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Buying a second property and renting out current one..

Discussion in 'Real Estate' started by chestbut, 22nd Oct, 2009.

  1. chestbut

    chestbut Chestnut

    Joined:
    22nd Oct, 2009
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    Location:
    Adelaide, SA
    I am currently living in a unit with $60-$80k equity in it.

    Rent received would cover the mortgage costs of the unit.

    I want to purchase a home and move into that. What are my best options? Any hints/tips?

    Do i save a deposit for the new home or can i use the equity in my unit?

    Any other tips/hints much appreciated, this is all new to me as the unit was my first home

    One more thing... I will probably be looking at purchasing the home in 6-12 months, am i better off saving money now or paying the current loan? or putting any savings into the offset account??
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Are you planning on keeping the unit and making it an investment property ?
     
  3. chestbut

    chestbut Chestnut

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    Location:
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    Yes Sim, I'd like to keep the unit as an investment property
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Next question - what type of loan do you currently have against the existing property?

    Is it a LOC or does it have a redraw facility? Is it IO or P&I? Do you have an offset account? And have you ever redrawn money from it - or refinanced the entire loan?

    Basically, you want to stop making any prinicpal payment into the loan if possible - maximise the ongoing interest payments which will become deductible when it becomes an IP (assuming the loan isn't tainted with personal use to the point there aren't any deductions to be had anyway). Then you concentrate on making payments on your new PPOR, since that is non-deductible debt, you want to pay it off as quickly as you can (unless you might ever move out of that property as well and make it into another IP ... in which case don't make principal payments, put the money in an offset account instead).

    As for saving for the new place - you can use equity in your existing property, but make sure any redraw is separately accountable (if possible, split your loan into multiple facilities to keep it clean and separate between personal and investment borrowings) - but remember that you won't be able to deduct the interest payments on the money you borrow to buy your new PPOR.

    A better approach is to save the money into an offset account for now (if you have one) and use that as the deposit.
     
  5. chestbut

    chestbut Chestnut

    Joined:
    22nd Oct, 2009
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    Location:
    Adelaide, SA
    Thankyou! I think you've answered all i needed to know.
    Its a fixed int loan which has another 13mths left. We will probably stay in it until the fixed term is up so in the meantime, rather than making extra repayments i will keep paying into the offset account.

    Thanks very much :)