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Rentvesting to get a PPOR

Discussion in 'General Property Chat' started by Timwest, 3rd Jun, 2016.

  1. Timwest

    Timwest Well-Known Member

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    I am 25 and along with a lot of people my age I have been priced out of Sydney, so I am going down the route of "Rentvesting" -buying my first IP in Brisbane soon.

    As far as I am aware, no deductions are available from equity used from an income producing asset(IP) to fund a non-income producing asset (PPOR)

    This is a hurdle that I need to overcome, I don't mind renting but eventually in about 10 years time, I will want to purchase a PPOR in Sydney (hopefully a good time to buy in Syd property cycle).

    I need to strategise now so that I can set my self up to not contaminate my IP's when I want to purchase my PPOR.

    Are there any possible strategies to do this without contaminating the Investment properties? Or is the only way to sell some IP's to fund the PPOR?


    Appreciate any tips :)


    Tim
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  3. thatbum

    thatbum Well-Known Member

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    10 years is a long time fill up those offset accounts...
     
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  4. dabbler

    dabbler Well-Known Member

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    You just need to keep the loans seperate, it does not matter if you use equity from an IP to use on PPOR, you just cannot claim that as a deduction.

    Whatever loan you use for your PPOR cannot be deducted, not unless you move out and it becomes a rental.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Borrow 105% of the first one, if you can. IO and keep cash in offset.

    if you can try to live in it to get the 6 year rule working for you.
     
  6. Timwest

    Timwest Well-Known Member

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    Last edited: 4th Jun, 2016
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  7. wombat777

    wombat777 Well-Known Member Premium Member

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    A general question (for all the brokers). How easy is it to get 105% finance these days for IPs? Trying to encourage some friends that have stable but possibly modest incomes. Naturally CF+ and IO helps.

    Living with family and/or having no significant credit card or personal loan debt would help I guess.

    Edit - I also imagine guarantors would be required in this situation?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No more difficult than normally. If they have equity and the income it is possible.
     
  9. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    My view is people underestimate what they can achieve in a year and overestimate what they can achieve in a life time.

    10 years is a very long time... Property cycles, lending changes, lifestyle changes etc. I really don't think a clear plan can be stuck to.

    I'm 30, I started 3 years ago. For me, the strategy that worked was buying an old run down PPR, living in it while renovating, then leasing it out room by room once I'd qualified for all the FHOG benefits. The important thing here was I didn't buy a "dream house" or "where I wanted to live" - From day 1 it was an investment decision. This was in Melb just before the boom. I now rent in Syd and continue buying IPs.

    If I were starting now - With the market the way it is, I would simply have just rented and purchased IPs. If you make smart, educated decisions now your IPs will easily see you into your own PPR in a much faster timeframe - However I don't know if I'll ever buy to live in... I love being able to live in areas that would make pretty dumb investment strategies! Not to mention having someone else take care of maintenance for me!

    It sounds like you're on a great path - Perhaps you'll sell off the weakest ones in your portfolio to get the PPR - Or perhaps you'll simply leverage your offset accounts
     
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  10. Timwest

    Timwest Well-Known Member

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    So if I use a LOC from equity in an IP for the deposit to purchase a PPOR, only the LOC portion of the equity in the IP is non deductible? or does the whole IP loan become non deductible?
     
  11. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    If you've kept the loans separate then only the portion of equity for the IP
     
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  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    your confusing yourself by using the word 'equity'.

    You have a LOC set up and when you take money out of this you are borrowing. Each withdrawal is a separate borrowing and needs to be considered separately to the other withdrawals.

    Example
    $100,000 LOC. Balance $0

    You use this LOC to buy $20,000 worth of income producing shares. The interest on this $20,000 is deductible because it relates to the production of income.

    Then get go out and buy a $2,000 suit. This is a private expense and the interest on this is not deductible.

    So now you have $22,000 owing on the LOC.
    $20,000 is the deductible portion
    $2,000 isn't
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    And I should add that this would be a mixed purpose loan as it is one loan with 2 purposes.

    So you would have to apportion the interest 2/22 = 9.09% so only 90.1% of the interest would be deductible
     
  14. Hodor

    Hodor Well-Known Member

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    Really, is that a typo? I have noticed the exact opposite.
     
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  15. Greyghost

    Greyghost Well-Known Member

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    For PPR:
    1. Save a deposit
    2. Refinance IP down the track with a 2nd split for deposit for PPR = non deductible portion
    3. Sell IP and buy PPR with CG from IP
    4. Win lotto @Gockie hehe
     
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  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    5. move into an IP
     
  17. Greyghost

    Greyghost Well-Known Member

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    Touché!
     
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  18. Timwest

    Timwest Well-Known Member

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    Thanks Terry, this clears it up perfectly!
     
  19. Player

    Player Well-Known Member

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    Good pick up.

    That's a typo. The inverse has been true in so many areas of my life.
     
  20. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Haha absolutely whoops - wrong way around!!!