Capital Gain, Equity and IP Loan Question

[schaefey]

Hey all, New reader of the forum, new member and keen to invest.

I have yet to find an answer to this, so i thought id chuck it in here too see peoples views.

Say you have a PPOR that you bought (took out a loan) for $300 000. And whether it be by sheer luck or waiting 10-20 or so years, your property has risen in value to $600 000.
would it a) be better to use the equity to take out another loan for an IP or 2.
or b) Sell the house, and pay off the remainder of the loan. Say for example it was 10 years, and you had 200 000 still owing, you would have 400 000 in cash. Would it be better then to say buy a 200 000 PPOR outright, and then i could spend more of my income in IP's ratherr than the PPOR loan repayment? or even buy a 200 000 PPOR, and a 200 000 IP outright, then i could buy in say an area with a higher captial gain potential and lower rental yeild, but because it is paid outright the lower rent will not matter as much as it would be pure income, without repayments to make.

From what i am currently b) would set myself up better as i would have little to no debt but still have property. I think it would be a good start to not have any debt, and start investing, that way any negative cashflow for IP's would not really effect my income as much as a loan for a PPOR.

Hypothetical question 2: I am currently about to join the Air Force; where i will be living on base and not having any formal PPOR to worry about for the time being. While im young (currently just turned 19) and have a fair bit of disposable income buy an IP after saving the deposit (in reality maybe 2-3 years of saving) whilst living on base, i wont have the advantage of first home buyers grant but whilst living on base having an IP would be an advantage i would think. would there be any real disadvantage to this? it would enable be to start investing younger and build a better portfolio but what is your view?

What do you guys think, sorry about the novel of a post but i look forward to your answers and views

 

[jaycee]

Welcome..

Good questons for a beginner, I can see what you're thinking and that you want find out the bits you DON'T yet know, rather than just confirm waht you already know.

So hypothetically, you have a PPOR worht $600, with a $200k loan.

I think, off the top of my head, it may depend how much you value that PPOR or how happy you wuold be in a smaller one.

If you wouldnt; be happy downsizing to a smaller PPOR, you coud lpotentially borrow up to $280k against this one to use and help fund further investment properties.

The "6 year" rule may apply to your ppor whlist you are away in the armed forces - where, as I understand it, you can rent it out/claim expenses etc BUT for 6 years after you move out (unless you buy another PPOR) it is CGT free as it's still considered your PPOR...... something others may clarify but it came to mind when I read about you going away.

 

[schweedy]

Not sure about now, but worth looking into.
If you own a property close to where your posted, you would be expected to live in that property and not recieve cheaper defence rent. Might be worth buying well away from any airforce base.

You could also take advantage of the cheaper defence loans once you have a certain number of years under your belt.

My first choice would be to sell the Ppor and turn that into several investment properties whilst getting cheap rent through the forces, and worry about a new ppor when your looking at discharging, later on.

 

[schaefey]

Welcome..

Good questons for a beginner, I can see what you're thinking and that you want find out the bits you DON'T yet know, rather than just confirm waht you already know.

So hypothetically, you have a PPOR worht $600, with a $200k loan.

I think, off the top of my head, it may depend how much you value that PPOR or how happy you wuold be in a smaller one.

If you wouldnt; be happy downsizing to a smaller PPOR, you coud lpotentially borrow up to $280k against this one to use and help fund further investment properties.

The "6 year" rule may apply to your ppor whlist you are away in the armed forces - where, as I understand it, you can rent it out/claim expenses etc BUT for 6 years after you move out (unless you buy another PPOR) it is CGT free as it's still considered your PPOR...... something others may clarify but it came to mind when I read about you going away.

thanks, yeah im keen to find out everything then doing it instead of thinking i know all then find out later theres a better way...

But if i didnt really care if i had a slightly smaller PPOR wouldnt it be more of a benefit? paying off both properties instantly then using the rent from the IP and equity from the captial gain to invest further, and have more income from not paying off the PPOR loan? to me it just seems more solid...but maybe its just me?

Not sure about now, but worth looking into.
If you own a property close to where your posted, you would be expected to live in that property and not recieve cheaper defence rent. Might be worth buying well away from any airforce base.

You could also take advantage of the cheaper defence loans once you have a certain number of years under your belt.

My first choice would be to sell the Ppor and turn that into several investment properties whilst getting cheap rent through the forces, and worry about a new ppor when your looking at discharging, later on.

thanks, and buying away from the base sounds like the safer option, im thinking of buying IP's straight away whilst living on base and then selling a couple (hopefully they have had some captial gain) and buying a better PPOR outright. Is there any real disadvantage to buying an IP whilst on base and moving around, then a PPOR once settled, compared to a PPOR then an IP?