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Thanks again Richard..
I too am a fan of just sticking with the variable rate also. I had fixed a rate in once in the past, but it just ended up costing me more fees than the benefit I got from it (a long time ago when rates didn’t rise much after I fixed it). But for example 1 year ago was a perfect time to fix some in, but I missed that boat and just left them variable.
Thanks for the 221D tip, I had never heard of this, yet always wondered if there was a way to do this. It sounds awesome, but I read something that the ATO use it to possibly identify people to run an audit on. I have nothing to hide, but not sure if I want to end up on their “closely monitor” shortlist etc. But if all of your paperwork and receipts were well organised then I am sure it’s a top idea to do a 221D.
Also thanks for the QS report idea, I have recently noticed lots of people fully recommending that too, so it’s something I will definitely follow up.
Your tips and ideas have given me some extra knowledge that I will now keep in mind when going forward. I think what I will do is, do one property at a time. Buy the first one (PPoR to renovate first), then quickly get stuck into renovations and aim to knock that over really fast as a dedicated project. I will try to quickly get a feel for the process and how my finances are tracking, and then look to go for the second investment after the first renovation is completed. That way I am kind of going smoothly/methodically/calculated, but ultimately moving forward fast-ish and ending up securing both properties. But I think I need to just go one step at a time first to feel more comfortable and get an idea of whether I can afford a late every morning or not
Thx again, wonderful help and appreciate it.
Bob,
Are you handy with some tools and/or reckon you could borrow a bit extra to take on a renovation?
Why not buy one of the more run down-ish kinds of places (there are PLENTY of run down properties in Newcastle). Borrow a bit extra and take on your first renovation
Aim to knock it over quickly and set a schedule. Add some serious value by fixing the place up – don’t overcapitalise obviously. 6 mths later (if you renovate effiiciently) you will have added significant value to the place. Then you can either rent it out asking for a decent amount of rent, OR sell it and cash in the profit CGT free because you lived in the place.I am experienced with the Newcastle market and in my opinion only, it’s not such a great high yield market. The yields are pretty ordinary. It’s quite cheap to rent in Newcastle. Newcastle has the most potential for capital gains though at present – much more than a market like Canberra for example which is a higher yield market (fantastic rents), but has already had a long run of strong capital growth recently and is starting to slow down a tad.
So pick up a cheapy in Newcastle that you can add value to yourself. Put the hard yards in you will end up with a place that you may actually love to live in too. Plus you will have a smaller mortgage because you didn’t pay top dollar for the place to begin with. Newcastle has been circled as a place very likely to boom in terms of capital growth in coming 5 or so years.
There are also some regional towns approx 1 hr from Newcastle with some MAJOR transport infrastructure already approved and underway, due for completion in approx 3 years. If you took the path of renting somewhere, but buying somewhere as an investment, then seriously look into a couple of the regional cities, think up and coming central hubs in the hunter valley and you could be planting a very worthwhile seed.. Similarly, nothing stopping you from also renovating a place like that even if you don’t live there. You can claim some of the work and then get a higher rent for the property after the work is done.
House values will still rise and go up between here and 2020 for one main reason also that people forget:
– Just because the median price becomes $1mil and suddenly Mr Average John Smith and his family can’t afford to pay you $1mil for your 3 bed house in Sydney any more, guess what, the population will be booming and some developer will offer you $1mil instead to knock it down and replace with a high rise apartment block.So as has happened to every single other developed country, land will become more precious and old huge, spacious houses will also start to get replaced by more space-efficient high rises. So in a single block of land, you then split the cost between 10 residents living in the high rise. Maybe they are still only paying $300-$400k for their “unit”, but all of that added up still goes towards purchasing the old house from the buyer who owned that block before the apartment was built.
So think outside the square, it’s not just going to be the same old family with 2 kids paying $1mil, the dynamics will change more and there are still always people with the money and structures to pay the higher prices, just that the dynamics will change. For people who can’t afford that and still want a 3 bedroom house, well they will just move further and further out into regional areas where the price remains low. E.g. move to Cobar in regional NSW and you can find the cheapest houses.
As much as we think houses are expensive now, this country is booming both economically and in terms of population growth, combined with a housing shortage. This can only go one way and people and developers will work out ways to pay the prices!
Don’t be one of the whingers who sites on the sideline this time and misses out
I’ve seen that happen before too.Pay every cent you have towards the one with the highest rate ($6300 owing, variable @ 16.15% – Eeek!!! That’s nasty) and pay the minimum off the others until that first one is gone. Repeat this process swapping to the next highest interest rate until they are all gone. You are putting a reasonable amount of cash flow towards debt reduction, so don’t bother too much with refinancing etc, just go hell for leather and knock off one at a time.
Also can you sell/downgrade any of these cars/bikes to pay these debts off sooner..? Otherwise, no big deal, keep your toys but smash the debts.
Use 2010 as your “Debt elimination year” while reading more property books and forums to skills yourself up in preparation for 2011
Many thanks again Terry. Your advice has been awesome.
Also thanks Richard, what you say re: PPoRs having a habit of becoming IPs makes good sense too, and is a path that I would be likely go down for sure.
Now a little further down the track… I get the place for $250k, renovate it and wait 3 years, then it's worth maybe $350k. I might have accummulated say $50k in the new offset account for that PPoR. All of a sudden that house may be able to pull in $350/wk in rent and the debt is down enough (virtually, because of cash in offset) so it will break even. So I look to turn it into an IP, because at the same time, my family has grown and I want to upgrade our PPoR.
How the hell can you then keep this place as an IP, but then somehow afford to go and buy a $500k home that has the size and features that you might need? Do you essentially need to wait until the rents rise up enough from your IPs, so that they can be piling excess profit each month into the IP offset accounts, and then you use that money to help pay your new HUGE PPoR mortgage
Or can it only really work if you planned to live in cheaper houses forever that would later be suited as IPs? Because I have a longer term vision, e.g. 5-10 years of eventually being in a reasonably big place as my PPoR. But if I keep moving out of smaller PPoRs and turning them into IPs, how do I accumulate any capital that can be rolled in to purchase the big PPoR?
Hope this makes sense.. Or do you basically have to "cash in" and sell investment properties to then be able to move into your dream home?Awesome helpful thread
Thanks once again Terry. That was again very helpful.
The offset vs redraw tax advantages now seem very clear.
So to check my understanding, is this correct:
The essence of changing to an IO loan, is that the repayments are smaller than for a P&I loan. This means that each month, I will be left over with more spare cash from the rental income. This spare cash can then be used (via the offset account) to help reduce my new non-deductable mortgage. And that makes sense because you want to shrink any non-deductable loans ASAP where as a deductable mortgage is fine to just sit there, because it's deductable. So you are essentially diverting money that would have just been reducing an already deductable P&I loan into helping to pay down a non-deductable loan?Meanwhile however, your investment loan just sits there forever, is that a good thing? Or because that debt is deductable, AND the place is appreciating in value, it doesn't matter.. I.e. you will make your money from the capital gains, not from paying the deductable debt down.. Am I on the right track??
Now re: the new PPoR loan. Why should that be IO? can understand not wanting to pay investment debt down, but with your PPoR, don't you want to pay it down super ASAP? Or is your approach leaving it as IO, so that you can essentially build up cash in an offset against that IO, then when you have enough cash eventually in that offset which matches the balance of the IO loan, you have essentially paid the loan off, but then LATER should that house then later become an investment, well it's still "officially" in debt, because you never really paid it off, you just saved into an offset.. I think I am starting to follow you here..
Many thanks!!
