Advice for getting started

[propertynoob]

Was recently introduced to this site and it has been a great and informative read. Hoping to get some advice with our situation below....

Main objective is to move out of the inlaws place D) and find a place of our own for the next 3-5years, whilst trying to keep as much personal savings as possible.

This is our current situation:

Investment Property 1 (IP1) is P&I loan
Purchase price $200K, current value $300K
Current balance $150K with $25K in redraw facility
Since its purchase, the property has been rented, owner occupied and currently being rented again.

Savings $110K

Here are the options we are thinking about;

1. If possible, use IP1 somehow to obtain a 20% PPOR deposit.
LOC perhaps or can the LOC $ only be used for investment purposes?
Then I was hoping to park our $110K in an Offset account against the PPOR loan

2. Use IP1's redraw $ and equity for an IP2 deposit ('top up' current loan? LOC? or another product) and then just rent ourselves.
Ideally we would like IP1 and IP2 independent so that one does not affect the other and reduce potential risk.

3. Use our savings as 20% PPOR deposit and then possibly turn it into IP2 down the track

Open to feedback and other suggestions

I don't have a financial background and am learning as I go along
Hoping to gain a better financial understanding of our current situation so that we can make an informed decision and hopefully set up the groundwork to grow more investment properties.

Willing to seek professional advice but just need to know who is best to get me started? (eg accountant, mortgage broker or financial planner? or all)

thanks guys!

 

[The Y-man]

Investment Property 1 (IP1) is P&I loan
Purchase price $200K, current value $300K
Current balance $150K with $25K in redraw facility
Since its purchase, the property has been rented, owner occupied and currently being rented again.

How long was it rented vs being lived in?


The Y-man

 

[The Y-man]

1. If possible, use IP1 somehow to obtain a 20% PPOR deposit.
LOC perhaps or can the LOC $ only be used for investment purposes?
Then I was hoping to park our $110K in an Offset account against the PPOR loan

Had IP 1's account been set up as an IO+Offset, this would have been ok. As it is you will not be able to claim interest deduction if you draw down to use the money for a PPOR - ever (unless you sell the property).

The Y-man

 

[The Y-man]

2. Use IP1's redraw $ and equity for an IP2 deposit ('top up' current loan? LOC? or another product) and then just rent ourselves.
Ideally we would like IP1 and IP2 independent so that one does not affect the other and reduce potential risk.

3. Use our savings as 20% PPOR deposit and then possibly turn it into IP2 down the track

These 2 are ok.

For opt 2: refinance IP1 into an IO+Offset. Use the equity freed up for IP2.
For opt 3: make sure you set up PPOR with IO+Offset so it can be tunred into an IO without issues as well as making any "extra repayments" (actually savings in offset) useable for any pupose.

The Y-man

 

[The Y-man]

Willing to seek professional advice but just need to know who is best to get me started? (eg accountant, mortgage broker or financial planner? or all)

thanks guys!

IMHO Mortgage broker - find out how much you can borrow etc. Sets the scene for the type of IP to look for.

The Y-man

 

[geoffw]

I'd suggest that you start by reading a book or two on property investment. Look at something by Somers, Yardney, Weymiss. All three have links to the forum- Jan and Ian Somers own it.

If you see a mortgage broke make sure that they know something about investment properties. Not all do. There's a number on the forum.

 

[propertynoob]

How long was it rented vs being lived in?


The Y-man

Thanks for the quick reply.

Rented 6months (after purchase)
Owner occupied 3.5years
Rented again 3years

From what I've read, I think I will have to pay captial gains tax if I sell.

Yes in hindsight I should have gone with an IO+Offset for IP1. Lesson learnt!

 

[propertynoob]

These 2 are ok.

For opt 2: refinance IP1 into an IO+Offset. Use the equity freed up for IP2.


The Y-man

Is there any particular product or strategy that we should follow to free up the equity? is this what they call cross collateralization (use one property to secure another) what are the risks?

 

[The Y-man]

Is there any particular product or strategy that we should follow to free up the equity? is this what they call cross collateralization (use one property to secure another) what are the risks?

There is a risk of x-coll. A good mortgage broker should sort it out for you.

The Y-man

 

[propertynoob]

There is a risk of x-coll. A good mortgage broker should sort it out for you.

The Y-man

sorry one more question re: option2, is it worthwhile to park our savings in the Offset attached to the IP I/O loan?
from my understanding, it's only worthwhile to park large savings in an offset attached to PPOR loans.

or is 'what to do with the savings' more of a mortage broker/financial planner question?

 

[The Y-man]

sorry one more question re: option2, is it worthwhile to park our savings in the Offset attached to the IP I/O loan?
from my understanding, it's only worthwhile to park large savings in an offset attached to PPOR loans.

or is 'what to do with the savings' more of a mortage broker/financial planner question?

Nothing wrong with that - lowers your holding costs, and unless you can get a better interest rate for a term deposit than your homeloan rate....

The Y-man

 

[geoffw]

Thanks for the quick reply.

Rented 6months (after purchase)
Owner occupied 3.5years
Rented again 3years

From what I've read, I think I will have to pay captial gains tax if I sell.

Yes in hindsight I should have gone with an IO+Offset for IP1. Lesson learnt!

I suspect it will be CGT free (except for the first six months perhaps) as you have not had another PPOR in that time. Get advice on that.

I'd suggest buying a PPOR before another IP- and park any more offset funds you may have against the PPOR. The PPOR will be CGT free but it's worth paying that down as quickly as possible as the interest is not deductible.

 

[propertynoob]

I suspect it will be CGT free (except for the first six months perhaps) as you have not had another PPOR in that time. Get advice on that.

I'd suggest buying a PPOR before another IP- and park any more offset funds you may have against the PPOR. The PPOR will be CGT free but it's worth paying that down as quickly as possible as the interest is not deductible.

Thanks guys, I'll go and do further research on some of your suggestions and get talking to a mortgage broker. cheers