All Topics / Help Needed! / 21 year old student: Using the equity in my property to buy an investment property.

Viewing 6 posts - 1 through 6 (of 6 total)
  • Profile photo of panayotakipanayotaki
    Member
    @panayotaki
    Join Date: 2008
    Post Count: 3
    April 28, 2008 - 2:21 pm
    Hey everyone, this is my first post here, hope you are all doing well and finding great ideas o

    This is my current situation:

    Student, 21 years old
    Living in Canberra
    Own and live in a 2 bedroom unit worth $450 000 with no debt.
    No other debt
    Income of around $2000 per month

    This is my idea:
    Buy a small, one bedroom unit (under 300 000) and live in it.
    Fund the above purchase using an equity loan using the equity in the 2 bedroom unit.
    Rent out the 2 bedroom unit with an expected rental income of around $500 per week. Then use this income to pay off the loan for the new property.

    Now I’m pretty new to this sort of thing, but does that sound like a reasonable way to fund my first investment property? What haven’t I thought about? Any ideas of how I could go about it? What type of loan etc should I look for. I realise my income is not high at the moment but my parents agree to act as guarantors.

    Thanks guys!!
    Profile photo of VStarVStar
    Participant
    @vstar
    Join Date: 2004
    Post Count: 48
    April 29, 2008 - 12:46 am

    Hi there,
    A few questions:
    1. Wow!!! Where did you get a $450k apartment with no debt??? Congrats!!!
    2. What would be the repayments on the $300k place be? What i'm trying to get at there is could you buy the $300k (say for eg) and rent that out and rent somewhere else that is cheaper then the repayments for the $300k place?

    Just a thought!
    Sounds like you're on to a raging start!!! Congrats

    Profile photo of VStarVStar
    Participant
    @vstar
    Join Date: 2004
    Post Count: 48
    April 29, 2008 - 12:46 am

    Hi there,
    A few questions:
    1. Wow!!! Where did you get a $450k apartment with no debt??? Congrats!!!
    2. What would be the repayments on the $300k place be? What i'm trying to get at there is could you buy the $300k (say for eg) and rent that out and rent somewhere else that is cheaper then the repayments for the $300k place?

    Just a thought!
    Sounds like you're on to a raging start!!! Congrats

    Profile photo of panayotakipanayotaki
    Member
    @panayotaki
    Join Date: 2008
    Post Count: 3
    April 29, 2008 - 3:28 am

    Hey thanks for replying,


    1.  I can’t take much credit for the apartment, I have been very fortunate…. :)
    2. In terms of the repayments, it depends on the loan amount I guess. I was hoping it would be no more than 2000 per month.

    Cheers
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    April 29, 2008 - 3:54 am

    Hi

    Yes you could get a LOC on your 2 bedroom unit and then pay cash for the new one. That would keep the new one unencumbered – you could always mortgage it later.

    If you are going to live in the new unit, then the interest on the loan will not be deductible. And since your existing unit has no debt, if you start renting it out it will be positive cashflow and you will have to pay tax on the rent (less deductions).

    It may be better just to stay in the existing place and rent the new one?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of panayotakipanayotaki
    Member
    @panayotaki
    Join Date: 2008
    Post Count: 3
    April 29, 2008 - 4:14 am

    Yes, that isn't a bad idea, currently have an informal agreement with a tenant who occupies one of the rooms at my current place. That income combined with the possible rent from the new place would probably pay for the repayments.

    At the same time however, I am keen on moving to a one-bedroom apartment. Life with a flatmate isn't all it's cracked up to be!

    I am not really that familiar with the tax obligations… Are you saying that if I buy the property as an investment, the interest become tax-deductible.

    Hmm.. I've just realised how uninformed I am with all this. Maybe it's time to buy some books!

    Cheers

    Peter

    I looked into LOCs once before, how do they compare with regular home loans?

Viewing 6 posts - 1 through 6 (of 6 total)

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