All Topics / Help Needed! / Hi newbie here, wondering if im on the right track…appreciate input

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  • Profile photo of kenyonadkenyonad
    Member
    @kenyonad
    Join Date: 2008
    Post Count: 10

    Hi

    My girlfriend and I are looking at converting the loan over her property to an investment loan/interest only, draw out some equity and then rent it out.

    The equity (hopefully $30,000) and my cash ($75,000) will then be used as a deposit on our new house that we will live in. Looking to spend roughly $450k.

    Figures are for her property:
    Estimated Property Value $280,000.00 (has been renovated since purchase)
    Loan Amount Owing $192,000.00
    Estimated Equity Cash $30,000.00 @ 80%



    New interest only loan $224,000 @ 8.70% monthly repayments $1,624

    Assume rent will be $280 per week/$14,560 p.a. / $1,213 per month

    (slight short fall $411 but interest payments will be deductible)


    NEW PPOR

    $450,000 purchase price approx.

    ($30,000) equity and my cash ($75,000) = $105,000 deposit on new PPOR

    30 year Loan for $345,000 principle & interest @ 8.70% monthly repayments $2,701

    So we'd be looking at having the 2 loans if that’s the way it's done?

    Am i on the right track?
    Thanks

    Profile photo of YnotnowYnotnow
    Member
    @ynotnow
    Join Date: 2007
    Post Count: 24

    interested in replies you'll receive< iam still very much a novice myself but  … seems like alot of outgoings to me ….thought the idea was, to have props that make money ,maybe negative gearing, at some stage for tax reasons, if you receive
    to much $$$ from ur investments but it doesnt look like it right now …anyway if your main concern is your PPOR you may be right with what your doing

    Profile photo of Kiwi-FullaKiwi-Fulla
    Member
    @kiwi-fulla
    Join Date: 2002
    Post Count: 371

    hey guys…..

    Um don't mean to rain on the parade….. but in your scenario above ….
    "

    New interest only loan $224,000 @ 8.70% monthly repayments $1,624

    Assume rent will be $280 per week/$14,560 p.a. / $1,213 per month

    (slight short fall $411 but interest payments will be deductible) " = no interest claimable (due to the original intention of the funding was for a PPOR – thus no tax claimable….. (even the new 30 K you are drawing out)

     

    This also applies to the new loan …. as you are looking to purchase another PPOR …. you will be unable to claim deductions on interest also ……

     

    A solution would be to….. perhaps….  form a company/trust (entity) sell the home to the company/trust at market rate…. gift deposit to the company/trust. then the company buys the new house and rents it out to you guys…. don;t know if this is possible …. but would be worth checking out…..

     

    Or simply sell the PPOR (original one) clear out all of the profits…. buy and investment (cashflow positive one) then buy your PPOR ….. this way al least  one of the loans has tax deduction benefits…..

     

    Even better …. buy two investment properties …. and rent a house … then buy some more IP's (positive cashflow) and then once you have enough cashflow coming in….. ge the cashflow to fund the new house repayments….. then you will not take a hit on your lifestyle.

    anyway that is my 10 cents worth

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    As Kiwi has mentioned the additional $30,000 drawn out will not be tax deductible as it fails the ATO "Purpose test" but at least doing it that way and keeping the loans separate and not cross collateralised is the way forward.

    A solution would be to….. perhaps….  form a company/trust (entity) sell the home to the company/trust at market rate…. gift deposit to the company/trust. then the company buys the new house and rents it out to you guys…. don;t know if this is possible …. but would be worth checking out….. Anything is possible and we do a lot of these for clients but certainly would not be worth it in your cirumstance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of kenyonadkenyonad
    Member
    @kenyonad
    Join Date: 2008
    Post Count: 10

    Thanks guys.

    But never said i'd be claiming interest on the new PPOR Loan.

    So might just convert girlfriends loan to interest only rent property out and not withdraw any equity.

    Then start new normal PPOR loan for new property.

    Otherwise i'd be limited to an interest deduction of 192,000/224,000 = 85.71% of the $224,000 loan.

    Profile photo of Kiwi-FullaKiwi-Fulla
    Member
    @kiwi-fulla
    Join Date: 2002
    Post Count: 371

    The one of the big benefits of investment property is the tax rebates you get with interest and the like. over the years you will save thousands…..
    Anyway it was something I was pointing out in case you have not considered it …. if it were me I would get an accountant to at least run through the comparisons to see how I could grow faster through creating property….

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