First post, here goes.
Hi all. I’ve been reading this forum for the last couple of months and have been reading a few books on this money subject. I love it, and feel like my outlook on life has changed in a big way.My partner and I are paying off our townhouse (only house we have at the moment). We have worked out that we could have it paid off in two years time, but without saving any money.
The other option would be to pay minimum amount on the loan and start to save for a deposit for another home, so we could move out but still keep the townhouse as a rental property.
What option should we take?
Hi Paul,
personally I would pay minimum amount on the repayments of the loan – but not so I could save a deposit and go and purchase a larger home. NO.
Delay self-gratification. Save a deposit to go and purchase your 1st investment property with good returns. Then work out how you could purchase a 2nd, 3rd and 4th investment property with good returns. This shouldn’t take you too long. Once you are comfortable and have a few investments under your belt, then work out how you could purchase a larger home. Personally, I would have the extra money that the tenants from all your investment properties (when you get them) are paying to help pay your repayments on the larger home you so wish to live in.
Hope I’m not confusing. If I am, please tell me and I’ll try to clarify.
Kind Regards,
George.If You never never ask, you’ll never never know”
Thanks George – we want to move out of our two bedroom townhouse and into something bigger like a three bed house. This would be a small step, not a big step like a big house. Or should we stay in the townhouse for as long as possible while building up our Investment properties as you explained?
Hi Pauln,
I would try to stay in the townhouse for as long as possible while building up your portfolio.
But I was unaware you wnated a 3 B/R house. In that case, just try spending a couple of thousand dollars to put another wall in your townhouse and create a 3rd B/R. It only costs a few thousand and you increase the value of your townhouse immensely with a 3rd B/R added.
Kind Regards,
George.“If You never never ask, you’ll never never know”
Wow, never thought about that. I’ll check with the body corporate.
Do you think I should go and see an accountant to work out my best options dollars wise?Hi Pauln,
yes always seek an accountant and solicitor’s advice – that is what they are there for – to keep you secure and happy. also check with the council restrictions on building permits.
Kind Regards,
George.“If You never never ask, you’ll never never know”
Checked witht the body corporate, can’t do anything to the exterior, and the living area is already to small to put another room in.
pauln, if you pay off your current house, and then move out and have it rented, you will be taxed on the profit. If you also borrowed all the money to buy your new house, none of that interest would be tax deductible. A double whammy.
If you are serious about buying a bigger place and can’t wait, one option is to sell your current house, use the proceeds to buy the new one, and borrow against the equity for IPs. This way the interest is deductible.
If you don’t want to sell, stop paying any principal off your house NOW (confirm with bank change of loan first though!). Use all this money to go towards paying off your new house, which you could either buy as an IP first, or move into straight away, depending on your wishes/circumstances.
Cheers
MelThanks Melbear.
We don’t wont to sell our townhouse because it will become a great rental property. We can get about $280 per week and we bought it in 2000 for only $120k. We have 70k left on the loan, but we have decided that we need a bigger house (family soon) and that we can afford a three bedroom house on the outer suburbs. Going to put everything on the new house loan, while paying minimum on the current townhouse loan. Then once in a better position use equity to buy more IPs, while still paying off as much on PPOR. This is the aim – thoughts on this.Im not sure what type of loan you have but if you had a redraw facillity couldnt you redraw on your current townhouse such that the rent would keep it CF+ (say 140K) and use the redrawn money towards your new home. That way your rental property loan repayments would be tax deductable? Not sure if this can be done but just a thought.
Cheers
Wilko
Hi Wilko,
The deductibility of a loan (or redraw) is determined by the purpose for which the money is intended – so if you redraw equity from an IP to use for non-deductible expenditure such as PPOR, Car or other consumable items then the interest component of this money is not deductible.
However having said that there is an appeal currently before the courts (ATO V Hart) that specifically addresses this issue. Harts have successfully argued that this can happen under certain circumstances and the ATO are appealing the ruling.
So before we all go out and restructure our loans I recommend sitting tight and waiting to see what the outcome is.
Without a ‘split account’ facility mixing deductible and non-deductible debt becomes very messt for you and your accountant and is best avoided at all costs.
Derek
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