Investment question

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invest2012
Member
@invest2012
Join Date: 2012
Post Count: 1
August 28, 2012 - 12:07 pm
Hi,
I own a property valued at 350,000 and have a mortgage of 205,000 on it.I am planning to purchase a property worth 500,000 using equity on current property and borrowing the remaining amount.
So will be having 2 loans for 205,000 and 500,000 respectively.
I am looking at 2 scenarios.
Putting current property on rent and staying in new property (renting at around 350 per week)
Putting new property on rent and staying in current property (renting at around 500 per week).
I am planning to go for interest only on rented property and principal and interest on stay in property. Which of the above should I go for?
Please advise.
Thank you
Jacqui Middleton
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@jacm
Join Date: 2009
Post Count: 2,539
August 28, 2012 - 12:44 pm
It depends on your objectives. If you intend to keep both properties for the long haul, probably best to stay in the cheaper property, pull the equity to buy the $500k place and put tenants in that. That way, more mortgage interest will be tax deductible because the purpose of the borrowings will be for investment. If you move into the $500k, the purpose of your equity borrowings will be for a residence for you… not for an investment property, so the mortgage interest will not be tax deductible.
Jacqui Middleton | Middleton Buyers Advocates
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M.Investigator
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@m.investigator
Join Date: 2012
Post Count: 134
August 28, 2012 - 3:20 pm
I agree that it depends on your personal goals.
In my view, I would rent out the property that would give me the best cashflow potential. I would stay in and pay principal and interest for property with the worst cashflow potential.
PLC
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@plc
Join Date: 2012
Post Count: 400
August 28, 2012 - 3:23 pm
Also might need to take into account CGT consequences as well. Only one place can be your PPOR, so the other would be liable for CGT if you decide to sell up in the future.
PLC | Phoenix Loan Consulting
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Richard Taylor
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@qlds007
Join Date: 2003
Post Count: 12,024
August 29, 2012 - 4:52 am
I don't think it is anyway as clear cut as that.
Personally i would go Interest only on both of the loans and link an offset account to one of them.
I wouldn't go with 2 separate loans as you are suggesting as this would involve cross collateralising the loans and I personally would look at 3 separate loans probably with 2 separate lenders.
Just to make sure your mortgage broker takes care in structuring such a deal as it is easy to come unstuck down the track if it is not done properly.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Jamie Moore
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@jamie-m
Join Date: 2010
Post Count: 5,069
August 29, 2012 - 5:37 am
Totally agree with Richard on the interest only for both suggestion.
I'm an advocate for interest only against all properties, including the PPOR – with an offset attached to it.
This structure provides maximum flexibility now and in the future.
The only time it doesn't work out so well is when the investor isn't good with money and will simply make the minimum interest repayments against the PPOR loan and blow their cash elsewhere (cash which would usually be best off placed in the PPOR offset).
Instead of rambling further, this article might help.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
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