Hi there
We are planning to take our first step into investing and would like to convert our PPOR to an investment property.
We bought our 2 bedroom unit with the FHOG at $260K 2 years ago. Unfortunately then I did not know about offset accounts so we did not setup our loan structure that way. Fortunately I starting reading on Somersoft about how paying off the principal of the loan lowers tax deductibility, and thus we have kept extra home loan payments to a minimum and have only paid $10K off the loan.
We have seriously outgrown our current place and need a house with a yard. We are planning to buy a 3 bedroom house for about $350K hopefully latest by July this year.
We have a combined annual income of about 90K. Our problem is that we do not have the deposit for the next place mostly due to bad planning and unforseen circumstances. We could save about 10K by July but that wouldn’t be enough.
I am thinking about getting an equity loan out of our current 2 bedroom unit. We estimate that our place would be worth currently $320K and would rent for $350 per week.
Current PPOR
Existing loan - $250K
Current Value - $320K
LVR – 78%
Bring LVR to 90% = about $40K
That should be enough for a 5% deposit plus costs on our next home and costs that would be occurred renting out our current place.
So here come my questions:
-If I set this equity loan up as a separate loan account, would I contaminate the loan for when it is converted into an investment property? Would this be clear cut enough for the accountant to separate the tax deductable interest from the non deductable interest?
- We plan to live in our next home for 2 years and then do the same thing, move to the next PPOR and rent that one out(because we will most likely be moving interstate at that time) I will setup an interest only with offset account this time around. Are there any other downsides to repeatedly converting PPORs to IPs?
- Is having 1 property with 90% LVR and the other with 95% LVR really dangerous in the current climate? The only other alternative we have is to sell our current PPOR to fund the next but I really don’t want to do this.
Please advice if I made any mistakes in my plan, I am a newbie but very enthusiastic about this forum and property investing. The hardest part is taking the first step I guess. Thanks in advance.
We are planning to take our first step into investing and would like to convert our PPOR to an investment property.
We bought our 2 bedroom unit with the FHOG at $260K 2 years ago. Unfortunately then I did not know about offset accounts so we did not setup our loan structure that way. Fortunately I starting reading on Somersoft about how paying off the principal of the loan lowers tax deductibility, and thus we have kept extra home loan payments to a minimum and have only paid $10K off the loan.
We have seriously outgrown our current place and need a house with a yard. We are planning to buy a 3 bedroom house for about $350K hopefully latest by July this year.
We have a combined annual income of about 90K. Our problem is that we do not have the deposit for the next place mostly due to bad planning and unforseen circumstances. We could save about 10K by July but that wouldn’t be enough.
I am thinking about getting an equity loan out of our current 2 bedroom unit. We estimate that our place would be worth currently $320K and would rent for $350 per week.
Current PPOR
Existing loan - $250K
Current Value - $320K
LVR – 78%
Bring LVR to 90% = about $40K
That should be enough for a 5% deposit plus costs on our next home and costs that would be occurred renting out our current place.
So here come my questions:
-If I set this equity loan up as a separate loan account, would I contaminate the loan for when it is converted into an investment property? Would this be clear cut enough for the accountant to separate the tax deductable interest from the non deductable interest?
- We plan to live in our next home for 2 years and then do the same thing, move to the next PPOR and rent that one out(because we will most likely be moving interstate at that time) I will setup an interest only with offset account this time around. Are there any other downsides to repeatedly converting PPORs to IPs?
- Is having 1 property with 90% LVR and the other with 95% LVR really dangerous in the current climate? The only other alternative we have is to sell our current PPOR to fund the next but I really don’t want to do this.
Please advice if I made any mistakes in my plan, I am a newbie but very enthusiastic about this forum and property investing. The hardest part is taking the first step I guess. Thanks in advance.
