Howdy - I’m stuck for inspiration

[jasperjue]

I would like to gather some of the forum members thoughts on possible things I could do in the following situation.

Background info
4 IP’s - 690K liability, value at 1.015M = 350K equity…all positive cash flow but not positive geared. (closer to neutral so I have to fund the losses through the year and recoup some at tax time). all metro area purchased mid last boom. good capital growth on them all.
1 PPOR - 370K liability, value at 510K = 140K equity. good cap growth

Income around 150K gross. 1 spouse not working and not intending to, no dependents
I have around 100K in cash savings as a rainy day fund which is in the PPOR offset
I have made use of all tax minimisation strategies to increase cashflow ie depreciation and tax variations.

Goals in order of priority
I would like to reduce my PPOR debt or eliminate this non tax deductible debt. I don’t particular want to just dribble little bits of extra money into my home loan (looking for big hits to the debt)
I would like to retain my IP’s if possible
I would like to retain my offset account as it is handy for cashflow buffer.
I have already increased rents in line with market and this increase was soaked up by interest rate rises and general price rises so getting more income is not possible at the moment.
The only way I can see me reducing the PPOR debt, maintain my savings and not have to increase my income is to sell the IP’s, pay down the PPOR and then redraw the PPOR equity to get more IP’s. This strategy however means I have to start again building my portfolio from a much higher cost base.

Any magic bullets out there that i have missed ?.

 

[boomtown]

What is the underlying business logic in paying down your PPOR? Sure its non deductible debt but there is a real opportunity cost in putting all those funds into it.

You could probably buy 5 more IPs for the same amount of money that you will use to pay down the PPOR. Doesnt sound very clever to me unless Im missing something.

 

[kissfan]

What is the underlying business logic in paying down your PPOR? Sure its non deductible debt but there is a real opportunity cost in putting all those funds into it.

I'm with boomtown.

Why not leave things the way they are and let compounding do it's thing.

With the IP's virtually neutral, i.e not costing you anything, your salary seems very adequate to cover your PPOR loan. In fact, you should be able to make extra repayments on that wage. I know you said you would prefer to make BIGGER repayments, but if you are looking for a way to reduce PPOR loan, just keep chipping away at it or adding to your offset account.

Unless there's another piece to the puzzle, I'd leave things as is and keep moving forward.

Regards
Marty

 

[jasperjue]

Logic so far is that i want to stop paying 700p.w on a non tax deductable loan.should i be reframing my thinking ?.

 

[the_captain]

You could use a debt recycling strategy to convert the PPOR mortgage into fully deductable debt. You have enough equity in the IP's to do it.

I am considering this approach for my next PPOR. Have a read of this most excellent thread by Corsa.

http://www.somersoft.com/forums/showthread.php?t=26532

 

[BayView]

Here's some inspiration:

First, congratulations on being more financially successful than over 90% of the world's population!

Second, while you have the IP's (which are cfp after tax) your wealth will steadily build over time, despite the PPoR loan.

To sell them and own your PPoR outright might sound great, but you will be mostly "out of the market", you will pay cap gains tax on the sales, and you won't have the income from the IP's going into the future.

Of course, you can always buy back in, but the costs of selling, paying tax, then buying back later, as well as the lost cap gain will be expensive.

You have a good income, relativley cost free IP's, and lots of exposure to the market.

I would be staying as you are, and continue to plug away at the PPoR repayments just like all those other poor O/O's, but who don't have an IP portfolio like you.

Or, what about moving out into a rental yourself, then you can turn your PPoR into an IP, get all the tax deductions, plow all the benefits back into the loan and hopefully pay down the loan quicker that way.

You would have to run the numbers to see if there was any financial improvement in your cashflows to warrant the change. This way, your PPoR loan becomes tax deductible, but of course you then have rent to pay yourself. If there is an improvement in the cashflow, the extra dollars can be plowed back into the PPoR loan. You can treat the PPoR as an IP for up to 6 years before it becomes liable for CGT in the event of a sale.

 

[devo76]

It seems to me that the large amount of non tax deductable debt is irritating you and you want to convert it to tax deductible.Can you set up a LOC.Then use all the rents you recieve to pay of your PPOR and use the LOC cash to fund the IP loan payments for that period. Then at the end you will have roughly the same debt but it will be tax deductible.

Please jump in and tell me if you cant do this or its not advised.

 

[Aimjoy]

Background info
4 IP’s - 690K liability, value at 1.015M = 350K equity…all positive cash flow but not positive geared. (closer to neutral so I have to fund the losses through the year and recoup some at tax time).

Good equity & CG - well done. Neutral costing is just fine. Leave the IPs alone to do their thing! One thing confuses me - here you say the IPs are neutral & you have to fund losses and recoup at tax time. later on you say:

I have made use of all tax minimisation strategies to increase cashflow ie depreciation and tax variations.

You need to (if you are not already) claiming tax back each week not wait till tax time to do it. That way you don't fund losses throughout the year at all.

Income around 150K gross. 1 spouse not working and not intending to, no dependents

Nice job. Lazy spouse. Get spouse out to work. No dependents - why not???

I have around 100K in cash savings as a rainy day fund which is in the PPOR offset

Mmmmmm sweeeeet.

Goals in order of priority
I would like to reduce my PPOR debt or eliminate this non tax deductible debt. I don’t particular want to just dribble little bits of extra money into my home loan (looking for big hits to the debt)
I would like to retain my IP’s if possible

Of course its possible to retain IPs. as they are neutral cash flow. Suggest you look to increase your "top line" - i.e. more cash flow from other investments i.e. shares, etc. Or personal exertion income from non-working spouse.

I would like to retain my offset account as it is handy for cashflow buffer.

Yup

I have already increased rents in line with market and this increase was soaked up by interest rate rises and general price rises so getting more income is not possible at the moment.

Yup, yup.

The only way I can see me reducing the PPOR debt, maintain my savings and not have to increase my income is to sell the IP’s, pay down the PPOR and then redraw the PPOR equity to get more IP’s. This strategy however means I have to start again building my portfolio from a much higher cost base.

Dumb idea. Transaction costs of S/Duty, MI, GCT, legals etc etc too high.

Any magic bullets out there that i have missed ?.

There's no trick.....its just a simple trick. Let compounding do its thing and be more patient.

My 2c.
Aimjoy

 

[murtagh]

It seems to me that the large amount of non tax deductable debt is irritating you and you want to convert it to tax deductible.Can you set up a LOC.Then use all the rents you recieve to pay of your PPOR and use the LOC cash to fund the IP loan payments for that period. Then at the end you will have roughly the same debt but it will be tax deductible.

Please jump in and tell me if you cant do this or its not advised.

Devo, this is the same as the "Debt Recycling" thread that was linked above.

FWIW - I am a newbie, and know nothing.

That said, I would in this case set up a LOC to fund "investing" costs from (secured against any property you like). Fund ALL investment costs from this LOC.

Then redirect ALL incoming funds into the offset on the PPOR. This will reduce your PPOR costs.

So you will essentially be "recycling" your PPOR debt into the new LOC.

Figured I'd put in a +1 for the debt recycling strategy

 

[Sheryn]

I would like to gather some of the forum members thoughts on possible things I could do in the following situation.

Background info

1 spouse not working and not intending to, no dependents

Why is spouse not working?
Why is spouse not intending too?

Any magic bullets out there that i have missed ?.

Yeah this in a partnership everyone should pull their weight

Sheryn