I’m moving out of my current home which I only owe about $50k, however the property is worth approx $450k. I’m moving in with my boyfriend so my predicament is, do I:
A. Leave my mortgage at $50k and pay tax on the rental income I receive? Or
B. Redraw on my mortgage to make it worth it at tax time and put all the excess money into a high earning savings account??
Any other suggestions/advice welcome.
Yes the purpose of the interest has to be for investment - the fact that it is secured against an investment property is irrelevant.
What Kingsville said, though with emphasis on the part to get professional tax advice.
If you can redraw around $300k though, maybe it's time to consider another investment property?
I'd lean towards selling your current property and buy another because of 2 things:
Other option, is to redraw and just use the money to buy another property (without selling)
A: not smart
B: doesnt work that way.
Many things you can do actually, but it depends on your cash flow after the changes. Will you be paying rent and living expenses towards living with your boyfriend? What will be your disposable income after the move, add that to the rent you will be receiving, and see if you can afford to service another investment property. That way, when you draw down the equity in your current property (refinance & cross collateralize) to purchase an investment property, that would be fully tax deductible. You will also be on a good path to build wealth through a property portfolio over time. Depending on your serviceability you look at new investment properties within what you are comfortable in making repayments towards (with 2 or more rental incomes).
what's your opinion on what makes a better IP choice ?
new unit - for depreciation
old unit - for reno/capital gain + negative gearing on high strata fees
old house - for max capital gain / land bank
This always depends on the individual, their tax bracket, what they can afford, what they can find and what they are eligible for (by this I mean loan capacity).
To me, all of the above can be summarized in a return on investment equation, you can see which benefits most until it is all grounded in numeric form. That's when you can truly make an investment decision absent of emotional encumbrances.
My suggestion would be, dont procrastinate. Any of the above options, absent of a collapsing housing market, would lead to a positive return on investment over time, one option might reap greater rewards, but whilst you ponder over which has the GREATEST reward, you have already lost the difference in returns by doing nothing.
The main difference between successful people, and those left behind, is that one is willing to take steps, some steps smaller than others, but predominantly … one aim is to be constantly moving forward. The other, seemingly waits for that giant leap, or best opportunity before they lift their feet, resulting in their lack of progress.
The main difference between successful people, and those left behind, is that one is willing to take steps, some steps smaller than others, but predominantly … one aim is to be constantly moving forward.
This isn't actually true - there's a lot of survivorship bias in this. Successful people are usually ones willing to take bigger risks, because without taking those risks there's 0% chance of making it big. The other side of the equation though, is that bigger risks also mean bigger chance to fail - you just don't hear about those because, well, they've failed. Basically it is:
All successful people are those who take bigger risks, BUT
Not all people who take risks will be successful.
I would think it depends on whether you think the property value would appreciate or depreciate in the future. If it’s going to go down, I’d sell up and avoid CGT, and reinvest that money. If it’s going to ggoing to up, both your options are feasible, depending on your financial position and income.
Ask tax advice.
I think you;ll find you can't redraw on the mortgage to make it tax deductible your current home as an investment property. You would have had to think of this scenario years ago and pay into an offset account instead of into the mortgage directly.