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newandkeen
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@newandkeen
Join Date: 2011
Post Count: 16
September 1, 2015 - 2:53 pm
Thanks lauriek, something to think about :)
newandkeen
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@newandkeen
Join Date: 2011
Post Count: 16
September 1, 2015 - 2:16 pm
Thanks for your responses guys, you made it clear I am on the right track with equity loans and never mix them up :)
Banks are getting much stricter on servicing (and caring less about your assets, other than the security they hold), so perhaps it may be prudent to consider high cashflow investments (at least until your servicability is stronger). I’ve personally gone for U.S. based IP’s.
Yes, it is frustrating. I could rant here on this but I won’t.
Instead I will ask, US property, I thought that was only good for the GFC, are you still finding this is a worthwhile path now the GFC etc is done with?
newandkeen
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@newandkeen
Join Date: 2011
Post Count: 16
July 22, 2015 - 2:36 pm
Thankyou for your answers. OK, I can see not much if any interest would count for tax from my own home turned rental. Meaning the rent will all be taxed as profit. And having never looked much into CGT, I did not know about the 6 year rule, thanks for giving me a starting point to research.
If I can refinance the home to a larger amount, it means I can have fluid equity, which means when I buy my ‘dream home’ I don’t have to sell my house to get the deposit, so I would rather it not be tied up.
Also, unless I increase it, the rent will cover much more than the debt, wouldn’t that be more useful as a lump sum (in an offset account) reducing debt in the other house, or not really? I guess if not, I can have the offset on the first house (meaning I can use it later) and use the cash each month to pay the mortgage on the new place?
And what about when/if I sell the place? I am reluctant to sell, having renters pay off the mortgage is attractive to me, but I may have to sell at some point to pay down the mortgage on my dream home, so would that result in some weird situation with capital gains tax (in the scenario I rent it for more than 6 years)?
Maybe I would be better off selling the property and buying a similar one? (But I am emotionally involved with this one lol).
newandkeen
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@newandkeen
Join Date: 2011
Post Count: 16
July 21, 2015 - 2:56 pm
Also, I just read that it is possible when I refinance the current PPOR I can make the loan larger and use the cash for other things, which I didn’t realise (I have a fair bit of equity in this loan).
How would this impact on the capital gains tax scenario?
newandkeen
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@newandkeen
Join Date: 2011
Post Count: 16
June 20, 2015 - 12:14 pm
I have a lot of equity. I would have no problem using 20% equity securing a property. But actually paying 20% deposit is an issue, unless I misunderstand, taking money out of my mortgage, to pay on the investment property, meaning, for example, if I had 100K on the home and an investment loan for 100K, I would have to shift 20K making the home 120K and the investment property 80K.
Yes, I think that article is talking about what is affecting me. But it is kind of ridiculous for the banks to suggest that it is giving them a buffer when they already have the ability to access the 20% equity if I defaulted etc. But they want to dampen capital growth which is bad for all of us I guess.
So Terry, is what you are saying, is that I can use money in a separate account for the deposit, which can be part of an offset account for my home mortgage?
newandkeen
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@newandkeen
Join Date: 2011
Post Count: 16
June 19, 2015 - 9:06 am
OK that is a relief thanks Terryw, I meet with him on Monday so I won’t get roped into such a bad deal! (And know to walk away if he can’t offer me anything reasonable).
But what do you mean I can borrow the deposit against existing property and not to use redraw?
[You mean don’t get an investment loan with redraw? (I do currently use redraw on my PPOR and find it very useful). EDIT: OK thanks, because of your comment I was able to research this aspect and see offset would work much better.]
And more interestingly to me, how can I borrow the deposit against existing property? Do you mean refinance my PPOR and increase it by x amount and use that for the deposit?
Thanks for your answer :)
- This reply was modified 9 years, 5 months ago by newandkeen.
- This reply was modified 9 years, 5 months ago by newandkeen. Reason: found answer to part of question
newandkeen
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@newandkeen
Join Date: 2011
Post Count: 16
June 9, 2015 - 1:32 pm
So the thing that worries me the most about your proposed plan is what Terry said:
“Even the sale of a property with some equity may not be possible as it could trigger a valuation and then the bank will require existing loans to be paid down to maintain acceptable LVR – which you may not have the funds to do.”
You need to know under exactly what circumstances would such valuations happen and what the outcome would be. In particular, what would trigger a valuation of IP3?
newandkeen
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@newandkeen
Join Date: 2011
Post Count: 16
June 5, 2015 - 10:08 pm
I am absolutely new to investing… in fact we are thinking about buying our first… so I am only writing from the point of view of what I might do with no knowledge… and no one has yet answered your question. Maybe someone will reply once they see my ignorance and feel the need to correct me? Maybe I might just help you think it through?
If I were in your situation, 4 things come to mind.
1) Do you have parents or people that you could move in with for a couple of years and rent out your PPOR? Perhaps even renting in a cheap share house and renting PPOR could give you enough cash flow to live in a reasonably stress free manner? OR get a border in to live with you.
2) Go pay for and talk to a financial planner and get professional advice.
3) If you are facing a situation of no-one in your IP3 for a year, I would offer some kind of incentive, whether it is a lower rate of rent or maybe first month free or something, as you can’t afford that length of vacancy.
4) My impulse would be to hold on as long as I could in the hope for capital gains in the other properties. I don’t know what your options are but if you are considering bankruptcy, I would try to hold out at least for 50K capital gains in one of the houses and sell it to repay your family debt first. In bankruptcy, your debts can be legally wiped *with penalties* but your family will still want their money, they are family…
I don’t know if these properties are in capital growth areas, but once you manage 50% growth in IP4 you have 300-400k, or 50% growth in 1&2, that will cover your negative equity, and you will be in a good position once again. I imagine selling the one with the growth and the IP3 at that point, and you should be left with PPOR and an IP or 2, hopefully with some capital growth and equity themselves. If you haven’t already by then, subdivide the PPOR with equity in what you have left. Sounds nice, but that of course relies on capital growth being reasonable and managing the cash flow situation for 5+ years. And that IP3 not getting worse in that time.
Well I hope someone with actual knowledge gives you some better ideas of how to deal with the IP3.
newandkeen
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@newandkeen
Join Date: 2011
Post Count: 16
September 5, 2011 - 6:38 am
Oh… and I forgot. In the units favour, they are brick/slab, whereas the houses are weatherboard, and I just feel more comfortable with the brick… is this irrational though? Most of the town is weatherboard.