Hello,
I would value your opinions around thoughts on the next move given my current situation.
Goals
PPOR – move to larger family home in the next two-three years. Reduce mortgage, increase equity.
Hold 3 investment properties in the next 3 years.Current situation…
Sydney Property 1 – Wife's name
Value: $600k
Owing: $245K
Rented, treated as investment (although using a P&I loan)Sydney Property 2 – Husband's name
Value: $600k
Owing: $350k
Current PPOR and using a P&I loan.An Option
I am considering purchasing a new third property (~900k) in the husband's name (higher income), using an IO loan (secured against 3rd property) and financing partial deposit, stamp duty and costs through LOC on Property 2 (assume the max LOC would be 600*.8-350=$130k). The third property would be an investment property for first two years and then move in as PPOR.Questions
Is the LOC against property 2 deductible along with the IO mortgage on property 3? Are there challenges in converting my current PPOR (property 2) into an investment property? Would we be better off selling property 2? Is this option the most effective way to move into a larger family home or should we be considering something different altogether?When we move into property 3, this would change from investment to PPOR – how is it best to transfer equity from either property 1 or 2 into property 3 to minimise non-deductible interest?
Thanks!
paisley wrote:An Option
I am considering purchasing a new third property (~900k) in the husband's name (higher income), using an IO loan (secured against 3rd property) and financing partial deposit, stamp duty and costs through LOC on Property 2 (assume the max LOC would be 600*.8-350=$130k). The third property would be an investment property for first two years and then move in as PPOR.Could be worth while topping this up to 90% and accesing more equity. You'll need to pay some mortgage insurance here but if you can take a much larger deposit into the next deal (the $900k) purchase you'll pay less mortgage insurance on this property. All up, you should be better off in terms of the amount of insurance you have to pay. A good broker will crunch the numbers and work it out.
paisley wrote:Questions
Is the LOC against property 2 deductible along with the IO mortgage on property 3?Yes, if it's being used as a deposit towards an investment property (which this property will be). If it becomes a PPOR it will no longer be deductable.
paisley wrote:Are there challenges in converting my current PPOR (property 2) into an investment property?Not really. You should really convert this loan (and your other IP loan to interest only). Set-up an offset against your current PPOR and place your principle repayments/extra payments in there. Make sure you get a valuation (an appraisal from a real estate agent should suffice) on your current PPOR when it converts into an IP. This if for calculating CGT in the future if/when you decide to sell.
paisley wrote:Would we be better off selling property 2? Is this option the most effective way to move into a larger family home or should we be considering something different altogether? When we move into property 3, this would change from investment to PPOR – how is it best to transfer equity from either property 1 or 2 into property 3 to minimise non-deductible interest?paisley wrote:Unfortunately it's not as simple as that. You can't simply load up your deductable debt while reducing your non-deductable debt. When you move into IP 3 – the $245k loan on IP 1 will be deductable, the $350k loan on IP 2 will be deductable. All the rest, the LOC to borrow the funds for IP 3 and loan on IP 3 won't be deductable – which really isn't the most ideal situation given that your non-deductable debt will be significantly higher than your deductable debt. If you do plan on keeping both IP 1 and IP 2 as they are now, you should switch them to interest only – no point in paying down more of that debt that will become deductable in the future. There are ways to shift debt around – albeit at a cost.
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]
You must be logged in to reply to this topic. If you don't have an account, you can register here.
