I have not yet ventured into the world of investment properties and I’m just trying to get an understanding of what’s involved.
I currently have a property that I live in valued at around $400,000 which I owe $272k on.
If I want to use the equity in this home to buy an investment property, do I calculate this as 80% of $400k ($320k), minus the $272k I owe? (Making it $48k available to use).
And then if I do use this as a deposit on the IP, does that mean I then have one loan to cover both properties or is it 2 separate loans? If it’s one loan, how do you calculate the tax deductions?Hi there! Congrats on your decision to start looking at investment properties – great way to build wealth. Firstly, with regards to calculating how much you can borrow you are correct…however you can sometimes take the banks to 85% with no mortgage insurance if you have a strong application. With regards to the taxation element, it is easiest to have a sub-account, or split account for your loan, thereby giving you a separate loan number and account for the tax deductable component. You will then have the option of taking out another loan secured by the investment property. Hope this helps, let me know if this doesn’t make sense..
Yep, your calculations are right.
In relation to the loan, it depends on how your bank does it – or how you want them to do it. In some cases you can just increase the current loan (which means you’d be best to have your account divided into sub-accounts.
Alternatively, the bank might just set up one new account for the whole lot and simply secure the $48K part of the loan on the first property. Be careful however because this usually means that the bank will cross-collerateralise your loans (meaning they’ll bundle them up all together across all securities. This means that it’s harder to unlock a property or more equity at a later stage. Avoid cross-collerateralision at all costs if possible.
Hope this helps.
Megan
Hi Mighty Mouse & welcome to the forum,
I would suggest the following structure.
Have a split loan secured against your PPR with a 100% offset account linked to the non-deductible split.E.g.,
Loan 1.
Split 1. Current non-deductible debt: $272.000 P&I repayments with a linked 100% offset account.
Split 2. Deductible debt: $48.000 interest only repayments.The funds in split 2 can be used as a deposit on a separate loan for the new IP purchase,
This structure will avoid cross colaterisation and keep deductible and non-deductible debt separate, cheers.Regards
Steven
Mortgage BrokerMobile Mortgage Market
Ph: 0402 483 216
[email protected]
http://www.mobilemortgagemarket.com.auPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
