Hi all,
Long time lurker, first time poster!
I purchased a small 2 bedroom apartment last year for $318,000.
After living in it for a year, I moved out into a rental property with some friends, and have been renting out my apartment.
The rental rate on my apartment is just be enough to cover my mortgage repayments each month.
I'm in a dilemma of the good kind, and have found out I'll be inheriting $150,000 in the next month or so.
My question is… should I invest this into my apartment property to pay the mortgage off sooner or am I better off purchasing another investment property? And if so, what type?
Note that I'm on a relatively low income otherwise ($48k a year), so I don't have much disposable cash.
Any help would be muchly appreciated!
If you pay off the apartment, the problem is that it will then be earning a positive income which will be taxed.
Get another property
The apartment is paying itself off anyway.Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Ditto, use the money as a nice big deposit on another place (or two or three!)
Whether you target high-growth and low-cashflow, or pos-cashflow and low-growth is another discussion entirely. I was in the same boat as you though and thanked my lucky stars that I focused on good cashflow property from the beginning. It just made things so much easier and less stressful when I changed jobs, etc.
Failing that, feel free to lend me the money!
Hope that helps a bit,
AndySorry just needed some clarification. Positive cashflow vs positive income are they considered the same thing? Would love for someone to give me an example.
Suggest you be careful and first take a step back and ask yourself where do you want to be in the medium term. If you can define this well then that will help you determine better which of the actions you could take will be better for you. You can always mount an arguament for a range of strategies, the key is to understand there importance to where it is you wish to be.
Questions I would ask you- are you committed to renting for ever?
How old are you and where are you relative to retiremnet (this could open up the option of super and using it to build a property portfolio).
Are you in a secure enough employment position to consider additonal gearing?
Thanks for the feedback guys.
To answer the questions:
– I don't want to rent forever. Ideally I'd like to settle down into a property I love (I don't love my apartment!) and do the whole raising family thing.
– I just turned 26. I don't currently do any additional super contributions
– I'm pretty secure in my employment, but have had thoughts of switching jobs. But in my corrent position, I would say I'm invaluable and won't be let go any time soon!My main issue with negative gearing is that isn't it a guaranteed loss of income (even though the gamble is that property value will increase over time)?
I'm concerned that I don't have much disposable income to begin with, so would hate to cut into my lifestyle in order to fund an investment.
As for the apartment earning extra income that would be taxed… well… it still means more income doesn't it? Isn't that the point of all investment properties, to get them to start paying out?
Thanks to everyone so far for the helpful insights – they're much appreciated!
Hi Cattaby
It's possible that your current income level may slow up your portfolio building pretty quickly if you were to setup your next IP purchase as a negatively geared IP. In the same situation I would look closely at making your next purchase a positive cash flow IP, with the plan that the positive cash flow from this property, supports your next, possibly negatively geared, IP.
Such an arrangement for you next two purchases will hopefully leave your serviceability intact so that you can go off and do it again with the remainder of the $150K.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Firstly spot on re tax, its always a mistake to drive your investment i from a tax viewpoint it is only one of the issues to be considered.
Yes negative gearing is called that for a reason that is you create a loss. The taxman helps you reduce that loss by effectively letting you claim it against other income but you are taking the risk that the capital growth of the property will be greater than the loss incurred.
So I guess at you age we can establish that owning your own apartment is a major goal. So I would first explore strategies that got you there sooner.
Consider selling current apartment and using that capital and your inheritance to get you into the apartment you want tpo live in. Okay clearly some problems here but at this stage you are looking at alternatives so don't be to quick to kill them off.
what might be the problems. Capital gains tax ? cash-flow -as you are living in the apartment you can't claim the interet for tax. Consider getting frees to share with you and pay you rent (time honoured strategy).
You have committed to a lifestyle asset not an investment asset now -however you can always borrow against the equity in your own unit when you are able to invest so can work for you that way.
If the style of living you wish to be accustomed too is out of the reach at the moment but your own place to live in is major goal then let that drive your strategies.
anyway I think you get the point figure out the main goal and then let that drive your thinking?
I would suggest you park the money into a 100% offset account, save interest and then decide what to do. If you decide to buy a PPOR, the cash will be available. If you decide to invest, use as little of it as possible – keeping it for future PPOR.
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
The apartment is paying itself off anyway.
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