Me and my wife have decided that we would like to get a investment property but dont really know where to start.
We bought our first house last November for $430k and have the loan down to $372k, we currently rent the spare bedrooms out for $670 a week and have an income of $100k for the 2 of us1. as we are currently paying month interest and principle and after reading other post here and on other forums it seems better that we should change our home loan to interest only and use an offset account to save money for a investment property or should be do it anyway for benefits later on if we decide to move away and rent the house out?
2. can we use the equity from our current house to secure a loan for investment property
3. there are not any mortgage brokers in the town we live in and we are going up to Darwin next week, would i be good to pop into aussie home loans and talk to them about what we can do.
4. what other options are the available to usHi Winadil
Welcome aboard.
1. Interest only with an offset on an owner occupied property works well when you're a disciplined saver and will continue to add a bit of money to your offset on a regular basis rather than just making the minimal interest repayments. This structure generally has two main benefits – the first being that if you ever turn your owner occupied property into an investment, you wouldn't have paid down a portion of the principle (which becomes a tax deductible debt once it turns into an investment). The second benefits is that it helps with cashflow. Here's an API article I wrote that explains it in a bit more detail.
2. Yes – but it needs to be set up correctly. You don't want to use your entire owner occupied property as collateral for you investment property (which unfortunately is what many of the banks try to achieve). Having said that, it doesn't look like you've got a lot of equity up your sleeve. If the property was valued at $430k, you'd realistically only be able to access about $15k. This is because most lenders won't allow you to access equity above 90% of the properties value.
3. You can use any mortgage broker from anywhere in the country. Everything's done with email/phone these days.
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]
thanks for the advice
Hi Winadil
We deal with Clients all over the country and use Brokers and Solicitors from all over the place too. These days it's very easy to arrange most anything for a purchase, but you just want to make sure the people know what they are looking at structure wise and that there is some synergy between everyone, otherwise you might have a bit of a messy structure to sort through and it might make your journey more painful than it has to be.
From your numbers, your income look good, but you'll need to be careful as to what you buy price wise, as your deposit might be a bit tight.
You will probably need to go a 95%/95% loan. 95% on your home to get the deposit and 95% on the IP as you won't have much deposit.
We set up a purchase for a Client last week in Gladstone and we could only get around $25,000 – $30,000, but he was able to buy a brand new House and Land package in the hottest city in Aust, so if you can get the funds, the going to the best location would be your best bet.yeah we decided that we should save up about 20-25k more , should only be 6-7 months but would rather wait then rush into something
will give me some good time to look thought here and find out what kinda property we are really looking forHi winadil
Once you’ve saved that cash, you could look at putting it onto your current loan and reborrowing it so it becomes deductible. This needs to be done properly though – in a manner that distinguishes your tax deductible from your non-deductible debt.
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]
so would it be better to withdraw any excess money off the current home loan and use that plus the money that we have saved for a deposit on a Investment property?
Hi Winadil
No definately not as this will be seen as a redraw and wont be Tax deductible.
When the time comes what you need to do is get the lender to cancel the advance repayments and take out a separate interest only sub loan. Your lender may not like it or indeed have any idea why you want to do so hence you might want to get your Broker to process it order to get it done correctly.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
You bought a house for $430k and rent out the spare room for $670!!!
I'd say rent all of your rooms and move out to a new one.
This is a massive CF+ property, don't worry about any diversifying. buy the house next dooryeah me and my wife rent out the spare rooms for Korean working holiday visa works well they keep to themselves as rent is expensive in town
I don’t mind i only use our room to sleep in and it does not impede our lifestyle at all. may as well use the spare space.
we are looking at getting another house, as we have a lot of spare cash that we think could be put to better use
property price have dropped a fair amount but the number of housing on the market at the moment is massive. it seems like it is a buyer market at the moment and we think it might be the right time to get in .
we just don’t know how to gauge the market. will it drop more? will it start to recover? or just start to even out?
I have been doing lots of research and know that i should try to get in while the market starts to recover from a downward slump but dont know when the market hits bottom.
are the any tell tail signs?
what should i be look for to get a good idea where things are headed?As I have suggested in another post – look for when the media has mixed messages – about now in Melbourne.
I have seen some news say prices are stable and in fact have gone up – that is true where I live – prices have not gone down.
Some prices have gone up closer to the city.
There are also reports that there are less properties on the market – which again leads to demand from buyers and higher prices.
From where I am- prices have already hit bottom and are rising again.
Try looking at median prices in your area- and see if you can find something lower. That will tell you something.
And as Noob says – find more properties like the one you have – it is bringing you in cash.
I dont know if you are complying with “rooming” house regulations where you are – better check that with your local council.i am just a bit confused
we are looking at a few houses in our area that are a real good deal and at a very good price but confused on what to do about the deposit?
one person says that we should not withdraw our excess money from the PPOR loan because off tax concern but another said that we should not use equity in PPOR either and keep PPOR and IP separate
I don’t really understand how we can get the cash/equity from our current home to kick start our investments property?
I am thinking about putting the PPOR in my wife’s name and use my name for the IP or should we go the Discretionary trusts route
we live in the outback so there is not much in the way of good financial adviser in town but there are a few accountantswinadil wrote:i am just a bit confused we are looking at a few houses in our area that are a real good deal and at a very good price but confused on what to do about the deposit? one person says that we should not withdraw our excess money from the PPOR loan because off tax concern but another said that we should not use equity in PPOR either and keep PPOR and IP separate I don't really understand how we can get the cash/equity from our current home to kick start our investments property? I am thinking about putting the PPOR in my wife's name and use my name for the IP or should we go the Discretionary trusts route we live in the outback so there is not much in the way of good financial adviser in town but there are a few accountantsHi winadil
If you redraw the funds from your PPOR loan it may be difficult to claim the deposit as a tax deduction because you've mixed it up with your PPOR loan.
The cleaner option is to arrange a second loan against your PPOR. This loan will act as the deposit/costs on your investment property – the remaining funds is then set up as a third loan.
So it would look like this:
Loan 1: Current PPOR loan
Loan 2: Equity release against PPOR (usually enough to cover the 20% deposit and costs)
Loan 3: Separate loan against IP (the remaining 80%)Loans 2 and 3 should be set up as interest only (no point paying down this deductible debt whilst you still have non deductible debt in the form of your current PPOR loan).
Hope that helps.
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]
Sorry – forgot to mention.
A financial planner won't be able to offer much assistance. You need a decent broker/banker to sort this out for you.
If you're comfortable with dealing via email/phone – then you can use any broker in any part of the country.
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]
It sounds like you've done enough research to know a bit… seeing as you're mentioning discretionary trusts. Keep in mind that not everyone around you has done the same research. So for instance, if Uncle Bob suggested at last Sunday's barbeque that he knew the precise kind of property you should buy or how you should finance it, keep in mind that Uncle Bob has less knowledge on the subject than you and, is also not wealthy via the property vehicle. So probably not much point listening to Uncle Bob as he will only be spouting off about a topic he knows nothing about, and in the process, confusing you as to what decision to make.
Jamie and Richard who have both posted above on the other had are very knowledgeable and conveniently are also a brokers who know full well how to use property and mortgages to get ahead in life. Seldom do you need to meet a broker face to face these days… it's all phone and email. Why not give one of them a call and get him on your team to help you achieve your goals.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi winadil, I sent you a private message
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
yeah it does sounds kinda confusing when everyone has there own opinion
it is a lot like when i started to trade on the markets everyone has advice, anything from always put money on bank shares as they never go down too buying shares was the same as gambling!!!!
but no one really had any evidence to back it up if i probed a little more
I know i am a bit tight for equity and want to make a play now rather then wait but don’t want a good deal too pass, but i know there will always be another good property deal around the corner if i wait and get some cash together.
do you usually get the feeling that if you wait too long that you will miss out.
or is that just a feeling you get once you start to play the property game that you have to leave to ignore?Winadil there is always another property around the corner. Dont get sucked into “you have to do it now” or “this will be snapped up soon”.. it is just a matter of the right one will be the right one when the time is right for you. We all live in houses and we all buy and sell houses – there is always another good deal coming by.
Jacm is right – you need to listen to those who deal in property.
Jamie and Richard have a depth of knowledge. You can listen to Uncle Bob but take care that he knows what he is about – and take it as something to be aware of- dont let it affect what you know is a good thing to do.
In my experience – its about having the knowledge – and yes there is always a “risk” but it is a managed risk.
It is a good idea to chat with Richard and/or Jamie and make a plan based on what you can do.
I have met ONE ONLY financial planner who can make a difference- where she changed one thing to cost you less out of your pocket. In the main- other planners have sold me insurance and that was about it…………..
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