Hi all,
Long time reader, first time poster.
New Year's resolution is to start investing!
In a snapshot, I'm 32 married with 2 kids and earning about $80k a year.. Wife owns a business that earns about about $25k a year.
PPOR townhouse under my name – $280k loan with value about $400k (principal and interest)
Wife has an apartment in the Melb CBD under her name – fully paid with value about $650k – her siblings are staying there and pays zero rent (it was her parents that paid it off). In-laws have OK-ed to use the apartment for financial benefits.
From my research, we can mortgage the apartment and purchase a small investment property (budget around $350k – $400k).
Another thought I have was to use the $$$ from the apartment to pay off PPOR townhouse first and then use townhouse equity for investment.
Or is there something else that I didn't think of?
Many thanks,
JunK
Hello Junkyster,
You are starting out on the property journey.
You've got the starter blocks for getting stuff going .. you have strategic plusses .. and strategic minuses.
The plusses should come first.
You have a nice little asset base to start with with existing equity from your wife .. and a little movement from you on your existing property.
Thats great. A little asset base is still an asset base .. and is always a good starting block.
The minuses are .. well .. against all that .. you are balancing two rather average income scenarios.
When I say average .. i mean .. 80k isnt bad .. but once you deduct the expenses for 2 kids .. and a mortgage .. and the extras (car loan and expenses, clothes, school fees.. maybe personal loan or expenses) well .. then even including your wife's existing income of 25k .. thats not much flexibility for any interest moves on your goal of purchasing a 350k-400k property.
I would suggest for your existing situation to gear yourself towards either increasing your income flow to create more flexibility both on borrowing and any interest rate hikes.
The aim for your longer term future .. would be to create a reliable subsidiary income that would balance the existing income flows creating a much more stable portfolio overall.
Or you may also want to try to approach what you can actually afford to start with, maybe a reduced exposure by having a smaller property .. or maybe multiple properties.
Your risk remains a very volatile income situation .. that can only be remedied by creating a better set of circumstances around that scenario.
Hi Mate,
I would consider changing your PPOR loan from principle and interest to interest only. There is a active thread about this:
https://www.propertyinvesting.com/forums/help-needed/4349432
If you are going to convert the townhouse into an IP then YOU DO NOT want to pay the loan down because you will reduce the amount you can negatively gear.
Is there a reason why you are limiting yourself to a smaller budget because you can definitely borrow a higher amount?
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Thanks @xdrew, that was the same thoughts I have 2 years ago (with less income and without the 2 kids). I thought this year work out our finances better, and work towards our first investment property!
@thefinanceshop, yes, definitely change to IO loan when converted to IP – been following that thread as well. The bank approved $435k, so thats the max we could go.
Dont change it when you convert it – change it now and dont reduce the principle any further. Create the offset and park your principle payments in there.
Different lenders will lend different amounts – $435k still seems very low so I think it hasnt been structured correctly to utilise a higher borrowing capacity.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi Junk
Are you considering turing the PPOR into an IP down the track? I couldn't find any reference to this.
In any case, IO for a PPOR can be a good option.
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]
Hey guys,
Just spoke to the bank today, they are currently processing the CBD apartment loan. Once approved, I am hoping to pay off the townhouse first.
From here, I could mortgage back the townhouse on an IO loan to start looking for another investment property.
Is this feasible?
Thanks,
JunK
Yep it's possible – just ensure that the bank isn't crossing up your loans. Also, is there a chance that this property could become an IP down the track (your current PPOR I'm talking about)?
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]
Jamie M wrote:Yep it's possible – just ensure that the bank isn't crossing up your loans. Also, is there a chance that this property could become an IP down the track (your current PPOR I'm talking about)?Possibly, in a few years time (>3 years). We have thought the current place is sufficient for us – until the family grows again.
junkyster wrote:Hey guys,Just spoke to the bank today, they are currently processing the CBD apartment loan. Once approved, I am hoping to pay off the townhouse first.
From here, I could mortgage back the townhouse on an IO loan to start looking for another investment property.
Is this feasible?
Thanks,
JunK
Above you seemed to say that there was no loan on the CBD apartment. Are you now saying you are going to mortgage the apartment, borrow money and pay out the townhouse? If so you would be shuffling money around with no benefit.
I can think of a few strategies which could significantly save you some tax.
One is for you to buy your wife's apartment at full market value. Use the proceeds to pay off your townhouse. Charge the tenants market rent – even if you may have to gift them the money to pay. This way you get rid of non deductible debt, avoid stamp duty, save a heap of tax and are in a good position to invest.
Of course there are various steps involved and you should seek legal advice before implementing this.
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
Welcome and good luck in your investing adventure!
Terryw wrote:Above you seemed to say that there was no loan on the CBD apartment. Are you now saying you are going to mortgage the apartment, borrow money and pay out the townhouse? If so you would be shuffling money around with no benefit.That's what I thought, so the shuffling around is optional. I will just refinance if that was the case as I'm changing banks for better rate.
Terryw wrote:One is for you to buy your wife's apartment at full market value. Use the proceeds to pay off your townhouse. Charge the tenants market rent – even if you may have to gift them the money to pay. This way you get rid of non deductible debt, avoid stamp duty, save a heap of tax and are in a good position to invest.This is an interesting one for me to think over. Instead of buying over, I could 'transfer' the property to my name and do the above as well? I believe there is no stamp duty when transferring between spouse? More research for the weekend!
vagirl2012 wrote:Welcome and good luck in your investing adventure!Thanks
junkyster wrote:Terryw wrote:One is for you to buy your wife's apartment at full market value. Use the proceeds to pay off your townhouse. Charge the tenants market rent – even if you may have to gift them the money to pay. This way you get rid of non deductible debt, avoid stamp duty, save a heap of tax and are in a good position to invest.This is an interesting one for me to think over. Instead of buying over, I could 'transfer' the property to my name and do the above as well? I believe there is no stamp duty when transferring between spouse? More research for the weekend!
vagirl2012 wrote:Welcome and good luck in your investing adventure!Thanks
No, you couldn't. Well, a transfer is a sale. And there is no stamp duty in vIc on spousal transfers whether there is a gift or a sale. You could only claim the interest as a deduction if you were borrowing money to buy. If your wife is gifting to you then there is no reason to bororw, and if you did the interest wouldn't be deductible.
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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