Hi! this is probably a simple question to some but i have been having trouble weighing up the options:
Currently we are renting at a subsidised rate (ie no PPOR) and purchased our first IP in Aug 2009.
I am keen to buy another IP early next year once the FHOG ceases however at some stage in the furture (say in 2 years time) when my husband changes jobs we will no longer have subsidised rent and will be looking at purchasing our first PPOR.
So my question is: will it be better to-
a) sell one of the IPs and put the profit towards the PPOR mortgage? (i'm not confident the value will increase much in the next 2 years though)or
b) try and keep both IPs and pay what we can off the PPOR mortgage even though the extra interest isn't tax deductible?
or
c) don't buy another IP yet and just wait until we need to buy our PPOR (losing 2+ years of growth)?
Any advice is welcome!
Cheers,
Kyla
I just had another lightbulb moment-
i keep reading about trusts:
could we establish a trust, borrow money in the trusts name to buy the IP from us and then put the profit towards the PPOR?would this suit our situation?Would we have to buy the property in certain names?
cheers!
The trouble with selling is all the costs involved.
Why not buy the future PPOR as your next IP, then move into it later when you need to.
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
Hi Terry,
I have considered that as well but how will we go about using the equity to reduce the amount of the mortgage? is that what re-financing is for? sorry, im a bit of a newbie!
hi Kyla
That won't help with the equity side of things, but will save transfer costs.
I would immediately change you loans to interest only (if not already) and put all spare cash into the offset account, ready to be used for the future PPOR.
Also, if you have enough equity, set up a LOC and use this to pay for all investment related expenses such as rates, insurances, repairs etc. This should free up more money to put into your offset account – interest should be the same overall, but your tax deductions will increase.
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
ok, i think i understand.
Our first IP has an IO loan with an offset account which we have been putting all our savings into – so we're on the right track there
Our next IP will most likely be a IO fixed rate mortgage (most likely without an offset account since these are rare).
i will definetly look into setting up a LOC with the first IP's mortgage – thanks for that tip! by the way – in what way do your tax deductions increase if you use LOC if interest stays the same?
Kyla
The interest on your LOC will be Tax deductible if the funds where used for investment.
The amount of deduction will vary with marginal tax rates and the interest rate being charged on the loan itself.
Richard Taylor | Australia's leading private lender
yeah that makes sense. Thanks for the advice Terry!
just another annoying question
would use suggest choosing a variable rate loan with an offset account over a fixed rate without an offset for a PPOR mortgage? i suppose it would depend on the amount of extra funds we plan to put into the account opposed to the extra interest we will be charged if rate increase…. oh the decisions!
Cheers,
Kyla
Kyla
You will have to make a decision on where you think rates will go. If you want to fix, Maybe you could keep a portion variable to keep the offset against this 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
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