Hi,
I have a dilema, ( Good One) my investment properties are paying themselves off and paying for my PPOR.
But am i doing the right thing? Should i sell my IP,S and pay off my PPOR? Or should i continue holding the properties and increase rent as required? I have a large loan on my PPOR, and when i look at the 30 year repayment its a lot of income. I also know that holding a few properties and watching them increase every year at 10% is great.My lifestyle is good but i am approaching my lending limit for borowing even though my serviceability is good. I am in a good position but i cant sit still and see plenty of opportunities in the current market!
I appreciate any opinions please from all investors and forumites.
Thanks
Dom [biggrin]
Hi Dom,
That sounds like a great dilemma to have!
What I would suggest is keep everything you have as it sounds like they are all doing well for you. Then, find a house as nice as your ppor or even better in your neighbourhood and rent it. Then rent out your ppor. That way, you have an extra IP, AND you can claim your mortgage repayments, rates, maintenance/repairs etc on your ppor as expenses just like your other IP’s. I’m sure you can find a place that is renting well below what you are paying off your mortgage.
We recently looked in to renting a place in a neighbourhood we used to live in that would cost $700k to buy and only $270p/w to rent!!
I’m not sure how this would effect your servicability (this would depend on how the banks treat it) but you would definately have a higher cash flow coming in.
cheers
Sourcing Positive Cashflow Investment Property http://www.cashflowproperties.co.nz/properties-5.html
Are all your loans(IP and PPOR) with the same bank.
IF they are then that should help to show them that you can be trusted and are reliable. It can be also be a bargaining chip.
You give me this loan or i’ll take all my business elsewhere.
They can see you a reliable, they will give you another loan.Yes i agree with DLPP that is a great idea that I have heard quite a few times. And I suggest you also buy another IP with that new loan that you have.
Hi DlPP and DraconisV,
Thanks for the recommendations.
For the rental situation here in brisbane is very tight and rents are high so we have consiered this already and it would not be feasable. My loan on PPOR is high but we would have to rent at $250 to $300 a week, and you dont get much for this in my area. Dlpp i am not sure where you are but a house worth $700, 000 renting for $270 a week would be amazing here.My loans are with 2 banks. I could probably buy 2 to 5 more properties as long as they neutrally geared or positivly geared and not commercial loans! I would not have to look hard for this.
I think the main question is pay your PPOR or hold what i have?
thanks
Dom[biggrin]
Hello Salacious
“I have a dilema, ( Good One) my investment properties are paying themselves off and paying for my PPOR.”
Are your IP loans interest only? If not, maybe they should be and the extra money put into an offset account against your PPOR loan.
This will reduce your non tax deductible interest , reduce the loan time on your PPOR and save up a deposit for the next IP.
Your IP’s seem like good investments so why get rid of them?
The amount of your home loan may seem high now but will seem much less in 10 years. [smiling]
I’m a bit puzzled as to why you have reached the end of your lending limit if your servicibility is good. Have you talked to a broker about this?
Cheers
ElkaHi Elkam,
I will soon reach my serviceability because i am in the process of buying .
Dom [biggrin]
as elkam said, if your IPs are principle/interest, you can change to IO and put the extra into the offset account for the PPOR.
What if you capitilised the interest on the IPs for a while and used that normally used money for the IP interest on putting in the offset account.
This would dramatically increase your tax deductable interest and lower your non-tax deductable. Just came up with it then, what does everyone think?
With the question of pay off your PPOR or hold what you have?
Um, I think you should just keep putting money in your PPORs offset account. That is like paying it off(lower interest payments) and also you can use this as a deposit like elkam said.So yes I would hold them, fill your offset up and prepare for the next journey(further) down the line.
Christopher.
Hi Dom
I would be reluctant to sell, especially if they are paying dividends. Just be patient and watch the values and rents rise.
As for serviceability. Be careful with your loan applications now. If you are careful, then you will be able to qualify for No Doc loans when you hit the limit. Then you can keep on borrowing if possible.
Also look at what Christopher suggested. Capitalising interest is possible if done correctly. This may speed up the repayment of your home loan.
Terryw
Discover Home Loans
Parramatta
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one more thought. Maybe you could consider selling one of your proeprties to your trust. This will allow you to increase borrowings to 105% of the value of the property and the funds released could be put into your home loan, and then reborrowed for more investments.
You will have to do the numbers to see if the interest saved will be more than the stamp duty and CGT.
Terryw
Discover Home Loans
Parramatta
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Hi,
Thanks for your input guys.
But a couple of questions come up from your posts. Is Capitiilsed interest tax deductible ? Would it not be better to refinance grab equity of ips and make lump sumpayment into your PPOR?
Terry how do you sell an ip into your trust? How do banks view this?
And Tax? And all my properties are in trust.Dom [biggrin]
Hello Salacious
“Would it not be better to refinance grab equity of ips and make lump sumpayment into your PPOR?”
No. The interest on this money would still not be tax deductible as the ATO looks at what you did with the funds (investment or private use) and not where it came from.
Elka
Dom, if you borrow from a LOC to pay interest on your IP loan, this would free up money that you would otherwise use to pay this – which can then be placed into a 100% offset account linked to your home loan.
You should be doing the same with expenses such as rates. Dont pay these with cash, but put the cash in the offset and borrow from the loc to pay the bills.
In the end it will increase your deductions.
If all your properties are in a trust already, you could sell to a new trust – maybe a hybrid DT. But you will have to weight up the costs. Banks, ATO etc look at this as a sale and purchase.
Terryw
Discover Home Loans
Parramatta
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Consider for yourselves what is your priority – your current lifestyle (leaving in your PPOR) or long term investment. And then act upon your decision.
Personally I am trying to buy as many as possible CF+ properties.
And I prefer to leave on rent for now, so I can invest more money at today’s market.
Also occasionally selling one property for the profit actually helps to increase borrowing capacity.But decide for yourselves
Cheers
Lesia
[evo]
http://www.vmstreamline.comThanks for your input everyone.
Some good options their but i think i will hold my proerties for long term until mayby the next property cycle.
I will just keep paying my home of, and see if i can buy any bargains with more + cashflow.
Would someone just tell me where though (LOL.)Dom
[biggrin]Thanks guys,
Funny enough i hate to sell when you have such a good income because you end up paying Tax, Agents ,banks,solicitors.
Even though you have made a large profit from your investment
But if you can get a greater income from your proceeds then the decision gets tough.!! Do you or dont you ? Should i have or should i not.?Dom
[biggrin]
Terry
Can you please explain capitilizing interest as I have not heard of this term before.
Also when you say to put your rates etc in to your offset and use Loc to pay them – what is LOC?
Am new to this game and as I am in Brisbane and in a similar situation with my IPs I am wanting to explore my options as well.
By the way thanks so much for the information so far. It is good to know that there are so many options to explore.
[thumbsupanim]Hi Eden
LOC is a Line of credit. doesn’t have to be a LOC, you can use any sort of loan,
Capitalising interest is justting the interest build up, not paying it everymonth. – This may be wise in some cases as you could possibly use your money elsewhere.
Terryw
Discover Home Loans
Parramatta
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Sorry Terry
Still not quite getting it.
Am fine with LOC just didnt get the anagram. But if you didnt pay your interest wouldnt you have to pay a default fee on the loan. Is there a special way to organise this and also you would have to pay it at some point. Have never heard of this and feel that it could be a good strategy to know about if extra funds are needed to use creatively.Sorry Terry
Still not quite getting it.
Am fine with LOC just didnt get the anagram. But if you didnt pay your interest wouldnt you have to pay a default fee on the loan. Is there a special way to organise this and also you would have to pay it at some point. Have never heard of this and feel that it could be a good strategy to know about if extra funds are needed to use creatively.Just say…….
If i had a PPOR with equity of about $200k. Is it easy to set up an LOC ? How much $ could I get on an LOC for 200k equity.
Terry perhaps ? I guess you are the expert.[wink]
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