Quote:
Originally Posted by BENT_8
the plan is to save every dollar we can between now and then, live in it for 12 months and smash the mortgage until my Wife's workcover is resolved at which point we'll use the equity to buy or build a PPR in the country and rent the townhouse out for around 50% more than the mortgage repayment.
It was either do it this way or continue to rent for another 2 years.
We figure this way gives us an each way bet, if we dont like the country move after a while we can always move back to the city and rent the country property.
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Hi Bent, not sure if you're across this already. If you are please ignore but it may help others reading this thread.
If you're planning to convert the townhouse into an IP down the track don't pay any more than the absolute minimum into the mortgage.
Instead, make sure you get a 100% offset account attached to your loan and pump the extra cash into the offset account. This will have the same effect of reducing the amount of interest you pay on the mortgage now but when you move onto a new PPOR in a few years you can use the money sitting in the offset account for that. The end result is you pay less interest on the smaller loan balance on your PPOR and more interest on the IP, which is tax deductable. If you can get away with a smaller deposit, the same applies, just put any spare deposit money into the offset account as soon as the loan is funded.
Taking it one step further, do the same with an offset account on the country house so if you do decide country life isn't your thing you can maximise deductable interest expenses on the country house if you later convert it to an IP.
You need to be disciplined with money if you go this route; it can be tempting if you have cash sitting easily accessible in an offset account and of course seek professional financial advice before following the advice of a stranger on the internet ;-)
The main takeaway is that once a loan is paid down interest expenses are no longer deductable, worst case scenario is that you end up with a fully paid IP with no interest deductions and paying tax on the rental income while you have a huge mortgage on you PPOR and paying all of that interest out of your after tax income. If you park spare money in a 100% offset account you still save on interest but the original mortgage amount remains unchanged so if circumstances change you can move that offset money into a different account and suddenly interest payments on the full original mortgage amount are tax deductable again.