Seeking Investment Strategy guidance

I've been following this forum for a long time now and would like to thank each and every one of you for sharing your experiences and knowledge with property investing. I'm 31 years of age and started property investing 2 years ago. My current portfolio is as follows ;-

IP 1 (apartment)- Cost 310k, Loan 236k with an offset amount of $120k
IP 2 (apartment)- Cost 600k, own upfront
Off the plan (apartment) - Purchase price 635k, paid 10 % deposit with the remaining amount due at settlement in June 2019. ( with the intention of taking out 80% LVR , assuming valuation price remains the same)

IP1 - $450 pw
IP2 - $620 pw
TEC - $73.5 k

My intention over the next 4-5 years is to acquire more property of different types (EG houses / townhouses) with the intention of buying my first PPOR (circa $300-330k)

My question is, would it be possible to refinance IP 2 so I can use the capital available and split it accordingly to buy my PPOR upfront with the remaining amount used to acquire another IP property and still be able to claim a tax deduction on IP 2.

I am aware that I may have made a few errors along the way but I'd like to understand what my options are before engaging any paid advice. Any suggestion would be much appreciated.

 

You probably can use the equity in IP 2 to assist in buying your own home. Be aware though, that as the funds are being used for a non-deductible purpose (buying your own home), the loan used to release the equity is unlikely to be tax deductible.

I'm unclear about how you're funding the remaining deposit and costs for the OTP apartment, but you'd be better off to use the equity in IP 2 as that would likely be deductible, and keep your savings for your future home.

You should also probably do some forward planning around finances for all this (if you haven't already).

 

I do have a broker but he doesn't offer any "advice" / strategies of my future situation. He's a "do as you're told" broker. I'm considering cutting ties but it's a bit hard when he's a mate of yours for 10 years plus.

 

Great effort so far!.

Friends are friends, business is [something] aside..

Set a end goal in terms of portfolio size (not number of properties) and how you plan to pay down in future?

Ask your broker friend to get all the property valuations done. Release all the possible equity on each of the properties..

Buying PPOR by paying cash from IP is not going to be tax deductible most likely. Worth sitting down with your accountant and broker to work out the right move before it's late...

Regarding deposit for purchase of next OTP IP, I'll again surely hit up accountant once (not knowing finest details)...

General observation - All apartments so far, why? (Yield play or ..) ?

 

Hey @Peter_Tersteeg , my original intention was to fund at least another 10-15 percent from my offset account but it's becoming prevalent that this isn't the right course of action if a PPOR is on the cards within the next few years so I'd definitely be looking at extracting equity from IP2. Appreciate your input to this.

 

Hey jazzsidana, that is something I will take on board for consideration. I'll need to go back to my broker and speak to him about releasing as much equity as possible.

Yes, they're all apartments. This is from the perspective that I'm earning slightly below the average median salary in Melbourne where I needed the income to boost my borrowing capacity further. 2) Apartments are all I ever knew of as I've been living in the city for the last 12 years. Having said all that, I am looking at diversifying into different property type and outside of Melbourne CBD.

I am quite fortunate that I live frugally and rent free which allows me to build my current property portfolio. However, this will change when I embark on buying my PPOR in the next few years.

That's very true and hence why I am very inclined to look for someone in the near future. I just need to start thinking for myself instead of what my broker will think of me when I choose to cut ties with him.

 

As a broad rule (and there are exceptions of course), keep the money in your offset account to buy your own home. When funding an investment property, use equity. Structured properly, in most scenarios you'll get a better tax outcome.

 

Hope all the apartments are in great location with future CG potential. But worth doing portfolio "reality check" with your property strategist/broker to find out any lemons & react/act on them if required.

And I'll very seriously think about diversifying tbh.. Buying residential properties purely from yield perspective is 100% wrong strategy. But balancing the portfolio where required with higher yielding asset, totally get it ...

Regarding being fortunate - "Fortunate are those who take the first steps". Respect that!..

Cheers,

 

Hi Excalibur,

The tax deduction for loan interest is all dependent on the purpose of the funds not what it's secured against. So any funds used to purchase a PPR are not tax deductible.

With the purchase of the next property, you should be not just looking at the tax deduction but also the CGT implications down the line. As a broker, most of my clients structure their finances to balance the tax deduction today and CGT concerns in the future as that is where you'll get the real benefit you desire.

Many brokers, like your mate, probably just look at a simple structure and doesn't work with your accountant to model different financial outcomes.