Hi everyone.
Long time lurker, first time poster. Just looking for a bit of advice on my current situation.
First up I have my PPOR which I paid $380,000 for in Oct 2006. I'd say it's currently worth about $420-$450k as it's about 2KM from the city and supply is relatively low. At the moment I have $380,000 sitting in my offset account of the mortgage, so I have enough to pay off the loan and get the title.
However, I'm not sure if this is the best use of my capital. Up until a few weeks ago I had another unit which I sold for about a $100,000 loss (long story). I also own my own company which does very well. I'm in my mid twenties.
Now, my question is whether it's best to pay off my PPOR and be done with it, and start building up a new deposit for an investment property, or whether I should instead take the $380,000 and use it as either the deposit for a few investment properties or even the development of a few town houses.
If you were in my situation what would you do and why? Thank you in advance for taking the time to read my question and provide an answer.
Firstly I will assume your current home will be your PPOR for a while and not a future rental property.
On this basis then i would not be using any of your cash savings to fund a deposit as this is simply not a good use of your own capital. Remember funds taken out for investment purposes are tax deductible whilst interest repayments on your own loan are not.
You would be better off to pay down some of the capital on your PPOR mortgage and then take out a separate investment Line of credit and use this facility to draw down to cover the deposit and acqusition costs.
Keep the loans separate and not cross collateralised. A good investment orientated mortgage broker should be able to assist you with this strategy.
Richard Taylor | Australia's leading private lender
Richard gives good advice. Always look to reduce your non tax deductable expenses such as interest on your PPOR. Let the government and your taxes do the work for you when investing in property.
cheers
John
Yes, i would pay off the PPOR (if you do not intend to move out) and then reborrow the money to invest,
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for the advice Terry. What if I do intend to move out?
If you pay off the property and then want to move and buy a new place to live in you could end up with no deductions on the old one and so pay more tax and, since you have no cash left will have to borrow to pay for the new one and the interest won't be deductible.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi SydnerCider,
I always tell people that it's best of to look at your broader situation and what you want to achieve, where you want to go etc rather than looking at a specific transaction. If you sit down (either by yourself or with a professional) and map out as much as you can, the best way forward will actually become quite apparent. There are many different structural changes and ideas that may aid you – such as where you want to live, how you want to live, will you have a family etc etc – as that will make the difference to how you structure your affairs, if you use trusts etc etc.
PM if you want a checklist of things to go through to get you heading in the right direction – while it may seem like short term overkill, getting this right will make it all a lot easier in the future. The other important thing to keep in mind is flexibility becuase things change, and what you want today may not be what you want in the future.
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