Hi everyone – Recently discovered this site and this is my first post. I thought a good place to start would be to list my current investments and get some opinions on my stratergies.
I currently have 4 investment properties. Two in my name and two in my wife’s name. All have seperate loans that are not cross secured. All loans are principle and interest. What are the advantages of interest only? Currently:
2 bedroom house North Nowra NSw – Purchased with 20% deposit.
Currently worth = $250,000 Loan = $170,000 Total = $80,000
3 bedroom apartment in Bondi NSW – Purchased with 20% deposit.
Currently worth = $650,000 Loan = $450,000 Total = $200,000
2 bedroom apartment in Bondi – Purchased with 10% deposit.
Currently worth = $400,000 Loan = $330,000 Total = $70,000
2 bedroom apartment in Cambridge UK – Purchaed with 10% deposit.
Currently worth = $500,000 Loan = $250,000 Total = $250,000Total Equity = $600,000
I am going to purchase a family home for around $800,000 at the end of the year. I am planning on re-financing all my current properties out to 80% (don’t want mortgage insurance). Do any lenders offer a higher ratio without mortgage insurance?
At 80% this will allow me to draw approx. $400,000 from investment properties. I will then have saved $100,000 so will have $500,000 deposit for family home. I am doing this as the interest on our place of residence is not tax deductible but on our investments it is.
Once I have family home will save like crazy to pay off the remaining $300,000 should take 2 years.
After this point will go back into purchasing properties. Would it be wise to set-up a trust at this point? Should I be purchaing investments as interst only?
Any information or tips / ideas anyone can offer would be greatly appreciated.
Danish
Hi
For a young guy, sounds like your partner and you’re already doing very well with property investing. Good work so far.
In terms of your ‘lending strategy” to borrow up to 80% against your investment properties (and access $400K plus saving up $100K) to access the deposit, you may be wrong in your thinking.
“Saving” $100K in one year will be an amazing achievement. What is your secret?[shades2]. If you can do that, you would probably not need to draw on your equity from your IPs to get a mortgage for your PPOR. I suspect you will have a lot of negotiating leverage with lenders given your property portfolio.
The tax deduction for ‘interest’ on investment properties depends on the purpose of the loan, rather than the security it is borrowed against. In summary, borrowing/accessing extra money from your investment properties to fund the purchase of your PPOR residence will mean that the interest against the $400K will NOT be tax deductible as the purchase of a PPOR is not an investment purpose as defined by the ATO.
There are a number of mortgage brokers on this forum who could probably come up with several good ways to proceed. I am not a MB, but an investor myself. However, if you would like to discuss this in more detail with me, drop me a line at [email protected] .
Gary
Author of “Property Millionaire, The Guidebook to Having Great Australian Dreams”
Creator of Property Millionaire – The Boardgame
http://www.888abundance.comHi Danish
As Gary has pointed out i think you are slightly mistaken in your thinking. The interest raised on your investment properties to use for your PPOR is certainly not tax deductible.
It does not matter on what security the funds are secured it is the purpose of the loan that is the burning issue as far as the ATO are concerned.
By raiasing the money and using the funds to buy your own principal place immeditely disallows the deduction.
WIth regards to your current IP’s i would certainly not have thse as P & I especially as from what you have just said you are likely to be borrowing a fair chunk of money for your new PPOR.
If you made them interest only and linked up a 100% offset account you could pour all of your funds into this account so that when you settle on your PPOR you can trasnfer the offset account over to the PPOR loan or withdraw this and use the money for the deposit.
From your statement about paying the $300K home loan in 2 years you must be earning around $550K per annum. If this is the case i think you should have sought professional advice originally and purchased the existing IP’s in Trust.
Whilst you could look to sell them to a Trust making the interest 100% deductible you will incur stamp duty and could trigger a CGT event.
Sctructured properly all of this could have been avoided.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
New Shared Equity scheme has arrived – Email us for details.Richard Taylor | Australia's leading private lender
Ok – So the bank value’s one of my properties at $650,000 and I have a mortgage for $450,000. Can’t I re-finance the investment property for $550,000? This would give me an extra $100K.
Most of my proerties I own approx. 30%. Can’t I re-finance them all so I only own 20% and use the extra 10% cash for whatever I wan’t? Deposit on PPOR would be great!
Thanks – Sorry if this is completley wrong!
Danish
yes you can do that but the point my other forumities are making is that you cannot then claim the interest on that portion as tax deductible because you have used it to purchase your PPOR. the opposite applies if you use your PPOR to buy IP’s. i.e if you have 100K of equity in you PPOR and you take this spare cash and use it to buy an IP you can then claim the interest you pay on the 100K as a tax deduction. A simple way to think about it is ‘if i use the money for income generating purposes i.e IP’s, Shares, then it is tax deductible’.
the advantage of making all your IP loans IO is that you can focus more cash on paying off your debts which are not tax deductible i.e PPOR, or you have more cash to buy more IP’s . i.e by not having to pay principle as well as interest you have more money in your pocket to spend (your serviceability is increased) Most investors are only interested in paying down one loan at a time or never paying them down until they are ready to consolidate their debt (i.e sell properties) for retirement etc
Im sorry but i have to ask. Why the property in north nowra. The rest of your portfolio is very impresive so nowra looks out of place.I am not nocking north nowra as i have lived there my whole life and it is a great area.May i ask with out getting too personal. Are the properties cashflow positve,neutral or negative geared.I am curiose as they would have to pull good rent otherwise you must be paying a fair amount of money to hold them.Hope thats not too personal.[biggrin]
Me to Danish – the advice I have is similar to what yr getting here. Too much personal debt meaning poor tax deductability and my none working wife on the title. Badly structured so beware.
My portfolio is like yrs:
PPOR $690k – IO loan $412k equity $ 278k I pay $2500
Renter @ $450 – IO loan $270k equity $180k rent $1388pmpay$1576
Renter @ $340 – IO loan $170k equity $170k rent $866pm pay $1069
Equity $628. Wage is $4230 net mnth and I am told I can only borrow additional $170k…..so I can’t buy much with that. To sell renters is to invite CGT for sure so if anyone can give you advice to relieve you, it may work for me.
There is strong evidence I can get $700pw for my house and live in my caravan…………maybe ???
Am trying to get a place in RESULTS Course for mentoring……….
Also my first post – thanks all, great info
Cheers –Lenrhonda
CGT maybe not payable in yoru case. Have you considered selling them to a Unit Trust with you as the sole Unit holder.
With the funds raised you can pay down your non tax deductible debt almost to nothing.
This then means that all of you rloan would be 100% tax deductible.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
New Shared Equity scheme has arrived – Email us for details.Richard Taylor | Australia's leading private lender
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