All Topics / Finance / First investment….need finance structure advice

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  • Profile photo of chris87chris87
    Participant
    @chris87
    Join Date: 2012
    Post Count: 2
    February 10, 2012 - 10:33 am

    Hi all

    My fiance and i are building an IP (house and land) for 404 k inclusive of all initial costs.
    We have 40k cash in an offset against our PPOR with a loan that was 377k but is now 355k
    The deposit required for IP is 33k

    Instead of just pulling the 33k out of our offset and paying cash for deposit, would we be better paying the 33k into the PPOR (variable) loan then applying to redraw it, thereby having the 33k as a deductible interest as it's for the IP.

    Although we may have equity in our property due to some renos we are also partly through some other renos and dont wish to pull any funds to finish them early especially in a (personal opinion) sideways/ stumbling forward market.

    Any suggestions or confirmation of my theory would be greatly appreciated especially from those in the know

    Cheers

    Chris

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    February 10, 2012 - 1:09 pm

    Yes, the general rule of thumb is to pay down private debt and to borrow for investment.

    But, before you do pay it into the loan make sure you can demonstate serviceability – you should restructure the loan so you have a new split rather than just using redraw. The bank may want to reassess you again.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of chris87chris87
    Participant
    @chris87
    Join Date: 2012
    Post Count: 2
    February 10, 2012 - 10:12 pm

    Thanks for your response Terry, excuse my lack of knowledge but when you say split what is it you mean? If there is a resource you could point me too or information from yourself would be great.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    February 10, 2012 - 10:55 pm

    split your loan.

    If you use redraw then it will be one big loan. part of the interest will be deductible and part won't

    So you need to set up a new loan – split into different portions. Then the whole of the interest on the portion used for investment should be deductible.

    If you have one combined loan then every repayment will come off the one loan and you will be reducing your non-deductible debt. which means losing tax deductions which means losing money

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    February 11, 2012 - 2:20 am

    Chris

    Just action is a step by step process:

    1) Pay the $33K into the PPOR home loan and then get your Broker to organise for the advnce repayments / capital reduction to be cancelled.
    2) Then get your Broker or Bank to make application for a $33K + $22K as a separate sub loan. Loan to be interest only.
    3) Once the $55K has been drawn down use the funds to cover your IP deposit and acquition costs and at the same time get your Broker to make application to another lender for a stanadlone investment loan taking solely the security of the new IP.

    Job done, nice and clean and 100% Tax deductible.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

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