Going OS, should I turn PPOR into IP?

[gronk007]

Hi All,

Am moving to Mauritius for 3 years (July 2013 to July 2016) for an expat job.

We are renting out our PPOR to tenants from July 2013 onwards and am asking if its worth converting the PPOR P&I loan to a IP I/O loan.

Here is my current financial situation.

PPOR - bought August 2010 for $537,500 - last valuation $573,000, current mortgage at $504,000 (4 mth deferral on payments after child illness and parent illness, was down to $485K), current interest rate 5.41% @ $1409 fortnight - 3+ 1 house

IP - bought November 2007 for $205,000 - last valuation $355,000, current mortgage as an I/O paying about $1000/month, rental pcm is about $1136 after management fees...2 bedroom unit, 1 bathroom.

When we move overseas, other than a recent Baby Bonus, a rental income from IP, we have no Australian income to speak of, so is there any point in turning the interest payments on the recently converted PPOR into deductibles?

Income Overseas will be about $150,000 USD annually.

Hope I've given a pretty good overview for someone to assist.

 

[Terry_w]

do you intend to livein it again on your return.?

 

[gronk007]

After 3 years, yes.

 

[Rolf Latham]

IO pref with 100 % offset pls

Place all spare cash into offset

ta
rolf

 

[Terry_w]

After 3 years, yes.

Since it is going to be the main residence again it may not be such a concern if you pay the loan down slightly by keeping it PI. If it is easy to do it may be worth considering though.

 

[marks]

I did a stint OS and interstate and rented out the PPOR for 3yrs.
I don't know what your AU income is this year but you should look at the PPOR being available for rental ASAP. Even if it takes a few weeks to find a tenant, you can start claiming interest, rates, etc from the time it was available. Soon as the truck arrives for your effects, get the cleaners in and the Property Manager in. I went to a service apartment for 3 weeks while the personal effects started their transit.
If you have the cash, you can pre-pay the interest this year and then claim the deduction in your tax return. Great to have this return sitting in your offset for any unforeseen expenses while you're away. (Storm Damage, Hot Water, etc)
Depreciation schedule would be a good idea when you make it available to rent. And you can claim the fee straight away.
If you can maximise and bring forward your deductions this year, you can maximise this years refund.
Your deductions in the next few years will accumulate until you start earning back in $AU. Nice to have a large deduction but not that nice if you have to wait 3 years for it.
Also plan if you need to replace carpets, blinds, dishwasher, etc. if they "wear out" while you're away and you need new ones when you return.

 

[gronk007]

Thanks guys, I've already engaged a PM... My income this year was pretty limited, about $40k in payg income, about $16k in govt benefits, and $8k in ABN income.

 

[gronk007]

My mortgage broker seemed a little indecisive about keeping it as PPOR or IO...given the Australian income we will be earning is negligible, the deductibles won't be much of a factor while residing overseas.

Any more thoughts?

Can I carry deductibles until a return?

 

[Terry_w]

My mortgage broker seemed a little indecisive about keeping it as PPOR or IO...given the Australian income we will be earning is negligible, the deductibles won't be much of a factor while residing overseas.

Any more thoughts?

Can I carry deductibles until a return?

Do you mean PI or IO?

 

[gronk007]

yeah, PI, sorry, slip of the keyboard