Hi Everyone,
I am after some advice and suggestions on what my best move would be to move into Property Investing.
My goal is to set it up so that my wife would not need to work for the next 3 years so that we can start a family and then would look at going back 3 days per week.
Current situation
My Income – $150k+
My Wife – $30k part timeWe have a single level 3 brm, double garage unit in Melbourne close to public transport and 3 major hospitals and 1 university. We purchased in 2006 for $350k as our home and put $90k deposit down. Property is in both our names. We lived in for 12 mths then moved interstate with work. Current loan is $249k. We have rented it out for 2 years at $365 week and have good tenents. Loan repayments now are equal with rent approx $1480 and we repay $2064 (amount when 9%IR) and have not reduced.
We do not plan to move back to Melb and have been saving to buy a home and have $140k in off-set loan account. Plan to buy in the next 6mths in Brisbane area and plan to send $600-800k on our primary house.
Currently renting $320 wk.
What advice can people give as to what my next move should be? We have not had a valuation done on Melb property and I see others in area selling close to $450k now as not many 3 brm available. Do I do this first and use this equity to purchase another IP in my wifes name and keep our savings to purchase primary residence in my name.
Probably not asking the correct questions but any guidence or suggestions on who I need to talk to would be greatly appreciated.
Tony
Hi Tony,
Ideally you want to look at maximising deductible debt and minimising non deductible.
First consider whether your current property is going to be a good investment in the future. You're grossing about 4.2% based on the current value. Are rents going to increase or values increase? Is the house going to need work?
If you sell your IP it will be free of CGT and you will have say $320K ($180K after selling plus $140K) from your offset. This will mean you will have to borrow between $280-$480 plus purchasing costs.
If you buy in Qld without selling you will be borrowing between $460-$660 plus purchasing costs.
There's not much point putting the Vic house in your wife's name if her income is going to be minimal for a few years as any negative gearing advantages from depreciation etc would be better for you.
As the house is in Victoria you may be able to have your wife transfer her half of the house to you free of stamop duty. In Effect she will get $225K less $125K payout mortgage, so $100K in the hand. You will owe $225 plus $125 (half existing mortgage), a total of $350 where interest will be deductible. This is about 78% LVR on the VIC house.
You will then have your wife's $100 plus the offset $140 to put to a new house and your non-deductible borrowings will be between $360-$560 plus purchasing costs.
So ideally your first step is to consider whether your existing house is a good investment. If it is then a transfer to you would increase your tax deductible interest. If it is not, then sell, buy your PPOR and then start investing again
Thanks crj for the ideas it is greatly appreciated. I was not aware that I could have my wife transfer her half to me without incurring stamp duty. As you can see I am very Green and trying to work out the best move to set ourselves up. As or whether the house is a good investment I am organising to have the property valued as my research online is showing that similar properties in the area are selling for around $420k – $450k.
I have just gone out an got a few books to read over the week. Thought I would start with Steve McKnight to see if I can understand the beasics more.
Again thanks heaps for the suggestions.
T
Jan Somers and Margaret Lomas are worth reading too.
Hi, my sticky beak bit.
You aim to have your wife not working. For that, you have to replace her current 30K p.a. which means you need to have $600000 invested. Have you considered that?
So your idea of buying a $600000 PPOR in Brisbane is going to put you backwards instead of forward.
Basically you will be no worse off but you won't be any better either. You are exchanging one for another, admittedly grading up in value.
From the posts on Queensland, I understand that it's not a bad time to be buying in Brisbane.
However, you really need to differentiate between investing & PPOR. Kiyosaki is right in that a home is NOT a financial investment at all. It is a liability, something that we all pay for to have a roof over our head and a shelter for our family.
Your position allows you to spend 600 thousand, maybe more, on property. Can you find something that gives you both a home & some income?
KY
For the first 5-6 years of my investing, i choose to rent myself, rather than purchase my own home, so that i had a higher borrowing power to purchase as many rentals as possible whilst i was in that agreessive aquisition mode.
Basically by purchasing your own home first, you are drastically reducing your future borrowing ability, as you are commiting your personal income to service a debt that doesnt bring in any rental income. Thus reducing your debt service ratio.
As mentioned above by someone else, the debt on your own home is also not deductable. Whilst the debt on rentals is.
Once you have built up sizable equity and rent role, you will be able to buy your own home, which is basically paid for by your rentals.
Food for thought.
Thanks KY and Clint for your words of advive.
I would suggest you look at not paying any extra off the investment property. Change the loan to IO and get a 100% offset account. By paying extra you are decreasing tax deductions and tying up your money which you will not be able to use (without tax consequences) for your new home – if you want one.
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 Tony
I agree with Terry why pay down the principal when you can change the structure of the loan to an interest only loan with 100% offset account and have both the flexibility and on call access of your funds.
Also if you are looking at buying another IP initially then the name or entity which you use will depend on the property itself.
If it is negatively geared and you need to claim the tax deductions each month then either buy it in your sole name or altenatively buy it as Tenants in Common with you holding 90% of the shares and your wife 10%.
If is it neutrally or positvely geared then maybe look to buy it in your wife's name with you as a Guarantor or altenatively my favoured structure a Discretionary Family Trust. This certainly be well worth considering if you have dependants now or in the future.
Richard Taylor | Australia's leading private lender
Sorry to but in.
But . . .
What advantage is there of setting up a "Discretionary Family Trust"If your in Melbourne close to public transport and 3 major hospitals and 1 university and for the amout you paid in 2006 it sounds like you may be near Flemginton Rd, North Melbourne. If this is correct I think your property would be worth more than 450.
Might be worth looking into that
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