I hope everyone is doing well.
I have been reading few property investment books couple years ago by Steve McKnights and others and now its time for me to put it into actions. Before I do that, I need some info on accessing my equity. Everyone's help would be much appreciated.
My wife and me (combined income of $130k) are currently living in a PPOR unit (villa) in suburban Melbourne, and we are thinking of buying another PPOR using our saving as deposit and convert the current PPOR unit into IP. We have lived in our current PPOR for 3 years and we believe the price has increase to 300k (from 251k originally) and current mortgage repayment of $229k.
Now, the questions that have been lingering in my mind are:
1. what the CGT implications if we rent the current PPOR and then sell it in the future?
2. If we access the equity of current PPOR (soon-to-be IP), say 50k, to buy $300k IP and borrow the rest, is that means I would have to pay TWO different repayments: 1. for line of credit (LOC) $50k and 2. for the rest of $250k ($300-50k). How does it work?
3. can anyone explain how LOC works? Do I need to refinance my current mortgage? revalue property?Final questions, is a strategy of LOC is a good way of expanding property portfolio or is there any other strategy in my situation.
Thank you very much in advance for your help re this matter.
Kind Regards,
BeeHI Bee
This is probably the most common question I get asked by clients looking to upgrade their current PPOR but still wishing to retain the property for investment purposes.
Ok hopefully some constructive answers for you.
1) Assuming you have lived in your current home you can rent it out for up to 6 years at any time and continue to give it your main residence exemption. Of course during this time you cannot exempt another property as your main residence even if you are living in it. Couples are only entitled to one main residence between them. If you move back in after renting the property out for 6 years and then move out and rent it out again you are entitled to another 6 years and so on. If you vacate the property for more than 6 years in a row you can still use the 6year rule to exempt it for the first 6 years.
2) This can be done by either a Cross collateralised loan or doing a standalone line of credit as you have described. There are pro & cons of both but in essence if you were happy to provide the lender with both securities the total of the 2 valuations would be $600,000.
You loan requirements would be the existing $229,000 + $300,000 (new PPOR purchase) and acquisition costs of say $20,000 giving a total of $549,000 or a LVR of 92%.
This amount may of course be reduced by any savings that you have howeverbe careful that these savings are not coming from a redraw on your existing home.
To maximise savings ensure that your current loan of $229,000 is converted to an interest only loan.
3) You would want the property revalued to minimise your LVR and save you on mortgage insurance etc.
This however maybe an ideal opportunity for your mortgage broker to find you a more cost effective product given that your borrowing amount will now increase.
There are several ways of structuring your finance to expand your property portfolio however further information would be required to provide you with a detailed breakdown.
Hope this helps.
Richard Taylor | Australia's leading private lender
You must be logged in to reply to this topic. If you don't have an account, you can register here.
