Hi All
Rachaellee & Rob are our names. We have been self educating ouselves on property investing for the past 6mnths now. We have done this by reading all Steve McKnights books, subscribed to IP mag, have been eating sleeping & breathing realestate.com.au and other realestate websites, adopting steve's formulas's to calculate returns with properties.
At this moment we have not yet purchased any IP's, it has purely been days & nights of reseach & understanding the game. However from what we have learnt & discovered so far we finally made a solid decision to Put our house on the market. Reasons for this were simple, we wanted to spend less than we earned & save more than we earned.
We Reside currently in Narre Warren in Victoria's South East Suburbs, and both bring in a pretty good salary of $150,000k pa combined and have the ability to save as we do not carry much debt apart from our current home which has a fairly low mortage and our day to day costs. We own all our home assets & cars.
Even though we can afford to live where we do we realised after many calculations & budgets that we would save more in cash saving if we opted for renting. However we realised that the rent per week would have to be less than $200pw for us to be saving.Luckily we have parents that own IP's and have offered one of these for us to rent @ $150pw… WE WERE RAPPED!
From getting to this point we decided to put our place up on the market. It has been on the market for 2weeks now and we have had quite a few people through, however no offers present. It currently sits on the market with a description as follows:Townhouse, dbr 3broom, new kitchen & dining, 1 bath, 2 toilets, courtyard, carport, all freshly painted & renovated with new fixtures & features – $250+ buyers with a
If we sell for our asking price we will walk out with a nice profit to then place into a interest bearing to save for our IP in the future, however if we dont sell then our option is to rent it out, however the figures show that the property will be negative geared.
My question to all is the following –
1.your honest opinions on our position to be involved with investing financially
2.If we sell with our profits what the best account would be for interest bearing
3.would it be worth to use it as a rental? (we have negatively geared this in the past years ago)
(current mortage is $170000 with rentals in our area from $200 – 275 for Townhouses)Lastly we have to say that we are very keen on entering the property journey & understand that it will take alot of work & time which we are willing to give, our goal is for finacial freedom independance.
Please all opinions will be noted & understood.
We both thank all for your time.
Robbie & Rachaellee
"it is not how much money we make, its what we do with the money we make"Hi Robbie & Rachaellee.
What I would do is change you mortgage to interest only, & rent out the town house, with deprication & claiming interest, I roughly workout with a rent of $240 to $260 your townhouse with be nuetral geared, so why get rid of it?
With the huge income you have you can still loan a substantial amount.
I wouldn't be selling the PPoR. I'd be using it as an IP.
Putting money into even a high interest saving account like say ING Maximiser (7%) will erode your capital through inflation and taxes you will have to pay on the interest you earn. Your money will go backwards.
If you have access to a place to rent for $150 p/w, and you can get around $250 p/w for yours, then this is a good position.
Most people are totally against using their PPoR as an IP because of the emotional attachment.
But the benefits are attractive; to rent, your outgoings are minimal; some contents and pub/liability insurance plus the monthly gas and power bills. No rates or building insurance. That's a couple of grand saving approx no doubt.
On the flip side, you both earn good incomes and no doubt pay a swag of tax. This is money down the drain.
With your PPoR as an IP, all the holding costs are tax deductible; the insurance, rates, loan interest, repairs/maintenance etc.
Also, if the property was built after 1987, then you can depreciate the bulding and the fixtures, and these are on-paper tax deductions. Can be worth a considerable amount of money (thousands) back to you in tax returns.You can also rent out your PPoR for up to 6 years before it becomes liable for capital gains tax (we rent out our PPoR currently).
This would give you an automatic IP, and if you change your loan to an interest only loan to maximise the cashflow, you can still pay down the principal whenever you want.
Hi all again
We would like to say thankyou for all your comments so far, some of what were very interesting.
Regarding the taxes we would pay on the interest we earnt with savings is something that sliped our minds, so thankyou a point noted. We will definetely be considering using our PPoR as a IP, there are some benefits from re doing this, we now just need to understand & learn the apsects & details of neg gearing.Our Next step is an appointment with our Accountant.
Thankyou all for your support
Robbie & Rachaellee
R&R, forgive me if I'm telling you to suck eggs, but are you aware of the option to refinance rather than sell, and get access to your equity for more investing that way? For example, if your property's worth $250K you can increase the mortgage up to 90% of its value, ie to $225K. Given that you now owe $170K, this gives you an additional $55K in cash that you could use, say, as a 10% deposit (and costs) on another (eg) $450K property.
Given that the purpose of the entire $225K is for investments – $170K on your former PPR (now IP), and $55K for deposit/costs for your new IP, the interest on all of this is tax deductible.
This is definitely what I'd be doing…
Best wishes, and congratulations, Tracey in Brisbane
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