Forum Replies Created
Coota,
Its a nice area that you want to invest in, close to the city, public transport isn't hard to find whether it be trains, trams, etc which adds a premium to the rent demanded.
Being older suburbs, blocks are generally small with narrow streets, however house prices are above the Melbourne median, and with your budget you would definitely be looking at a unit in that area.
The thing is lenders aren't stupid, they can foresee what is happening ahead and will adjust fixed rates to suit. Even at the height of the GFC, when variable rates were low, lenders saw things were going to turn around and rates were going to increase again, so lifted their fixed rates. People were so happy with the low variable rate at that time that when the interest rate rises came, the boat had already sailed.
This is one of the major reasons why I'm not a fan of long term fixed rates. Peoples circumstances always change and it creates huge headaches down the track when loans need to be accessed/changed for one reason or another.
In your circumstance, like others have said, option 3 is the best even if it is above market rates.
In regards to onselling the property before settlement, recently my sister bought property from someone who was onselling to her before settlement. The original buyer was trying to sell at a small profit but was told that if that was case, then both he and my sister would pay stamp duty, however if it was onsold at the same price as what it was originally bought for, then only my sister would pay the stamp duty. Considering the small profit would have left the original buyer in the same financial state after stamp duty, he decided to onsell for the same price as the original purchase and incurred no stamp duty as a result.
Yep, keep all your IP loans separate and interest only even if they are with the same lender, do not combine them.
If your intentions with the new PPOR are to live in it permanently then P&I with an offset account can be considered. If there is an inkling that you are looking at moving on from the new PPOR, even if its a long way into the future, then IO would still be the way to go.
Terry, with your comment above, are you saying that because some of the loan is lets say tainted for want of a better word, then the complete loan would be non-deductible?
I thought that even though it was a mixed purpose loan with no sub accounts, it was as simple as working out the percentage of investment to non-investment and working with that?
As others have mentioned here, worthwhile changing your PPOR loan to interest only. Even though you already have an offset account saving you interest, changing to IO and putting that extra "principal" into the offset account has the effect of you still paying the same amount of interest as if it was P & I. The bonus will be when you decide to upgrade to a new PPOR, you can use the money in the offset as your deposit (instead of borrowing more for a non-deductible debt), and the interest on the outstanding amount on the old PPOR will then become tax deductible.
Hi gabsman,
An accountant can probably confirm, but this is my take on it.
The purpose of the loan determines it tax deductibilty. With this extra $3,000, $700 of it is allocated for admin and legal cost costs, which since it is an IP can be proven it is for investment purposes, so the interest on this portion is tax deductible.
However the extra $2,300 is extra cash that isn't being used for investment purposes, its being put into a bank account with other personal funds meaning non deductibility on that part of the loan.
DWolfe,
Yarraville is what my wife likes to call new money, with a young(er) demographic buying in or renting there. The whole area around there like the ones you mentioned Kingsville, Seddon and also Newport appeal to people who can't afford neighbouring Williamstown but want to be close to it.
Also agree with Sunshine, taken off in the last few years as a growth area, but personally wouldn't want to live there. Considering I grew up in Broadmeadows, can be considered a case of the the pot calling the kettle black.
Hi Mrs Bee,
Whereabouts on the Mornington Peninsula are you located? Nice down that way, especially in summer.
Like others have said, the maths would need to work for yourselves, with CGT coming into play if your PPOR becomes an IP. On the flipside, the outstanding loan will then become deductible debt for tax purposes (claimable interest).
You would be able to use equity in your current property for a deposit on a new property but if you are looking at around $400K, you would need to put in some of your own funds for stamp duty, etc.
Even if you are just entertaining the thought of changing the PPOR to an IP, it would probably be worth changing the current loan now to interest only loan with offset.
In reality a property is worth what someone will pay for it. If the asking price is overpriced, the market will let them know soon enough.
As Freckle said, don't let emotion get you into a bad deal.
You mentioned something about paying off a bad debt. What exactly did that entail? Did it coincide with any defaults against your credit history?
If so, it might restrict what lenders and LVR you are be able to get.
South Eastern suburbs in Melbourne are always a good bet however median prices might be out of reach for some.
If that's the case, the north and western suburbs offer some good value with potential for growth. Places like Yarraville, Pascoe Vale, Glenroy, Epping, Airport West, even Sunshine are still affordable, and border/close by some prestigious suburbs.
As per what Jamie said.
Make sure that both loans are separate.
Current loan to be split into 2, one split for current loan, other for the deposit of the new property, and second loan on the new property itself.
SilicoN,
There is what is referred to as the 6 year rule for CGT, where if you purchased an owner occupied property, live in it and decide to rent it out, you are allowed to rent it out for up to 6 years and it will be CGT exempt. This however only applies if during the period the property is rented out, you don't have another property you claim as your PPOR.
In your case, as you had a PPOR while your initial property was being rented then you can't claim the 6 year rule, and CGT would apply as per Dan42's post.
Just to play devils advocate here, are you sure about that Shahin? Wouldn't the lender have a different view of this?
I thought that lenders had a policy where they could cancel a loan if they found out that false information was given in connection with the loan, especially if it had to do with granting approval, which it seems would be the case with rental income included in servicing that now won't be there?
Obviously it isn't intentional on the OP's part, but wouldn't it still be an issue?
