Advise Please?

[ha55sh]

To all the smart ones out there,

I am a fresher to the "Property Game" and have recently bought the following:

- A 2 bedder unit in Parramatta, Sydney.

- Bought it for $330,500 + Stampduty ($347K all up) with a 10 % deposit. (Cosidering the market i thought i saved some $$'s with that price)

- 10 days after i bouught my property on level 5, another property in the same block on ground level sold for 397 + stampduty and legals. Yes it has got a bit of front yard but its on the south east aspect and doesnt get much light at all. Mine is on the north west aspect and gets sun all day!
The one on ground level is also not that private as people entring the building can see into the unit and not to mention the security risk for someone to break in.

So i think my property after inspecting other similar properties is atleast 375K+

- The property can currenlty fetch $400 p.w. If i was renting it i would pay approx 8K ish from my pocket including strata, water and council rates.

- The 8K is managable for me to spare if i had to buy a new property.

- I pay approx 25K in taxes each year!

- My aim is build a property portfolio (like a lot on this forum).


My questions are:

1. Am i being stupid by living in it? Should i rent it out and let it pay itself off?
2. Should i be paying off my first property to build up equity as i dont have anything else to secure?
3. Should i concentrate on knocking off as much as i can for another 2 years to bring the loan down and use that extra equity to borrow money by making this an IP?
4. I am 31 at the moment and need some sensible advise on how to ride the property tide! Should i stay highly leveraged or should i play it a bit safe?

Your help will be highly appreciated.

Thanks
Ha55sh

 

[Terry_w]

No need to mention + stamp duty and legals as this is not relevant when talking about purchase price. Everyone incurs these costs.

1. Living in it means you can avoid CGT when sold. If you didn?t live in it you would also have to live somewhere else. But if you moved next door and rented for $400 pw then you would be better off, money wise, as you would have $8k extra deductions. So you may save $4k in tax per year. You could also keep the original purchase exempt from CGT by using the s118-145 rule for the absence of main residence

2. $8k pa is a lot of money. Is your loan interest only? Generally you shouldn?t be paying off a property, especially an investment property

3. No. Look at IO loans with 100% offset.

4. Depends on your appetite for risk.

 

[ha55sh]

No need to mention + stamp duty and legals as this is not relevant when talking about purchase price. Everyone incurs these costs.

1. Living in it means you can avoid CGT when sold. If you didn?t live in it you would also have to live somewhere else. But if you moved next door and rented for $400 pw then you would be better off, money wise, as you would have $8k extra deductions. So you may save $4k in tax per year. You could also keep the original purchase exempt from CGT by using the s118-145 rule for the absence of main residence

2. $8k pa is a lot of money. Is your loan interest only? Generally you shouldn?t be paying off a property, especially an investment property

3. No. Look at IO loans with 100% offset.

4. Depends on your appetite for risk.

1. Knowing what I want (build up a prop portfolio), I don?t think I will sell this property off so I am not worried about CGT at the moment. I will read up a bit on: ?You could also keep the original purchase exempt from CGT by using the s118-145 rule for the absence of main residence.?

2. Yes 8K is a lot of money. No the loan is Principle + Int. I know I shouldn?t be paying off an inv property but I was thinking that I should have 1 home paid off or get close to it to back it up as equity.

3. What do you mean exactly by 100% offset? Can you please provide an eg?

4. My appetite for risk is medium to high.

5. What would be an ideal way to start building a property portfolio? What would you do if you were in a similar situation? Rent this one out?

 

[Propertunity]

My questions are:
1. Am i being stupid by living in it?

It is a good idea to live in it initially, as if (when) you move out, you could claim the 6 yr exemption rule, and not pay any CGT as long as you are not claiming another PPOR. But now, you should turn it into an IP.

Should i rent it out and let it pay itself off?

Yes

2. Should i be paying off my first property to build up equity as i dont have anything else to secure?

NO! You should let the CG build up equity and preserve your cash for more deposits on other IPs.

3. Should i concentrate on knocking off as much as i can for another 2 years to bring the loan down and use that extra equity to borrow money by making this an IP?

No! All that is doing is reducing the amount of tax deductible interest you can claim on the IP.

4. I am 31 at the moment and need some sensible advise on how to ride the property tide!

Remember the tide ebbs and flows.

Should i stay highly leveraged or should i play it a bit safe?

At your age, I'd be leveraging UP.

 

[ha55sh]

Thank you guys! That really helps.