Hi my partner and I currently have a two bedroom unit with about $255k left to pay on the mortgage (estimated value $320k). We are looking at purchasing a second property to live in – and are looking at properties around the $450k mark. The unit would then be used as an investment property (estimate we can get about $300 a week rent).
Is this situation likely possible on a combined income of $135k?
Can anyone offer any general advice on advantageous ways we can go about this?
Would there be any sense in purchasing the $450k property and renting it out of the first 12 months – some possible tax advantages here?
Often read that people pay interest only on their investment property. I quite like the idea of continuing to pay interest + principal so that eventually the investment property could be owned outright and the rent could offset mortgage repayments on the house we'd be living in.
Not looking at any further property investment – house + one investment property all we're after.
Thanks in advance for any tips, advice or things to consider that you can provide.
G'Day Intrerested,
In terms of servicing – you will not have any issue borrowing the required funds. The only question is around your deposit. You do not have any equity in your unit at 80% LVR but you can borrow up to 90% which means that you will have approximately $33k in deposit to use as a contribution for the new purchase.
There is no problem in paying Principle and Interest repayments as opposed to Interest Only repayments. The benefits of Interest Only is that the funds are liquid which means that you can easily use them for any future needs such as renovations or even another property purchase. The disadvantage is that the funds can also be used for any purchases as they can be accessed quite quickly and easily. The real question is your investment strategy strategy for the next say 5 years. This will dedicate what loan structure is best suited to your strategy.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi
Thanks for your response.
Are you please able to tell me how the $33k amount was arrived at?
This would not be a short term thing. My partner and I would both be happy to live in the new house long-term and to hold onto the investment property long-term too. We're both pretty risk adverse and harbour no further property ambitions beyond one investment property.
Cheers
90% x $320k = $288k
$288k – your existing loan of $255k = $33k
Also on another note you should get an upfront valuation done on your property to ensure that the property is in fact worth $320k. A better option would be if it was worth more so you could borrow more and pay less LMI.
How much deposit do you currently have?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Only have around $10k cash at the moment – guess I was assuming more equity would be available.
Is there anything tips you have for going through the upfront valuation process that can assist in maximising valuation? Just about to start this process (FYI – loan is currently with NAB, if that makes any difference)
Cheers
A handful of lenders provide free or discounted upfront vals. NAB/Homeside is one of them (its free). Get your broker or banker to order one and see exactly how much the valuation comes back at. There is no point making plans until you have this. If possible quote a little higher and provide a reason for the higher estimate – e.g renovations, recent sales that support your estimate, etc.
If you are purchasing a property for $450k you will need at least $42k in deposit.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi interested,
The tax deductibility will only apply to the property that is rented out, therefore if you move into the new property, the interest on the current loan of $255K will be deductible, whereas if you rent out the new property, the loan on that will be deductible.
The reason people pay interest only on investments is that they like to pay off their non deductible debt first (i.e PPOR). Anything above the interest is diverted to the PPOR loan, most likely in an offset account. This allows you to pay your home off quicker while achieving maximum tax deductibility from the investment.
Your broker should be able to structure this correctly for you.
Cheers
Tom
Sounds like the location is one that would be considered low risk to lenders and LMI providers, wouldn't it be possible, with a good broker, to purchase the new property at 95% LVR plus capitalised LMI of say 2% = 97% LVR ? ( I have achieved this in a regional centre)
Interested , your strategy of paying down the investment loan does not make financial sense especially where you have non deductible debt.
You would be better off linking an offset account to the property you are residing in and then linking this to the new PPOR once you move in.
To maximise your deductions you need to structure the loan correctly.
Taking a 95% lvr loan on the new property will not do you any good in the long run as LMI is a loan cost and deductible over 5 years or the term of the loan and proportional in the first year. Would only be deductible when the property was being rented out and not when you decided to make it your PPOR.
Why would you pay more LMI than you needed to.
As i say careful structuring is required.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi
Thanks to everyone above for the reply. Can now clearly understand why paying down on the PPOR makes sense.
So aside from this my major stumbling block is just going to be getting a sufficent deposit together? Guess there are no strategies to really get around something like this?
Hi interested
No legal strategies in getting around this.
As i mentioned how you come up with the deposit / equity release is the important part as this could save you a lot.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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