I have just sold my first IP to purchase my first PPOR (4th property purchase) and I have a remaing two IP in hand. Currently I am wondering what my best option to carry on with is:
First off, should I hold my other 2 IP for approx 2 years and sell to release the CG and pay off my PPOR and, using the equity in my PPOR, buy back into the market with the equity transferred to my PPOR and much lowered housing cost, ie no mortgage payments just IP payments, good vs bad debt.Or should I refinance each year and prepay interest on my IP so my rent repayments go onto my PPOR and equity graduly transfer equity into my PPOR.
The idea being to pay off my PPOR asap and continue investing.
At the same time should I, with current interest rates so low, purchase a third IP with the equity in my PPOR to continue the investing cycle?
ATM I am not sure of which is the best path to follow and weather investing atm with the cash flow reduction will end up with the best financial situation.
Any ideas would be much appreciated I am currently entitled, starting oct, to the NAB defence home loan which is an extra $300 a month of the interest of the loan on the PPOR. This will help out with the cashflow I have atm.
Why do you need to refinance very year if you make your IP interest only? Don't you only need to do it once?
I think selling just cost too much. Assuming $500k properties, the transactions of selling 2 IPs and buy back is likely to cost you in excess of $50k. Is that a worthwhile option? Maybe… but to me it's just too stressful.
The idea of refinancing is to increase the loan on the IP to 80% LVR and use the money to prepay interest on that loan so my rent goes straight onto my PPOR decreasing bad debt, increasing good debt.
The other option, selling would cost me selling fees and repurchasing but 50k is a lot less than the interest payments on a PPOR home loan.
Either way has costs but paying off the PPOR frees up income and allows more investing.
I think it would depend on the figures. Selling and then buying again will cost around 6% of the value of the property – plus you will have CGT too. THis is a lot of money gone.
Another option, similar to your second one, is to set up a LOC and borrow to pay the interest on your investment properties and free up cash to pay down your PPOR loan quicker. It will convert bad debt into good debt. You will need a good accountant to look over this idea and maybe get a private ruling from the ATO – I know of one that already has a ruling, so it is all legal if done correctly.
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 Terry. I have to see my accountant next week anyway so I will ask for his advice then as well. Holding onto the properties and tranferring the debt will probably take longer time but save the selling fees where as I will probably be able to sell in 2.5 to 3 years in which case the 6% will be gained by not having to pay interest on my PPOR?
Hi, why not live in one of the IPs?
Or defer living in the targetted PPOR until it's paid off then move into it? Eg, buy the house of your dreams/a tired house with good bones then use it as a rental, putting all savings into an offset acct.
Near the end of the period, [6 years], or in between tenants, do major renos, then when you're ready to move in, clean up , repaint & move in.
KY
PS you can do the same with a newer house & get all the associated depreciation & when you move into it as your home later, you don't have to pay back the depreciation.
Hey KY,
Thanks for those ideas. I was going to rent it out until I had completed reno's then move in, but the house I was renting, the owners mucked us around and put the house on the market. It was easier to move into my now PPOR instead of trying to find a rental. Affordability is good at the moment as I have the DHOAS loan and of course the IP which are pretty much positive geared now. The IP are to far away from work to consider living in for the time being and will be so for at least 2 years. At this stage I have enough equity, depending on my accountant next week, to purchase another IP and start the plane of redrawing on the other 2 ip and start transfering equity.
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