Hi There,
I have a retail property loan which is due to be paid off within the next two months. I am looking at the option of setting up a business line of credit to pay for ongoing expenses associated with the property – council rates, water rates, insurance, minor maintenance etc. The intention is to free the rental income and use that to pay down our loan on our PPOR. At the same time I still will be able to claim tax deductibility of the set up fees/interest/monthly charges for the business LOC (I believe).
The loan that is due to be paid off is with the CBA. I have just done a quick shop around and in summary the other banks have higher establishment fees and property evaluation fees (I will not need a property evaluation if I stay with the CBA). The problem with the CBA is that the monithy fee are higher ($50 per month) while some of the others are close to half that. My questions are:
1/. Is is wise to set up a business LOC or just pay the bills from the rental income and not worry. I would estimate that the annual expenses would amount to $6000.
2/. Is a business line of credit the best product (i.e. what else is okay from the ATO's point of view for tax deductibility).
3/. Which banks have a competitive business LOC or should I just stick with CBA since I have a relationship with them?Any other suggestiohs would be welcomed. Thanks.
I would think it is worthwhile getting a LOC to borrow to pay expenses. Have a look around at other banks – i think a LOC is the best option for this sort of thing as you can keep borrowing small amounts and have access to a cheque book if need be. Try NAB as they have the lowest rates of the banks at the moment. I wouldn't go calling it a business LOC though. just tell them you want a LOC for investing. business = risk to them.
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
Thanks Terry. As far as CBA a concerned they will classify it as a business LOC. I will give NAB and the others a go but the establishment/valuation fees will be alot higher.
The fees would be nil under a prof package and then you have the rate discounts too – but an annual fee.
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
Dont normally disagree with Terry but i cant see why you would want to pay an Annual fee for a relatively small loan.
With NAB you wont get an interest rate benefit under their Choice package until the loan is > $150,000 and then it will only be 0.5% discount.
There are several loan products around with extremely competitive interest rates, No application fees or ongoing charges.
To me this is the sort of product you would look for.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Yes, size does matter in this case. I would have to disagree with myself – unless it is a large LOC>
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
Also just to add fuel to fire the NAB Loc isnt normally discounted the 0.7% even over 250K under a choice package.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
I still have two other loans with the CBA so I doubt I will qualify for example for the NAB Choice package?
I do have a Wealth package with the CBA but it does not apply to the "business products" such as a business LOC.
As I said the property is a retail shop with flat above – am I restricted to "business" products only? The CBA has atleast classified it this way.
Didn't realise it was a shop. in that case would probably be commercial.
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
Ok sorry my apologies also i didnt realise that either.
Choice package isnt an option.
Still a lot of lenders that dont charge ongoing fees.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks for the advise Terry and Richard. Appreciated.
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