Gday,
My current situation is – I have 1 property bought for $680,000 in Brisbane in dec 2010, I owe $440,000 now. I am currently renting it out for $560/week as I live out in the mines with my wife. We are renting out here and I am of the mindset to pay this property off in 4years then move back and live in it as my PPOR and then borrow $200,000 and renovate it and stay in that house till the kids leave which will be for a good 20years. I have been doing some research on this site as to what is best in terms of buying investment properties and just paying interest only as this is a taxable debt, although my house in bris is an investment property should I still be trying to smash the loan to zero as it will be my PPOR when i move back home in four years? I am $85,000 ahead in repayments and I had a thought today I should buy an investment property and use the $85,000 as deposit and get another property on my books. Although I am hesitant as I really want to pay off 1st home and move back to bris. I am rambling – I guess I want to know given the above info should I keep on doing what I am doing and pay off my house and then when I have equity to borrow against it for reno's and get another loan to buy investment property on interest only? Should I eat into the $85,000 now and buy investment property and then down the track I can make profit on investment property. One thing that is confusing is right now the house in bris is investment property although it will be my PPOR in four years so if I just pay interest only now and claim tax on interest I will still not have it paid off when I move back into it in 4 years time? I would really appreciate some guidance on which way I should go on my scenario. Thank you very much. Cheers
Ps – If you need me to clarify any info let me know
Things can change. So you may decide not to move into your Brisbane house again and buy somewhere else to live in. If you had paid it off this will cost you a fortune in extra tax. Why not consider a IO loan with a 100% offset? This will allow you to save the same interest but keep a large loan just in case. In 4 years you could have $440,000 in the offset and $440,000 owing still but no interest being paid. At this stage if you decide to move in you can pay off the loan/keep it as is incase you move out.
If you want to use the $85k whatever you do don't take it out of redraw as this will create all sorts of problems and you will end up paying more tax. Set up a separate LOC on this property and borrow this $85k. This will then be segregated and you can claim the interest separately from the main house loan.
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
Hi Terry,
Thanks very much for the reply. Yeah we will definitely be moving back into the house. So if that is the case do you reckon just keep smashing the loan to zero? To borrow money when we return for renos should we just draw against the loan or start to put a couple of hundred in an offset account and use that? Is this option easier for tax purposes? Cheers Mark
I would prefer the use of the offset account rather than paying down the loan.
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
Derek wrote:I recommend getting in touch with Terry (he is an accountant and broker) so you'll get two highly valued services in the one package which means your broker will be on the same page as your accountant.
Well, I hope so anyway
Thanks Derek, but I am many things but am not an accountant.
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
Echo what the boys have said already.
Interest only with 100% offset gives you the choice to change your mind.
Not to say that you will but never is a big word.
Seen so many clients come unstuck when plans and circumstances.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Fellas,
Thanks very much for the heads up. I can see what you are all saying. I will adjust my mindset and shuffling of money to reflect what you said. I will change to IO on loan and divert each cash to offset account and watch that grow. Things can and do change so I have to plan for that. I really appreciate the advice and your time in replying to my post.
Cheers Mark
No worries Mark that's what the forum is all about, sharing and learning from other.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Terryw wrote:Derek wrote:I recommend getting in touch with Terry (he is an accountant and broker) so you'll get two highly valued services in the one package which means your broker will be on the same page as your accountant.
Well, I hope so anyway
Thanks Derek, but I am many things but am not an accountant.
Not an accountant – ooops.
You studying to be one?
Nonetheless, your knowledge of tax matters when combined with brokerage knowledge would be invaluable to your clients.
Hi Mark,
Agree with Terry.
While you say you'll be 'definitely' moving back into your house this is not a given. Things can, and do, change.
For example wife and I planned to remain in our house until we were removed in 6ft long boxes. Circumstances well and truly beyond our immediate control now mean we have reviewed this position and have our own home on the market. Things have changed for us and they can for you.
By placing your money in an offset account it means you will reduce your monthly interest bill while at the same time build your cash reserves. This is quite distinct from building equity.
Now let us assume you do return and live in your own home and that you have built up healthy cash reserves. At this point in time you can direct all/part of your reserves in an area most effective for you at the time. This could be paying down the mortgage, doing the renovation or simply retaining the reserve.
Whether or not you go down this pathway is ultimately your choice – but I would cease making extra repayments into your home loan while you work out what you will do in the short, medium and long term. A couple of months here and there is nothing when long term plans are being developed and refined.
As Terry said do not simply grab the redraw funds and use them to invest, Get some good borrowing and tax advise and set yourself up properly here too.
I recommend getting in touch with Terry (he is an accountant and broker) so you'll get two highly valued services in the one package which means your broker will be on the same page as your accountant.
Well, I hope so anyway
Terryw wrote:Derek wrote:Terryw wrote:Derek wrote:I recommend getting in touch with Terry (he is an accountant and broker) so you'll get two highly valued services in the one package which means your broker will be on the same page as your accountant.
Well, I hope so anyway
Thanks Derek, but I am many things but am not an accountant.
Not an accountant – ooops.
You studying to be one?
Nonetheless, your knowledge of tax matters when combined with brokerage knowledge would be invaluable to your clients.
Nope.
I am a CTA – charted tax advisor, solicitor and a broker though. Fin planning soon.
And next week – A Belly Dancer instructor
Derek wrote:Terryw wrote:Derek wrote:I recommend getting in touch with Terry (he is an accountant and broker) so you'll get two highly valued services in the one package which means your broker will be on the same page as your accountant.
Well, I hope so anyway
Thanks Derek, but I am many things but am not an accountant.
Not an accountant – ooops.
You studying to be one?
Nonetheless, your knowledge of tax matters when combined with brokerage knowledge would be invaluable to your clients.
Nope.
I am a CTA – chartered tax advisor, solicitor and a broker though. Fin planning soon.
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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