NSW Sydney Central 2 bed apt. structuring

Hi all,

Any comment about structuring this purchase and if I got it right?

Already own PPR: 400k sitting in offset
Buying 1st IP: 2 bed, budget or PP target between 800k-999k
IP financing: equity + debt 30 year mortgage, floating

Let's say I buy IP where PP is $800k. If I take cash sitting in my offset, pay down the PPR loan and then "borrow" this same amount as equity to buy IP does this mean I can claim interest on the full $800k as tax deductible?

The below is one of the properties I'm looking at, I think I can get it for 800k and its rented at the moment paying 750 p.w. If I can deduct the interest on the full 800k then its positively geared to start with which is great. Am I right or am I missing something?

Any feedback is highly appreciated.

https://www.realestate.com.au/prope...ge=rea:buy:srp-map&sourceElement=listing-tile

 

Have you checked the valuation? Unlikely this will be 800k. It sold for 885 in 2016. Also there is stamp duty and other costs.

even if you did get 750 pw on a 800k buy, it probably wont be positively geared with mortgage rates at 6% and after body corp and other costs.

 

It will be negatively geared ie costs exceed income.

Will the bank allow you to redraw the $800k?

 

I will talk to my mortgage manager next week. But if they do allow to borrow 800k this means the interest on the full 800k is tax deductible, correct?

 

An accountant can confirm if it qualifies.

 

Im such a goof. How can I check how much it last sold for and when? Or do you just check the "Sold" on Domain?

Valuation will be done by my bank once I make an offer or win the auction, no?

800k to buy
350 equity
450 debt at 7% (interest. 5.8% +. repayments add up to say 7%) is approx 32k p.a
750 p.w rent is approx 39k p.a
body corp is 1k p.q or. 4k p.a
net im left with 3k profit, no?

 

is it worth using an accountant for something as simple as this?

 

You dont understand how this works.

using equity means borrowing against it. In your example that means borrowing 840k @6% interest plus 2% principal so 50k interest and another 17k principal. Against rent of 39k and maybe 10k costs (management fees, body corp, council rates, repairs).

Tax loss 20k a year. Cashflow depends on your tax rate but at 30% you are down 30k+ after tax.

seriously dont look at property until you do understand this.

you might be better off stating all your numbers. Ppor value, loan outstanding, offset balance, rough income and let mortgage brokers comment.

 

its not simple.
Talk to a good mortgage broker, tax advisor and solicitor before looking at property.

 

Only if they are a solicitor or tax agent.

Generally if you borrow to invest in income producing property, without the borrowed money taking a detour or being mixed etc then the interest would be deductible against the rent.

 

Why not keep the cash and borrow against the main residence for the 25% deposit?

 

Might as well.

PPOR:
Bought for 900
Debt outstanding 780
Interest Rate 5.75

Income 180k

Savings, all in offset, currently approx 450k

Looking at buying first investment property.

Please comment.

 

Thats the plan. I am trying to figure out the best way of doing it so I don't just use my cash without using all the benefits (tax offsets).

 

As a guide, if you want to buy a place for 800 plus costs, then your total debt afterwards will be between 1.2 and 1.6. On income of 180 (including or excluding super?) with maybe 35k rent shaded at 70%?

your first step is to find out from a good mortgage broker just how much borrowing capacity you have.

 

Just to throw it out there anyway. Why a 2 bed unit? Why not a 3 bed house? Might not be where you would want to live, but history tells us….

 

Well, I have approx 770k debt outstanding on PPOR and looking at borrowing max 650k so all up I will 1.4m in debt.

Already have pre approval to borrow 650k.

 

I never owned a house so I am just scared buying something I don't understand or have a "feel" for. Therefore targeting apartments in prime locations. I might be wrong so open to advice and happy to change the strategy.

 

You can't be wrong about how you 'feel'. But have you looked at growth rates for apartments v houses (even this is a huge generalisation: read about OTP apartments and house and land in new suburbs, for example).

If I was starting now it would be old houses each and every time. And not necessarily Sydney.

This is why you want to set goals, and evaluate investments against goals. If what you are comfortable with doesn't get you to those goals, get good information and risk being uncomfortable. If someone said to you they have never borrowed money before so they are not comfortable with debt so don't want to buy property, what would you say?

 

What you need to understand is that using the money in the offset (with tax advisor advice do it correctly so that you can deduct the interest on the extra 200k you need for a 800k purchase on top of the new 650k loan) means that after you settle, you are paying interest on 850k more debt on a 800k purchase compared to now.

You will still be cashflow negative by approx 3-5% of your purchase price. That's after tax.

Nothing wrong with that as long as the future rents and capital gains is more than this. And on your income that should be manageable. But if you go into this thinking you are positively geared somehow......