I'm sorry. I read the whole post including Terrys links. What am I missing. How can the loan repayments drop from $400p/wk to $52p/wk when the same loan amount still exists and the interest rate is roughly the same? And how can one pay off $140k with a $650p/wk rental and a $100k line of credit? (One must remember that I am sure that there are other expenses that need to be covered (whether personal or investment)
Regards
Nathan
Terryw wrote:Look at the latest flash at http://www.bantacs.com.au. They have a private ruling on capitalising interestHi Terryw. Thanks for the link. I was searching for details about the private ruling. Got many things from the link. I think I may pray help of BAN TACS Accountants Pty. Limited sometime.
The General wrote:I'm sorry. I read the whole post including Terrys links. What am I missing. How can the loan repayments drop from $400p/wk to $52p/wk when the same loan amount still exists and the interest rate is roughly the same? And how can one pay off $140k with a $650p/wk rental and a $100k line of credit? (One must remember that I am sure that there are other expenses that need to be covered (whether personal or investment)Regards
Nathan
I had the same question. The numbers don't look right.
On the tax issue, I guess it doesn't hurt to ask for a private ruling, but if you were a betting person, you would imagine the answer would be 'no way'. Best of luck though. Let us know how you get on if you decide to get a private ruling.Cheers
PaulThe General wrote:I'm sorry. I read the whole post including Terrys links. What am I missing. How can the loan repayments drop from $400p/wk to $52p/wk when the same loan amount still exists and the interest rate is roughly the same? And how can one pay off $140k with a $650p/wk rental and a $100k line of credit? (One must remember that I am sure that there are other expenses that need to be covered (whether personal or investment)Hi Nathan,
The important part to note is in one of the dot points from my first post:
* $500k PPOR with $140k owing with $400per week minimum payment (we're paying considerably more currently)So before we get this IP squared away we are already making a lot higher repayments than the minimum $400 a week.
That $400 a week is based on a loan that started at $230k principle and interest. Regardless of how much we pay off the loan unless there is a dramatic shift in interest rates or we refinance at a lower $ amount, the repayments will still be around $400 a week.
If I capitalise the interest of the IP into the LOC (and other expenses) for the first 12 months the LOC will grow to around $45k. By capitalising the interest I put 100% of the rent onto my PPOR mortgage which with our extra repayments already should bring out PPOR mortgage to a payout date of this time(ish) next year) instead of late 2011 to mid 2012.
The PPOR loan is principle and interest based on $230k @ $400 a week (minimum)
The LOC is an interest only loan and at $45k will mean repayments of $50 a weekWith the LOC while being 100K another important thing to remember is we only pay the interest on what the current balance of the LOC is.
To possibly pre-empt another question, how do we pay out the LOC?
We probably don't, there are a couple of strategies that could be employed but the one will most likely consider is once there is enough capital growth in the apartment we will restructure that loan to absorb the LOC.
This current methodology is with the sole goal of paying out our PPOR in as short a time as possible. Future IP purchases will mostly be done using a LOC to supply the deposit and expenses to allow us to finance the IP without cross collateralising.
I hope that explained it
p.s. seeing the conveyancers on Wednesday with 10% deposit in hand to exchange contracts, things are really starting to move now.GlennsaQuote:On the tax issue, I guess it doesn't hurt to ask for a private ruling, but if you were a betting person, you would imagine the answer would be 'no way'. Best of luck though. Let us know how you get on if you decide to get a private ruling.On Thursday we saw an accountant who specialises in property investment and I asked about the private ruling question. She said it was an option, although hinted that it may be better to ask forgivness than beg permission.
She did this in the light of how we have structured the loans as all being split up – so seperate PPOR loan, LOC loan and IP loan. Apparently the two major factors in the Harts decision was the loans were all in the one bucket and it was marketed by the lenders as a way to reduce tax.
Does it mean I'm 100% safe, not totally – but I am satisfied through my research and advice received that we should be OK
Glennsa
The Bantacs mob charge about $350 for the private ruling which is very cheap i think.
But, one of my friends who is ex-ATO said that applying for a private ruling is like waving a red flag at a bull. I think he meant that if you don't get the ruling they may be looking hard at you to see how you claim things.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Glennsa wrote:The General wrote:I'm sorry. I read the whole post including Terrys links. What am I missing. How can the loan repayments drop from $400p/wk to $52p/wk when the same loan amount still exists and the interest rate is roughly the same? And how can one pay off $140k with a $650p/wk rental and a $100k line of credit? (One must remember that I am sure that there are other expenses that need to be covered (whether personal or investment)Hi Nathan,
The important part to note is in one of the dot points from my first post:
* $500k PPOR with $140k owing with $400per week minimum payment (we're paying considerably more currently)So before we get this IP squared away we are already making a lot higher repayments than the minimum $400 a week.That $400 a week is based on a loan that started at $230k
principle and interest. Regardless of how much we pay off the loan unless there is a dramatic shift in interest rates or we refinance at a lower $ amount, the repayments will still be around $400 a week.If I capitalise the interest of the IP into the LOC (and other expenses) for the first 12 months the LOC will grow to around $45k. By capitalising the interest I put 100% of the rent onto my PPOR mortgage which
with our extra repayments already should bring out PPOR mortgage to a payout date of this time(ish) next year) instead of late 2011 to mid 2012.The PPOR loan is principle and interest based on $230k @ $400 a week (minimum)
The LOC is an interest only loan and at $45k will mean repayments of $50 a weekWith the LOC while being 100K another important thing to remember is we only pay the interest on what the current balance of the LOC is.
To possibly pre-empt another question, how do we pay out the LOC?
We probably don't, there are a couple of strategies that could be employed but the one will most likely consider is once there is enough capital growth in the apartment we will restructure that loan to absorb the LOC.
This current methodology is with the sole goal of paying out our PPOR in as short a time as possible. Future IP purchases will mostly be done using a LOC to supply the deposit and expenses to allow us to finance the IP without cross collateralising.
I hope that explained it
p.s. seeing the conveyancers on Wednesday with 10% deposit in hand to exchange contracts, things are really starting to move now.Glennsawhen you say….
If I capitalise the interest of the IP into the LOC (and other expenses) for the first 12 months the LOC will grow to around $45k. By capitalising the interest I put 100% of the rent onto my PPOR mortgage which with our extra repayments already should bring out PPOR mortgage to a payout date of this time(ish) next year)…Do you mean that you will be paying aprox. $100K in extra repayments in the next 12 months, i.e., around $2K per week?
And is there an existing lease paying $650 per week, or is this just what you hope to get based on research etc?
sorry, i'm just trying to get my head around the numbers.Cheers
PaulG'day Paul,
PaulTextor wrote:Do you mean that you will be paying aprox. $100K in extra repayments in the next 12 months, i.e., around $2K per week?Yes, our minimum $400 a week repayment + $650 a week rent from the IP + additional payments of another $825 a week totalling $1850 a week will pay out our PPOR mortgage by the end of next year. Ahh I just tallied it up ($96k) and see where the confusion may be stemming from, we also have a tidy sum in our savings account which is offset against mortgage which is what will also allow us to payout at the end of next year.
We are in a position of two full time incomes, no kids and no other debts or major expenses. With some sacrifices for the next 12 months (and the knowledge of a full redraw if things go wrong) we will be able to smash the loan.
Some may say instead of slaughtering our own mortgage with that kind of extra money we could afford another four or five IPs now. Sure, that is an option, but this is our first forray into IPs so we want to ease ourselves in, so to speak, and also with the window of paying out our own mortgage so very very close it would be nice to be "bad debt" free from that perspective.
Quote:And is there an existing lease paying $650 per week, or is this just what you hope to get based on research etc?
sorry, i'm just trying to get my head around the numbers.The apartment is currently tenated at $650 a week which is the second tenant at at that amount. There is another in the same building which is also tenated for the same – a different managing agent looks after it and I have had a long chat with them. Does that mean we are garraunteed that sort of return, no, but the historical data is promising. No need to be sorry, I've had lots of questions of the last months that have been freely answered.
Glennsa
Glennsa wrote:
Some may say instead of slaughtering our own mortgage with that kind of extra money we could afford another four or five IPs now. Sure, that is an option, but this is our first forray into IPs so we want to ease ourselves in, so to speak, and also with the window of paying out our own mortgage so very very close it would be nice to be "bad debt" free from that perspective.
It is always best to pay down non-deductible debt and then borrow the money again converting it to deductible debt. So you can do both – pay down the home loan and get the additional investments – if you wanted to.
Also it must be a good feeling to know your home loan will be paid off within a year. Imagine the psychological boost you will get, which will propel you into further investing.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I have a question, I posted it in another forum but there seems to be better answers here.
I have a similar idea but, instead of LOC, I plan to borrow against an IP to prepay interest so the rent will go straight onto my PPOR. The interest would be Tax deductable but my intent is to lower the costs to below the DHOAS payments:-) and then start investing again with the higher cash flow. In this case my main goal is to reduce the PPOR so I can own my hose earlier and my girlfriend can quiet work and raise kids if we do. Would this be difficult or floored if having to face the ATO.
Also is taking the LOC a better option as there is no need to fix rates etc depending on what they do?
Sounds similar to the LOC, but one difference is you will need to fix rates for the full year to pay interest in advance.
What is a DHOAS?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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