Im thinking about buying my first investment property, so appreciate any advice based on my circumstances.
I have about $100k equity in my current property, which i reside in. I am thinking about buying an el-cheapo unit, but in a good location about 10k from the city centre (Canberra). Im planning on getting a loan for 110% purchase price of about $220k, and renting it out.
However there is a danger that i will become positive geared if the rates keep dropping. Based on that, should i still be treating this as an interest only loan, or should i just go princ & interest??
OR
Should i spend more cash, and buy a new unit a bit further from town, and be negative geared??
Thanks in advance!
Buy whatever you think will grow the fastest.
I would get an IO loan if you have other non-deductible debt as you would want to decrease this first.
If no other bad debt, personally I would still get an IO loan, but it depends on your risk level. You may want to pay off a portion of this one before embarking on the next if you are conservative. Look at using a 100% offset account instead of paying off the loan.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Austin
Surely if it is positvely geared isnt that a good thing.
Remember you can still claim any available Depreciation or BWO both of which are non cash expenses.
Establish the loan so that it is not cross collateralised and use the reduction in your Taxable income to pour into a 100% offset account established on your current PPOR (personally I would look to switch this to interest only if it is not already).
This structure will help eliminate the non deductible interest payable on your current PPOR as well as giving you flexibility down the track.
With a further interest rate reduction likely in February it might be a good time to set yourself up for the next up wave in prices at a time when interest rates are falling.
Richard Taylor | Australia's leading private lender
Thanks for that gents.
Just to add and answer – on my current property i owe about $290k (value $400k) and i have a 100% offset. I have to date maintained princ and interest + anything extra on this place to build equity, so i could use it for an investment property. I have no other personal debt which i have recently completed paying off car/tv etc.
I will look at the IO and focus on putting any funds into the offset on my existing property? The whole tax situation does confuse me a little – but surely i would never be worse off? I have a heathy and stable wage, so either way i pay a top marginal tax rate (so im screwed either way
)Cheers
Its good to pay down debt – but it can complicate things from the tax point of view.
eg. you have a $200,000 investment loan and $100,000 cash. You park the money into the account to save interest, and the balance reduces to $100,000. You then decide to by a $100,000 boat and take the money out. The loan balance is now $200,000, but only interest on $100,000 is claimable.
If you had kept the $100,000 in an offset account you would have saved the same amount of interest and you could still claim the interest on the whole $200,000
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Boys! I'm confused!
I currently have a mortgage of about $350k with $140k+ equity available, i'm living in this house. I have around $15k in the bank.
I'm looking at buying an investment property for around $100k. With this being positively geared ofcourse.
As far as tax offsets go, my understanding is you are just deffering the debt anyway so better off creating cashflow, yeah? So I'm not worried about that but not understanding what to do with the cash I have saved and then whether or not to use the equity? what sort of loan to get on the investment? how long i have to own the investment to get away with the CGT?…etc
I'm a begginer obviously
Please help me with all of your wisdom…
Ta
TraceHi Harls
Yes not easy to fully understand i agree.
Structuring the loan to avoid cross collaterlising the 2 securities is probably a good idea however you dont want to use your own cash on a deductible loan when you still have a mortgage on your ppor (the interest on this is non deductible).
Your mortgage broker should be able to assist you with this.
On the question of Capital Gains Tax remember this is only applicable if an when you actually sell the property.
The Tax is based on the difference between the net sale price and the net purchase price (plus any Building Write Off already claimed). There is a 50% concession where the asset is held for more than 365 days.
Richard Taylor | Australia's leading private lender
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