings and learning was that it is important to voluntarily pay your principal at all times because it reduces your interest significantly, and shortens the life of your mortgage exponentially as well.
As I mentioned, I have $185k owing, and I refinanced the house with another bank, which the minimum loan was $250k. So at the moment, I have got a loan of $250k, but I have $65k (250-185) in my offset account, which is equivalent to having a $185k loan.
I guess I could use this $65k as a deposit for another house? But it'll only give me 20% deposit of a $300k house, and well…You can't get many houses with $300k!!!
Kind of confused now… … haha. Any help would be great!!
Scotty.
You also have the additional equity in your current home to contribute to the 65k to use as security for another purchase, is that right?
So in effect that gives you 65k + 180k (430k-250k) = 245k
I see you have 245k to use as security toward another purchase.
I’m only an amateur investor as well Scotty, but I pretty sure you have more than just your 65k in equity.
Shane
Shane,
Yeah that's true.
But if my borrowing power is $400k (which I haven't calculated exactly but I assume it's around there), and I've already borrowed $185k, that leaves me the ability to borrow $215k more. Assuming I am putting in a 20% desposit for a $400k house, that means technically I should be able to purchase a maximum of 3 more houses.
That would mean i have one house to live in, which I'll use purchase using Capital Growth criteria, and then 3 investment properties for positive cash flow.
What I would like to do ultimately is to use trusts/companies so that I can purchase more than the 4 properties as mentioned above. After reading Steve McKnights book, which says by using trusts and companies, you can continuously use your maximum borrowing capacity for every house should you setup a trust/company structure.
I would like to do this, but I don't really know how to go about it yet, nor know how much a trust/company structure would even cost for my case!!
One step at a time I suppose…But then again, it says in the book, if you've already purchased a property under your name, you can't really do this trust strucutre because your borrowing capacity for every property will be lowered due to your current loan. Which makes sense.
But I guess worst comes to worst, I can alway just sell my house, build my trust structure with a full borrowing capacity, and then start to buy houses again?…
So many different ideas and strategies….!@!!
I am still voting for sydney???
You are correct, there are so many different ideas and strategies. When I first started out, I sat with many Brokers, Advisers and Accountants. Some were rubbish and others had an interesting twist on how to create wealth. One thing I did learn was that many people have something to offer. What you are doing on the site is the first step to making the correct choices.
Tip: Don't believe everything you read or hear. i.e. Do you really think a bank will just allow you to continually borrow money- It only takes one phone call to see if this can be achieved…… When you read a book or sit in with an adviser, ask yourself, what are they selling or aiming to achieve- is it legacy or a sales pitch?
number 8,
Thanks for your advice.
I read Steve McKnights book, which talks about building a trust structure, with trustees and companies. It talks about a law, which says a company is not responsible for the director's debt, and the director is not responsible for company debt.
Because of this, he can use his financial borrowing power as a director, make a company, buy assets under this company until it his borrowing power is maxed out, then build another company, and repeat all over again!
Don't quote me on the above, because I haven't got the full grasp of it yet and I've probably mixed up the terminologies such as companies and trusts, but that was the overall impression that I got from reading that chapter.
Apparently this method is used in the commercial world very commonly, and that is how many people own many different properties. But as you can imagine, if you already have a property under your own name, even though you are the director of a company in your trust, your borrowing power for every company you make will be limited because of the property you have under your own name.
It would be interesting to get the view from others who know much more about buying properties through trusts/companies to buy many many properties!!
A trust by itself with you as trustee will cost you about $500, I have just set one of these up to try and employ the same principle which Steve M advised in his book. If you wish to use the Company/Trust structure, you will be looking at around the $1250 mark.
You can still set up the trust now which you can use for future purchases, and you can transfer your current properties into the trust, unfortunately this does come at a cost as you will be up for stamp duty and CGT if you do the transfer. Then again it might be worth asking your accountant whether or not you will pay CGT if you transfer your PPOR into the trust? Its a costly decision, I am in the process of trying to make it at the moment. I figure that if I sold my investment property I would have to pay CGT, so I may as well transfer it to the trust, its going to cost me about 10k in stamp duty, but I am talking to my accountant at the moment about whether or not its worthwhile to absorb that cost next time I refinance, anyway enough of my problems.
The scenario Steve spells out in his book is ideal, they own their PPOR which is in his wife’s name, everything else is in the trust. A fresh start might be the way to go, and then you can have everything configured the right way from the get go.
Shane
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