Hi.
We have just paid off our house which is approx.value of $900,000. We have also available approx $260 000 which we are planning to use for investing into property market.My husband is the higher income earner, I am currently home with children but shortly returning back to work and my estimated income will be up to $20.000.
Any suggestions how and where to invest?We are thinking buying a house in Sutherland Shire for approx $600,000 and renting it out.Would you consider buying a house or a unit?Should it be in my name?We do not want to invest into shares.Thank you in advance.Hi Veronica
We tend to prefer houses to units. I guess we agree with the old adage that land appreciates and buildings depreciate. It has worked well for us so far. However this rule of thumb tends diminish as you move closer to Sydney CBD (and Parramatta and North Sydney CBD's to a lesser extent).
A lot of people put their first IP's into the name of the partner with the largest income because the negative gearing has a more beneficial effect on the tax position of the larger income earner. If this/these IP's are truly long term buy and holds, this isn't always the best strategy, depending on your years to retirement, etc. I'd suggest you talk with someone like Richard Taylor (Qld007) in the finance forum, to get some advice on structuring your loans in the best possible way.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Thank you, Paul.
So you think it is better to use the $260K as a deposit for a house rather then splitting it and using to buy 2 apartments?
How much deposit would you put into the loan?If the property we like is around $600,000 would you still use whole $260K as a deposit to decrease the loan or would you use just 20% to avoid the morgt.insurance and keep the rest in bank(offset account) until we save for another IP?My husband is 35.
Thank you
Veronica
Hi Veronica
I certainly would not be using any of you own funds to purchase the property and would be looking to borrow the full $600,000 plus acqusition costs.
Split the loans between an 80% loan on the new IP and the balance secured against your PPOR.
Place you current savings in an offset account linked to the IP as this will have the bigger loan.
If you use your savings you will have used them forever however if you use borrowed funds you will have flexibility in case your own circumstances change in the future. The net interest position will be the same just with more flexibility.
Think carefully about whose name you put the property in.
You might even want to consider a Discretionary Family Trust if you feel that the property will be getting close to positvely geared especially with you at home and a dependant who could be a named beneficiary.
Just make sure you mortgage broker has some knowledge of investment structuring as poor advice at this stage of your investing life will have an effect on your future.
Richard Taylor | Australia's leading private lender
Hi Veronica
I agree wholeheartedly with Richard. Getting the correct structure for your loans and the entity you're going to buy in, is very important at this early stage, i.e. it stops a lot of headaches down the road. I'd suggest you give Richard a call.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi Richard,
Thank you for your post.
I am quite sure we will not be needing to access these funds.What other benefit would it bring me to borrow the whole amount?If we borrow the whole amount we have to pay mortgage insurance, isn’t that right?
Veronica flexibility is the key to investing and structured correctly there is absolutely no downside to the way in which i suggested you go about this deal.
Again LMI would not be payable even though you are borrowing 100% + of the purchase price as you are using collateral security to fund the 20% deposit plus costs.
There will be no increase in interest costs and will mean you could always use your cash savings to go again if needed for the next deal.
Richard Taylor | Australia's leading private lender
No, you will not have to pay the mortgage insurance. The 20% deposit will be taken from your equity available from your current Owner Occupied home.
And Yes, it is important to borrow the complete $600k + so if you ever need your $260k for a holiday/ car/ renovations on your house etc This means the investment property will still be completely tax deductible. i.e. your $260k will go into an offset account. So, as you were saying, indirectly but not correctly you will not need these extra funds.
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