Hi,
I just wanted to get the opinion of some people on the forum. I hope I’m posting in the right area.
We currently own a townhouse, owe about $240,000, would probably sell for around $450,000.
We definitely want to buy a new house early next year, but are also at the stage in our lives where we want to start investing.
We have thought of 3 options:
– Keep current house, using equity that we have as a deposit for new house. I think we would have around $150-$160,000 to use for next house
– Keep current house, but my wife would sell her ‘half’ of the house to me. Without going into too much detail, advice provided to us by a property accountant has told us that doing this will mean we will be better off than just using the equity as per option 1 for tax purposes but would only have around $110-$120,000 to use for next house
– Sell the house and use the money from the sale to buy a new house. We would have around $200,000 to use for next house.The next house we buy will be the one we live in for the next 15-20 years, so we want to make sure it’s the ‘best’ house we can buy. In order to spend more on our next house I’m thinking it would be better to have the most deposit we can in order to lower the repayments we will have in the house we move in to. In this sense, option 3 would be ‘best’, however it would mean putting off investing and my fear is that we may not be able to invest for a long time in the future if we take this option.
However I also think this would be a good opportunity to turn our current house into an investment property because the rent we get from the property would cover the mortgage repayments. If we take this option though our repayments on the house we move into would be more.
As I said, I’m hoping for some tips/advice/info from some other forum members.
Is your current place ‘a good investment property’? What will it rent for? What maintenance costs are involved? Do you expect any capital growth? Is it new, have a lot of depreciable assets?
Basically, I see 2 options depending on your specific situation. The ideas below are very light on the detail, but hopefully gives you an idea.
OPTION 1
Current PPOR
Value $450000
Loan $240000
~ $160000 equity (have you previously paid LMI? You might get a discount if you have).Keep as IP (very, very rough numbers):
Tax-Deductible debt: $240000 ($12000pa)
Rent: $450pw. ($23400pa)
– Positively geared. After costs, maybe $6000+ gross. This will be split between you and your wife, so while negatively geared it’s handy to have it in the higher income, when positively geared, it’s better to have it in the lower income.PPOR:
Value: Up to $800000
All non-deductible debt :(OPTION 2
Sell. Walk away with $200000 hopefully.PPOR:
Value: Up to $1000000… more with LMI, but don’t do that because you want it as equity for IPs. Less still works as well.
Loan: $800000Redraw up to 95%, $150000 for IP purchase. Then you have a bunch of options, and this is just one:
Buy 3 IPs with $50k redraw each:
Value: $300000
IP Loan: $270000
PPOR held loan for deposit, stamp duty, LMI etc: $50000 (will actually be less).
Tax deductible debt $320000 per IP.This way you have more tax deductible debt and less non-deductible debt, and you can also buy in either your name, your wife’s name, or both. Importantly, you’ll be able to invest in straight up investment properties, this could be anywhere in Australia as chances are there are better places to invest than where your current place is. Serviceability might be a problem holding $1.7+ mil in debt, but I’m trying to show you your options.
— EDIT —
So, want I’m trying to show is that selling and buying again doesn’t mean you’re necessarily going to be behind the eight ball with investing – unless you struggle with serviceability. So I would certainly consider at an option.
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