Extension or save towards new IP?

Hi all,

Just wanted to get some advice.

I own a terrace in Sydney that has scope for a significant extension, that would had a fair amount of equity to the property. I am looking at spending approx $50k and doing most of the work myself (i am an owner builder). Perhaps increasing the value by 100k. I would then extend the loan against this property with the intention of buying more property. Perhaps a 6 month project.

Option 2 is to save the extra 10% deposit (maybe 3 months) and buy another property....

I am torn on the 2 options, an advice would be appreciated.

Thanks
 
Hi Luke

Dont be torn :)

Do the work, borrow the deposit, and place the saved money against your home loan.

Tax paid cash is almost always better not spent on IPs if you have equity borrowings.

ta
rolf
 
Luke the second ip will bring in another persons income into YOUR world, once your name is on that little piece of paper then so are the gains, and somone is willing and able to pay if for you, the potential on your ppor will not go away! in fact the gains will get only get better, so, i think go with ip number two.
 
I have looked at it from both the above perspectives and cannot work out longer term what is the most effective method for long term wealth creation?
I am leaning towards doing the work, and using the equity for the next property.
 
Hi Luke

Dont be torn :)

Do the work, borrow the deposit, and place the saved money against your home loan.

Tax paid cash is almost always better not spent on IPs if you have equity borrowings.

ta
rolf
Hi Luke

I believe Rolf has hit the nail on the head! Do the improvements on your PPOR, borrow money for deposit on IP and put surplus funds (if any) into your PPOR loan. By putting your savings into your home loan, you're reducing your non tax deductible debt.

Once your home extension is complete, you can have your PPOR revalued, then access the equity to use towards another IP.

You can always go for LMI if you don't have the 20% deposit.

Cheers!
 
Hi all,

Just wanted to get some advice.

I own a terrace in Sydney that has scope for a significant extension, that would had a fair amount of equity to the property. I am looking at spending approx $50k and doing most of the work myself (i am an owner builder). Perhaps increasing the value by 100k. I would then extend the loan against this property with the intention of buying more property. Perhaps a 6 month project.

Option 2 is to save the extra 10% deposit (maybe 3 months) and buy another property....

I am torn on the 2 options, an advice would be appreciated.

Thanks

The reno will increase the current property's value now, but the same money spent on another property will give you more exposure to the market, thus accelerating the cap gains and wealth base over a similar time frame.
 
Yes, but say i increase property A in value by 25%, then the property and the addition 25% will increase with market forces. I can also then churn this equity into property B.

Still confused!
 
Yes, but say i increase property A in value by 25%, then the property and the addition 25% will increase with market forces. I can also then churn this equity into property B.

Still confused!

Hi Luke-

Then do what you mention above.

There is actually no right or wrong. Let me try and make it clearer so that you can think about your choices a little more evenly.

These are the facts:
50k into an extension is not Tax Deductable.
50k into an Investment property is.

You ONLY receive an income from the IP. Not your extension.

If property A and property B are in the same area - it will make no difference to the growth. You will spend time renovating- hoping to add more value, when in fact purchasing a property now will achieve practically the same thing but without all of the fuss!

If the extension is more of a personal matter, then that is obviously what you prefer to do. Make sure you are not confusing your personal choice rather than thinking practically in a business sense. :)

Regards JO
 
Thanks everyone.

Just to clarify, property A is an investment property.
Property B would also be an investment property.

So the proposed works are to increase equity in the investment property.

Does that make the decision easier???

Thanks everyone for your feedback.
 
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