I am going to receive around $550,000 as inheritance end of next year after clearing some legalities of receiving funds from overseas . I have a PPOR currently with a loan balance of $340,000. My financial plan with the cash flow is :
1. Pay off current mortgage .Put up property for rental income.
2. Use balance 220,000 as deposit payment for a new PPOR .
3. Borrow 20 % on the paid off property to buy another investment .Please advise if options which would be more feasible or ideal and any warning signs visible with this plan.
If you are going to make your current PPOR an investment property in the future, then do not pay off this loan. You are better off switching this loan to an interest only loan and then put all of your money into an offset account attached to the loan for your new PPOR to minimise non tax deductable debt.
What else you do depends on the value of your current PPOR. You may be able to use a LOC secured against this property to fund the deposit on a new IP and pay costs and legals with cash from your inheritance. This will enable you to put most of your inheritance into your new PPOR (or preferably an offset account attached to your new PPOR) to minimise the level of debt attached to your PPOR as the interest for this loan will not be tax deductable.
Cheers,
LukeLuke is pretty spot on here.
Don't pay down the property if you plan to use it as an investment as you will then have very little to claim and the rent will increase your taxable income – this may or may not be a problem. Interest only is the way to go with this one, then focus on paying down your new PPOR. An offset account is a great idea as it will give you access to the money in case you want to use it for further investments or improvements to your new PPOR. Only do this if you have the discipline to use it wisely though!
Good luck
Thanks Luke & Money Cactus for the advice ! Any suggestions of a good planner to help me put all of this in place. I am based in Melbourne.
If you'd like a good mortgage broker in Melbourne, Pete Tersteeg from Sage Lending is excellent.
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Just reading the posts above, I prefer an offset account to LOC and there are lenders out there with very reasonable rates whose loan products come with an offset acc.. ie one of my properties loans is at 6.89% and I have an offset account with it. I can suggest an excellent mortgage broker who can assist you if you want, email me here.. [email protected]
You could probably place an interest only loan against the security – set up as a second facility for investment purposes as opposed to a LOC (the rate will probably be a bit lower – however it may not be as flexibile as a LOC). As for the offset, they're great – but preferably on the PPOR portion of the loan (the non-deductable debt).
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
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