Hi everyone!
This may sound like a simple dilemma but right now I could do with more ideas for the best scenario.
I’m also not sure if this is the best forum for the post but here it goes.
I have an IP property valued at 350K (180k Debt / 170k Equity), this at 7.5% P&I on a 25 year loan contract. The land is a 615 sq block with an old brick house (3B-2B-1Car LUG), positively geared at about $50 a week in an area with almost Nil vacancy rate.
I also have my PPoR valued at 550K (410k Debt / 140k Equity), this one at 7.79% on a 30 year loan contract. A two level home on a 450 Sq block of land, (4B, 3B, 2 car LUG). This one is upmarket sitting on prime location.
The properties are mortgaged with different lenders and any of them can be sold if necessary.
I may be able to also borrow up to 300K for a new home without using any of the properties as collateral though it means for a 300K PPoR I have to move away from the prime location area unless, I use the above properties in the formula.
Obviously I’m trying to avoid moving away from this area of my PPoR.
Guess I’m casting a net for ideas that may come to mind. Even if you think I should take a vacation to spend the whole time thinking about this on my own, with all this in mind, what would you do if you were me ?
How would you rearrange the set up of this properties to get maximum benefit to continue investing ?
Anyone ???
Hi CB
So is the aim to purchase a new PPOR?
If so, I assume your new PPOR will be turned into an IP. Have you considered the rent that this property will achieve in your borrowing capacity?
Have you had your borrowing capacity calculated by only one lender? I’d speak with a decent broker about your options. It’s hard to make any comments based on the info above – a more in-depth analysis of your situation might reveal some more options.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi
Thank you for that reply!
The aim is to find the best way to reduce debt and/or increase buying power to buy more IPs without going backwards.
I envisage that in the best case scenario I’d turn the PPoR into an asset or get monies from IPs paid back into the PPoR’s debt as it’s currently a high liability.
What I’m troubleshooting is…
1. Sell the existing IP and put the proceeds in the PPoR then refinance the PPoR as a line of credit and use the Equity
to invest in multiple IPs2. Refinance the existing IP as a line of credit and use the money there to invest which would increase the debt
on the existing IP.3. Sell the PPoR and pay the money into the existing IP debt, then refinance the existing IP to use the money
for investment. (this would involve looking for a place to rent for me as the PPoR would no longer exist)4. Rent out the PPoR and refinance this property (now as an IP) or both to use the money
on both properties’ equity for investment. (this would also involve me looking for a place to rent)I have spoken to a hand full of brokers which seem to be more product oriented and basically recommend ideas based on what they have to offer. I’m not looking for a loan at this stage.
As I see it, they are not financial advisers so it’s about the same as asking for ideas here. However, I think I can draw a better picture of a solution by getting ideas from more seasoned or experienced people on these forums as brokers are not necessarily investors.
So please, don’t be afraid to say what comes to mind. I’m not really looking for advice, just ideas I may not have thought of… I’m always responsible for the end decision and won’t hold it against anyone.
please feel free to comment.
Regards
Hi CB,
Have you thought of renting a house in the area you currently live and renting out your PPOR? Generally, yields in prime locations are low and so it is cheaper to rent in these areas than to buy in terms of cash flow. You can rent out your current PPOR for up to 6 years I think without losing the CGT exemption, while still enjoying negative gearing benefits. I think this will greatly improve your cash flow position and enable you to service loans to buy another IP or ten. You should run some numbers and see what the result is.
Also, I think you should give Jamie a call. He is a great contributer to the forums, has some excellent ideas, is aproperty investor himself so knows the ins and outs of property investing and is in a position to understand your goals and help you reach them.
Cheers,
LukeHi Luke,
Thank you for your feedback.
That certainly is an option and I hope people here don’t mind sharing more ideas based on this scenario. At least as alternatives I have not listed on my points above.
Something I may have missed. Perhaps people who have had a similar situation to mine and what they’ve done if they don’t mind sharing that with me.
Regards,
The first thing that jumps out at me, is that you don't seem to have gotten any discount on your interest rates. I know this wasn't your questions, but even the big banks should come in around 7.1% after discounts. Maybe you should talk to your lenders and see if they can do something about reducing them?
My second thought is that you'd do better talking to an accountant than a mortgage broker about your situation. If you don't already have one, but are looking at growing beyond 1 IP then nows probably a good time to get one involved anyway.
Beyond that, Lukes idea sounds like a pretty solid one if you're set on staying in your current area, but want to maximise your investment ability.
latinoz wrote:Hi everyone!
How would you rearrange the set up of this properties to get maximum benefit to continue investing ?
Anyone ???Hi CB,
Firstly, the 2 rate you quoted are very high for the LVR your on; so that’s something i would look at- asking for a discount.
Anyway; back to the story of investing….if you like your PPOR; stay there! no point moving and making a few quick buck and not being happy about it- there are plenty of another ways to make this quick buck.1. The IP is on a good land size + it sounds like it’s in a rural area where you can achieve high rent..so i would work on this factor and build up the rent by – Building a granny flat at the back.. depending which state your in; having a granny flat is cheap and the council would easily approve it for a 600sq meter block ( http://www.buildingworksaust.com.au/SiteFiles/buildingworksaustcomau/GRANNY_FLAT_NSW_GOV.pdf )
Cost of a granny- around $60-80k ( includes site cost) and you could achieve another $200-250 rent? + depreciation and tax benefits- and this strategy allow you to gain a higher +VE benefit with a min debt increase.
Having said that; it doesn’t work for ALL areas! you must research and know the suburb and speak to your RA…One of my IP is a perfect example-
* House located in Chenltenham NSW ( family …higher then average income area)
* Land size 1200 Squ
* The home rents for $700 PW ( sounds high…but the home is worth 1.3m…so yea not such good Yeild)Was planning on building a Granny at the back; which would easily get $300pw…However my RA advise me once you place a granny at the back..the main house at the front would drop in rent by atleast 30% because they would not pay $700 PW to share the backyard with a Stranger!
But CB, from the sounds of thing your area most likly wont have this problem- and it’s probably common to see granny flats??
2. If your planning on buying another IP or take up option 1- then using equity from your IP or PPOR could be a smart move; depending on your overall financial and tax bracket etc….
3. Have an exit strategy in place. As important it is to know when to buy…it’s equally important to know when to sell. – If you do sell…make sure you maximise the CGT ( if your selling the IP) – read more here- https://www.propertyinvesting.com/forums/property-investing/help-needed/4336884
P.s You def need to look at those rate…anything higher then 7.2%- there must be a good reason for it ie LOC? Bad credit rating? Low doc?
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Just one quick tip – minimise non-deductible debt and maximise deductible debt.. You seem to own more of your investment property than the PPOR – Whatever you work out I would move some of the debt from PPOR to IP at least getting the IP up to 80% debt.
NIMBY wrote:Just one quick tip – minimise non-deductible debt and maximise deductible debt.. You seem to own more of your investment property than the PPOR – Whatever you work out I would move some of the debt from PPOR to IP at least getting the IP up to 80% debt.Not as simple as that Nimby. You can move the debt, but the tax deductiblity stays the same. what you have to do is to structure your affairs so you can pay your non deductible debt quick while letting the deductible increase – capitalising interest, borrowing to pay interest etc. But this needs careful planning.
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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