Our Current PPOR is become too small for us. We owe $24,000 however its value in the current crap market is about $350/370k. (purchase price was about $230k)
We are considering purchasing another property with a larger house that will suit our needs. budget would be about $500-550k.
I estimate we should get about $290/300 p/w in rent if we rent out our current PPOR and that will give us extra income to help pay the larger mortgage on the new property. (taking advantage of the current good rental market income)
When the market picks up and is reasonable in about 3 or so years time we would sell the current PPOR.
Is this the best option ?? Any Suggestions on other ways to go about this ??
Should we be re-financing the current PPOR/borrow the full value of the property and owing less on the new house so the interest etc can be claimed on tax ??
What tax implications/hidden costs will effect us ??
Are we better off just selling the current PPOR now (in a crap market) and putting that $$ into the new place saving the extra interest. ?
This is a common dilemma for people and comes up on this forum quite often.
My 2c worth;
Interest on a PPoR (Principal Place of Residence) is not tax deductible. Interest on an I.P (Investment Property) is tax deductible, along with all the costs associated with holding the I.P. You can also claim depreciation on the building and fixtures in many cases.
If you are not too emotionally attached to your PPoR, I would recommend moving out and renting somewhere yourself, and turning your PPoR into an I.P. Many people don’t do this due to the emotional attachment, but it can be very financially successful to do it.
It is even better if you can rent the house you want/need for less than the rent you are going to receive from your PPoR.
You never need to sell your PPoR – you simply keep it as an I.P forever, and use the growing equity in it to help fund more of them in the future.
You still continue to rent whatever place you like, or, after your current PPoR is fully paid off and the market is back to a ‘seller’s’ market, sell it and either buy an new PPoR straight away, or wait until another ‘buyer’s’ market and buy then.
You will have considerable equity in the new PPoR and owe hopefully very little or nothing. Keep in mind that the less you owe on your PPoR the better as the interest is not tax deductible.
The equity in this new PPoR can then be used to help fund more I.P’s. The interest on them is tax deductible of course.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
thanks for the reply marc.
I don’t get emotionally attached to things so that is not a problem there.
We would purchase another house to move to. Ide never move out and rent.
Problem I am seeing is that I am of the understanding that the ato requires the borrowed money to be spent on the IP. If i re-finance and have a high amount owing on the IP and less on the new PPoR, we would not be able to claim the interest as that money went to the PPoR not the IP. (played with the figures).
might have to see an accountant
Tracka
You could always sell the property to a Trust and use the funds raised to pay for your new PPOR however still be able to fully claim the entire amount of interest charged on the new loan as Tax deduction.
You would incur Stamp duty and there is another consideration or two but an easy solution to a problem.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
New Shared Equity scheme has arrived – Email us for details.Richard Taylor | Australia's leading private lender
This is where setting up a flexible loan structure at the outset is important ; such as a loan with an offset in case you change the purpose of the loan down the track.
Wayne
Mortgage Adviser
Email [email protected]
http://www.alphamortgagesolutions.com.au
First home buyers, investors, refinace, loan consolidation, equity loans, free service we come to you!We cannot answer unless you tell us what your loan repayments will be. This is because the only thing to weigh up here is the interest you will pay on the $550k and the income from rent and the value increase in the $350k house compared to just loaning $200k.
Firstly if you have $300 per week in rent, after tax you probably will end up recieving about $9k from the property. Depending on how big your repayments are that is about $173 per week extra on the $550k loan.
Quite frankly you would be paying up near $88k per year on a loan like that, otherwise the interest is going to run into the hundreds of thousands of dollars. If you sell the house and only lend $200k, payments of about $32k a year will get it paid off with very little interest in about the same time. That is by the time you paid off the $550k loan you could have proably paid off the $200k and saved well over $350k.
What do you plan your repayments to be on the $550k loan, and what would they be if you only had to loan $200k. If you are just paying the 30 year loan minimum the bank says its definatly better to go with the 200k loan. This is because on a $550k loan paying minimum will likly result in repayments of upto 1.5 million.
Thanks a heap for the advice. We might just live here for 6 odd months, do some renovations then sell.
might be crap selling in the current market but we will also buy in the same conditions so it won’t be that bad.
Cheers
Have you thought of extending the house and staying where you are? This would be a cheaper option and has worked for us. If you work it well, you can even make money, but that depends if you want to stay in that area or not and also if the house is suitable for extending of course.
You can save on stamp duty and other moving costs this way.
Anyway, just a thought!TD
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