Forums / Property Investing / Help Needed! / If this was your situation, what would you do?

Find Out All The Details Of Steve McKnight’s New 90 Day Mentoring ProgramFor A Live 90-minute Webinar
Viewing 20 posts - 1 through 20 (of 21 total)
  • Profile photo of anon75anon75
    Participant
    @anon75
    Join Date: 2013
    Post Count: 3

    Hi there, I am new to the forums and to the world of property investing. I have read a few articles on this forum and a few property books as well. I have started making my plans for our financial future but I`m just going to put my idea out there to see if there is anything that I`m missing. My wife and I are in our early – mid thirties we both work and earn $55k a year. We have a 2 year old courtyard home near the Brighton area (mortgaged) which will be our investment house one day (hopefully one of many) and also have an investment house 10 minutes out of Sydney that we own 100%. The current rental from this house is $1050.00 a week. So we have plenty of equity and the rental income should help us out when we drop down to one income in the next year. My job is stable and I plan on staying with it for my working life as I really enjoy it. I would love to build a property portfolio to set us up for later on in life. I have been reading about Interest only loans as a way to acquire more properties but still undecided if that will be the best option for us. In about 5 years we plan on selling the investment house in Sydney and using about 75% of that money to build or buy our dream house and use the money left over to invest in more property or payoff some of what we already have.  I would like to own lots of properties one day but I don`t want to stretch ourselves too thin in the process. I`m not saying this to brag as I genuinely would like your advice but when we sell our house in Sydney a big chunk of money will be coming our way and we will have no mortgage on our dream home. We are meeting with a good financial planner in a few weeks that we have had dealings with before for their advice on what to do. I just thought I would put my situation out there to see if I could ask some better questions to the financial planners when we meet with them.  Many thanks in advance!!!

    Profile photo of CatalystCatalyst
    Participant
    @catalyst
    Join Date: 2008
    Post Count: 1,404

    Gave up half way though.

    Paragraphs would help read it.  Maybe I'm getting old. LOL

    Profile photo of anon75anon75
    Participant
    @anon75
    Join Date: 2013
    Post Count: 3

    For some reason the computer wouldn`t let me use paragraphs.

    Profile photo of Queensland touristQueensland tourist
    Member
    @queensland-tourist
    Join Date: 2011
    Post Count: 6

    VF, It comes down to your aversion to debt, as you have already stated you own Sydney property outright. If your plan is to own several properties, then IO loans are the way to achieve this sooner. As you stated that your Brighton property will one day become an IP, you should consider switching this to IO sooner rather than later. You can always look at an 'Offset Account' in the mean time until you make the decision to build and move to save on any interest outstanding.

    To finance your next 'dream' consider getting a Line Of Credit against your Sydney property should you not have success with the bank on an outright loan for new property, or try a combo with 80% borrow for new house and remainder from LOC.

    If you sell Sydney, don't forget the capital gains and costs which will be incurred.

    Make sure you both fully understand your planner and he understands your wishes, seek a good mortgage broker to set up loans and accounts correctly to maximise tax implications and financial outcomes for your pocket.

    Profile photo of CatalystCatalyst
    Participant
    @catalyst
    Join Date: 2008
    Post Count: 1,404

    OK, I enlarged the print. smiley 

    I haven't had good luck with financial advisors and discussing buying property with them. I find most don't get it. First question to the advisor- How much property do you own?

    If the answer is not many he/she may not be the best person for you to get advice from. Maybe a good broker would be more helpful. There are some great ones who have portfolios themselves and have helped people buy multiple properties.

    The most important thing in moving forward is to get the structure right. As Qld said stop paying principal and interest and change to interest only if you are going to make it an investment property. To get the structure right speak to a property savvy accountant (MOST important).

    Most investors go interest only. If you have non deductible debt (your home, car etc) pay that off first. If you have no non deductible debt get an offset account (not a redraw) and pour the extra money into that. That way it is your money to withdraw when you want.

    When you get your new home get a LOC on that for deposits and legals. You can then get 80% loans on the new IP. That way they aren't cross securitised (VERY important).

    Some people get 90% loans but usually if they have no equity.

    Don't be embarrassed to plan to have a big portfolio.It's a goal. No-one ever got anywhere by having small goals.

    You are in a great position and there's no reason you can't have multiple properties. Go forward and prosper. LOL

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Consider also estate planning and ownership structures – sole, joint tenants, tenants in common, trusts, companies SMSF etc. Consider what ifs:

    death, incapacity, bankruptcy etc

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    Just reading it my first thought is

    why do you have a mortgage on the property that you are living in ? and why do you have no mortgage on the investment property ?

    I think you should swap your loans around because as catalyst was talking about there is non deductible debt. and dedeuctible debt 

    That means that the interest you are paying on your current PPOR (Principle place of residence) is Non tax deductible against your current incomes and rental income of the other property…

    I would ask the financial planner if only for this one piece of advice. That you should take out a mortgage against the investment property. and you should repay your homeloan debt on your current PPOR.

    You would save thousands in tax, depending on the values and how much debt you have on your current 2 year old ppor in brighton it could be 10s of thousands.

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    did you ever live in the property that was 10 mins out from Sydney?

    if so you might want to consider the 6 year exemption rule on capital gains tax if you plan to sell in 5 years time. Perhaps selling in 4 years time… (if you moved from there into your current PPOR of 2 years) that way any capital gains made in the last 2 years and next 4 years would be exempt along with any years that it was deemed your ppor prior.

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    Unless i completely missed everything and you are in fact renting somewhere different. With 2 investment properties

    Profile photo of CatalystCatalyst
    Participant
    @catalyst
    Join Date: 2008
    Post Count: 1,404
    wilko1 wrote:

    I think you should swap your loans around because as catalyst was talking about there is non deductible debt. and dedeuctible debt 

    That means that the interest you are paying on your current PPOR (Principle place of residence) is Non tax deductible against your current incomes and rental income of the other property…

    I would ask the financial planner if only for this one piece of advice. That you should take out a mortgage against the investment property. and you should repay your homeloan debt on your current PPOR.

    You would save thousands in tax, depending on the values and how much debt you have on your current 2 year old ppor in brighton it could be 10s of thousands.

    That is not legal. You can't just swap loans around. The loan is only deductable if you used it to buy an income producing asset. The can't just pay themselves money and make it deductable. It's done (for whatever reason) and cannot be changed now.

    But as I said if the PPOR you are living in now will become an IP STOP paying it down otherwise you will have another IP with no deductable debt.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190
    wilko1 wrote:
    Just reading it my first thought is

    why do you have a mortgage on the property that you are living in ? and why do you have no mortgage on the investment property ?

    I think you should swap your loans around because as catalyst was talking about there is non deductible debt. and dedeuctible debt 

    That means that the interest you are paying on your current PPOR (Principle place of residence) is Non tax deductible against your current incomes and rental income of the other property…

    I would ask the financial planner if only for this one piece of advice. That you should take out a mortgage against the investment property. and you should repay your homeloan debt on your current PPOR.

    You would save thousands in tax, depending on the values and how much debt you have on your current 2 year old ppor in brighton it could be 10s of thousands.

    Contrary to a fundamental tax law. Not deductible.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681
    VF Calais wrote:
    For some reason the computer wouldn`t let me use paragraphs.

    You're forgiven. I have an Android smart phone and tablet as well as 2 top end laptops all running various browsers. They all have issues with this dog of platform. What should be a relatively easy task but takes twice as long and requires a few additional skills to be competent at working with this dog of a… I mean text box. angry

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681

    This one screwed up but i can't delete it…

    Profile photo of anon75anon75
    Participant
    @anon75
    Join Date: 2013
    Post Count: 3

    Wow, thanks for all the replies!!! I will definately look into these topics that you have brought up alot more.

    Profile photo of Paterson00Paterson00
    Member
    @paterson00
    Join Date: 2013
    Post Count: 65
    Catalyst wrote:
    wilko1 wrote:

    But as I said if the PPOR you are living in now will become an IP STOP paying it down otherwise you will have another IP with no deductable debt.

    Hi again as a newbie.  This little quote reflects my inexperience as I would have said that if you get rid of the principle as well as the interest you eventually end up with a cash flow positive property as it has no mortgage on it.  Why is it better to keep the mortgage and the debt?  I understand that the interest on the debt is tax deductible but is it really more efficient than wiping the mortgage completely?  Could someone highlight with some figures how this works for me please?  I have a post, my first question actually related to this asking about negative gearing and how it works.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    Hi Patterson

    Not a silly question at all and one that most investors have no idea of.

    Let us assume you purchase a property for your own occupation and take a loan of $500K secured against.

    You pay down the loan down to $400K and decide to rent it out and buy another principal home for $500K.

    You decide to access the $100K equity in the first home as deposit. 

    The problem is the $100K is now non deductible as it is being used for non investment purposes.

    Had you set the initial loan up as an interest only loan with an offset account (Appreciate most lenders in the UK don't offer such products) you would still be paying interest on the $400K ($500K less $100K in offset). When you decide to move out and rent the property you withdraw the $100K from your savings and use as a new deposit on your new PPOR.

    The interest on the first loan is now charged on the increased balance of $500K increasing your deductible interest accordingly.

    As interest rates increase over time having your Broker structure the loan correctly can make a big difference.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    Paterson00 wrote:
    Catalyst wrote:
    wilko1 wrote:

    But as I said if the PPOR you are living in now will become an IP STOP paying it down otherwise you will have another IP with no deductable debt.

    Hi again as a newbie.  This little quote reflects my inexperience as I would have said that if you get rid of the principle as well as the interest you eventually end up with a cash flow positive property as it has no mortgage on it.  Why is it better to keep the mortgage and the debt?  I understand that the interest on the debt is tax deductible but is it really more efficient than wiping the mortgage completely?  Could someone highlight with some figures how this works for me please?  I have a post, my first question actually related to this asking about negative gearing and how it works.

    Hiya

    This article I wrote for Australian Property Investor magazine should explain in.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of suavemechanicsuavemechanic
    Participant
    @suavemechanic
    Join Date: 2004
    Post Count: 106

    Interest only is worth a good hard look ,as it increases your ability to hold more property ,for less weekly spend

    and concentrate on reducing your non tax deductable personal home

    my loans all clicked over to  p and e after a few years anyway in which case you can re evaluate

    Try REALLY HARD not to cross collateralize !

    if you need to sell a property cos its a dog or to pay down some debt ( say if interest rates went up one day in the future ) you can end up paying a lot of bank fees on a couple of properties to do one simple task….

    And refinancing can be a hassle cos everthing is interconnected ( dont try refinancing or buying a new one when you are" in between" tennants on one house ! )

    keep it simple , dont get too fussed about tax avoidance ……its a little cherry on top not the main aim of the game !

    cheers

    Profile photo of suavemechanicsuavemechanic
    Participant
    @suavemechanic
    Join Date: 2004
    Post Count: 106

    sorry , tax minimisation

    Profile photo of Paterson00Paterson00
    Member
    @paterson00
    Join Date: 2013
    Post Count: 65

    Thanks Jamie, that makes a lot of sense but doing the maths my way it doesn't come out as much difference either way unless I am missing something.  Lets see if I can explain my point the way I understand it without making this too confusing.

    If you do as you say in the article and pay down the loan to $100k this means you are now bringing in $500 per week ( or $26k per year ) on a $100k debt.  The $100k is costing you $7k per year in interest.  In my job I earn well so lets say a figure of $150k.  We need to add my wages to my property income $150k + $26k rent per year then deduct the interest on the loan at %7k giving a total of $169k.  My wages are taxed at 48% so I need to deduct 48% from my extra $19k leaving me with $9880 extra money using this method. but I will be paying $14k extra per year on the $200k used as deposit on my PPOR so $14k – $9880 = $4120.  $4120 will be my loss using this method

    Second method.  52 x $500 = $26k + $150k = $176k – $21k = $155k.   The $5k extra taxed at 48% leaves me with $2600 after tax and I am also not paying the $14k per year of interest on my PPOR.   $2600 up using this method.

    While typing it out I realised  that the second way is far better and hopefully it is typed in a way that it can help others too.  IF someone could check that over and tell me that I understand what Jamie was trying to highlight that would be great.  I don't know how I thought that they would be similar figures now but it made sense at the time.  Confusing subject when you are new to all this but I will understand all of this well in years to come.

    Thanks again for helping.

    Paul

Viewing 20 posts - 1 through 20 (of 21 total)

You must be logged in to reply to this topic.