Situation is that we would like to purchase a new PPOR to suit our circumstances. We would also like to keep our current place as a rental. Hoping I can get some information on what might be the best way to do this.
Current PPOR (to be rental) value @ $300k, mortgage $140k, probable rent @ $300/wk (perhaps slightly more). We have undertaken about $30k in renovations in the six months which have increased both the value and the utilisation of the house.
New place about $360k including costs. We will have about $15-$20k and cover the rest of the deposit through equity (to 80%, avoid mortgage insurance). We can service a $340k loan but with a young family, we wonder if there is a financially easier way.
So what I’m wondering is, is there a way to rejig the mortgage on the current place to take it up to where it would be closer to neutrally geared, thus having us a smaller mortgage on our PPOR? Can we take account into those renovations we did (new kitchen, laundry, making an external room internal access)?
We considered selling but the costs involved have turned us off. We had planned to invest in the next 18 months (dependent on market) but it seems smarter to start this way as this house would be +ve geared.
Any ideas? TIA.
I did this 8 months ago where I turned my PPOR to IP. The only different is currently I am renting.
From your situation it seem to me that you currently PPOR will be PCFP and therefore will help you for your next purchase of your PPOR.
Warm Regards
ChanDollars
[Keep going, you’re on your way to Frolic Freedom!]Dreamergirl,
Some quick sums which I hope may help.
1. Set-up line of credit (LOC) on your existing PPOR. Therefore this takes you to $240k (80% of $300k), which is $100k LOC facility.
2. Purchase PPOR with $15k savings plus $57k from LOC.
3. Change your payment to interest only (I/O) on your current PPOR mortgage, which will now be IP. Borrowings will be $197k at 6.42% (current Westpac rate that I have for my IP’s), which means repayments of $1,053.95 per month.
4. Rental as you have said is $300 per week, (including 7% rental commission), this means $1209.00 per month.
5. Note that interest on $140k is tax deductible, therefore, you will be making income (for the purposes of your tax return). That is $1209 – 749 = $460 per calendar month (not including other costs)
6. Effectively you are left with a mortgage on your new PPOR of $288k, with $460 per month from your new IP to fund the mortgage.
7. Have your rental paid into the loan account for your PPOR and have the automatic payment for the new IP when it falls due. (Reduces monthly interest bill on your PPOR – which non-tax deductible)
8. Make sure you get a quantity surveyor to go through your new IP and claim any depreciation, to reduce your ‘paper profit’ for tax purposes.
Please be aware that you can keep your new ‘IP’ for 6 years and sell it without incurring capital gains tax.
Hope this provides some food for thought.
Make sure you go and see a mortgage broker though and get their advice.
James
Originally posted by georgisj:
Please be aware that you can keep your new ‘IP’ for 6 years and sell it without incurring capital gains tax.Remember though, that your ‘new’ PPOR would not be exempt from CGT if you kept the old one as your PPOR for CGT purposes.
Cheers
MelHi Dreamergirl,
Unfortunately there is no easy, legal way to transfer the debt from your new PPOR over to your current property as the deductibility determiner is the purpose of the loan.
Do not combine use your LOC for PPOR deposit and IP loans as the accountancy trail can become very difficult at tax time. You are better off having split accounts – one for PPOR and the other for investment purposes.
Compounding the difficulties with combined investment and personal loans is that any principle payments are apportioned over the whole loan in accordance with the initial drawings – you cannot say “that $10k goes towards the PPOR loan”
As Mel has indicated you can only ever have one PPOR at any one time.
Derek
Derek is on the money. The extra $100K in his proposed LOC will get you into trouble.
Thanks for the replies. Looks like the simple answer is just to go with what we currently have as the loan on the IP (once it becomes the IP).
I just need to find a property-investing accountant to help me work the best of the situation (whch given the value of our current PPOR has almost doubled in two years, is still a bloody good thing!)
Thanks
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