Hi Everyone,
I have created this topic under Finance section but did not get many replies. So I create this topic here. sorry for admin
Background:
I have 2 properties. 2 loans are with CBA with interest rate 6.43%.
P1: $308k mortgage. Current market value is about $480k. I pay $2,350 (principal +interest) per month. Current lease $450 pw and will increase to $460 pw after 2 months.
P2: $523K mortgage. Current market value is about $630k. I pay about $2,800 (interest only) per month. I live there and rent out 2 rooms. I got rent for $410 pw,
My goal is to be financial freedom. So I am seeking cash flow and possible capital gain (equity).I plan to purchase my 3rd invetment property less $500K in 2 or 3years. I currently have about $20K cash in the P2 offset account. I save about $40K per year.
As now both properties are negative geared. So my question will be what I should do next.
Some ideas I can think of to change my current situation:
1. Change my P1 loan to interest only or fix. So the rent can cover the mortgage and I can save extra cash(about $500 per month). Wait for few years, change the loan to principal and interest again when the rent picks up.
2. Partition living room to create an extra bedroom in P2. it will generate extra rent about $130pw.
a. If I still live there, the total rent received will be $540. still negative geared.
b. If I move out, I can get total rent about $700pw. It will cover the interest loan. But I will need to find other place to live and it costs me.
Should I wait for few years to have enough cash/equity to purchase 3rd property and move out? Or just rent a place?
I really want to create my portfolio. Can anyone please give me suggestions? Thank you very much!!!
Kind Regards,
EricEric,
You may want to enlist the help of some of the finance gurus on this site, but to me after one read through your post the thing that stands out like the dogs proverbials is your loan setup.
I find it strange that you have P&I on your IP and IO on your PPOR, I would have thought it would better the other way round.
Purely my opinion and what stood out. Get an expert to help you make your next move if you’re not sure, there are a few trusted ones in here from time to time.
Thanks Shane.
As originally I lived P1, I paid interest and principal. I did not change the loan structure after I moved to P2.
I thought it will be a good idea to pay interest and principal because I can pay off faster.
But from reading articles, it seems not a good strategy for investment.
Scratch wrote:I find it strange that you have P&I on your IP and IO on your PPOR, I would have thought it would better the other way round. Purely my opinion and what stood out. Get an expert to help you make your next move if you're not sure, there are a few trusted ones in here from time to time.That was the first thing that stood out for me as well.
You really want to sort out your structure first before moving forward and accumulating more investments.
You're effectively throwing away money by paying P&I on your investment when you have other non-deductible debt.
Cheers
Jamie
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]
Back of the knapkin these properties are bleeding you. CG had better be good (which I doubt in the current climate) or you’re out the back door eventually.
Rough estimate you need CG/yr of 4% and a rental return of around 7% of market value just to keep your head above water.
These appear to resemble liabilities rather than investments at the moment.
The Freckle
Eric, talk to a broker ASAP to structure your finances properly. It looks like a dog’s breakfast to me.
Hi Eric,
In addition to rejigging your loans I would also look at making sure you have completed an Pay As You Go Withholding Tax form (or whatever it is called now) and doing this in conjunction with a depreciation report.
While this is a little smoke and mirrors type trick it does help with the hear and now.
Pay As You Go Witholding Variation. http://www.ato.gov.au/individuals/content.aspx?doc=/content/00188348.htm
Thanks everyone.
I will talk to my broker to restructure my loans.
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