All Topics / Finance / Need advice what to do next

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  • Profile photo of www_ericwww_eric
    Participant
    @www_eric
    Join Date: 2009
    Post Count: 25

    Hi Everyone,

    As I also need some advices from Finance experts, I create this topic here,

    Background:
    I have 2 properties. 2 loans are with CBA with interest rate 6.43%.
    P1: $308k mortgage. Current market value is about $480k. I pay $2,350 (principal +interest) per month. Current lease $450 pw and will increase to $460 pw after 2 months.
    P2: $523K mortgage. Current market value is about $630k. I pay about $2,800 (interest only) per month. I live there and rent out 2 rooms. I got rent for $410 pw,

    My goal is to be financial freedom. So I am seeking cash flow and possible capital gain (equity).

    I plan to purchase my 3rd invetment property (< $500K) in 2 or 3years. I currently have about $20K cash in the P2 offset account. I save about $40K per year.As now both properties are negative geared. So my question will be what I should do next.
    Some ideas I can think of to change my current situation:
    1. Change my P1 loan to interest only or fix. So the rent can cover the mortgage and I can save extra cash(about $500 per month). Wait for few years, change the loan to principal and interest again when the rent picks up.
    2. Partition living room to create an extra bedroom in P2. it will generate extra rent about $130pw.
    a. If I still live there, the total rent received will be $540. still negative geared.
    b. If I move out, I can get total rent about $700pw. It will cover the interest loan. But I will need to find other place to live and it costs me.
    Should I wait for few years to have enough cash/equity to purchase 3rd property and move out? Or just rent a place?

    I really want to create my portfolio. Can anyone please give me suggestions? Thank you very much!!!

    Kind Regards,

    Eric

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Eric

    I wouldn't be paying P&I on an investment property if you've got a non-deductible PPOR debt. I wrote an article on this subject for API magazine last week – http://www.apimagazine.com.au/blog/2012/03/interest-only-or-principal-and-interest/

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    You are throwing good money away!

    You should have IO on the one you are renting out and PI (or ideally IO with offset) on the one you are living in. If you don't then you will be paying more tax.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

Viewing 3 posts - 1 through 3 (of 3 total)

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