Hello All,
Firstly, I am quite new to the property market and have a bit of a plan to tackle in the next 5 years. So any advice from you pros will be greatly appreciated!!
My partner and I live in a villa currently worth about 345k. We will be getting the kitchen/bathroom/laundry renovated and also the yard done over the next few years. The property is in a good area close to the city and in about 5 years time we will owe about 190k on it… and it will be worth well over 345k. Villas in the same area with a basic renovation are currently selling for around 400k. We are happy with this so far.
We also have investment property worth 200k in far north QLD and owe 194k on it…. I think it has been a bad purchase. The strata and rates are through the roof and I am out of pocket at least $160 a week and it hasn't budged in price in the last 2 years. I know these things take time but it just seems an excessive amount to be short each week. In 5 years we will owe 155k on it
So, what we want to do is: In 5 years, basic renovation on the IP, and fingers crossed the value has increased a little. And then we were thinking of selling it… Good idea??
We want our own house and were looking at spending around 550k. And, we will turn our current place into an investment. With what equity we will have and the current IP to use, what would be the best way of going about it.
At that stage our combined income will be around 150k….
Thank you soo much in advance!!
Also…. can someone explain exactly how your payments are calculated when you use your own equity?? Eg if I use 100k of equity to buy a new place for 500k, what are my repayments likely to be?
Cheers
Steve….. confused in the property world!
Sorry… I am out of pocket $200 a week for the IP!!
hehehe makes me cringe!
A word of warning – It is my understanding that if you rent out your PPR the interest on the loan for that property will not be tax deductible if it was originally purchased to reside in.
Hello Magoo1
Really?
The residence we live in currently is actually done as an interest only at present. We did claim tax on it last year when it was rented out. Our place in QLD was bought as a primary place of residence, but after living in the property for 2 years, we have moved and started to rent it out. So, you are saying that I won't be able to claim tax on that property this year?? If so, how do you go about changing that??
Cheers
The ATO look at what was the reason for the original loan? Was it for the purchase of an IP our for a PPR? As far as I know, once its for a PPR you will have a hard time proving that its an IP cost. There some obvious indicatorslike what property is the loan mortgaged against? If its the PPR, watch out if the ATO decide to have a look at you.
But dont take my word for it.. You better talk to your tax agent.
Actually it could be deductible. Read this:
https://www.propertyinvesting.com/forums/property-investing/help-needed/4335481
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
JacM wrote:Actually it could be deductible. Read this:https://www.propertyinvesting.com/forums/property-investing/help-needed/4335481
Yes I can see how the loan can remain to the current PPR when it is converted to an IP. However in your case Jac (and mine and most other people!) you have paid all the principle off so you are stuck with an asset you cant borrow against. I am happy with that as I do not want to sacrifice my home for the sake of investing. If for some reason there is a problem with your investment, you will not potentially lose everything youve got.
After reading that thread I am interested to see what you strategy will be to move into a new PPR. It seems like that only way is to sell and start borrowing….hmmmm.
I'm still on the fence about what to do about it. The memory of how hard and traumatic it was just to get a phone line and internet connected with Telstra is still so vivid, I don't know that I have the energy to do it again too soon as a result of a move!
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Mago without being funny be careful giving advice because what you have stated is clearly incorrect as i have mentioned on another separate post.
You can cretainly claim the interest on your loan balance once you move out of your PPOR and rent the property out however you cannot reborrow, redraw or take out further funds from the initial balance and claim the interets on this.
Of course depending on which State you are located in there is another way of doing this and making all of the interest deductible on the current market value. This comment is for another day and another post though.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
MAI
The Nth Qld market has certainly suffered over the last 12 months for a variety of reasons and I am sorry to hear about your situation.
If it helps i dont think it will last forever and as soon as Tourist return i am sure the local economy will pick up.
Now couple of things worth considering:
1) You mention that in a few years time the loan balance on the IP will be down to $155K which indicated to me that the loan is a principal & interets loan. I would strongly suggest you look to switch this to interest only as soon as you can.
2) I am unsure as to what rate of interest or indeed gross rent you are receiving but wouldnt have thought the weekly after Tax shortfall would have been that high. Are claiming all of the elligible deductions both cash and non cash?Without more personal information it is difficult to comment on the whole structure but to me the figures dont seem quiet right.
Dont get me wrong i am not suggesting you rush out and refinance but careful loan planning might be worth considering especially if it enables you to go forward with your new PPOR and reduce the interest and other outlays on your IP's.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks for the input guys.
I will talk to the accountant regarding my property claims, and fingers crossed I can!Richard:
Yes you are correct that it is a Principal and Interest loan at present, and to be honest, this will be the first year I will be able to claim on it, so I am hoping that I can get a fair bit of the $200 per week back. The main outgoing is strata and rates, which has gone up to 8k p/a combined. The rent on the current loan structure falls about $70 a week behind the mortgage.
We were actually planning on restructuring our home loans this year sometime. The main reason I have not changed it to interest only was that I was under the impression that you couldn't make extra payments to these loans? If you can then it will be a great option for us.
Basically, by the start of next year, we will have a combined total of $1400-$1500 a week we can put on these 2 properties. I was thinking it would be a good idea to bring both loans down far enough so that rent covers almost all costs on each property when we move out and buy our new PPOR. And we could use our equity to pay for a deposit.
Is this a good stratergy?
I do believe the market will get better up in Nth Qld eventually. We just have to be patient I guess!
Such a nice part of Oz too.
We would love to be able to keep both places as investments if possible. And continue to invest over the years…Thanks again for your time
MIA as you are looking at buying a PPOR I personally would be restructuring the 2 IP loans NOW rather than waiting as the interest is deductible.
Hate to say it still does sound to me like the deductions are being fully claimed and i would like to double check the numbers.
Every dollar helps and restucturing the loans and getting them set right could make the difference between an easier stress free life and sleeping at night and worrying about every tenant payment.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Yes, I think I will look at changing over asap. So, it is possible to make extra payments on the interest only loans?
I am yet to claim anything on the Qld prop yet, I will know how much I am really negatively gearing at the end of the financial year. But doing a quick calculation on my possible claims, I should be able to reduce my taxable income by 10-15k… if I am doing it right!
This home loan rate is currently at a introductory reduced rate of 7.18%…. but will rise at the end of the year.If we re-structure both loans to an Interest only, with an option to repay higher amounts. I think that we could knock down the minimum payments fairly quickly when we start paying $1400 a week. That way we will build up a nice bit of equity between them…. And I am not sure which would be the best option when using this equity as a deposit on our PPOR… Is it a good idea to unlock as much as possible to bring the next loan down?
Thanks again!
Why would you want to pay extra on an interest only loan? Simply put any extra money in the offset account, which reduces the amount on which interest is paid, and therefore achieves the same thing.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Ahh that makes sense JacM. Sorry I really have a lot to learn in this field… I guess that also makes it easy to access the funds in the future also.
Oh, and I hear ya about telstra and moving house… We moved house last September and we have had to call after receiving every bill for 5 months straight for them to charge us the correct amount for the correct services… They are IMPOSSIBLE to work with!
<br /=)” title=”>=)” class=”bbcode_smiley” />Cheers
I hear ya sister! I'm surprised the police haven't turned up to arrest me for the verbal abuse I've been provoked into hurling at Telstra.
Don't worry about the not knowing about the offset account thing. I didn't know either! Took reading about 30 books and millions of forum threads for the penny to drop. Damn, I wish I had originally put my home loan on interest only with offset (cry cry cry).
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hahaha! They are painful…. I still get so angry every time I think of it! I have never had a problem with any business like that b4. And getting passed around on the phone from Phiippines to Australia, repeating yourself over and over again, sitting on the phone for hours on end.. and PAYING for it!!! grgrrrrrrrr!! hehehe
There is a lot to learn eh! But I guess you got to start somewhere….. at least our Perth property is in a good spot. I think we will re finance our QLD property, perhaps both, into an interest only with offset accounts. Will have to look into it a bit more.
I am guessing you have since changed your loan?? Working well for you?? I wonder whether we should look at the same loan structure when we want to buy our main PPOR in a few years…???
Cheers
Hi MIA
Yes you can make extra repayment with an interest only loan (albeit some lenders have a real quirky way of working it out).
Sounds like you have the loan on a honeymoon rate (Yikes that could be an issue).
Definately look at an offset account for the PPOR loan.
Sorry to sound like a broken record but sounds like a complete loan mess.
Lodging a PAYG variation will aid your cash flow and save you interest on your PPOR.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Not a broken record at all Richard!
I need to hear it!
I guess I just jumped into a loan as soon as I could afford to, without research. I will have to re finance everything to get things a little more under control. My partner has the local loan and I have the messed up one!! hehe But we would like to merge our banking to make it a little easier.Maybe an offset account with interest only loan for both properties will be a good start. Just have to find the right lender.
Cheers
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