Hi Everyone
Starting to look for our 1st investment property. PPOR bank valued at 520K, owe 382K on it. Looking at brand new 3bed,2 bath unit for 295K (currently rented for $310) in block of units, Earlville, Cairns, but will need around 5k Mortgage Insurance. Combined incomes are approx 156k. Is it a good idea to go with this unit re depreciation/negative gearing or should we be setting our sights on a lower price property so's not to have the Mortgage Insurance issue.
Thanks for your help.That is not the correct question to be asking. You should be asking yourself how much growth potential does this property have?
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
Terryw is correct but that is only part of it. The more relevant questions is – what are your long term goals? Then you ask questions like – is rent yield more important, do you need capital growth for this property, whose name should it be in, will you use your existing lender and most likely cross collaterise or will you use another lender?
As a basic premise, for an investment property, I would borrow as much as I could keeping in mind your goals, your timeframe and the cost to do so. LMI is a progressive cost, so the higher LVR you go to, the higher the % charged. It is normally added to the loan or capitalised so it is not out of pocket and it is tax deductible over 5 years, so for an investor, it is simply a cost of doing business efficiently.
It does not suit all people so I would not recommend it necessarily but would consider it.
Good luck
GregDepreciation is a sales pitch, Yes it does provide increased cash flow but it is the side gig to what you are aiming to achieve. Further, you will often but not always pay a premium for new property (like a car except not a depreciating asset) and this will effectively diminish any gains you are making from your depreciation.
LMI is also a side gig to what your are aiming to achieve. When you enter the Investment Property (IP) world, think and behave like a business and you will succeed. If you see the LMI as an expense to the acquisition (that is otherwise tax deductible), and you complete the calculations on this fact, I know you will be pleasantly surprised.
Don't forget too, that depreciation is claimable because the asset is being run down. This means its value is constantly decreasing and will eventually need replacing.
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
As far as I know, if you can come up with a 20% deposit you wont need to pay mortgage insurance. Assuming you have no deposit saved you should still be able to come up with the 20% by accessing the equity in your PPOR. Generally lenders offer 80% of this equity which in your case is $110,000.
number 8 wrote:
LMI is also a side gig to what your are aiming to achieve. When you enter the Investment Property (IP) world, think and behave like a business and you will succeed. If you see the LMI as an expense to the acquisition (that is otherwise tax deductible), and you complete the calculations on this fact, I know you will be pleasantly surprised.
[/quoteAgreed. It's the cost of doing business. In the long term, that $5k cost that can be added to the loan will hopefully be insignificant in terms of the growth your property has experienced.
To fund the IP purchase, you could access some of the equity in your current PPOR and use this as a deposit towards the IP.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
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