Hello all,
I will first explain my situation, and my intended plan, any critisism , advice would be greatly appreciated
Currently have 2 IP’s in Townsville QLD, LVR is 90% for both
First IP was my PPOR before relocating to Perth, used $42000 equity out of this house to purchase 2nd investment property late last year. IP 1 is princpal and interest with my savings being in the offset account, IP 2 is interest only. IP 1 is CF+ , IP 2 is Neg Geared.
I have managed to save $35000, for a deposit for another IP in Townsville, looking at a purchase price of somewhere between $300k – $350k, ie 10% of purchase price. (Have not put in tax return as yet, so hopefuly deposit may be larger)
Is it wise for me to buy another IP ? Pay off the equity loan from IP 1..? Pay a bit of both loans..? (Any other ideas) .Both IP’s have rental agreements until Jan 13. Currently am paying rent on a house in Perth, but house prices here are too high for me to afford, and prefer to have a IP as the rent obviously helps with mortgage repayments and am meeting the rental payments easily as I have subsidised rent due to the work I do.
Thankyou in advance
Hi brokota
A couple of points regarding the structure.
Do you ever intend to buy another PPOR? If so, you should convert IP1 to interest only and stop paying down the principle.
Instead of using your cash to fund the deposit/costs on IP3, you could look at paying down one of your loans by $35k and then "reborrow" it which will make it deductible (cash isn't). This will only work if the lender will allow you to access equity up to 90% LVR and the valuation on the property doesn't come in short (so hopefully you're with a lender that allows upfront valuations).
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]
Hi Jamie,
I do intend to buy another PPOR at some stage, but looking for another IP at moment, with regards to not pay the principal I am lucky enough that my employer pays $419.00 a month off my mortgage on IP1, and I have adjusted my repayments accordingly to pay the minimum amount, which is less than if it was interest only. If it was Interest only my employer would stop paying the $419.00 .Unfortunately the banks don’t see this as extra income as it is a fringe benefit.
On IP2 it is an interest only loan, are you able to pay down interest only loans..? Or would it be better off paying off IP1 and then refinancing it, being aware I have already used equity out of IP1 to pay deposit for IP2. My employer will continue to pay the $400ish up until I leave and continue to pay to meet years worked for them ie, have done 10 years with them, if I left today they would continue to pay for ten years.
If the evaluation does not come back in my favour, I know I haven’t blown my money as have paid off part of mortgage, but am I risking not being able to purchase IP3 if I do that..?
Hi there
If you're planning on buying another PPOR in the future, you'd be best off not reducing the principle on your current investment property loans.
This blog entry on principle and interest or interest only loans should hopefully explain this concept.
Would your employer be able to make the $419 monthly repayments into an offset account instead?
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]
G’day Jamie,
I asked today, and they do not pay the subsidy to interest only loans, but am able to transfer from IP to PPOR if required, just have to apply for another certificate. With that though am limited to only 3 lenders (One of their rules) being NAB and 2 others. They do not pay into an offset account, it is paid straight onto the loan.
Thankyou for the blog link, made it a lot clearer, and now understand the concept, and agree wholly with it.
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