Join Australia's most dynamic and respected property investment community

Rentvestor to home owner

Discussion in 'General Property Chat' started by Brendon, 26th Jun, 2016.

  1. Brendon

    Brendon Well-Known Member

    Joined:
    11th Jun, 2016
    Posts:
    46
    Location:
    Vic
    I currently have 1 IP which I had a PPOR for a year and have since turned into an IP (about 2 years ago).
    It's worth around $300-$320k and I owe $125k on it.
    My plan is to buy another IP quickly followed by another within the next year.

    My only concern with this is figuring out how to eventually buy a PPOR (in the most effective manner)

    My current thoughts are to borrow 105% for my other IPs on interest only loans and continue to pay down the loan on my current property. Then use the six year rule to sell my first IP (without CGT) and use that money on my PPOR.

    Is this my best option or are there other options without having to sell my first IP.

    Any thoughts or considerations are welcome!
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,045
    Location:
    Sydney
    Sounds like a good plan potentially.

    Another is to buy the future PPOR now and rent it out for a while before moving in.
     
  3. Simon Moore

    Simon Moore Mortgage Broker - Melbourne Business Member

    Joined:
    4th Mar, 2016
    Posts:
    231
    Location:
    Melbourne
    May run into an issue. Are you are going to borrow the additional 25% for IP two and three using the equity from IP one?

    If you do, and then proceed to sell it, you will have to repay those loan as you no longer have security for them, you would have to get a lot of capital growth out of IP two and three to have enough equity to refinance those loans after you sell IP one. You could look at temporarily securing the loans with cash, or use a guarantor to hold onto the tax deductible status of the debt assuming you sell IP one before you buy your PPOR.

    Becuase ideally you want IP two and three at 105% and PPOR as low as possible. Once you buy PPOR you pay it down to free up the equity and resecure the still tax deductible debt against it.

    Hope that makes sense :)
     
    Dean Collins and House like this.
  4. Brendon

    Brendon Well-Known Member

    Joined:
    11th Jun, 2016
    Posts:
    46
    Location:
    Vic
    I had thought about that but being 26 and single a lot can change in the next 3-4 years in terms of what sort of property my PPOR would be, I also think I can get better CG and yields in other areas.
     
  5. Brendon

    Brendon Well-Known Member

    Joined:
    11th Jun, 2016
    Posts:
    46
    Location:
    Vic
    That makes a lot of sense.

    This is where I'm getting a little confused with LMI, if IP2&3 grew in value but I still owned under 20% at time of selling IP1 I would have to refinance and pay LMI again? Or how does putting cash up work?

    I just want to set this all up in the easiest way possible so that I'm not stuck in a position where buying a PPOR will have major implications for my portfolio.
     
  6. Simon Moore

    Simon Moore Mortgage Broker - Melbourne Business Member

    Joined:
    4th Mar, 2016
    Posts:
    231
    Location:
    Melbourne
    Becuase the advice is getting quite personal this probably isn't the best forum to discuss it. Do you have a broker or banker who could look at the situation as a whole for you?

    Sorry not to help more, but because I can't really grasp you whole situation I don't want to give you bad advice.
     
  7. Jenny

    Jenny Well-Known Member

    Joined:
    23rd Jun, 2016
    Posts:
    58
    Location:
    Sydney
    Yes I was wondering about that. We are in same position, used PPOR equity to secure a deposit loan for multiple IP purchases (all in QLD). Circumstances have changed and we find ourselves in Sydney (great, just in time to be at the peak of the boom :rolleyes:) so we if we sell our PPOR to try get our own home in Sydney will we completely lose out on the tax deductability of that loan because we have to pay it out at sale time ? Am I getting this right ?
     
  8. Simon Moore

    Simon Moore Mortgage Broker - Melbourne Business Member

    Joined:
    4th Mar, 2016
    Posts:
    231
    Location:
    Melbourne
    You can look at getting the IPs revalued to see if some of the loans could be refinanced against them (be smart, talk to a broker who can start with a desktop valuation and move up to try and maximise your equity), use cash as security for a time, or use a guarantor's property to secure the IP loans.

    Interest deductibility is determined by the purpose of the borrowed funds, if you repay the portion of the IP loans secured against the PPOR then buy a new PPOR in the future, you can't just say "that $150k was from my IP loan so I'm going to claim the interest for that portion". That new loan is for the new PPOR and unfortunately, none will be deductible :(
     
  9. Jenny

    Jenny Well-Known Member

    Joined:
    23rd Jun, 2016
    Posts:
    58
    Location:
    Sydney
    Thanks, these are the things that catch you out when you start a portfolio unfortunately. Sometimes I regret it, it makes things so much more complicated and feel like we have limited ourselves in the things we can do financially. There seems to be a bank rule or tax barrier at every corner ! We do need to get some good advice you are right. Unfortunately I'm struggling to find a good broker, my original one setting up our portfolio for us told me none of this and now I'm struggling to get him to return my calls !!!
     
    Simon Moore likes this.
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,045
    Location:
    Sydney
    Simon Moore likes this.
  11. Simon Moore

    Simon Moore Mortgage Broker - Melbourne Business Member

    Joined:
    4th Mar, 2016
    Posts:
    231
    Location:
    Melbourne
    @Jenny

    Well @Terry_w is incredibly knowledgeable and also located in Sydney, you should give him a call!
     
  12. Jenny

    Jenny Well-Known Member

    Joined:
    23rd Jun, 2016
    Posts:
    58
    Location:
    Sydney
    Agreed, I have my eye on him !!! :D Expect a call Mr Terry_w. I am so impressed with propertychat (am very new here) I can't believe it took me this long to find it. The property investing space is so full of fraudsters, there are so many stories of bad advice, spruikers, unethical behaviour resulting in heartbreaking broken dreams so its great to go to a place where people are kind and generous enough to share their experiences, failures and successes for the benefit of other people - after all we are just trying to get ahead in life :) These are the sort of people you want to give your business to for sure !!!
     
    Simon Moore and thatbum like this.
  13. Brendon

    Brendon Well-Known Member

    Joined:
    11th Jun, 2016
    Posts:
    46
    Location:
    Vic
    No problem, used a broker but have recently moved to a bank. Found the info from the broker to not be overly reliable, the information from the bank is quite simple though, not sure if they know all that much about multiple IPs.

    Thanks for your help
     
  14. Simon Moore

    Simon Moore Mortgage Broker - Melbourne Business Member

    Joined:
    4th Mar, 2016
    Posts:
    231
    Location:
    Melbourne
    @Brendon check out Terry's tax tip on the subject, if you step the bank through it bit by bit you might be able to get them to understand it. Hopefully you're with a bank that allows cash as security :)
     
    Brendon likes this.
  15. Simon Moore

    Simon Moore Mortgage Broker - Melbourne Business Member

    Joined:
    4th Mar, 2016
    Posts:
    231
    Location:
    Melbourne
    It's an incredible resource, I'm still learning stuff!