First time poster, long time reader.
I will be receiving an inheritance at some stage in the first half of 2012. Roughly $230K.
I have an investment property with roughly $230k left to pay off which is interest only.
Do I:
A – Pay out my my loan and borrow against my house for another IP?
B – Use the inheritance money as deposit for another IP but more blue chip oriented?
C – Use the inheritance as deposit for multiple IP’s but of lower value?
On another note, i once came across a website that showed how long a property has been on the market. I am not having luck trying find it, hoping someone here might know what I am talking about and can lead me to it.
Thank you
Dan
and another option I didnt mention was:
D – Knock down my current IP and develop semi detached residences on the block.
Cheers
Dan
Consider asset protection first. Consider gifting the money to your discretionary trust. You can then borrow it from the DT and do with it as you please. It could be borrowed interest free too. Doing this will assist with protection if you were to go down bankrupt in the future, possible protection against family law issues (slight) and possible protection if you were to die and your will challenged.
There will also be tax advantages as well.
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
I would be a fan of:
E – Buying multiple positive cash flow properties. 1-3 or whatever you can afford.
Then an rents and values increase you would be able to borrow against your equity but still remain cash flow neutral and then invest in more positive cash flow property. They are hard to find, but the cash flow you got from them could service your current loan.
Ryan McLean
CashFlow Investorps. You may find this blog post useful Top 10 Places To Find Positive Geared Property For Sale.
Ryan McLean | On Property
http://onproperty.com.au
Email MeHi Dilmah,
Congratulations on doing some research and trying to educate yourself before receiving your inheritance money. Something you didn’t mention in your post is what you current living conditions are and if you have any existing debt on your house where you live (referred on here as PPOR – principal property of residence).
A priority could be for you to pay down any non-deductible personal debt, such as car loan, home loan, personal loans or credit card. The $230k on your IP would be tax deductible and can be offset against any rental income. While its a great idea to pay back debt, depending on the stage in life where you’re at you may be better off to leverage this money to purchase additional properties.
Pay close attention to Terry’s advice, he’s a regular giver of excellent advice on here and his advice should be considered. You don’t want to receive this generous inheritance and then lose a stack of it to the taxman or down the road in legal issues.
If your own home is fully paid off, then if I was in your situation I would use the money to reduce but not eliminate the debt on the IP (say a 50% LVR rather than 80%, or even lower) and use remaining to purchase additional property at a low LVR, thus making them cashflow positive. But I’m no expert!
Go and speak with a financial planner and solicitor or accountant knowledgable in property.
Good luck!
Emmai think the website you are talking about is http://www.refindhouseprices.com/ it tells you how long a property has been advertised for and if the price has been discounted/reduced.
thanks for your assistance and opinions. the discretionary trust is a tad awkward to understand. if some one can explain it im real simple terms i would greatly appreciate it. otherwise who can i go to who can explain what it is and the benefits both security and tax wise.
A trust is where one person (trustee) holds property for another person or people (beneficairies).
With a discretionary trust the trustee controls the property and the income. He/she/it has discretion on who to give the income/assets of the trust too. So no one beneficiary has a claim on the assets of a trust.
If a beneficiary where to go bankrupt their interest in the trust is safe from creditors, generally.
If the trustee where to go bankrupt then the trust property does not form part of their estate and generally would not be available to creditors.
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
Hi Dilmah,
This is a windfall which, if used wisely, can kick start the rest of your life. Its about 6 months or so before the inheritance is due so I would advise you spend time working out what you want to do.
Key question is – what do you want to achieve? Once the destination is known the pathway becomes more evident.
In determining the destination you will need to consider a whole range of matters including (and not limited to); your age, family situation and plans, home ownership plans, travel plans, career options and so on. All of these answers may have some bearing on what you should do.
Option A (above) – no gain. You are using the inheritance to pay off deductible debt and then using the equity gained as security for new borrowings.
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