Hi all,
Advice needed for the best way to achieve our goal. Goal – hubby and I are in our fifties and want to give up our jobs (permanently) within the next two years to buy a caravan and do the grey nomad thing for a few years picking up a bit of work as we go. So I'm trying to find the best way to fund this.
Current situation:
PPOR value approx. $550k – owned outright.
IP1 was purchased last year for $285k – currently paying loan IO, however we've just sold a block of land (owned outright) that is due to settle next week. We intend to use the $200k from this sale to pay down IP1 leaving a balance of $85k. We would then switch the loan to P&I and pay it down quickly. Rent is $285 a week. We have $50k in an offset account against this IP which is savings towards a caravan.
IP2 purchased this year for $235k – we borrowed the lot and the loan is interest only. (Split loan using $60k LOC). Currently rented for $300 a week.
The options I can see are:
1. Sell PPOR, buy another one, live in it for 6 months and then rent it out while we're gone. (Income would be rent from PPOR and IP1 which would both be outrightly owned, with debt still remaining on IP2).
2. Sell PPOR and buy another investment property with the funds instead of a PPOR. So whilst travelling we would have three investment properties and no PPOR.
The way I see it both options will give us the necessary income to travel. So I guess my question is which option would be better from a tax perspective? When we finish travelling we'd like to come home, buy a PPOR and still keep either one or both of our IP's to top up our income which we would then derive from super.
Any advice appreciated on which is the better option.
Cheers,
Sundance
Hi Sundance ,I think you need a good Financial planner who knows what he is doing ,specially a property servy one .
APWPG wrote:Hi Sundance ,I think you need a good Financial planner who knows what he is doing ,specially a property servy one .Thanks for your advice Bill. Can you recommend a property savvy FP in Brisbane?
Why pay the $200k into the investment loan. Have you considered just using the offset. Once it is in the loan there are tax consequences if you need cash again.
If you sell your PPOR and buy an investment you will be losing the CGT exemption. Are you aware of the 6 year rule – could rent out PPOR for 6 years and still class it as main residence and avoid CGT.
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 Terryw,
I was hoping you would pop in with some advice! I think you've just answered my question in regards to whether to buy PPOR or IP. We will definitely now buy PPOR.
In regards to paying the $200k off the investment loan and then switching to P&I – I guess we were assuming that we wouldn't have any need for the cash in the future so were just looking to pay down some of our investment debt. So the best thing to do would be to just hold it in the offset account for now and switch to P&I which in effect will achieve the same thing?
Cheers,
Sundance
Mmmm………..now I'm getting myself confused!
If I paid the $200k off the $285k investment loan and then switched it to P&I then the principal portion of the repayments would be calculated on $85k.
If I put the $200k into the offset instead and switched to P&I wouldn't the principal component of the repayment be calculated on $285k which would be a lot more than the first option? Obviously the interest component would only be calculated on $85k because of the funds in the offset.
Confusion reigns! Help! I don't think I'm looking at this correctly.
WHy have a PI loan at all. IO with offset may work better.
The only reason not to get an IO loan with offset like this is if you are tempted by large amounts of cash.
It is never a bad idea to pay down loans, but you never know when you may need cash for something unexpected.
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
Terryw wrote:WHy have a PI loan at all. IO with offset may work better.The only reason not to get an IO loan with offset like this is if you are tempted by large amounts of cash.
It is never a bad idea to pay down loans, but you never know when you may need cash for something unexpected.
When we first looked at investing in property our goal was (and still is) to outrightly own two investment properties so that the rent would supplement our income from super. If we were twenty years younger I can see the benefits of keeping the loan IO with the extra in the offset in case we wanted to purchase further IP's. But as we're getting closer to retirement we are wanting to at least get one IP paid off so the race is on. Perhaps for now we should just pay down say $150k and add the remaining $50k to the funds already in our offset.
There is nothing wrong with that way. People just have different ways of doing things.
One point to consider is if you are going to buy an IP what about super?
1. Get one in a SMSF to it will be tax free income and capital gains once you retire, or
2. Get one in a unit trust structure now and when you do retire you can transfer the units to a SMSF and from there the income could be tax free and CGT free house if later sold.
This wouldn't be possible (ie transferring to smsf) if you purchased in your own names, unless it was commercial property
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
Thanks Terry. I hear you about SMSF but we already have the two IP's purchased in our own names.
Cheers
Well if you are going to sell one, your PPOR, then you may want to consider buying in a unit trust so as to be able to transfer to the SMSF. But if you do this you can't claim the main residence exemption like discussing above.
It will all depend on the circumstances, but something to seriously consider.
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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