Hi, very new to this.
I have the opportunity to purchase a new property using the equity in my current home. I was thinking I may decide to rent out my home and construct a new, larger home for me to live in. This would mean spending a little more than what I would spend would I have purchased a home to rent out (probably around $80k more).
Any suggestions about doing things this way?
Would I be better off spending less on the new property, staying in my current residence until I earnt more equity on both? I know it probably also depends on figures but can anyone see and pros/cons of doing what I am thinking of doing?
You do not give enough of the real picture, there are many factors/ variables that have a large influence on your wealth creation that you have not disclosed. go sit down with your local property guru and come back asking a specific question or two. It is very dangerous to ask how to plan your life with limited personal information.
What is your goal for property investing.
Is your goal to get a small tax refund through negative gearing ?
Is it to increase your income through positive gearing ? (this might apply if house one has a low loan)If you rent out your Main residence you need to get it valued or deem it to remain your main residence through applying the six year CGT main residence rule however the new house would lose its main residence exemption for capital gains tax as only one dwelling at a time can be deemed a main residence.
Warning – do not do the following
Borrow against the equity of house number one and then try and claim this equity loan interest as an interest cost against house one's rental income.
Why because you fail the purpose test. The purpose of your extra equity loan was for your new PPOR rather than for investment.
Warning – Do not do this as well
Borrow for your new house and then try and claim the interest on the new loan against house one income.
Why because you fail the purpose test. The purpose of your new loan was for your new PPOR rather than for investment.Also the ATO looks for these common mistake and starts an audit on the tax payer.
If the bank is telling you you can do this they will most likely tell you to take out a bigger loan secured by both properties. This sounds great but it limits your ability to sell one of these properties and also if you have difficulty paying off the loan you can lose both properties.
I am advising you to do a search in this forum on the following key wordsLine of credit
LOC
cross security
cross colaterisationto get an more knowledge on this area of lending.
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