i'm as keen as ever to get my mortage down this year,we have $380,000 to spend on a property.on this amount would you advise building and selling on completion and if so where for strong growth and how could i negociate agood deal.i am also considering restructing our mortage to a line of credit,we are aperth based couple looking to get off to a solid start asap.
Hi Jacko
Welcome to the forum and i hope you enjoy your time with us.
Firstly why are you looking to pay down your mortgage is it to obtain equity for investing ?
If so then certainly I would not use a LOC for you initial loan but look at either an Interest only or P & I loan with 100% offset account. By all means a investment LOC can sit behind this to be used to fund IP deposits.
Now with regards to whether you should buy land and construct upon it you should bear in mind the frame between land acqusition and completion of the building when you will either receive some rent or equity by way of capital growth.
Secondly you have to decide what your long term strategy is to be. Are you wanting quick capital or long term income.
Capital Gains Tax would be payable on such a quick turn around and this would erode away your capital gain.
It is certainly horses for course but my personal option is to build capital and income for the long term therefore prefer to hold rather than sell.
Structuring your loans correctly will enable you to buy consistantly and not be at the beck and call of your lender.
Try and avoid cross collateralising the securities and life will be a lot easier and smoother.Richard Taylor | Australia's leading private lender
<snip> If so then certainly I would not use a LOC for you initial loan but look at either an Interest only or P & I loan with 100% offset account. By all means a investment LOC can sit behind this to be used to fund IP deposits. <snip>
Richard, why would you not suggest a LOC for the initial loan? What's the difference between using an offset account & a LOC? thx
There is a big difference.
What's the difference between using an offset account & a LOC?
LOC are normally charged at a slightly higher rate albeit marginal but the biggest difference is the preservation of the interest deductibility. If you utilise an LOC everytime you redraw funds this is looked by the ATO as a new loan. If the redrawn funds are not for investment purposes then the interest could not be claimed. With an offset account the net interest effect is exactly the same the difference being if you ever decided to move out and rent the property you would merely uncouple the offset account and the interest on the entire debt becomes deductible.
Flexibility is key as what starts off as your PPOR may not be forever.
Richard Taylor | Australia's leading private lender
If you have $380k cash to spend I would pay this onto any existing loan which is non-deductible. Then reborrow it (so the interest is deductible), by setting up a separate split, and use it for the investment property. Usually you would just used 20% deposit from this and borrow the remaining 80%.
I too would shy away from a LOC as you can get a lower rate on a standard IO loan with free redraw – but you won't need redraw as you should put any extra money onto your non-deductible debt first and then once that is paid off into your offset account.
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 richard and terry for your feed back,firstly we have enough equity to purchase an investment property using only 20% equity in our home and to buy a property worth $380,000 i would just like to see our morgage decrease at a faster rate than it currently is.I'm 55yrs old and don't have much super saved so i gess i have a 10yr window to get it right, and to try to buy as many investment properties in that time frame so that means buy and hold with good captial growth.Problem is i need someone to get us started and to structer our loans correctly and weather to buy exsisting or build look fordward to your reply.
Hi Jacko
Yes you are right structure is the most important part as you dont want to find you have tied up all of your equity although have the capacity to keep on borrowing and are only constrained by the fact the loans were set up properly.
Actual numbers would be required to give you further indication and I understand if you want to take this information off the forum given it is a public place.
Richard Taylor | Australia's leading private lender
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