MichHParticipant@michhJoin Date: 2017Post Count: 1
Thankyou! so helpful to get some direction on where to start. I feel like there’s three lifetimes of reading material on this forum! hehe. Really helpful :)
A member has questions around “What to do” where one has a PPOR that was (nearly) paid off, became a rental, and they now live in their new PPOR. Do they sell the first PPOR (now a rental), or keep it? Can they borrow against that first PPOR to pay down the new one and make the Interest deductible, etc.
This thread was asking those questions of the forum, and @terryw came up with this:-
11 Strategies for when you move out of the PPOR and keep it
Click this link to read all about it.
For those not even in that situation yet, Terry also has some ideas for “before you buy your FIRST PPOR – just in case you end up moving to another one later and renting out the first one”.
Onya Terry !!
PS For new readers, PPOR is “Principal Place of Residence” (i.e. your home) which is a personal asset (non deductible, until you move out and rent it) and also Capital Gains Tax exempt (with some conditions around that, so check it out).
Have you been approached by a company wanting to sell you an OTP (Off-The-Plan) property (i.e. it is not built yet, but is soon to be built)? Did they cold-call you? Did they suggest that “The Tenant and the Taxman can make you rich, and help you send your kids to Uni, etc”? And, they likely also asked if you have had your PPOR (your own home, or Principal Place Of Residence) for long?
BEWARE !! You could be being set up. Alarm bells ring when some companies follow a particular script. Read up on these so that YOU don’t become one of the victims.
If you tell them you have very little Equity in your PPOR, note how they will immediately close the call, telling you they can’t help you. But if you DO have equity, watch out – ‘cos they want some of it !!!
An interesting one has been discussed recently – someone asked about the benefits of buying a unit in a retirement village. Lots of thoughts were passed around over this one.
On the plus side, the returns looked mighty good – initially. Was there to be Cap Growth into the future? Would Banks even lend – this was low priced, but also in low demand – or was it? It is an interesting exchange that could well turn on a few lightbulbs here and there.
Check out the conversation here:-
A recent discussion re whether going from an IO loan to a PI loan would help serviceability led to some interesting learnings. From a MB’s perspective, it seems that a lender will only approve an IO loan by calculating it as though we were paying PI (Principal and Interest) and at a higher rate (Qualifying Rate). i.e. The lender needs to KNOW that you have the spare funds or income to cover the higher repayments of a PI loan before the IO loan is given. All “as expected” – but wait, there’s more……
First, go here – https://www.propertyinvesting.com/topic/5048770-will-moving-some-investment-loans-from-io-to-pi-reduce-serviceability/#post-5048803 – then read up and down from there to get context around the whole discussion.
You see, despite the words that said “your serviceability will improve by changing to PI”, I see there is a lot more hidden beneath those (no doubt true) words. The link summarises my thoughts. And to me, the big takeaway from the whole topic is to “Be very sure you KNOW what the new numbers will be BEFORE you go changing from IO to PI!” If you don’t, I suspect you may get a very rude awakening (and possibly even rock the foundations of your portfolio).
For me, “run the numbers” took on a whole new look after thinking that one through. Though the final outcome was nowhere near the 45% increase in cost that I had first thought it might be, it was still going to be a 26% increase (going from IO to PI) – which is still a substantial increase, and needs to be known before taking the leap.
Compound Interest is great – but what effect do yearly expenses play on your compounding investments?
I stumbled over a post from a year or so back – it shows just how well compounding can work. But this time, it has a twist…. It ALSO shows how much damage can be done when the compounding is accompanied by expenses along the way (be they admin fees, taxes, other costs, etc).
Be prepared to be surprised – I was !! Like, I was already aware of how GOOD compounding can be, but I was unaware of the massive effect of those regular expenses.
It starts by showing how, if you take $1 and double it 20 times, you end up with a little over $1m. Nice !! And I was not overly surprised by it, as I was already aware of the power of Compound Interest.
What surprised me was what happened if you take out 30% each year as you go (for fees or whatever)…. now THAT result surprised me. I thought it might halve the end result….. but I was WAY wrong.
Then try it again with only taking 5% out each year – think about what the result might be, then calculate it out. Again, surprising !! There has to be a big lesson in that – re watching expenses, Interest rates, taxes, etc.
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