I have a Hypothetical that I would like some input on.
Say you bought a 2 bedroom, 1 bath, LUG unit 3 years ago in BNE 6km from the city for $125000
It has been quietly renting and breaking even once all costs are factored inc. body cop & rates (rents for 210p/w).
You have recently had the property revalued at $220k and still owe $115 on current loan.
Do you:
a) Refinance, look for another +ve IP or 2 and Buy
use some of the money for education on how to do this well.b) Use Equity to start share portfolio and to fund financial education i.e. course in share trading and investing.
c) Sell ip, pay CGT and use cash for above
d) use equity to renovate and push rent up
E) choose your own adventure!
your thoughts?!
What the mind of man can conceive and believe, it can achieve.
Hi Riffraff,
I’m no expert, but I like option 1. However, I would refinance as a line of credit and only buy if I was sure of a great investment.
I would also do my sums and make sure I could handle all worst case scenarios…Just my 2 cents
Sue [
]“Be careful not to step on the flowers when you’re reaching for the stars”
hi riffraff
Long term a property 6km from Brisbane city has to appreciate in value. i wouldn’t sell especially if this is your only IP., oh yer thats right it’s only hypothetical. Refinance and then you can put the money back into the loan so you are not paying interest on it. only draw down on the cash if you find a great deal. In regard to investing don’t spend heaps on courses, as books cover a lot of the info so read a lot.
the idea of renovations that will increase the rent is also a good one but be careful to make sure you are getting a good return on your money.
westanHi Westan,
Nice idea about using the equity back on the loan to avoid interest then accessing on re-draw… thats exatly the kind of solution this hypothetical problem needs!
Because hypotheticly speaking one wouldnt want to miss out on the opportunity to use the equity!
If you refinance do you pay CGT?
Thanks.
riffWhat the mind of man can conceive and believe, it can achieve.
Nope, no CGT on refinance. CGT is only payable on Sale or Transfer. Refinancing $$ are not taxed in any way, which is the beauty about the growth.
Cheers
MelHi Westan
How do you mean refinance and put the money back into the loan and pay no interest. Can you give an example.
regards
alfhi alf
This is how you would do it.
first assume the loan is 100k and you refinace it at 180k, so you have access for an additional 80k. with that 80k you put it right back on the loan so the loan balance is only 100k. therefore you are charged interest on the 100k not the 180k. If a good deal is found you have the 80k already there so you can draw on this straight away.
regards westanHi Westan
I still don’t follow what types of accounts is it LOC for example.
Is this the same account or create a different account for the refinancing?
For example if you pay the 80000 in then interest would have to be charged on the 80000?
because its being used.I am a bit confused on this one.
regards
alf (thick as a brick)lolG’day all you [:0)]’s
I am aware we have just had a.25% rate increase and don’t think that the .5% in December will be hypothetical for too long either.
You’re all stark raving mad. Surely the market is
not so bad that we have to discuss hypothetical properties. I didn’t think anyone would reply to you Riffraff… just goes to show how wrong I can be at times.Westan…you’re confusing my mate Alf… me too for a bit. You are obviously talking about a P&I type loan at $100k and revalued the property, increased the loan to $180k…on a fully drawn P&I loan I might add… and then paid the extra $80k back into the loan (via offset account)
Alf knows that a LOC is the best way to go and he assumes you would realise this too. That’s why you’ve confused him.
Just thought I’d clear this hassle on the hypothetical Property up for you all. I mean, if it was a Bus Stop Shelter(BSS) I could understand.
I am really worried that Sue and Mel have also got involved. Alf, get to hell outa their before the moderators have the lot of you committed.
Riffraff…Just look at what you’ve started[
!]
Now stop it…all of you!
BillBill O’Mara
Real Estate,Mortgages,Share Market Strategies.
[email protected]Hi
Maybe Westan means refinance to 180000 and leave it as is so you still pay the interest on the 1000000 as you haven’t used the extra 80000 as yet.
I think this sounds like a LOC.
Went a bit blank for a while but i think thats correct Westan?
Tnanks for the input Bill not familiar with the offset arrangements. I the words of a famous Australian Please explain?
regards
alfG’day Alf…
We are a pair of mugs and I reckon we’ve been set up here. Riffraff posted the question at 1:20pm, the others responded by 7:00pm. Westan puts in his two bobs worth, designed to confuse most of us…then went to bed.
So here we are talking about a property that doesn’t even exist while those that started it are all asleep.
I’m going to bed too.. c ya
Bill
Bill O’Mara
Real Estate,Mortgages,Share Market Strategies.
[email protected]I was going to say something, but after reading Bill’s comments. I should just shutup, otherwise I’ll be a mug as well.[
]Oh yeah, Alf, it does sound like a LOC. (hypothetically, of course!)
Rod
Fellas, aren’t there ‘redraw’ facilities still around?
Bill, I know a lot of people who do not like LOCs, not least for the fact that you are ofte charged a higher interest rate, and a higher monthly fee. Full offset accounts, or redraw facilities (although there is a fee to ‘redraw’) serve the same purpose with perhaps less fees involved.
Sorry for getting involved and becoming a ‘mug’ but if someone asks a question that I can answer, well, I do!
Cheers
MelLOL @ everyone!!!
Gees Bill… you dont take well to rhetoric do ya!
The above IP is not as Hypothetical as I made out… I just dont want to follow crashy’s footsteps lol.Mel, what is the difference between LOC and redraw facility? I thought they were the same?
Bill, why did you mention the interest rates? would that affect you discion on the above scenario? how? (apart from servicability of repayments)
and I do appreciate all the attention!
thanks all
What the mind of man can conceive and believe, it can achieve.
Riffraff I think you’ll find that crashy was in strife for advertising his course for sale – completely different.
I think most of us picked up that yours was not at all ‘hypothetical’, and hence caused us to answer.
A LOC is like a personal overdraft – or a really big credit card. You have a limit, and if you spend the money, you pay the interest. If you don’t spend the money, there is no interest. It can have a cheque book, ATM card, internet banking etc. linked to it, and you would (for a PPOR loan anyway) park all your income and savings there until you needed to spend any money.
A redraw facility is usually part of a P&I loan, and when you have made ‘extra’ (that is over and above what you have to for the loan term) payments, the bank will let you ‘redraw’, usually there is a minimum amount, and could cost $50 per time.
With a LOC, there is no minimum, and is far more flexible. But it’s a trap for small players who are no good with credit cards etc., and there is a (usually) .1% or so extra on the interest rate.
Cheers
Melok, so from what Im reading a LOC would be my best bet as follows:
– refinance from 114k (owing) to 220k (as revalued)
– put (220-114) 106k back into LOC
– put all savings into LOC
– Start looking for investments.
Is there a time limit that you have to use the equity in? (ie only valid for 3 months or something)
Do you suffer any immediate repayment inclrease? or does this only happen when/if you use the money?
What the mind of man can conceive and believe, it can achieve.
If your value is $220K, the bank will lend you 80% of that, which is $176K.
So if you make the whole loan a LOC, the ‘limit’ will be $176K, and you will ‘owe’ $114K (plus the costs to set it up). You don’t physically take the money, and then pay it back. It’s just like an increase on the limit of your credit card. It’s just there!
The second you spend any of the money, they will charge you interest, so yes, your payments will increase. There is no time limit on spending the money though.
So at present I am getting all my properties revalued, pulling out the equity and having one LOC which has a high ‘limit’ but vey little ‘owing’, so when it comes time to buy some more, I am effectively ‘cashed up’.
Cheers
MelRight! I get it… didnt think of the whole 80% thing…
time to call the bank I think!
What the mind of man can conceive and believe, it can achieve.
Hi Riffraff,
What Mel is doing now makes good sense. If you do your LOC now your equity may substantial be higher than it would be in say 6-12 months. This is only if the bull market as some people are suggesting has come to and end and prices stay the same or drop. Interest rates will most likely rise more but who knows when.
Mel, now that you are effectively cashed up do you think it is better now to buy or wait a few months? Are you going to try and beat the next rate rise or does this not concern you so much?
C2
“Is it true the more you owe the more you grow until the bank steps in?”Hi C2
I am always looking, but not really buying at the moment. If I do buy now, it will be for absolute cashflow (I will not care about growth).
I have been thinking to buy any really good deals that I see, but other than that to sit back and wait to see what happens with the market. Part of my extra borrowings will also provide me the cash to subsidise any future interest rate rises if necessary.
I expect the rate rise to be in December, so there’s probably not much chance of beating it. Having said that, all bar one of my loans are variable interest. What I’m looking at doing is refinancing some of my loans that are with non bank lenders to a bank that offers the professional package, to ensure that I’m getting at least a .5% discount from current markets anyway.
Cheers
Mel
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