re:- Drop in my pay

[kero]

Hello fellows,

I am comtemplating to move to another company which pays me a bit lesser than I am earning at the moment. And this will affect the repayments on my PPOR. I would like to think i have two options if and when I get the job:

1. Sell my existing shares and put that money into my offset account in order to reduce my fortnight repayments OR,

2. Move out of my PPOR, rent it out (taking it as an IP) and as for myself, i'll rent somewhere nearer to my hopeful new workplace OR,

3. (1) and (2), OR

4. Your suggestion.

Thanks in advance.

ps: i'm trying not to sell the property.

 

[alexlee]

Hi, Kero. Could use a bit more information:

1) How much is your shortfall between the drop in salary and repayments? Can you trim your budget a bit (probably not a bad idea if you’re taking a pay cut)?

2) How much (as a percentage of your loan outstanding) shares do you have? You’d have to pay down a significant part of your principal to drop the repayments, and if you have that much shares, maybe buy some higher yielding ones and use dividends to supplement repayments?

3) Is your PPOR loan P&I? If you rent it out, change it to Interest Only. That will decrease your repayments.

4) How far away is your new work from your PPOR? If it’s far it might make more sense to rent another place elsewhere.

Bottom line, run the numbers for the various scenarios, taking into account tax implications and your personal budget.

Alex

 

[kero]

appreciate those questions Alexlee and thanks for your response.

1. Shortfall is about $5000 annual. I got ways to earn a bit more since my working time is from 830am to 421pm;

2. Had that idea about high yield shares. will continue to look into that (any recommendation? i'm paying at a rate of 6.72%). i have about $16k in shares. If i want, i can reduce the loan to only 220k.

3. loan is a P/I. I'll remember about switching to a interest only loan. thanks for the reminder.

4. i am already thinking aout that option. PPOR is about 20 to 25 min drive. I haven't got a personal car as this one i have is a company car (fuel, maintenance cost etc will be new to me)... even mobile phone is completely paid for. rent near work which is in the city would be about $150 to $200 per wk.

any thoughts?

 

[alexlee]

Re 2: $16k repayment on your loan only translates to about a $25 per week decrease in your loan repayments (P&I repayments). Which is neither here nor there. Good stocks would give you about $10k per year fully franked which is about the same, especially if your mortgage interest becomes tax deductible.

If I was in your shoes (and remember this is just my personal opinion):
1) Change the loan into I/O and rent the place out
2) Rent a place nearer to work. Try to write off part of the rent on the new place as business expenses (set aside a room just for work, etc)
3) Move the portfolio to higher yielding shares like banks, etc.
4) Take a harder look at the budget. If you take a pay cut, it’s natural that you should have to cut expenses.

Alex

 

[Petal]

1. Shortfall is about $5000 annual. I got ways to earn a bit more since my working time is from 830am to 421pm;

Wow unusual hours. Is that 36.45hrs per week? My guess is that you are in the public service. These were the standard hours for Department of Defence civilians before they went to 37.30 per week (7.30 hrs per day) which let me tell you makes life easier when filling out a flex diary!!!

 

[kero]

hahahah.... petal, spot on. but i'll be training and working with a few gurus of this industry... and that's why the job move. i grad from uni. only 4 years ago and there is so much to learn from others and furthermore, my present job is not feeding me with enough knowledge to actually compete with the biggies.

anyhow, the dept is pro- further education and they are willing to pay for it including giving study leave. so i'll be doing a course that would otherwise cost me $8000. i'm not going to suck them dry. its going to be a give and take situation.

 

[Glebe]

Trim your lifestyle budget first. $5000 per year less means after tax you have to save $70 a week from somewhere. Is that doable?

If not, I'd consider renting closer to work, or somewhere cheap. I'd not be inclined to sell my shares - this has more to do with the principle rather than the mathematics. Best of luck.

 

[orcades]

There was a comment much earlier in this thread about requirements of rental properties for The Department of Defence. Uou can check this out at the following link:

http://www.dha.gov.au/for-investors/lease/requirements

Cheers, Orcades