owner occupied property into investment property + how to get another O.O.P

PPR into IP + how to get another PPR on the way

Hi Everyone,
I have a query I hope you can shed some light on for me.

My husband and I are owner occupiers of a 1 bedroom apartment in Melbourne CBD. I've researched and found that the amount we are paying on our mortgage ( principle and interest) a month is the same amount we could rent it out a month. We have lived in the property for 3 years so there's still a fair amount to pay off. We bought the property for $297,000 and it's worth about $430,000 now.

If we turned it into an investment property is there any way we could use this property to help us buy a second property ( for us to owner occupy) worth $230,000 for instance. What would the process be? How much of our own savings would we have to have behind us?

I've been reading about negative gearing an equity but ultimately I don't really know how this applies to the above situation.

If anyone could shed some light on this, give some advice etc, I would greatly appreciate it.

thanks in advance :)

Champas
 
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Hi Champas,

We have lived in the property for 3 years so there's still a fair amount to pay off.
If you turn this one into an IP, you should really stop paying any principal off and just pay interest only. (it is tax deductible)

We bought the property for $297,000 and it's worth about $430,000 now.
OK - so some good equity to access there.

If we turned it into an investment property is there any way we could use this property to help us buy a second property ( for us to owner occupy) worth $230,000 for instance.
OK - you do not say how much you still owe on the loan, but for the purpose of the exercise, let's assume you borrowed 100% and you still owe that much.

The calculations look something like this:
Bank will lend 80% of current value of $430,000 = $344,000
Pay out old loan (say) of $297,000
Amount left over for you to use as a deposit on your next property = 344,000 - 297,000 = $47,000
If you only purchased a $230,000 property next time, that represents a 20% deposit (not including stamp duty costs)
You should be fine, assuming the bank thinks you can service both loans and you meet their other criteria.

What would the process be?
See your bank for a loan or better still see a good mortgage broker. You would have been better off not paying any off the initial loan, and to put what would have been the principal component of your repayments into an offset account. That way you'd still be saving interest on your loan BUT you'd be able to use the money in the offset account for your next, non-tax deductible, purchase (since it is to be your PPOR).

The way I've described getting the money above, you will be paying interest on the $47,000 you draw down from equity in your IP as well as the new loan for the new purchase. (It's not ideal from a tax perspective).

Overall though you should be fine. Go do it.

How much of our own savings would we have to have behind us?
Nothing much at all, if anything.
 
Hi

Be aware that not all lenders will take a 1 bed CBD apptment at 80 % LVR ( for investors especially) without hassles.

Its important that you look at all the lending options, because you may even need to go higher than 80 % depending on what you are looking to buy, and what other resources you currently have

ta

rolf
 
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