Forum Replies Created
- Macnatt wrote:Its interesting to read your perspectives. I am surprised not to have been advised to sell my house in Perth. This option is playing at the back of my mind as an easy but emotionally painful way out. I could put some of the proceeds on the Kalgoorlie house reducing the debt a possibly creating a positively geared investment for the future and have a deposit for other investments as well as freeing up a large amount of borrowing capacity.
The only down side seems to be that I had always hoped we would move back to this house and although my head tells me its just bricks and mortar my heart says something else.
My overriding desire however is to fund our lifestyle through investment and ideally I would like to be living in Queensland not Kalgoorlie. We are only here because the mining boom provides us with a much higher income but i am painfully aware this will not last forever so we really need to get set up in the next few years.
Natalie
You could do that, but why? Are you experiencing financial hardship, or just in a hurry to keep investing?
Simply moving out of the Kalgoorlie PPoR and making it an IP is another step.
The benefit if you did do it would be you could go and buy maybe a couple of cheaper properties with a better rent return for better cashflow, but you would be wasting a bit of dough in the selling and buying costs involved.
Try to think with your investor's brain for a minute; you could move to QLD, and rent a nice place, and have the two properties ticking over nicely.
Pay down the loans for a bit, get some more Cap gain (Kal is still going strong) and then look at a PPoR in QLD later if you must. You could even sell one of the properties to pay out the loan for the PPoR if required, then use the equity you have in the new PPoR for more investing.
Food for thought.
The total value of the 2 properties is $1,150,000.
Banks will normally lend you 80% of your propertie's value, less any loans current, which is $920,000.
You owe $938,000. Your LVR is 81% approx. Any higher than 80% is getting towards dangerous levels in my opinion.
You have no USEABLE equity in these properties to use as deposits on any further purchases or renos right now.
You would need to use cash, or refinance everything to a higher LVR situation; not good.
Basically, all you can do is hammer away at your loans and decrease the balances, wait for some more cap growth and then re-assess.
Try to arrange to pay only the interest portion of the Perth property at this stage, as the interest is tax deductible while the Principal is not. This will help with cashflow and free up more funds to use on the Kalgoorlie loan.
See if you can arrange to pay all the rent and income straight into the loan on the Kalgoorlie property as this is your PPoR currently, and pay this loan down asap as this loan is not tax deductible.
If you move out of the Kalgoorlie property and rent somewhere yourself, you may be better off as there are more tax deductions over both properties as they both become IP's. I would be sitting down with your accountant to crunch those numbers to see if it is more viable than living in the property yourselves.
Also look at getting Depreciation Schedules done for both properties to give you access to the on-paper deductions for the tax returns. This can be significant, and can accelerate your debt reduction if you re-invest the tax returns back into the loans.
Macnatt wrote:I can't believe it if we moved out of our home and rented it out then our score is 315 and it said very good. This really is a new way of thinking I was always brought up to believe that renting is for losers as you are paying off someone elses mortgage far better to pay your own. Maybe I will have to find a good rental with a pool so as not to disappoint my kids too much.Congratulations on the mental shift!
This is a huge turning point for you, as most people are too emotional about their PPoR to move out and rent themselves.
We have done it as a necessity while over being here, but when we return to Aus in April we are leaving our tenants in the house and renting ourselves as we can see the benefits of this strategy. We don't have a mortgage on the PPoR which helps, but even if there was, the tax benefits are enough to make the whole thing attractive.
If you can manage to find something nice, and for less rent that you'll be getting for your place, then so much the better.
There are lots more people these days who are even renting and not owning a PPoR at all, but own several IP's. That may be an option for you too.
A house is an item, and can be replaced easily with another one. I'm up to PPoR no.4 at the moment, and no.5 will start being built in about a year's time.
Maybe not improve the value too much, but certainly the appeal factor in most cases.
Without trying to be sexist; most women love baths, and the chances of a woman living in your property at some point are good.
But as Diclem says; who is the target market?
Personally; I would always have one in the property. Without them the bathroom looks empty if it's a big room, and looks like a powder room if it's a small room.
Talk to any of the Mortgage Brokers on this site for a PROPER deal.
Boys and Girls; where are you? Help this person out.
pete7 wrote:i am selling cos i was going to use the profit in another property probably in south east qld area for the long term – conveyancing and selling costs considered still !!cheers – thanks for response marc
Why not use the equity in your current property for the deposits and purchase costs on the next one, then you have 2 properties under your belt, accumulating cap gain.
Your loan on the next IP will be higher as you are using all borrowed funds to purchase it, but if you select areas with decent rent returns, good on-paper deductions and add-value potential, then you can minimise any neg cashflow to a manageble level.
Don't buy at auctions. Simple.
Why are you going to sell? You will pay tax on 50% of the cap gain at your marginal tax rate if you sell it after holding it for 12 months.
What will you do with the profit?
If the property is cashflow positive, or even slightly neg cashflow, and you've made a decent cap gain, I would be holding it. The resource boom has a way to go most people believe, and even if it stalls, the properties have gone up enough to carry a drop in price and still give you a decent profit.
Yes, because it is essentially a line of credit, you are only required to make sure the balances of your LOC are under the limits.
So, you can basically just keep paying only the interest and any fees indefinitely.
In my opinion, you should go hammer and tong on the part of the loan that is for the PPoR as this is not tax deductible, and keep paying the minimum interest on the IP sub-accounts until the PPoR loan is gone.
I have this loan product currently.
You can set up for automatic funds transfers from the Primary Account to all the sub-accounts separately, and they automatically pay the correct mount of interest each month.
It sounds as though only one sub-account transfer is currently set up. It would be adviseable to do a manual transfer for the other 2 sub-accounts asap, then give St.G a call to arrange the automatic transfers.
1. get finances in order, get tax returns done.
2. talk to a good Mortgage broker to find out what you can borrow.
3. get the friend's properties valued by a Bank Valuer, cost about $300 per property, or use the real estate sites to get some recently sold/still for sale comparables, and then make them an offer.If it a PPoR this is unfortunate. Emotions are high with those.
Make offers with a time-frame attached if you are worried; such as "until close of business today's date" etc.
If it is an IP, I simply move on to the next one. No emotion. It's a business and we only play my way.
My 2c worth;
With 3 kids it is probably not a good idea to go aggressive on the first IP.
You have a house worth $350k, and a loan of $270k. In normal circumstances, banks will allow you to use 80% of your property's value, less any existing loans.
80% of $350k = $280k. You only have $10k of useable equity.
As 888 said; you can borrow more and pay Loan Mortgage Insurance, but in my opinion this is a very exposed position. With talk of more rate rises, and a possible slow down of housing price growth next year, this is dangerous. For younger, single people with no commitments, maybe worth a go.
If there was a market downturn, or one of the kids had to have an operation, one of you loses their job; you just don't know what life will throw at you; you could lose your home.
Renting out your PPoR could be a good first move for you. You both earn good incomes, so the tax advantages from this would be good; especially if the house was built after 1987 (on-paper deductions and depreciation).
You will have an automatic IP without having to try and buy anything. We do this with our PPoR, and it is a very good financial move; we own ours outright which improves the numbers a fair bit.
You will need to sit down with a good Mortgage Broker (there are few on this forum) to work out your numbers on this; how much rent you will get, how much rent you pay yourselves etc.
It would be also adviseable to look at changing your exisiting loan to interest only for this purpose, as the interest is tax deductible while the principal isn't when the property is an IP. This would help with the cashflow, and you can still pay down the principal if you wish.
If you do go down the path of using your PPoR as the first IP, make sure you take out Landlord's Insurance and get a Depreciation Schedule prepared for the depreciation. Both expenses are tax deductible; a cost of doing business, and the DS will pay for itself in the first tax return.
After a year or so of the PPoR as an IP, you will be able to see more clearly how you are travelling for the next one. There is no race, and you don't need to be super aggressive to do very well.
brookelea wrote:thanks la aussie.. i drink at least 4-5 lattes a day.. could be greatly beneficial in both cost and health
Oh, my god!
Assuming the lattes are the same as Starbucks over here; $3.75 each (there are more expensive ones), and you have 4 of them,
that's $14.80 per day,
$5,402 per year,
$108,040 over 20 years!
And that's just one item. What else do you do; how's the cakes and bottled water??
Personally, I think it's gambling, and would never do it, unless I had a very low LVR and fell on hard times. Our LVR is currently 58%; quite low, and I wouldn't even consider it.
Some investors are very aggressive, and see no problem with this strategy, but my guess is they haven't seen a property market slump yet.
You are letting the interest on the loan accumulate, in the hope that the property will go up in value more than the accumulating interest.
If there is a downturn in the market, and you need to sell quickly, you could find you owe more than the property is worth, and make a disastrous loss.
The benefit is that you get less repayments now, and the accumulating interest is tax deductible, but at what cost in the future?
You may need to shift your thinking towards CASHFLOW POSITIVE AFTER TAX.
This is still very do-able even now.
One of the criteria is that the property must be built after 1987 so it is eligible for the "special building write-off".
Basically, this means that you can depreciate the entire building, fixtures and fittings against your personal income tax.
It is an "on-paper' deduction, so there is no money from your pocket at all to get this deduction. Free money essentially, courtesy of Lapdance Kev.
This is the only type of property we buy, and along with the ability to "add value" through renos and/or subdivision, and purchased in growth ares, the investment is a winner.
There also needs to be a decent rent return as well.
For full details on this strategy, read all the Margagret Lomas books.
There are companies that specialise in just bathroom renos.
Don't know any names; just remember seeig an ad somewhere a while ago.
Google "bathroom renovations" will get you there.
Quote:
The question is, at what point do you access equity to go again? And at that time, do you sell or refinance?You can access 80% of your property's value for the purposes of more investing normally. You can actually go higher (to 95% LVR) these days, but in my opinion it is a very risky practice.
The 80% must include any existing loans.
For example; you own a property worth $400k. You have a loan on it with a balance of $200k.
You can borrow 80% = $320k.
You still owe $200k, so you can borrow $120k.
This is subject to your ability to repay the loan as well.
When you sell, if it an investment property, there is capital gains tax to consider. If you sell within 12 months of purchase,, you will pay tax on 100% of the cap gain, at your marginal rate of tax. if you sell after 12 months, you pay tax on 50% of the gain.
The purchase costs on the next property, plus the cap gains tax, may eat up a lot of the capital gain you have made.I would refinance rather than sell, and keep accumulating. But that's just me.
You will need to talk with a property savvy Mortgage Broker to work out your financial position and how much you can afford to borrow for the next property.
What the agent says is true.
Sometimes the money spent on renos doesn't equate to an increase in the house's value, other than the cost of the improvement.
This is one of those things that will definitely give the house more appeal, and may mean a passionate buyer will pay more, and you may sell it quicker.
$9,000 seems like a lot to me; I'd be getting another 4 or 5 quotes.
We had a whole 7 x 8m deck done, including materials for $5k a few years ago, so I think you are being scammed there. Either that, or you pergola plan is the Tahj Mahal
.Try ringing the "Grey Army" as well. They have lots of old boys who were/are tradies and will do a good job at a fair price.
brookelea wrote:thanks everyone for the responses..i'm a shocking consumer.. hell even my sister in law just bought her 3rd property and i make almost three times what she makes and have pretty much nothing to show for it.. the more i read the posts here, the more i realise that it's not about the income but about financial awareness and astuteness..i will sign up for those newsletters, read some of those books and come back with a myriad of questions for you allHere's another thing to get you thinking:
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