To Move back into an IP? Or find a new PPOR?

[exstatic]

Hey All.. Just found this forum, and its great.. I'm a big fan..

Ok, so this is the situation I am in..

I have been living in London for 2 years on secondment for a job, turning my Melbourne inner city apartment into a IP when I left.

I plan to return to Melbourne at the end of this year but am not sure whether to kick my tenants out and make my IP a PPOR again, or buy another property use it as my PPOR when I get back with the intention of turning it into an IP further down the track.

With the increasing rental yields in this area of Melbourne the property should start performing pretty well when rates start to drop again and within a few years I think I may be able to see +ve CF on that property.

What I am concerned about is what the tax implications would be in purchasing another property, or moving back into the IP and whether it has an impact on any deductions I may be entitled to.

Hopefully someone can give me some suggestions!

 

[exstatic]

No replies to this anyone?

 

[Alex P Keaton]

I am a total newbie but here is what i would do.

Plus im bumping the thread


I would keep the IP, if its performing well for you. An inner city Melbourne apartment I'm thinking would be a great investment.

It'd be a hassle for me to move in and make it my PPOR, then arrange for new tenants when you buy another property. But I dont have much an idea of the pro's and cons. I am really new to this.

I was hoping to see some feedback. Would be interesting. Was thinking of bumping this yesterday actually.

 

[Alex P Keaton]

hmmm you might have better luck posting in the finance forum

good luck

 

[geoffw]

Be careful about your own tax situation- you may not be regarded as a non resident returning- you may be regarded as a resident. There are some very big tax implications if that is right. Get some advice. (I am basing this on things which happened to me when I returned 18 years ago. This may well not be relevant. Get advice).

There are implications about borrowing for a new PPOR, when the old PPOR is, at least, partially paid off, and the old PPOR will become an investment property. Also get advice.

 

[exstatic]

Guys I just moved this post to this section, as I thought it may be more relevant..

Can anyone shed some light on what you suggest may the best way to move forward?

 

[The Y-man]

Guys I just moved this post to this section, as I thought it may be more relevant..

Can anyone shed some light on what you suggest may the best way to move forward?

There's a bit more info needed - eg what your tax position will be when you return (i.e. what will taxable income be, etc)

Are you wanting to live in the property?

Cheers,

The Y-man

 

[exstatic]

Hey Y man,

I am a dual passport holder, so I am currently paying tax in the UK for my income in the UK, when I move back to Oz I will be re-employed by my Australian employer, so paying tax as a resident as per usual.

Ideally I would like to keep the property as an IP.. but we dont have anywhere else to move to without buying or renting somewhere.

On another note, we arent claiming anything against the IP whilst I am in the UK, in effect we just got up an left didnt change any loans or anything and just got some tenants in via an agency... so whether or not that has any implications to moving back in.. or whether we can still claim depreciation, etc if we move back in.

Thanks for your help.
BG

 

[Spectre]

Brendan

I'd imagine you'd have the loan on interest only at present?

might be a thought to put the payments to i/o if not and set an offset account up if you end up moving back into it.

that way you can pull the $ out of the offset and keep the debt high if you intend to continue to rent it out.... offsets are treated seperately and allow you to save interest on the debt when you arent around and then claim it when you rent it out as you arent reducign the debt, only the interest payable (do a search on offsets and it might assist you - sorry mate but i'm a bit more brain dead than usual right now).

 

[dantheman]

Brendan

I'd imagine you'd have the loan on interest only at present?

might be a thought to put the payments to i/o if not and set an offset account up if you end up moving back into it.

that way you can pull the $ out of the offset and keep the debt high if you intend to continue to rent it out.... offsets are treated seperately and allow you to save interest on the debt when you arent around and then claim it when you rent it out as you arent reducign the debt, only the interest payable (do a search on offsets and it might assist you - sorry mate but i'm a bit more brain dead than usual right now).

What Richard said

Also -if you want info regarding the deductions and tax, you might be better off moving this again to the accounting and tax forum Feel like you're playing musical chairs (forums) yet?

 

[exstatic]

ahaha, a little.. maybe I'll start a separate thread on the deductions

Thanks for all your help.

I am still on my original P&I loan for the property, as I wanted to continue this so I could still bring the total amount of debt down while over here, hence increasing equity? I also have an offset account on this that the tenants pay thier rent into.

I am still not sure how an IO loan can be of benefit apart from loweing your monthly repayments? Does it at all bring down the debt amount? Or do you have to rely on growth for equity?

 

[dantheman]

Hi Brendan,

If it is an 100% offset, then the net interest cost/savings is the same as if you actually "paid" down the loan. Therefore if you take an interest only loan, you could keep all your "principal payments" in the offset.

Then the further benefits you get, such as the ability to keep your tax deductable loan amount for the future, and the benefit of being able to move funds with ease (offset is easier to access than redraw) make an offset worth considering for more use. An interest only loan can maximise these benefits.

For example if you buy a PPOR - you would want to move the funds to reduce the interest on that because it's not tax deductable, an offset allows you to do this.

Using funds in an offset to purchase a "new home" can effectively allow you to convert your old home back into an investment property - so this is a very important option if you are planning ahead for the long term.
As always though - get specific advice on your situation from your tax accountant.

Cheers

 

[exstatic]

Thanks for all the advice.. thought I would bring this thread back up rather than start a new one.

So we have decided to move back into our IP and then stay there until we find another place to live, at which stage we will turn that apartment back into an IP.

What I would like to do is structure my finances correctly to make it work properly;

The plan I have so far is to redraw(?) the equity in the current proprerty to use as a deposit on a new one (about 80k), purchase the new property.

Then the idea is to do the same thing with the new property in about 3-4years time, release equity and buy another PPOR, turn existing into an IP.

The question I have is, what sort of loan structure would be best suited if that is my plan? IO the whole way? Should I use different lenders, or should I just have one big chunk of debt from one lender.. ?

Would love to hear some of your suggestions, I am fairly new to the PI game and would like to make sure I start off on the right foot.

 

[exstatic]

Anyone got anything to add?

 

[yo yo ma]

The question I have is, what sort of loan structure would be best suited if that is my plan? IO the whole way? Should I use different lenders, or should I just have one big chunk of debt from one lender.. ?

Interest only would probably be the best way to go if you can get it and you are disciplined enough to save any extra funds in an offset account. It is more tax effective to do it this way.

Having all of your funds with the same lender has the advantage of potentially saving you more off the interest rate. It might disadvantage you if you wish to borrow more and they won't let you- plus they are likely to be cross-colateralised.

All my loans are interest only with the same lender. If you are not sure, might be best to see a good broker.

 

[dantheman]

G'day Brendan,

Sorry I didn't see your post there I haven't spent much time on the forum lately.

Rather than use redraw, I would take a new loan secured against the original property for the deposit. The reason is that the seperate loans are easier to follow for accounting purposes. Never more than one purpose per loan..

If you find multiple loans are costing you more fees, then try and find a good bank professional package where you pay one annual fee and no application or monthly fees. Some banks (like ANZ) limit the number of accounts, but if you shop around you'll find what you need. Besides, once you get to 5 accounts it could be time to add another bank to your portfolio so that all your eggs aren't in one basket.

Interest only is what I prefer, for several reasons:
-You can reduce the debt on your terms, not the banks terms. I.e. use lump sum payments when it suits you instead of on a regular pattern.
-If you are unable to work or on a holiday, there is less payments to tie you down.
-You can use the extra cash for further investments or other uses, you can then grow your portfolio quicker.
-Reduce non-deductable personal debt instead of your investment debt.

Using different lenders is a good idea once you have a few properties, but initially it is cheaper to stay with one lender for your first few to keep the fees low (professional packs), but be sure to keep the loans as seperate accounts for each purpose.

Hope this helps.

Dan

 

[exstatic]

Dan,

That's and exactly what I was looking for.

I have since contacted a recommended broker on this forum to help us sort out the best finances for our needs.

Will let you know what we decide on when we have!

Thanks again for your help