Funding New House Build While Keeping Old

brendanm on 14/12/2021 - 13:28

I know there are a few mortgage brokers here, would appreciate any sort of guidance as to whether what I want to do is possible. I've only owned one house at a time, so unsure what the go is here.

Owe approx $370k on ppor, value 750-800ish. Want to build nearby, house and land together is approx $870k. Am I able to get some sort of magical loan that uses the equity from the ppor toward the purchase of the new property, then once it is built, turn ppor into a rental, rental income is approx $570-600 pw at a guess. The move into the house that had been built, stay in it for a year or so, then sell both to buy another?

Or is this all just wishful thinking? I imagine the numbers look bad to a bank, however rental income on the first house will mean it is positively geared.

P.S. - Yes, I have asked a broker about this already, after a variety of thoughts.

Financial

Comments

  • 87percent on 14/12/2021 - 13:33
    +4

    why not just listen to your mortage broker?!

    • brendanm on 14/12/2021 - 14:23
      +1

      Different people have different ways of doing things, other brokers may have better ways. Open minded.

  • SmiTTy on 14/12/2021 - 13:34
    +3

    Of course it's do able.
    You just need to make sure you can service the loans (ie sufficient income to support the loan amount). Simply put, you're just asking to borrow more money so as long as your income can support then should be fine.

    Broker would certainly be able to guide you thru the process

    (not tax advice, but the loan from your current ppor doesn't become tax deductible if you're using it towards your new ppor. Obtain tax advice early to work out best way to structure it to meet your long term objectives)

  • tsunamisurfer on 14/12/2021 - 13:38

    What deposit do you have for the 2nd property?

    • Muzeeb on 14/12/2021 - 13:43
      +1

      $750k - $370k (roughly - it's not that simple)

  • Muzeeb on 14/12/2021 - 13:40
    +1

    As SmiTTy said - it all comes down to how much you (and partner?) earn. If you can service the full amount without relying on the rental income then the banks should have no issues.

    Speak to an accountant about converting your PPOR into a rental. That shit gets complicated especially if you sell it in the near future.

    • brendanm on 14/12/2021 - 14:27

      Speak to an accountant about converting your PPOR into a rental. That shit gets complicated especially if you sell it in the near future.

      Yeah I thought this would be the case, just have to figure out how to do it to begin with. Some people seem to be able to leverage everything to the nth degree, was curious as to how they do this.

      • Muzeeb on 14/12/2021 - 14:30
        +1

        It's quite easy to do. It's called mortgage stress.

        • brendanm on 14/12/2021 - 17:16

          I've never had this, as am usually very conservative with this sort of thing, however it's a means to an end in this case.

  • Drakesy on 14/12/2021 - 13:54
    +2

    God bless Australia's endless craving for constructing new houses.

    • brendanm on 14/12/2021 - 14:25
      +1

      Why not, there is a shortage of houses here, and captial gains should be good on the new build.

      • Drakesy on 14/12/2021 - 14:35
        +3

        Sorry i was alluding to the fact that it's literally the only thing propping up the economy, build more houses, import more people rinse and repeat.
        Endless tax breaks and subsidies has made an economy too dependent on building houses and sub par apartments.

        Yes we're not as bad as China, but it's a possibility.

        • brendanm on 14/12/2021 - 17:21

          I agree, the whole thing is stupid, just importing people and building houses. It's going to happen regardless of what we think though, so may as well try and get something out of it.

          • Drakesy on 14/12/2021 - 17:39

            @brendanm: Fair enough
            If you can't beat them join them

            • brendanm on 14/12/2021 - 17:39

              @Drakesy: Pretty much. I won't buy shitbox apartments though.

  • weezlebub on 14/12/2021 - 15:44

    there are some banks that will put repayments on hold while building your new residence, but it's a little bit artificial (you'll still accrue interest, but they're not expecting payment for the new place until hand-over) … you'll want to have some cash spare because it's hard to find a tenant day 1 paying upfront (residential tenancies will want the deposit / rent in advance even if you do) …

    but yeah, have a chat with the broker (fyi, not a broker, but my father is and i've had a few mortgages)

  • daalinz on 14/12/2021 - 16:51
    +1

    Yeah you can do this. I did this last year (in Vic). I used the equity in the PPOR to buy a new PPOR and converted the previous to investment. Keep in mind you can only borrow up to a certain percentage value of the property (I think it's about 80% across all properties). You'll have a lot of fees and taxes if you want to buy and sell so often. I don't know the property laws in QLD though, so YMMV.

    • brendanm on 14/12/2021 - 17:19

      Keep in mind you can only borrow up to a certain percentage value of the property (I think it's about 80% across all properties).

      This is the bit I'm curious about, as people seem to be able to go higher than 80% on subsequent properties somehow.

      • hoey888 on 14/12/2021 - 17:45

        Mortgage brokers would be able to elaborate more on this.

        Generally only applies to doctors, medical professionals, lawyers, accountants and alike. Unless you fit into these categories, you might be out of luck.

        • brendanm on 14/12/2021 - 18:12

          No, I'm just a pleb trying to get a nice home for the family.

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