PPOR vs IP - Net Worth vs Cash Flow

Hello there!

I admit to feeling a bit guilty my first post here is a question, thanks in advance for any assistance :)

Over the last four weeks my fiance and I have come to a fork in the road which I think boils down to Net Worth in PPOR vs Cash Flow and what I would like to know is have you ever had to make this choice? How did it work out?

The story so far:

A few years ago we bought our home in Perth and then a small commercial unit, sold both for a healthy profit, moved to Melbourne and put all the proceeds into our current PPOR; an apartment in Melbourne valued at $975k less $340k mortgage. We're spending 45% of our income servicing the loan and outgoings.

Our lack of cash flow is preventing us from getting an IP and traveling as much as we'd like.

1) Sell our PPOR and buy something less expensive to free up cash flow for IP and travel

2) Keep our PPOR and struggle through building our equity in it, borrowing against that to travel

3) Move into a rental to free up cash flow and rent out our PPOR to cover the mortgage (it would) but still maintain this apartment as PPOR status to avoid paying CGT (up to 6 years I think)

Option 3 sounds like the best of both worlds but I dislike paying rent, dead money and all that.

So if you had to choose in investing exclusively in your PPOR vs IP/Cash Flow, how did things play out for you?

Thanks in advance, I look forward to contributing back soon!
 
Can you change the payments on the PPOR so you pay it off over a longer period of time and free up more cash?

You could then save up some money and take a holiday overseas, then when you get back draw down on the equity and use the additional cash flow to service an IP.
 
almost 1 M apartment ? :p must be pretty exclusive, why not just rent that out while u travel, come back and still have it as ppor :p one step at a time.
 
You could also change your loan to interest only for a while to reduce your repayments and free up some cashflow. Even though you won't be paying off any extra it might be a fair reduction in your repayments and you can always pay off more of your loan in the future?? :)
 
Hi Elarbee

Most investors are a savvy lot and probably started out with a moderate PPOR.

Noel Whittaker has written several books 'Making Money Made Simple' and 'More Money with Noel Whittaker'. Available at most second hand shops.

Anyhow, in one of them he has a chapter on the most common mistakes young families make financialy. He has a list of ten, and the one that I remember the most, which was about forth on his list.

4. Don't buy to big of a house.

My wife and I did this in 1992. Our marriage almost broke down, the financial strugle we went through as our kids got older was almost to much.

I wont go into detail about the delema we found our selves in and the emotional state. All I can say is, I'd hate to see others make the same mistake we did. In my oppion Elarbee, you should sell. Use your money for a deposits for three IP's around the 300k. Have your holiday and enjoy a six months break. Come back and live in one of your IP's, or buy a three beda in the suburbs to live in, and keep investing and be a little savvy for a few years untio the market picks up.

John.
 
Thanks everyone for your thoughts so far.

Yep thought about changing the loan to reduce the payments but 2/3 of it is fixed (bit over 7%) and there's a hefty penalty for changing the terms. I can change the security, the home it's against, but not the terms. We did this for the certainty of fixed payments but our plans have since changed, lesson learnt :rolleyes:

Atti - Yeah I guess it is, it's a 2 bed 2 bath 41st floor with balcony views of the city on the yarra. I'm glad we bought it but we may have bought the sizzle not the sausage!

John thanks for the tip, I'm in the city today and I'll have a look at the bookshop for that one. When we made this decision, my fiance felt we should go for something with a small mortgage but some of our family suggested we borrow 'as much as we can for as long as we can' and I think we may have fallen into that category. Not that we over capitalized but just over extended ourselves considering 'lifestyle'

I guess the savvy part comes with making smart financial moves but also smart lifestyle moves as well.

More thinking.. and more Excel spreadsheets..

- Liam
 
almost 1 M apartment ? :p must be pretty exclusive, why not just rent that out while u travel, come back and still have it as ppor :p one step at a time.

Atti - This was the suggestion from our new accountant so while we're away someone else is paying the mortgage and we can enjoy the tax free gain if we sell when we get back (crossing my fingers there is more gain, 2009 not looking crash hot)
 
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