I am new to here as well as property. Having read Steve’s books I am quite motivated to buy as many properties as I can. I am seeking advice on my personal investment plan, particularly the finance part. Thanks in advance.
Personal situation
married with a 5 year old
annual income around $75k
Wife’s annual income around $15k(just complete the probation period)
bought a house in June for $430k
mortgage slightlt lower than $400k (paid 9.3k for LMI), ING mortgage simplfier P&I @6.74%My plan
2006 build a few rooms under the house we bought and rent out. expecting over $400/week rent.We will be living upstairs.
2007- purchase as many IPs as I can.Questions
Now I have many things unclear.
1. I have read the posts here and realise that I should have bought the house on a IO loan with an offset account. Is it possible to change it in 2006 without too much penalty?
2. The house was valued @480k but the bank ING agreed only to lend money based on the purchase price $430k (I did not know Bankwest lending based on valuation[evil5]). I expect that the value would go up to $500k next year (hopefully). Could we still borrow up to 95%? In this case up to $475k? Because the debt is $400k thus leaving us $75k money to do the renovation?
3. Assume that the above is possible and we complete the renovation and getting $400/week in rent. If we want to purchase some IPs, I guess it is better off on my name only because the tax benefit is higher. How much would I be able to borrow? What is the best structure? IO only? I guess an offset account is not important because I will not have extra money to pay into the IPs. It is apparently better to put all the extra money into PPOR loan.
4. What are the tax implications? The interest on the further $75k would be tax deductible.
5. The land we bought is already divided into two lots and titled residential B. Would development of the land more profitable? Would finance be a problem considering my personal situation?
6. Would it be difficult to get the LMI partly refunded?Thanks guys.
Originally posted by bf:1. I have read the posts here and realise that I should have bought the house on a IO loan with an offset account. Is it possible to change it in 2006 without too much penalty?
The ING product is not the best option to change to Interest Only. You might find it better changing to another product. You should not face much penalty unless LMI applies again. That will depend on amount owing and property valuation at the time you make the change.
2. The house was valued @480k but the bank ING agreed only to lend money based on the purchase price $430k (I did not know Bankwest lending based on valuation[evil5]). I expect that the value would go up to $500k next year (hopefully). Could we still borrow up to 95%? In this case up to $475k? Because the debt is $400k thus leaving us $75k money to do the renovation?BankWest is not the only one who bases lending on valuation instead of purchase price. I must assume you went direct instead of through a good broker. All lenders I know of will base the LVR on valuation but some will only lend based on contract price if it is a short period between contract date and settlement.
There are not that many lenders that will do 95% LVR on a refinance although they are out there. If you took this option, you will be up for another huge LMI bill so don’t expect to have access to the full 75k.
3. Assume that the above is possible and we complete the renovation and getting $400/week in rent. If we want to purchase some IPs, I guess it is better off on my name only because the tax benefit is higher. How much would I be able to borrow? What is the best structure? IO only? I guess an offset account is not important because I will not have extra money to pay into the IPs. It is apparently better to put all the extra money into PPOR loan.How much you can borrow depends on a lot more information. Living expenses and other liabilities and expenses must be considered. The best structure will also depend on your personal requirements. I believe an interest only loan with offset account is the most flexible and best structure for the majority of situations.
When you have non-deductible debt, I believe an offset account becomes more important. You would attach the offset to your non-deductible debt and all investment loans would be interest only.
4. What are the tax implications? The interest on the further $75k would be tax deductible.Any money used for investment purposes is tax deductible regardless of which property you borrow against. I don’t know what the implications will be of renting out rooms in your PPOR as I have never seen a house be both a PPOR and an IP. This would make me assume that the money used to renovate would not be deductible. You need an accountant here.
5. The land we bought is already divided into two lots and titled residential B. Would development of the land more profitable? Would finance be a problem considering my personal situation?There is not enough information. Regarding the ‘two lots’, I don’t think building below your existing house would take advantage of the opportunity to have two seperate titles unless you can get the new rooms strata titled. Again, I don’t like your chances.
6. Would it be difficult to get the LMI partly refunded?It is difficult as it is optional whether LMI is refunded. If you do it within a year, you are a good chance. A refund will only be available if you sell and repay the debt, not if you increase the loan.
Find a good broker and good luck.
TMA
http://www.email4money.info
Investor Links
First Home Buyer WebsiteThanks very much TMA. That cleared my mind a lot.
Just one further questions:
I am not thinking of selling the house. If next year the valuation comes at $500k. With a debt of $400K the LVR is 80%. Would I get a good chance of getting the LMI partly refunded? That is within a year.
Thanks.bf
No. You can only get a refund when you sell.
TMA
http://www.email4money.info
Investor Links
First Home Buyer Website
You must be logged in to reply to this topic. If you don't have an account, you can register here.
