Forums / Property Investing / Help Needed! / where to go from here with PPOR

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  • Profile photo of Mrs BeeMrs Bee
    Member
    @mrs-bee
    Join Date: 2012
    Post Count: 3

    Hello everyone Im after some advice and am very new to the whole investing thing,My husband and I currently have a mortgage of 260K with house valued around the 340K with potential growth on Mornington Peninsula and new Fwy being built, we have just had our third child and have really outgrown this house and really need to upgrade to a 4 bedroom house. I've roughly looked into renting out our PPOR for $320 a week(mortgage P&I at $390 a week) but understand this might not be viable as it was a PPOR or are we best to just sell up and uses the equity to purchase the bigger place.

    Any insight would be much appreciated.

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    Hi Mrs Bee,

    Its best to map out both scenarios and see which will be more beneficial. If your longer term strategy is to acquire IP properties then I would suggest keeping the PPOR property and using it as an investment and then purchasing a new PPOR. There are some CGT circumstances that come into plan which is why it is important to map out the scenarios. You can use equity within the existing PPOR to fund for the new purchase. How much is the new purchase going to be?

    Regards

    Shahin

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    Profile photo of Mrs BeeMrs Bee
    Member
    @mrs-bee
    Join Date: 2012
    Post Count: 3

    Hi thanks for the reply, Ideally I like to keep our PPOR as a rental long term rather then sell it, We would be looking to purchase a new House of around $380-400K if possible as my husbands income will increase in another 2 years and our combined income will be over 100k which would allow us to comfortably afford both properties.Im also unsure if we should wait the 2 years and make do with our tiny house or buy another while the market is low.

    Profile photo of DerekDerek
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    @derek
    Join Date: 2004
    Post Count: 3,544

    Hi Mrs Bee,

    If you do hang onto your current place and turn it into an IP this means you will be borrowing 100%+ for your PPOR, add to this the possibility your new home loan debt will be significantly larger than your existing debt means that your cashflow will take a hit.

    Given you now have a family of three kids you will need to consider carefully the impact of any decision you make has on your cash flow. Make sure you also consider interest rates at long term averages – currently rates are very low (against long term averages) and will not remain there forever. 

    You can convert your old loan to interest only and this will result in a lower payment than the one you are currently paying. Even so careful maths is required.

    Profile photo of Mrs BeeMrs Bee
    Member
    @mrs-bee
    Join Date: 2012
    Post Count: 3

    Thanks Derek,I guess Im looking at long term gain,I currently work only part time since having children but could increase to full time if needed and am lucky we are both in government jobs so the risk of unemployment is low. Im not looking at owning multiple properties ATM but would like to maybe once the kids are older and our bigger PPOR is paid off more. I would say we live a manageable lifestyle ATM and if we had to tighten the purse strings to afford the next property we could until our income increases.  

    Profile photo of PLCPLC
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    @plc
    Join Date: 2012
    Post Count: 400

    Hi Mrs Bee,

    Whereabouts on the Mornington Peninsula are you located? Nice down that way, especially in summer.

    Like others have said, the maths would need to work for yourselves, with CGT coming into play if your PPOR becomes an IP. On the flipside, the outstanding loan will then become deductible debt for tax purposes (claimable interest).

    You would be able to use equity in your current property for a deposit on a new property but if you are looking at around $400K, you would need to put in some of your own funds for stamp duty, etc.

    Even if you are just entertaining the thought of changing the PPOR to an IP, it would probably be worth changing the current loan now to interest only loan with offset.

    PLC | Phoenix Loan Consulting
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    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,010

    You could always consider a Spousal Transfer in order to maximise your deductions and provide you with additional net income to pay down your non deductible PPOR home loan.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Mrs Bee

    What you're aiming to do is possible.

    If your property is valued at $340k, you potentially have $46k that you could access for the deposit/costs on your next purchase.

    I'm not sure how much you're looking to spend on the next purchase (or how much you can afford) but the $46k could be used as a 5% deposit and costs on a property around the $400k mark (possibly a bit more). It will be a 95% lend so lender selection will be important.

    With your current loan – it would be ideal to convert it to interest only now rather than continue to pay down any more of the principle (because this debt will become deductible in the near future).

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Profile photo of TerrywTerryw
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    @terryw
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    Sounds like that house may be in VIC.

    If so you are in luck as one spouse can buy out the other spouse at full market value without stamp duty. Any interest on the new borrowings would generally be tax deductible and any cash released can go towards the new PPOR to reduce the non deductible debt.

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    Profile photo of BaysideBayside
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    @mornington
    Join Date: 2018
    Post Count: 64

    The mornington peninsula is stunning in summer and winter due to the wineries and hinterland. For good reason it has become a property growth hotspot. The 2nd strongest growth area in all of Australia for 2017/18.

    Bayside

    Coastal markets 2019

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
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    Sounds like that house may be in VIC.
    If so you are in luck as one spouse can buy out the other spouse at full market value without stamp duty. Any interest on the new borrowings would generally be tax deductible and any cash released can go towards the new PPOR to reduce the non deductible debt.

    Not any more buddy!

    This stamp duty ‘loophole’ closed last year.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of BaysideBayside
    Participant
    @mornington
    Join Date: 2018
    Post Count: 64

    The new mordialloc freeway coming soon is also expected to cut the commute from the peninsula by another 10 minutes making it a prime time to invest.

    Bayside

    Coastal markets 2019

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