What to do with $160,000, starting out

Hi I have $160,000 given to me as inheritance and I am considering investing in property.

I am late 30's, wife is early 30's. Have 100,000 Equity in a $500,000 house. Wife wont let me touch that though.

So I was thinking do I use the 160,000 toward buying an investment property with a value of around 500,000 that would allow the rent to cover the expenses.

Or do I split the 160,000 into two and try to get two maybe lower value houses..

Or maybe buy a block that can have a battleaxe sub division and use some of the money to pay for a build in the back yard.

Thoughts? ideas, or any other threads already covered something like this?

 

It all depends on what you want to achieve and your risk appetite. I'd talk to your wife and map out what you want to achieve and in what time frame. If you work back from your goals it makes it easier to create a strategy.

I'd personally head to the library and grab some books on property investing just to get your head around the basics as well. Always good to read about other peoples strategies as well.

 

Since your wife isn't going to let you draw out the equity you could put the 160k into your PPOR (reducing the ND debt) and then draw out the 160k and invest making interest on the 160k D. If you were one day planning on changing the PPOR into an IP then might not be best.

From there it is really up to what you want for your property selection depending on what strategy you want to employ.

 

Is the $500,000 house your PPOR? If so I'd probably set up an offset and place that 160k in it yesterday (assuming not fixed and loan has feature available etc) while you decide what to do. Or pay down the loan if you're not going to make it an IP as @Big Will suggested. Benefit of that is when you take out an LOC for investing the debt becomes deductible.

Assuming you're borrowing at 80% LVR and not paying LMI you can't use the equity in your $500,000 house anyway. Your maximum borrowing is $400,000 which you are already at.
Depending on your serviceability and LMI requirements, your 160k could potentially fund 2-3 deposits+costs.
I'd probably see an accountant and broker first to structure things right and find out how much you can borrow. Also read, read, read.

 

Yes its the PPOR currently don't have any investments. Yes money is in the offset at the moment.

 

Household income is $165,000

 

As @Big Will said - you can put $160k toward the PPOR loan, and then draw the equity down. Debt recycling.

 

Is that better than having it in the offset? Or it just depends if will ever use the current house as an investment?

 

If you plan on using your current PPOR as an investment... suggest leaving it in the offset.

 

If the PPOR will become a IP in the future leave it in the offset if you are not going to invest it or if you are going to invest the 160k I would consider debt recycle (put money into loan and take out).

If the PPOR will remain or be sold in the future as a PPOR then I would consider debt recycling.

Basically the 160k would pay down against your PPOR is ND interest but then when you withdraw the money again because it is going towards an investment it would become deductible.

If you put it into an offset yes you would reduce your ND interest temporarily but when you then take the money out for the investment your ND interest would go up and you would have less D interest to be claimed.

Quick example;
Scenario 1
600k house (Current PPOR)
400k Loan (Current PPOR)
160k offset
240k - interest is being calculated on whilst 160k in offset

Make purchase IP 500k (80LVR)
100k Deposit (taken from offset) + 60k in expenses (grossly inflated but using to demonstrate)
Loan 400k

Total loans are 400k ND + 400k D or total 800k.

Scenario 2
600k house (Current PPOR)
400k Loan (Current PPOR)
160k paid into PPOR loan new loan amount 240k
+ 160k equity taken out for investing
New total loan 400k (240k ND + 160k D)

Make purchase IP 500k (80LVR)
100k Deposit (taken from equity) + 60k in expenses (again grossly inflated but using to demonstrate)
Loan 400k

Total loans (240k ND + 160k D + 400k D) or 240k ND + 560k D or total 800k

This is my opinion and I am not a financial planner, should you go seek your own professional advice and do your own due diligence.

 

In real world, how does this work? If one puts the $160k first into the offset account and then pays off the PPOR loan from that offset account can this still work?

Or is it advisable to leave the $160k separate from the offset account and pay the loan off directly from that separate account.

 

I haven't actually done it so give me a 160k and I will work out a way.

I would assume you can put it in your offset and then pay from the offset into the loan. However I haven't ever had to look into it further but ill PM you with my bank details so you can transfer the 160k and trust me I would of found out the way before the end of the year.

Once I found out how it works I will not be providing back the original capital

 

I have done it with an investment loan. The funds were in the offset, I paid them into the loan then invested the fund directly from the loan account. Just a couple of things to be aware of:-

1. if you fully pay down a loan, the lender may automatically close the loan
2. some lenders don't let you transfer directly from your loan account. if you want to invest the funds via another account you should get tax advice