I hope some clever people can offer some advice on my situation. My Family (husband & 2 young children) life in our house currently worth $550K with a loan of $230K. Current income is approx 60K after tax. Should we sell our house and buy investment properties? As you can see there is not a lot of cash flow to play with. Thanks
Hi VMD
I guess you have 3 real options:
1) Sell your PPOR and rent and then use the left over cash surplus to invest in IP’s. Trouble is you will have rental payments to make and if you ever want to get back into the market prices will have gone up.
2) Retain the PPOR and look at refinancing using a shared equity scheme to release cash in your PPOR and this will fee up capital to enable you to invest in IP’s.
3) Utilise the equity in your PPOR and borrow against the equity to invest.
All 3 ways have benefits in their own right and I guess it is an individual decison as only you know what you and the famly could put up with.
Feel free to express more thoughts on the forum and see what other ideas members come up with.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
New 100% Shared Equity scheme coming soon – Email us for details.Richard Taylor | Australia's leading private lender
Hi, it’s most important that your choice of IP be right. In today’s climate, it’s well nigh impossible to buy something & straight away get +ve return.
The numbers need to look like this:
IP cost = $300000
Interest = $24000 p.a.
Outgoings = $4000 p.a. [can be more, unlikely to be much less]Therefore, the total tax offset can be calculated on the yield, i.e. rental return.
Let’s assume 4% rent. That mean the IP rents for $250 per week. You have a $12000 annual rental income.
The loss is $16000. This gives you -ve gearing of $6000 approx.
If the IP is new, there’s depreciation of around $12000 (could be higher) for the 1st couple of years. This translates to about $3000 tax offset.
Therefore, you get about $7000 a year back through tax alone.
Your carrying cost is $5000.
THE NEXT STEP IS THE MOST IMPORTANT. Can you put together the amount necessary to generate $5000 within a couple of years?
At 8% [which is what I use to calculate your interest liability]. it requires only $40000.
At your income level, you should be able to save that very quickly, if you wish to make the sacrifice.
What you’d be doing is NOT to pay down the loan on IP but pay down your home loan. Every dollar paid into the home loan earns 8% that is repaid 40% by your tax bracket if your tax bracket is 40%.
Get the idea?
If I were young & starting all over, I would buy to rent and rent to live.
Please also remember that the numbers assume no vacancy periods. This means that the IP must be the kind that never stays empty. Not that difficult to find. Something median, 3BR, 2 bathroom with car port/garage NEAR FACILITIES in a rental suburb.
This is a very long-winded post & I may be repeating stuff that you already know.
Good luck,
Kum YinAnother option for you to think about –
Keep your PPoR , move out into a rental (we have done it with our PPoR after acquiring I.P’s) . This is something that many people struggle to do mentally – too big an emotional attachment to the PPoR. But if you can get past that you can accelerate your wealth creation a lot.
If you are able, rent a place for less than you are getting back in rent from your PPoR. Instant improved cashflow! You may need to scale down on the quality of the house you rent to do this, but so be it for the sake of financial freedom.
Your PPoR becomes your first I.P; all the holding costs are tax deductible. Make sure you get a Depreciation Schedule prepared to maximise your tax deductions (speak to an accountant about this).
Use a good Mortgage Broker to restructure your loan on the PPoR so you can access the available equity to buy another I.P when your serviceability allows.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Hi, and welcome to the forum. Good on you for having more than half of your own home paid off and some excellent equity! [exhappy]Just one thing I must mention that is more important than a hoard of IP’s on their own, is to consider two things. 1) Is that what you want, or would you prefer to keep your home and buy a cheaper IP using the equity you have built up? 2) Especially with family, how would you Really feel if you no longer owned a home. Would you be happy? Would you stay where you are? If you can do it, and be happy, looking a bit long term, great, but there are also your emotional needs and feeling of ‘security and ownership’ that you may greatly miss. Big difference….. Have a think about it. With your equity, there is more than one way to skin a cat! Have a good read of point number 3 in QLDS007 ‘s posting above. all the best with what you decide. Run with it! [strum]
I think the safest and best way is to simply pay down your existing loan, then get another loan for an investment property. I know that sounds borring as it could take you another 10 years to pay off your house. The altnernative would be to sell your house and buy a house of around $300k. Then loan against it for an investment house.
The bank would probably lend you 300k on your house at the moment but do you really want to paying back 500k hoping the 300k investment will somehow turn that 500k interest into a profit? Because its very unlikly to. This is because interest on the 500k is going to work out to abouy 10% – 12% eqivalent interest on a 300k investment.
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