Totally confused!

Discussion in 'Introductions' started by Mietre, 23rd Aug, 2016.

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  1. Colin Rice

    Colin Rice Mortgage Broker Business Member

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    If he is using one lender for your current property and another for the new purchase then it will have to be "stand alone" which is exactly what you want.
     
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  2. Mietre

    Mietre Active Member

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    Ok phew! We really like him and he has always been so helpful:)
     
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  3. Sackie

    Sackie Well-Known Member

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    Currently doing nonstop DD on a site that goes to auction in a few days which i'll have an agent bid for me, so i've disappeared for a while mate.
     
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  4. Mietre

    Mietre Active Member

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    Thanks Leo2413, it was a fantastic read! Good luck with the auction:)
     
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  5. Sackie

    Sackie Well-Known Member

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  6. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    You'll want them to split the first loan in two, as one will be deductible and the other won't.
     
  7. The Y-man

    The Y-man Moderator Staff Member

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    PPOR = "Principal Place of Residence"

    The Y-man
     
  8. Mietre

    Mietre Active Member

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    .

    Thanks Jess he is emailing figures for two options - using PPOR as investment and purchasing new PPOR and selling PPOR, buying new PPOR and two IP (for children) so I will ask him about splitting if we go with the first option:)

    Ahhhhh thank you:)
     
  9. Steven Ryan

    Steven Ryan Well-Known Member

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    @Mietre, sounds like you are in competent hands :)
     
  10. The Y-man

    The Y-man Moderator Staff Member

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    I didn't have time to put a post in until now due to complications ;)

    Don't be too scared off though - at the heart of it, residential property investing is this:

    1. Buy property
    2. Rent it out
    3. Collect Rent
    4. Pay insurance, repairs, maintenance, and a property manager.

    That's about it.
    Things get a tad more complicated because most of us don't have money to do step 1. So we need to borrow money. Then we need to pay interest.

    1. Borrow Money
    2. Buy property
    3. Rent it out
    3. Collect Rent
    4. Pay interest
    5. Pay insurance, repairs, maintenance, and a property manager.

    All the other hoohah is about
    a. Tax issues and or benefits
    b. Whether you make money out of the whole thing (it's investing right?)

    Why do these things come up?

    Well it's when the rent you collect in step 3 may not be enough to cover everything in step 4 and 5.

    You are losing money..... unless the property goes up in value by at least the amount you are losing (and you are going to sell it one day and take some profit).

    eg
    You receive $1,000 per month in rent (step 3)
    You pay $700 per month in interest (step 4)
    You pay $400 per month for insurance, repairs, maintenance and a property manager (step 5)

    If you do the sums, ah crap! You are $100 per month out of pocket!! :oops:

    But if the property went UP in value $110 per month, you'd be ok over the long term (as long as you could keep forking out the $100 cash every month)

    If you can get the above, the rest becomes a lot easier.

    As for the Tax bits, bascially:
    1. If you make money you pay tax
    2. If you lose money, the government helps you out a bit.
    3. If you sell your own home where you live (PPOR), you don't get taxed
    4. You get taxed when you buy a property (just for the hell of it) - it's called stamp duty

    The Y-man
     
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  11. Mietre

    Mietre Active Member

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    Thanks Y-man that seems simple enough:)

    I think if we use our PPOR as investment it would be positively geared. Which would be ok. Our goal is to have it paid off for our children by the time they are 18-21. We would probably need to look for an independent IP for ourselves for tax purposes as well at some point.

    Thanks Steven that is a relief. We love working with our mortgage broker. I know it probably sounds naive but I really get the sense that he cares about us. He has known us since we bought our first property at 20!
     
  12. Gockie

    Gockie Life is good ☺️ Premium Member

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    Hi Mietre,

    Two things. Do you want to treat your home as an investment or as your home? If you want to look at it as an investment, don't pay any more of it off, instead you can put your spare cash into an offset account linked to the home loan. Reason being, you lose a lot of tax deductibility and you'll end up paying a lot of taxes on the income when you rent it out.

    Re: Independent IP down the track: Its better to build a bigger portfolio now (so even think about buying a few places if you can sooner rather than later - understand your borrowing capacity) as long as you choose to buy in a market that is rising. You can let time do most of the heavy lifting to increase the value of your portfolio (along with renos or more involved things like subdivisions). Lets say you have 100k to invest. If you bought 2 IPs each worth say 350k and they each go up a conservative 4% for the next 5 years, then at the end of year 5 your 2 IPs will be worth 850k combined. That's 150k equity generated from your 100k and you just did next to nothing for it. Btw you can do much better than 4% annual growth if you buy right and do renos etc for a boost but that's for illustrative purposes. With that equity you can buy again...

    So there's better places than to just put all your money into your ppor home loan, and once you have no other use for your money, put it into an offset account linked to your home. Putting your spare money into offset just gives you a lot more flexibility.
    Good luck....
     
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  13. Mietre

    Mietre Active Member

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    We love our offset accounts so will definitely make sure each property has its own account!

    Thank you so much for all of your advice, it is honestly so helpful for a complete novice!
     
  14. Mietre

    Mietre Active Member

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    Sorry @Gockie

    Some of my reply is intertwined in your quote! I am still trying to figure out how to use the site. I hope you can see where I have written because I would really value your advice:)
     
  15. Steven Ryan

    Steven Ryan Well-Known Member

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    I think you'll find most of us care a great deal about our clients :)
     
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  16. Mietre

    Mietre Active Member

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    It's so great Steven, obviously the profession attracts awesome people:)
     
  17. Gockie

    Gockie Life is good ☺️ Premium Member

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    Hi Mietre,
    You said:
    "If we keep current PPOR as an investment for our kids, then we would buy a new PPOR and have enough left over for our own investment property. Probably only one though!" You also said you'd redraw up to 20%. (I'm assuming this is from offset, not from the home loan itself). I'd look to leave money in an IPs offset only when there is no interest to be repaid on your PPOR.

    This is still being very conservative but if you are planning to buy a new PPOR then I would pull out all the money you have in your current offset that you intend to own as an IP and use that for your new PPOR (if you have extra cash put it into your PPOR's offset account*). Its better to have the large debt on your IPs. Reason being the debt on an IP is tax deductible, but debt on your PPOR isn't. Just doing this simple action can save you a lot of taxes and if you think over a number of years it can add up. You still have the flexibiity of using that money that's sitting in your offset too however you like. You can also convert your PPOR to an IP in future, just keep excess funds in offset.

    *If I was in a similar position I personally would look to build the biggest portfolio I could right now. Of course if you find you have the funds to buy a PPOR and an IP or two right now, you can absolutely do that but I personally don't think you would be comfortable doing that just yet. Plus I think you should perhaps keep learning and reading a bit longer before going all out. I have a friend who bought an inner city 1 bedroom apartment in Brisbane a year ago "for the tax benefits". She seemed to have just gone out and bought it, not the best idea. Buying the wrong property can be extremely costly. Buying the right ones though can accelerate your wealth.