Withdraw equity before buying a house to pay off debts?

Hi everyone,

I'm looking to buy IP # 2 in the next 2 - 4 months time. I'm getting IP # 1 valued next week to guage how much equity I have that I can access. My loans for $307,000 and I believe the IP has a value of around $430,000 giving me around $40,000 equity if I want to push it back up to 80%.

I have a credit card debt of around $4000 from a bthroom reno and a few other things that would be handy to pay off now that I dont have the money to do so. These debts have been really holding my savings plan back and I'm about 3 months behind where I wanted to be. Should I draw the equity out, park it in my offset, pay off the around $5000 in high interest debts with the equity and then keep it in the offset until I'm ready to purchase IP # 2?

Or should I just hang in there, pay off the debts over the next 2/3 months with my wage and then pull out the equity?

Thanks for your help!
 
Hi everyone,

I'm looking to buy IP # 2 in the next 2 - 4 months time. I'm getting IP # 1 valued next week to guage how much equity I have that I can access. My loans for $307,000 and I believe the IP has a value of around $430,000 giving me around $40,000 equity if I want to push it back up to 80%.

I have a credit card debt of around $4000 from a bthroom reno and a few other things that would be handy to pay off now that I dont have the money to do so. These debts have been really holding my savings plan back and I'm about 3 months behind where I wanted to be. Should I draw the equity out, park it in my offset, pay off the around $5000 in high interest debts with the equity and then keep it in the offset until I'm ready to purchase IP # 2?

Or should I just hang in there, pay off the debts over the next 2/3 months with my wage and then pull out the equity?

Thanks for your help!

Is the offset account only used for investment purposes or sometimes for investment and sometimes for private consumption?. I'd suggest to open the offset account or LOC for investment purposes and only use it for that purpose. Then, following on your question and plan, use the funds in the offset/LOC to fund the mortgage instalments of IP #1 while at the same time useing IP #1 rent to pay for your consumer debt. In that way, your debt is clearly used for investment purposes and you are getting rid of your consumer debt faster (just don't get used to this since, you can get broke quickly if you don't control your consumption appetite :eek:


PS. I'm not accountant no fin adviser.
 
I agree with agent007,

I have a LOC set up against each ip which is used to pay for all the ip related expenses which then allows me to pay down my non deductible debt quicker. But speak with your account about this to get it right for your circumstances.

As far as drawing out the money that is to be used for the next deposit now and sit it in the offset I would not do this as it is harder to prove the purpose of the loan for tax purposes especially if the offset account is being used for personal purposes as well.

Remember you should always keep a clear barrier between deductible and non deductible debt, and try not to use a LOC for both.

Cheers Paul.
 
Well my whole plan was to transfer the left over amount from my wage after my mortgage repayments which is around $2200 a month to my offset account and use it purely for investing purposes. Then just live off the $400 a week rent I recieve from my IP

Unexpected expenses and a few other things have come up so that hasnt come off and I have needed that $2000 each month.

I would like to pay off these debts straight away as some of them are climbing above a 20% rate...
 
Dont take this the wrong way, but I suggest you pay off your cc and its interest with your income, first, before you even do back of the envelope calculations on equity available, or next purchasers.
Then I'd set up seperate offset accounts/ savings accounts for personal and investment income and expenses, and have clear spending and investment plans.
Only then I'd have a look into the new purchase.

Investing takes time and discipline. If you can learn to be discaplined now, like making extra repayments on your mortgage, the results will have a dramatic effect on your wealth building long term and/or your expected retirement.
Im not saying you cant reno your bathroom, set up your priorities however you like, just remember that any borrowable equity you use for consumer debt/spending reduces your wealth building capacity by a large factor. Make sure you are aware of the risks you are contemplating. Yes you can refinance your cc debt into the investment loan, but this means you cant borrow as much next time because
a)you will have less available equity, and
b)less servicing capacity because you have more consumer debt without tax benefits.
I only say this because I have been there myself.
 
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