Hi guys, im new here, im about to embark on my property investment career.. So I bought a large house in Brisbane 8months ago, renovated it spending about 7% of the purchase price on it. I have added a large amount of value to the property and the bank has told me I can draw down another 30k to use for “property improvements” obviously im looking to use this for the purchase of another investment.
Is this a wise thing to do? Steve says reduce debt, however he also says in certain markets buy,buy and buy.. I think north of Brisbane is going to rise significantly in the next 36months and I want to be in to win. Am I doing the right thing, buying a property by putting another 10% down? Renting it out and obtaining a good positive investment?
Nothing fundamentally wrong with using equity to invest in your future.
With personal debt on your residence, even in the future you should NOT use cash for any deposits, instead continue to erode your home loan down with the capital, then pull out the freed up equity as an investment split. This way you can minimise your non deductible personal debt whilst still growing your portfolio – the best of both worlds.
Long term, should you completely remove your personal debt and have no plans to upgrade your home, you can even consider knocking down your investment debt – dependent on your strategy.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hi Corey,
Thanks very much for that, you hit the nail on the head, my strategy is to renovate to build capital whilst working on cutting down my debt by working, All positive cash flow is returned into either my loans or renovating of other property, I just like to hear how other people look at it.
Again thanks for your input.
Regards
Tim
Hi Tim
That’s pretty much how I do it. I have interest only IP loans and pay down my PPOR loan as much as possible. I then redraw a second / third / fourth loan to cover all the purchase costs of the new IP. I then repeat until I run out of serviceability / risk level. One of my IPs now has enough equity from capital growth where I could do the same thing.
You can get the growth from renovations as well. Just make sure you structure your loans correctly so your claiming 100%+ of the interest costs of your IP. Ie. $300k IP means you have over $300k of loans you can claim the interest on.
Oh also, the interest on loans for renovations is tax deductible. So don’t pay for that in cash. Add it to your PPOR then redraw a loan for the work. This decreases your tax liability.
Just be aware of any speculative assumptions. Make sure your worst case scenario (market downturn?) doesn’t leave you in a dangerous place. Another option is to realise your gain and lock in the profit.
Jason Staggers | JasonStaggers.com
http://jasonstaggers.com
Email MeHi Jason,
Yeah I have thought, maybe I sell the place early next year, take the profit and buy 2 smaller investments.. The home is in a fast growing suburb so will see what the new year brings.
Thanks again
Tim
Hi Thenewguy,
Mate thanks for your knowledge, I will speak with my accountant when I return from work in the new year about it all.
I’m really quite new to all of this and getting my head around all the tax and inner financials is challenging, but im getting there.Thanks again
Tim
Nothing new about what you are trying to achieve and was how i built my property portfolio in Brisbane at the of the 90’s.
We then decided to pay down all of the investment debt and live off the rental income.
Course other considerations when it is an investment property rather than a PPOR.
Cheers
Yours in Finance
0-40 Properties in a Decade. Ask me how.Richard Taylor | Australia's leading private lender
Hi,
I own my PPOR.. but i have kept a 400k loan open with 400k in the 100% offset account. Would it be more benifical to use this money to buy IPs or save up some cash and go into a trust with a partner so i keep everything seperste from my personal stuff?Thanks in advance
lukePay the PPOR loan out and setup a new loan releasing equity to be used for investment. You then have no personal debt, and the equity released if you used for investment use will be tax deductible. Win win.
Whether a trust is even worth it in your situation is dependent on your specific situation – for the most part many people who use them dont realise it’s complete overkill. Are you in a profession which has a high likelihood of being sued?
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks corey… i have just been made redundant so i have decided to invest my time and money into IPs… just wondering if the bank would possibly just change the loan over to an investment loan rather than having to go through the whole process of paying the existing loan out only to get the same amout as an IO loan? Eliminating the need for getting pays slips and employment letters.
will having alot of equity in my PPOR help this situation(double the maximum amount i want to borrow) or will they still need a source of income?Depending on the lender they may allow you to go IO just by filling in a form – however many will instead require a full application.
Equity in your PPOR won’t be relevent at all, you still need a sufficient income to be able to borrow.
How quickly do you think the banks would be on the news if they lent money to people without any income?
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
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