Hi all,
I was hoping someone could shed some light on my current situation as in the best way moving forward for structuring of loans etc for an PPOR (to then be turned into an investment property).
Quick background info.
My partner and I (both 27 years old, combined income of 141 – 160k per annum) purchased a 2 bedroom property off the plan in Hughesdale for $485,000 in 2010. This is due for completion in Feb 2013 http://www.lantanaapartments.com.au
We put a 10% deposit down with the real estate agent in trust.
Whilst waiting for this to be completed, we have also purchased a 1 bedroom apartment in South Yarra for $475,000 which is due for completion in 2014 (investment only). The 10% deposit is sitting in a term deposit until required therefore earning us interest.
Since i need to settle in Feb, I need a bit of help understanding the best loan structure moving forward as i am planning to live in Hughesdale for 2 – 5 years and then purchase a place to live in, therefore turning Hughesdale into an investment property.
My partner and I have saved in addition to the deposits a further $89,000 of which i was looking to use 48,500 on Hughesdale to increase my deposit to 20% therefore avoiding MLI.
The remaining 30 – 40k would be used in an offset account against Hughesdale, to be used for startups and then as a bit of a foundation of savings.
In 2 – 5 years time, i was hoping to use the money in the offset account to purchase a PPOR and move out of Hughesdale.
With my Hughesdale loan, is it best to go with an interest only loan, or should i look at P&I?
Also with my initial deposit, is it worth putting the 20% down against Hughesdale to avoid mortgagae lenders insurance or should i only put the minimum required 10% down and keep the other cash freed up in my offset account to be used at a later date on a PPOR?
I understand the basics in that decreasing a non-deductable debt such as a PPOR is favourable but i'm unsure with the nature of a PPOR turned investment.
A bit of direction would be much appreciated.
Kind regards,
OL
Hi
It depends what you are planning for both units hold long term/ pay them down quickly You can change from P/I to I/O or you can have I/O all the way 5 -10 yrs some lenders are doing, also If you are selling Capital Gains is an issues and depending on the loan you need to check if you can make extra payments
You need a broker who has investment properties otherwise you wont get the best loan structure
If the the current value of the 1st property,increased greatly you could have it revalued it it has, then you may not need to increase the deposit
With investment properties you need an back up plan and monies set aside.
Have been reading a lot about the oversupply in the unit market in the Melb inner city area are their a lot of units on the market in the area you are buying the 2nd unit,?
You said you bought a one bedroom, the banks are getting picky re sq mtr on one bedroom, and with resale sometimes one bedrooms are slower to move depends on the market you are selling to
All the best
Thanks Jeano for your response.
To answer a few of your questions, I am looking to hold both units as long term investments.
Ideally what I want to do is settle Hughesdale (2013), settle South Yarra (2014) and then at some stage within the next 3 years (2013 – 2016) purchase a PPOR which i intend to live in for quite a while (nothing over the top, just 3 bedroom place with bit of backyard etc).
With regards to oversupply in the market, the place in South Yarra is in a low density area, it is in a boutique development of 30 apartments just off the very popular Chapel Street. The size of the one bedroom is 54sqm + 8sqm balcony. It is the biggest of the 1 bedrooms in the complex (only 1 other like it) so i am fairly comfortable with the investment.
So is it maybe a better option to have an interest only loan (potentially p&i on say 100k, the balance interest only) and then use the freed up cash to sit in the offset account, so that when i find that PPOR i can drain the offset account to pay off as much of the PPOR as possible whilst claiming my tax benefits on the 2 x investment properties?
Thanks for your assistance.
If you are intending to change Hughesdale into an IP down the track, stick with IO on the loan for the whole amount, and place any excess cash you save into a linked offset account. That way you're paying the same amount of interest but when you end up purchasing a PPOR, you can use the offset funds on the new PPOR, and maximise your deductibility.
As for the deposit, looking forward how much cash do you intend to have for your future PPOR? If it's only 10% or so then it would be better to park your current funds in the offset account and use it later on to drive down the LVR on your future non deductible property.
Cheers
Tom
Hi thebigo
If this property is going to be an IP in the future then I'd consider paying a smaller deposit and copping a bit of LMI.
I'd also set it up as IO with an offset now – there's no point paying down the principle when this will become a deductible debt later on.
Here's an article I wrote on this subject.
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 guys, extremely helpful information.
I think the best way moving forward will be an I/O loan with linked offset for Hughesdale.
I'm also going to put down the minimum depost, cop the LMI and then put the remaining monies in the linked offset. That way my money isn't locked away for when it comes to buy a PPOR.
Ideally i want to have approx 150 – 200k in the offset to purchase the PPOR, based on when i settle at Hughesdale, i will have 85k to start with.
Jamie do you think it's worth doing a split say 340k I/O and 100k P&I, is there any benefits or disadvantages???
thebigo wrote:Jamie do you think it's worth doing a split say 340k I/O and 100k P&I, is there any benefits or disadvantages???
It's a disadvantage – just keep it all IO and park all of your extra savings into the offset account.
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]
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