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Buying/Renting/Investing Options - Feedback Appreciated

Discussion in 'Real Estate' started by Tronc, 22nd Mar, 2008.

  1. Tronc

    Tronc Active Member

    9th Jan, 2008
    Would appreciate some feedback on my current scenario and options to consider regarding my current property and our next move.

    Current Situation:
    House Value: $350K
    Loan #1: $210,000 - mortgage (P&I)
    Loan #2: $60,000 - LOC (IO)
    Loan #3: $60,000 - Margin Loan (IO)
    Mngd Funds: $120,000 (made up of Loan #2 and #3)
    Mortgage Payment - $650/wk
    Household Income - $120K per year, no other debt

    This has been set up for purposes of 'debt recycling' with income from mngd funds going against Loan #1, and then Loan #2 and #3 increasing as equity allows etc...

    I have been fortunate enough to be provided a $100K gift from family towards purchase of an additional property (funds only available on purchase of property, not for use on current loan). I am trying to determine if I would be able to keep the Current Situation above and realistically use the $100K to purchase another property of $400-$450K value. Could rent my current property out at $350/wk (current rate in my suburb)

    My questions:

    1. Is it likely a bank will lend $350K based on $100K deposit, and maintain the existing situation.
    2. Assuming, Yes. What considerations are there in the way I might structure the loan on the new property (I have visions of turning the new property into another IP at a later date).
    3. Am I just better off selling House no. 1 and Mngd Funds and using money from that to buy new house?
    4. What other key considerations should I be thinking about?

    Any feedback much appreciated. Thanks.
  2. Mark Laszczuk

    Mark Laszczuk Well-Known Member

    16th Aug, 2005
    Why can't you use the 100K to pay down part of your non-deduct. debt and draw it out for investment? Seems a bit silly to me to have this 'clause' thrown at you.

  3. TryHard

    TryHard Well-Known Member

    17th Aug, 2005
    Yeah, tell 'em to stick their $100K ;-)

    I think family gifts almost always come with conditions based on some sort of old fashioned bias. Comply with the gift terms and sell the asset later if you need to :D

    At the very worst, if you sell the current PPOR and realise the $140K equity, plus your $100K gift, you can borrow the same $210 K to be in the $400-$450K house you want. Borrow against the equity for another IP when you feel comfortable.

    Sounds like a good problem to have :)
  4. Billv

    Billv Getting there

    15th Jul, 2007
    Sydney, NSW

    If you buy this new place for $450K and make it your PPOR
    the loan will be $450K-$100K deposit +$20K buying costs=minimum $370K
    @9% it will be $640/week.
    That a big weekly hit to your budget.
    This means your interest repayments will increase by $280/week.
    I am guessing that it will be tough.

    If you've bought a $350K property the situation would be a lot more manageable.
    If it was me I would stay in the current property and would buy the 2nd property as an IP.

    Selling the existing PPOR is also complicated by the fact that you have the LOC's.
    Your current situation is restrictive so it's difficult to do things the right way.
    Have you lost much from your managed funds?
    Can you afford to sell them ?
    The easiest thing would be to sell those, and restructure your loan
    to include the gift of $100K and to borrow against it to buy the new property as an IP.

    But if you wanted the new property to be your PPOR, then to me it would make sense to sell your existing property + managed funds and move all money into the new PPOR and then borrow against it to buy an IP of similar value. You will have selling and buying costs but they are one off costs.

    If you've lost money on the managed funds, this could also be a good time to sell them and to lock in those losses for tax purposes (good for offsetting future capital gains).
    If you have money leftover you can always buy them again at their current value or hopefully at a lower price because the share market problems are not over yet...:eek: