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Buying a Second Home

Discussion in 'General Investing Discussion' started by abhibytes, 14th May, 2010.

  1. abhibytes

    abhibytes New Member

    Joined:
    14th May, 2010
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    Location:
    VIC
    Hi All,

    Iam relatively new to this forum and seek expert opinion and thoughts about what you think to buy a second home ?

    Iam owning a property which is worth 380K and I still owe about 170K to the bank. The purchase price was 320K.Now we are planning to purchase a second home (Much bigger !!) which is estimated around 450K. What best home financing strategies can I undertake so as to minimise any tax implications, leverage equity of my present home. Also will getting both the mortgages under 1 umbrella be good than through 2 different banks?

    Once I Move into second home, I would rent my previous property..with rental income around 1300 per month expected.

    I look forward to your suggestions and advice.

    Best,
     
    Last edited by a moderator: 15th May, 2010
  2. Billv

    Billv Getting there

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    Location:
    Sydney, NSW
    Parul

    I'll need more information.

    Have you got a deposit and if so how much are you putting towards the new home?

    Has your existing house been your principle place of residence all the time or have you rented it out for any period?

    Is the title in your name only or do you share it 50/50 with your partner?
     
  3. abhibytes

    abhibytes New Member

    Joined:
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    I have about 50K parked in my Loan account (Redraw is available) and 20K in other saving instruments. If I withdraw that I would owe my bank about 220K instead of 170K. So I can manage 70K as a whole.

    It has been a principal place of our residence.

    I share the title with my spouse 50:50.

    Thanks Bill. Look forward to ur reply.
     
  4. Billv

    Billv Getting there

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    Location:
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    Parul

    Because you have the $50K in a redraw facility the moment you pull it out the loan will increase but the $50K won't qualify as a tax deductable portion of the loan.

    At the same time, you don't have much deposit for your new house therefore you'll be forced to pull equity from the old property making things worse.

    From the tax point of view I think the best option for you would be the either sell your old place and use 20% of the money towards your new house.
    You then park any remaining money into your loan's offset account.

    Putting all your savings into an offset account is like a redraw facility but from the tax office's point of view you have not reduced the loan so if in 2 or 5 years you decide to buy a new PPOR you can take this money with you without affecting the deductibility of the loan.

    Or your other option would be to buy your spouse's 50% share.
    The following thread could be of interest to you.

    http://www.invested.com.au/6/sell-land-sell-house-37621/
     
  5. GregR

    GregR Reid Consultants

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    13th Jul, 2009
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    Location:
    Berwick Vic
    You need to do the numbers and at the same time decide on your long term strategy, what you want to achieve and also consider the need to live in your own home or is renting an option.

    It will come down to individual taxable income of you and your wife, what your borrowing capacity is and the emotional component of living in your own home.

    IF your goal is to build a property portfolio, then I would look at keeping your existing PPOR, convert it to an IP, as long as the capital growth and rental appeal exists.
    If you would consider renting your next property (if you needed to move) and buy another IP at the same time, then refinance your PPOR to set up a LOC facility that you can use to be able to settle the purchase of the next IP. I would almost always use another lender.
    It may be worth considering transferring ownership from a joint tenant to one person, depending on taxable income position. In Victoria, this should not incur stamp duty. The reason will be to minimise the tax effect of what is likely to be a positively geared IP.

    IF your goal is just to have one PPOR and constantly upgrade, then consider selling your existing PPOR and use the equity/profit for the new PPOR to reduce your non deductible debt.
    Good luck
    Greg