PPOR to Investment conversion

Discussion in 'Investment Strategy' started by plethora, 15th Dec, 2019.

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  1. plethora

    plethora Member

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    Hi everyone,

    I was hoping for a quick sanity check to my thinking here...

    I have a P&I mortgage with about 490k left, and most recent valuation at 660k.

    I'm thinking of renting the place out and rent somewhere closer to work, as I figured I should be able to positively gear to offset the new rent costs, even at LVR at 90. Going rent in the block seems to be 550 pw.

    If I refinance to IO and increase the LVR to 90, will I get the cash difference?

    If this is not possible, I was thinking of "selling" the property to a family trust, and have the extra equity released in cash to pop in the offset, or potentially use it to fund another purchase.

    What is the best way of structuring debt for scenarios like this?
    Happy to speak to brokers who can help me out!
     
  2. Trainee

    Trainee Well-Known Member

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    550pw rent on a 600k loan probably wont be positively geared. Body corp council rates insurance?

    refi to 90 and you pay lmi. sure you get the difference but deductibility might be an issue.

    selling to family trust means stamp duty. If refi at 90, again, lmi. Plus costs of maintaining the trust. When the property might be neutrally geared so your only benefit is supposedly the extra 60k refi which you will pay lmi for.
     
    Last edited: 15th Dec, 2019
  3. plethora

    plethora Member

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    Sounds like timing is key, to make sure that the refinance goes through on the day/ after me moving out.

    Apart from that sounds like if I get to pocket the 60k in cash from my initial deposit without transferring to family trust, that opens up at least new investment opportunities be it IP or shares. which can be used to drive positive cash flow even if miniscule.
     
  4. Trainee

    Trainee Well-Known Member

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    Do you have to pay lmi?
     
  5. Terry_w

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

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    You will be hit with LMI too
     
  6. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    You'll likely have trouble refinancing to 90% IO. Many lenders simply don't like IO above 80%.

    I'd also question if it's financially a good move. You may find yourself paying LMI all over again.

    Also consider just leaving it as P&I. Much better rates and no IO -> P&I problem in a few years time. It's ultimately a more cost effective loan.
     
  7. plethora

    plethora Member

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    Well... I didn't pay LMI when I was purchasing initially and I suppose if I can ensure the LMI is deductible by way of timing it so it doesn't get mixed up with when I'm living here vs tenant moving it, I don't mind paying it.

    I'm thinking of going IO and then sell the property in about 5 years anyways, so I figured it's not really worth it paying off the principal.
     
  8. Terry_w

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

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    I wouldn't want to pay 2% LMI just to be able to borrow 10% extra .
     
    Peter_Tersteeg likes this.
  9. housechopper2

    housechopper2 Well-Known Member

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    If your intention is to sell in 5 years, then switch to IO and go rent somewhere else.

    The costs of setting up and administering the trust plus stamp duty will likely outweigh the benefit of your access to additional equity for 5 years.
     
  10. Morgs

    Morgs Well-Known Member Business Member

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    What are you looking to do with the additional funds? Deposit for a future purchase?

    I'd suggest start with getting some valuations to see if you can move it from P&I to IO without incurring LMI cost and go from there.
     
  11. hash_investor

    hash_investor Well-Known Member

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    Why would you sell it to a trust?
     

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