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  • Profile photo of TFETFE
    Participant
    @tfei
    Join Date: 2015
    Post Count: 3

    Hi,

    I was hoping for some advice about my current plans. My wife and I currently own a 2 bed unit in erskineville (Sydney) which has a market value of 800-850k. We purchased the property 2 years ago for 595K. We are currently looking a using this equity to purchase an IP with the intent of turning it into a PPOR in 2 years (put the saved money in the offset account of the unit while we live there with the intention to pay down the mortgage on the new PPOR when we move in)

    The new IP/PPOR will be around the 1.4-1.5 mil mark. We have 280K of equity accessable (already available as a second mortgage to use as a deposit) and a current mortgage on the unit of 270k.

    Now my question is, what to do with the current 2 bed unit when we move? Is it better to sell it and take the CG and reinvest into other IP’s in other capital cities? I have come up with 2 options however I am unsure which one of them is the best:

    1. Keep current unit as a positively geared IP (larger non-deductiable mortgage on new PPOR). Then use available equity in unit to purchase new IP’s as we are able
    2. Sell current unit and pay down new PPOR mortgage then use this equity to purchase IP’s in different states (smaller non-deductable mortgage on PPOR)

    The only downside to 2 is that the current apartment is in a prime location and will be very easy to rent and I believe even with a market downturn will retain good CG prospects. Also the idea of a property that pays for itself appeals to me as my end goal is to have a passive income from positively geared properties of around 100k in current dollars.

    Are there any options I haven’t thought about or can anyone offer any advice with regards to our situation?

    Cheers and thanks in advance

    Profile photo of superAndrewsuperAndrew
    Participant
    @superandrew
    Join Date: 2014
    Post Count: 188

    Hi TFE

    Why not keep the current unit and keep drawing on the equity to purchase more IPs?

    And once you move into the new unit move all the funds from the offset account of the current unit to the offset account of the new unit (since it will be your PPOR). No need to pay down the mortgage of the new PPOR. This way you will always have access to the funds but at the same time lower your interest.

    Andrew

    superAndrew | Property Analyser and Finder Tool
    https://property-analyser.com.au

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

    I would not sell the Erskineville unit. It’s in a great spot. By the time you pay CGT, stamp duty to buy again you will lose half the profit.
    Keep it.
    Pity you have paid down the loan. You should be paying Interest Only with the funds going into an offset account
    Do that NOW!!!! If you had done that, the money you take out for the PPOR would have been tax deductible.

    Revalue Erskineville so you have extra available equity. I would get the rent to go into my PPOR and use the equity to pay the interest (or buy more property if you have the cashflow to support it).

    • This reply was modified 9 years, 1 month ago by Profile photo of Catalyst Catalyst.
    Profile photo of TFETFE
    Participant
    @tfei
    Join Date: 2015
    Post Count: 3

    Thanks for the replies! My wife and I weren’t married at the time she bought, (even though we found the place together and were defacto) and she was gifted a good chunk of money but unfortunately she couldn’t get a full 80% loan at that point due to her employment (and the person who gifted it didn’t want my name on the property, which is fair enough as we weren’t engaged at that point). So we got the largest loan we could and went interest only right away. So the loan is still as big as it was when we bought the place and we have been putting all our cash into an offset account as you suggested.

    The other option I see to increasing the gearing, is for me to buy 50% of the property using s104B of the Duties Act NSW which permits a transfer from ONE spouse so that after transfer the ownership is then either joint tenancy or 50/50 Tenants in Common..Just a matter of my serviceability then.

    As you said, Erskineville is a prime location and if we sell we will never be able to get back in at the price we paid.

    Thanks for the help!

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Was the original ‘gift’ really a gift or was it a loan? If it was a loan that loan could be refinanced with a commercial lender.

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TFETFE
    Participant
    @tfei
    Join Date: 2015
    Post Count: 3

    It was a full gift, no need to repay it

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    It was a full gift, no need to repay it

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    Thats a pity as it would rule out some strategies.

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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