165k property investment unit, owner is selling to move, recently renovated, current owner/seller needs to stay once sold for another 6 months paying $240p/w rent, property in the same complex fetch between 240-260 p/w rent.
Is this an opportunity or not? here are some options.
– Use cash saved to purchase the property (all cash no loan)
– Use equity in property to purchase with 10% deposit
– Use equity in property to purchase with 50%+ depositAny advise would be great. im going to see the property today and our accountant on Saturday.
Cheers
MichaelHi Michael
I will assume you have done your due dilligence on the property and the location so will not comment on this front.
With regards to your finance i am unsure as to whether you have any non tax deductible debt on your PPOR but if you have certainly would not suggest that you pay cash for the property.
Ideally if this is the case structure your PPOR so that you can deposit funds into an offset account and get this working for you to reduce the PPOR mortgage.
On the investment front if the deal is a stand alone deal and you borrow more than 80% then you will likely incur LMI. Whilst, this is a treated as a loan cost and therefore is Tax deductible if you can avoid it all well and good.
This could be done by either utilising equity in another property and borrowing the 20% + costs or using cash to use as your 20% deposit.
Either way this is probably a personal choice and without more details on your own personal circumstances is hard to comment.
Remember whilst interest costs are deductible they are only deductible at your highest marginal rate. You still therefore need to come up with something.
With regards to how you purchase the property it is again difficult to comment without knowing your position and whether you have a partner, dependants etc and whether either party is working and their Taxable income. Certainly dependant on these factors purchasing in Trust maybe a consideration.
Richard Taylor
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Hey there,
Just a suggestion, Get at least 2 independant property managers to go throug the property and get a rental appraisal and also see if there is anything that may allow an increase in rental return.
This will give you an idea of the worst case scenario that your tennant pulls the pin you are not left hanging off the lemon tree!
Cheers
KiwiI would advise against using cash to purchase the property if you are doing this for wealth creation.
Why? Real estate as an investment vehicle by itself is inferior to other vehicles (etc shares) over the long term. The only thing that makes it superior is the amount of leverage you can get on an RE investment.
If had 165k sitting around I would either use that to buy the most amount of properties I could, subject to getting finance OR gear into shares/manage funds albeit at a lower gearing ratio.
Just my 2c
I can’t remember Steve in any of his books or articles ever saying to use more cash than is a minimum. Otherwise what is the pt of cash on Cash return?
Maybe others have a different perspective?JB
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