Bit of strategy advice needed.

Discussion in 'Investment Strategy' started by CC_David, 14th May, 2020.

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  1. CC_David

    CC_David New Member

    Joined:
    11th May, 2020
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    Location:
    sydney
    Hello,

    Long time reader and i am now at the stage where i need some advice and ideas. I imagine id need to get some paid assistance at some point to assist with our journey but thought id reach out here first before doing so.

    We are a 1 income house with 2 kids and are renting. My wife is on mat leave and will not be going back to work until the kids go to school FT. We have been saving for many years and are cash heavy in my opinion (500k). We currently invest in the stock market through shares and super with a long term view. I would now like to put that cash to work for our future.

    We are thinking of buying our first PPOR. Something as a first stepping stone with the view of upsizing down the line. Probably a 2/1/1 unit similar to what we rent now. Its not perfect but we live quite basic and currently rent this style of unit for our family. Some people i have spoke with think this could be risky considering the current times. We did consider rentvesting but i think we prefer leaning towards a first PPOR with any other IP's coming after.

    As the property will be a starting point and we are running on a single income, we are not looking to get the dream home just yet. Our current train of thought is to start with something moderate (500-700k) and work up over time. i imagine we could be here for around the 5 year mark give or take depending on what life throws at you. My wife should be returning to work around that time which will increase our borrowing capacity again. We were planning to put down a 20% deposit to avoid LMI and we also have cash reserves which would cover a good chunk of the remaining mortgage. I know i could get a tiny mortgage if we went all in but i would rather have access to the funds for investment opps, potential diversification and an emergency fund. We still have a couple of decades of work left in us so can continue to contribute towards a home loan.

    So far i was thinking about getting a P&I mortgage with offset over 30 years and begin to pay down the home loan with all the cash in the offset to save interest. The deposit and paying down the P&I should allow us to gain some decent equity over the following years. When we are ready to upsize, we are open to either keeping the property as a IP or selling up depending on the market. From my calculations, the mortgage + rates would be around the same costs we spend on rent at the moment.

    In the future, we would like a family home and hopefully some income from shares/IP's.

    With that in mind, i have the following questions.

    * Do you agree with the approach? If not, what suggestions would you make?
    * Should i go with the P&I offset or an alternative product?
    * Should i consider a split home loan in this scenario? For example, loan A to cover the full offset amount so i do not pay anything and loan B to cover the smaller P&I amount? I could then pay down loan B faster.
    * Do you have any other suggestions how we may utilise our cash in other ways.
    * Should i consider the same approach but look to take a portion of the cash from the offset and get an IP in maybe 12-24 months time?

    Thanks,

    David.
     
  2. Ian87

    Ian87 Well-Known Member

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    Location:
    Melbourne
    If possible you can put all your cash into the house then debt recycle it. Then you still have access to it for investment purposes. Plenty of good threads on this subject if you search it, will explain it better than I can. Just need to check with your broker that you will be able to redraw the money without an issue.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    what about borrowing as much as you can for a main residence and then debt recycling by paying all or most of the loan down to invest, possibly using a discretionary trust to divert income to the wife. the interest on the loan would then be deductible - to the trust if you onlend - and if the investment produces income.

    Then when you want to buy hte dream home you could sell the old one CGT free

    an alternative is if you borrowing cap allows buy the dream home as early as possible and rent it out while debt recycling its loan down and when it becomes positively geared move in. Then sell the former main residence - or wait 5.5 years and sell it CGT free use th eproceeds to pay off the rest of the loan on the new one.

    Seek legal and tax advice first though.
     
    iloveqld likes this.
  4. CC_David

    CC_David New Member

    Joined:
    11th May, 2020
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    Location:
    sydney
    Thank you.

    I assume i dont need a specialised lender to do this such as mqb, amp, cba etc? Can other lenders like ING, Ubank etc do it too?

    In regards to using DR to buy a asset which generates income, are the usual suspects australian shares due to the dividends? Can you also buy assets which are domiciled abroad for this method providing they are generating an income?

    If i go this way, i assume a broker would look to setup our home loan using a method similar to your Tax Tip 13: Simple Loan Structuring Strategy Terry?

    Lastly, how much does professional advice cost for this kind of thing? Just so i know a ball park figure when i go to get quotes.

    Thanks, D.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    You can debt recycle with any lender, but amp and macq are 2 of the best because of the flexibility in structuring loans and this can result in added tax savings.

    You will need to borrow to buy something with income to deduct the interest - property, shares, managed funds.

    I charge $660 to advise on debt recycling as a lawyer/tax adviser, but often waive this fee for clients of Loan Structuring Pty Ltd - which I own.

    Note that brokers cannot give debt recycling advice.
     
  6. CC_David

    CC_David New Member

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    11th May, 2020
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    Location:
    sydney
    Thanks for the input TW.
     
    Terry_w likes this.
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Location:
    Gold Coast
    ING are a new app for split down, as are Nab and many others

    Yes you may be able to pre split at application

    Way to much hassle for small benefit IF ANY

    Unless lender X is the only one that will provide the money, OR has a much better val.

    Like buying shoes that are half a size too small because they are on sale. Possible but never comfortable, especially over the long haul.

    Loans aint loans.

    ta
    rolf