Hi all –
My partner and i purchased a property in early 2008 for $284k with a 100% loan and of cos this meant our repayments consisted of high interest and minimal in principle plus LMI. We had the loan split, fixed/variable for 3 years which expires end of this year. As it stands, our loan is at $275k and our property is currently valued at $305k.
We currently have $24k saved, generally $1500 per month into the savings. So after another 2 years, we should have about $65k saved.
My questions are:
*Should we make a lump sum repayment into your existing property and how much? So the LVR is ~80%?
*Keep saving and use it as a deposit for a IP in 2 years time?Any advice is welcomed
Hi Amie,
Do you have an offset against the Variable Rate Loan? (It is not possible to have an offset account against a fixed rate loan).
If so, put all the money in there so you are saving interest, but still keeping the cash available for another purchase.
If you just pay cash deposit for an investment it will not be tax effective.
Imagine if you had cash, then paid it into your loan and reborrowed it (using a separate loan ideally). Think of all the extra interest you could claim on your tax.
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
Amie who is the current lender as a couple of the 100% plus lenders who are no longer with us arent doing further lending.
SGB is the odd exception however it doesnt sound like a Dragon deal.
If you paid down the principal and set up a LOC or similar to say 90% at the same time as you did the refinance you could create the sub account Terry is talking about.
Keeping thing separate will aid come Tax time and also means the interest is deductible and easily recognised.
If you have to refinance because your current lender is no longer in the market or the SVR is ridiculous then bear in mind the LMI costs again.
Richard Taylor | Australia's leading private lender
YoungInvestor wrote:Hi Amie,Do you have an offset against the Variable Rate Loan? (It is not possible to have an offset account against a fixed rate loan).
If so, put all the money in there so you are saving interest, but still keeping the cash available for another purchase.
Currently, we don't have an offset account. Will contact my mortgage broker.
Terryw wrote:If you just pay cash deposit for an investment it will not be tax effective.Imagine if you had cash, then paid it into your loan and reborrowed it (using a separate loan ideally). Think of all the extra interest you could claim on your tax.
Indeed. TBH I'm fairly new to this so appreciate your advice.
Qlds007 wrote:Amie who is the current lender as a couple of the 100% plus lenders who are no longer with us arent doing further lending.SGB is the odd exception however it doesnt sound like a Dragon deal.
If you paid down the principal and set up a LOC or similar to say 90% at the same time as you did the refinance you could create the sub account Terry is talking about.
Keeping thing separate will aid come Tax time and also means the interest is deductible and easily recognised.
If you have to refinance because your current lender is no longer in the market or the SVR is ridiculous then bear in mind the LMI costs again.
We're currently with CBA.
Thanks for your input, need to arm myself with more knowledge. I wasn't expecting to have a sudden interest in property.
re my post
Using a simple example.
You have a $100,000 loan, $10,000 in cash. You pay interest on $100,000 and cannot claim this.You then buy a $100,000 property.
scenario 1. use your cash
You now have 2 loans. $100,000 for the original house, paying interest on $100,000 which you cannot claim (personal use).
and, $90,000 on the investment. You can claim the interest on this loan.or
$100,000 loan. repay $10,000 into this loan and then reborrow it. Your loan is now split into 2. original loan is $90,000 you still can't claim the interest, but it is now less.Loan 2 is $10,000
Loan 3 is $90,000.The interest on loan 2 and 3 is both deductible if they are used for investment purposes.
Net result is the same in total loans, but you have increased your deductions by borrowing an extra $10,000 for the investment.
@ 7% this would be $700 extra deductions per year.Imagine the figure for a larger amount – and the compounding effect.
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
If I was in your shoes here is what I would do (not saying you should do this just giving my ideas).
Keep your original property (which I assume is your home and you aren’t renting out). Allow it to grow in value over the next two years. In two years time, when you will be wanting to inject your capital you might have an 80% LVR anyway. In which case see a mortgage broker and look at refinancing so you can get a lower interest rate and less fees.
Then take your savings and invest in a positive cash flow property. This way you will receive both capital growth and growth in rental income over the years, increasing your ability to save a deposit or to pay off your existing loans.
I am about to settle on a property this week that is positive cash flow and just cost me $18,000 to buy. You are saving around $18,000 per year, so it could even be possible for you to buy 1-3 smaller investments without having to wait to save the entire $60k+. Then the positive cash flow an growth from these properties would boost both your income and your equity and allow you to invest in more and more properties.
Be smart with your money.
If I was you I would use it to build my portfolio as quickly as possible (while keeping an 80% LVR).
Ryan McLean
http://CashFlowCapital.com.au
Positive Cash Flow Properties Are Just a Click AwayRyan McLean | On Property
http://onproperty.com.au
Email MeAnother point, which you may not have thought of. Is that cash itself is a liability…it goes down in value every year.
Because of inflation the value of the dollar becomes less and less every year (generally by 3-5%)
By using your money as a lump sum to pay off your loan you are effectively ‘buying’ cash. You are buying something that will go down in value between 3-5% a year.
If you use your money to buy a property you will be buying an asset that goes up in value each year.
The decision is ultimately yours, but think about the idea of buying cash which goes down in value vs. buying a property that goes up in value.
Plus with a positive cash flow property (and they do exist) you can make as much if not more than you would save by paying off your loan.
Again just an idea.
Ryan McLean
http://CashFlowCapital.com.au
Positive Cash Flow Properties Are Just a Click AwayRyan McLean | On Property
http://onproperty.com.au
Email MeRyan you mentioned in answer to one of my previous post that you hadnt purchased a property with a Vendor finance loan yet are saying here that you purchased a property for only $18,000.
Are you saying that the total purchase price was $18,000.
If not do you want to tell us more.
Reason i mention it is because you couldnt seem to understand that not mentioning the Vendor Finance part oin the initial loan application is fraud so i was wondering what your Bank said when you disclosed it.
Richard Taylor | Australia's leading private lender
Terryw – Thanks for your example, it does certainly puts things into perspective. I'm still educating myself so these maybe silly questions –
Based on your example, if we were to take out a 2nd loan, would it be in our interest to only have one name on the title on the IP for tax deduction purposes?
ryan – I appreciate your encouragement and advice. As much as I would like to jump on the investing bandwagon, i believe i need to educate myself further.
There are a lot of consequences that flow on from whose name goes on title.
If you put it in the name of hte highest income earner you may save more tax now, but what about long term? The property will make a profit eventually (hopefully). There are also other factors such as what if that person is sued – you could lose the house, whereas if it was in both names you might only lose half. Land tax is another issue, especially in NSW.
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
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