Situation
Current value of PPOR – $850K (West. Sub. of Brisbane)
Mortgage – $285K
Income – Wife – $0K; but hardest job (mother) / Me – $60K now; $69K Nov
P & I repayments $860 f/n (=1/2 of nett pay)We borrowed as much as we could to put as big a house as possible on the land to complement the capital growth in the land (bought land in 98; built house 03) and give us good slice of equity. However after using 50% of nett pay on repayments there is little left once the necessities of life (with 3 kids) are paid for to be able to move ahead and get into PI. In fact it would be nice to have a little more in hand for ‘quality of life’ purchases like holidays, upgraded car etc.
One course of action is to sell up and downsize with approx $500K to spend and have no or minimal mortgage. We then use the equity in the new PPOR and increased cash flow to start buying IP’s. Unfortunately we would end up paying about $40K in selling commission and buying stamp duty etc.
Question
I hear and know the advantages in a lot of people saying ‘Never Sell’ your PPOR but keep it and use the equity to buy IP or buy a new PPOR and keep old PPOR as an IP (possible rent of $700-$800wk).
We are at the max borrowings from our bank for our PPOR.
So is there another way of using the equity in our PPOR (so we can stay there) and still be able to fund getting into the PI game? Or am I better off selling and downsizing and starting off with high equity; a little mortgage; and a decent cash flow.
I am hoping to talk to a mortgage broker in the next week or so and get his spin on things.
I hope this is all makes sense.
Any thoughts and tips are most welcome.
Cheers
Darjovu
‘Build a Bridge and Get Over It!’
Darjovu
I have sold a house or two and I have been in your exact situation when I felt money was tight. I really wished I had hung onto a particular house, and regret selling the others. At the moment you may not get the Capital gain to recoup your 40K change over in a hurry. If you can rent out your PPOR for a few years (I think 5 or 6 years and CGT don’t apply) and move into something cheaper (but still nice) that is what I would do with the experience and benifit of hindsight.JTW
maybe find a way to convert all that equity into a cashflow. Try researching cash bonds. This might increase servicability and allow you to get a line of credit on your ppor. Then the banks will lend to you…. the other solution is to find a income rich/equity poor partner and do a joint deal.
The other thing that is obvious to me is that your current set up is based around your lifestyle.
The luxury of a very expensive house and the further desire to acquire more quality of life items (ie: junk that goes down in value) is the common recipe 97% of the population use, the same 97% that have no money when they retire to even live comfortably!
Some basic principles to consider.
Buy things that go up in value and give you cashflow.
Consider reducing your weekly expenses. Ie; if you lived in a house with no mortgage, then you would have HEAPS of cash to invest.
Spend less than you earn.
Try also researching some “living on equity” principles that might help you to find a way to buy IP’s with your current House.
P.S. you can extend the mortgage on your PPOR to 80 % (or 95+% with LMI) if you have servicability/.
And as for your mortgage broker, if he is a run of the mill broker, I doubt he will be able to give you any guidance as how to invest. In fact, there is a good chance that he will just tell you to refinance to a loan he can get that will give you some play money for lifestyle junk. This will get him his commission and you some toys.
If you are serious about creating a financially free future, I would start reading some books and select an investment strategy that maximises your current strengths.
Possible scenario. Sell your house and move into a modest home, pay cash. Then take out loans on the money left over and combine with a line-of-credit loan against your house. Buy ip’s with a good sized deposit, say 30-40%. This should get you a neutrally geared portfolio and then all your debt is tax deductible. And should give you extra cash each week!
Positive cashflow, capital gains, development, subdivisions, high yields…yada, yada,
It don’t matter too much which way you invest, as long as it works for you!
Are you willing to learn the fundamentals of wealth creation?
Live, Learn and GrowLifexperience
Hi Darjovu,
Think carefully before putting the family home on the market based purely on your current banks lending policy, the variance in max lending between lenders is huge, Cheers.Regards
Steven
Mortgage BrokerMobile Mortgage Market
Ph: 0402 483 216
[email protected]
http://www.mobilemortgagemarket.com.auPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Hear-hear,Lifexperience.
Darjovu, Microsoft have this awesome saying:”..where d you want to go next?” Well, what is more important, Toys or financial freedom?
If you use your equity to buy one or more IPs, then your accountant can do the working out for the special Tax reduction form (whatever it is called now) so that you pay less PAYG Tax. If you chose well, you will have an IP (or more), tax Consessions, you get to keep your PPOR and more $$ in your cashflow every week.
“… the mission, should you accept it, is to keep your PPOR and buy IPs to gain tax consessions and greater cashflow…”
Say hello to your wife – mothers are too undervalued!
Let us know how you go. There are plenty of Mortgage Brokers on this site to help you as well!
Cheers
C@34Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
– Thomas EdisonJTW
Thanks. Renting out current PPOR is certainly an avenue I want to investigate. It would save me a big chunk of commission. With same tax breaks through negative gearing we could do that and either buy new PPOR or rent and buy another IP.Lifexperience
I don’t know anything about cash bonds but if it could possibly give me more serviceability then they are worth checking out. Serviceability is the main problem at the moment.We definitely aren’t after the expensive house or ‘junk items’. The house was built with creating equity in mind (I would settle for a nice modest 4 bedroom home in the burbs); we need to upgrade our 11yr old car for safety reasons’ and I want to be able to take my kids on camping holidays or to NZ to visit their grandparents. I agree with your ‘basic principles’ 100% about not buying things that go down in value and I hate having to spend money on a car.
Hopefully with a pay rise coming in Nov I might have the serviceability to give me a leg up in PI. The mortgage broker is one we have used previously and I just want to put a few scenarios to him with converting our P&I loan to IO if we rent it out; plus see how much more lending my pay rise will give me. I wouldn’t use him for investing advice.
I have spotted some books on this forum that I do want to get hold of. I have been busy finishing off our house and now there is too much good sport on TV late at night (Cricket, NRL, AFL, Tennis etc…). But I need to get cracking as I realise education is a good tool for PI.
I am still considering the selling our PPOR option as my most likely course of action as I feel this would put us in a position of strong serviceability when it comes to buying IP’s.
Thanks for getting me thinking Lifexperience.
Steven
Cheers. Found that out big time when organising our construction loan in 2003. Some banks would lend us $130K, others lend $280K (it even varied if your kids went to private schools or not). Go figure… Found our mortgage broker a huge help.C@34
Toys are definitely not our go. Sorry I got you guys confused when I put in the ‘quality of life’ purchases line. We HAVE to upgrade the car unfortunately or get a scooter that carries 5… I meant spending money that makes our life more enjoyable and lets us do more as a family. Thanks for your reply.Cheers
Darjovu
‘Build a Bridge and Get Over It!’
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