Hi,
Does anyone know of a financial planner in Sydney i can run my situation past…..im sure there are other people in the same boat.
My girlfriend and I recently bought our first property for $670K with a family guarantor loan which includes stamp duty and costs so loan amount is actually $690K. We both earn about $80k a year. To help reduce the mortgage we decided to move back with our parents for a year and rent the property out for about $2600 a month.
Our dilemma is whether to pay interest and principle while renting it out OR just pay interest only and maximize our tax return and save our money and put 1 big sum on the mortgage after a year when we move in. interest only repayments would be about $3300 a month while principle and interest would be $4000.
If anyone has been in a similar situation and can advise that would be great or suggest a reputable IP advisor we can have a chat with.
I bob
What are your longer term plans with this property? Do you think it will ever turn into an investment property again in the future?
I have a lot of clients that come to me after owning a property for 5 or 10 years and want to turn it into an IP and upgrade into a larger home. The issue with this approach is that they've generally paid off a massive chunk of the principle which is now a tax deductible debt (not good).
In these circumstances – some careful planning early on could have saved them a lot of money.
Have a read of this article I wrote for Australian Property Investor magazine on the topic.
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 Jamie that was a great article, very insightful.
At the moment we have not looking at the property as an investment as we bought it as a family home but will definitely do the off set account option as per article when we move in, just in case we change our minds and need a bigger place.
No worries at all – I'm glad you found it useful.
I'd keep it as interest only with an offset so you can keep your options open.
The only time I'd recommend against this structure is if you're bad with money and will simply make the minimum interest repayments each month and will blow your spare cash elsewhere. In this instance, P&I is a forced savings mechanism.
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 Bobbi,
Normally I would agree with Jamie – on this occasion I would be trying to release the guarantor as quickly as possible.
Do you know the details associated with the guarantee?
EDIT – If I was being a guarantor for someone I would like to know that my exposure is kept to a minimum both in terms of timeframe and $$
hi derek,
the garuantor part of the loan is $155K (20% deposit). Effectively we have 2 loans the $155k deposit and costs then the $536k for the remainning 80% of the house.
We were thinking of renting it out for a year at interest only, to maximise our tax deductions, during this time we budgeted to easily save $50k between us or more in a savings account. when the year is up we were planning to put what we have saved into the 155k loan then CBA will let us refinance the remaining $536k loan to be 95% of the property and paying off the rest of the 155k and releasing my parents as garuantor.
Then we we do what Jamie suggested in his article and and out any extra repayments in an offsett account.
what do you think of this approach?
Hi Bobbi,
It is good to see you are focusing on the guaranteed loan. It is really important to 'get your parents off the hook' as soon as you possibly can. Clearly this is something you are aware of.
You haven't mentioned where your property is but if it achieves any growth that will also help you with the release of the guarantee. For example if the property goes up by $50K and is valued at $720K you may be able to release your parents a little more easily with an increase in property values.
Once the guarantee is out of the way then certainly consider Jamie's comments.
Ideally you would have a 100% offset account set up on the $150,000 loan – if you are going to be living in the place long term then have the loan PI if just renting it out for 1 year there is not going to be much interest saved by switching to IO so you may as well just keep on ploughing money into the $150k loan to get rid of it asap.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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