Help!! Rent now and buy in year or two in Sydney or buy now with available funds??

Discussion in 'Investment Strategy' started by Interested, 7th Apr, 2017.

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  1. David Shih

    David Shih Mortgage Broker Business Member

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    Gockie has explained it very well - essentially it's the offset account that'll does the magic here :)

    As an example, say he borrows 700K from bank for the PPOR and also parks his 700K cash into the offset account (for the loan then) essentially no interest is required to be paid on the loan. As long as the cash in offset is equivalent to the loan amount then he won't need to pay any interest. All he needs to pay is the ongoing cost of the loan which is insignificant in comparison..

    Then later on as you pointed out he can buy an IP if he wants. Alternatively he can buy a better PPOR with the cash parked in offset and the existing PPOR loan would then be tax deductible as the property will be rented and is generating income for him.

    Hope that helps.
     
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  2. Interested

    Interested Member

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    Thanks. That makes it even clearer. Food for thought. Although, anew question comes to mind. How would this be better than buying the initial PPOR by paying cash, and then coming back for a loan based on the existing property should another property be added as an investment??
     
  3. Gockie

    Gockie Life is good ☺️ Premium Member

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    The problem is, if the second property is bought as a PPOR, then the money borrowed for the second property is not tax deductible. So its really not ideal...
     
  4. Interested

    Interested Member

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    Thanks. I think I understand. Appreciate it.
     
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  5. Gockie

    Gockie Life is good ☺️ Premium Member

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    It was my very quick answer before having to switch off. Lots of great posters here btw. :)
     
  6. Skydome

    Skydome Well-Known Member

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    wait. imo i think Sydney is too over heated atm.
     
  7. Interested

    Interested Member

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    T
    Thanks Skydome.
     
  8. C-mac

    C-mac Well-Known Member

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    Im no accountant (accountants please feel free to chime in here and correct me!), but some of the basis of his situation + solutions suggested, beg two questions (and they are both tax related)

    1) Kudos to the guy/girl for scraping together their pennies in another country. A whopping $730K+ in AUD equivolent! How old is this person? Which country were they working in? If in their 20s or 30s, how the devil did they save that much in AUD-equivolent whilst legally paying tax the whole time? Hhmmm... question: Will ATO want to see evidence that the $730K cash being brought in to AU is legit? Will ATO charge incoming tax on this amount for a person of (assumed?) AU resident/citizen status for ATO purposes?

    2) Taking the loan on a PPOR with 100% offset is a great idea, yes. But as soon as he/she starts using the loan $ for future IP purchases, remember that tax is payable on income earned on IP's. Just because the funds are ultimately coming from a PPOR-classed loan, don't assume that if you start using these funds instead for an IP, the interest paid will even be deductible!
     
  9. Zoolander

    Zoolander Well-Known Member

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    Why use your own hard earned savings when you can use the banks? Exhausting ones savings leaves little buffer for lifes unexpected events.
     
  10. Terry_w

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

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    I am not an accountant either, but this is a tax question.

    1) no and no. no tax on bringing capital into Australia unless it is income disguised.

    2) Interest will be deductible if borrowed against a main residence and used for investment purposes.
     
  11. jaybean

    jaybean Well-Known Member

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    Also, the money may not be there by the time he needs it.

    OP - say there is a crash. The house next door sells for 30% less. He's like Jesus that's the deal of a life time. He goes to the bank. The financial markets have frozen up. He says I have a really well paying job, lots of equity. The banks say...meh who cares.

    Or say the housing market is fine. Financial markets are fine. Values keep going up. Family emergency pops up and he needs cash. Since then interest rates have gone up. Serviceability models have changed. He says I got 1m in equity, surely I can borrow just half of that? Banks go nope, right here right now you can get 200k tops. He's now forced to sell to access that equity.

    Cash is king. Get it while you can. That's why a lot of experienced investors will keep topping up their equity releases when the going is good even if YOU HAVE ZERO USE FOR THE MONEY AT THIS GIVEN TIME!

    There's nothing worse than having a mountain of assets, no cash, and not being able to pull from it. Remember all the capital raisings from around the time of the GFC? You'd think all these really, really solid companies with strong sales and decent projections could easily access financing, but not always...
     
    Last edited: 23rd Apr, 2017
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