Forums / Property Investing / Help Needed! / Selling ppor to partner

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  • Profile photo of Free@last[email protected]
    Participant
    @free-last
    Join Date: 2005
    Post Count: 13

    Hi All,

    I am new to property investing and I need some advices from all of you experts. Is it a good way to maximise deduction by selling my current ppor (under my name) to my wife with no stamp duty payable, convert to IP and IO loan then use the 'proceed' to finance a bigger ppor?

    The situation is: we have a unit worth 480k in Victoria and there is no repayment left with 200k in offset. We recently bought a 670k home. We know from our broker that by selling to my wife we can use 80% of the 480k from old PPOR/new IP to finance the 670k purchase therefore reducing the non-deductible interest on the new PPOR. My wife is on higher income bracket.

    Now, the question is which one better:
    1. the situation above or
    2. sell current PPOR and put all the proceed into new PPOR then use LOC to finance new IP

    Any advice is much appreciated.

    Thank you

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    If you sell to a third party you would have more cash to put into the new PPOR which would result in more interest savings. But you would be up for stamp duty on the new replacecment property down the track.

    Selling to you wife would mean no stamp duty on the purchase of this half property.

    I would suggest you do the sums on both scenarios.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of angelinsydneyangelinsydney
    Participant
    @angelinsydney
    Join Date: 2011
    Post Count: 270

    Hi [email protected],

    Without complicating the issue, why can’t you simply use the existing property A ($480K unit) to buy Property C (a new IP)? Why do you have to “sell” it to your wife? It seems to me that all you really need is to grow your property portfolio, but maybe I’m wrong.

    This is just one of many scenarios, certainly not the best, but it is less complicated:

    Property A – $480K (in your name only)
    Property C – $500K (let’s just pretend you’re buying in this price bracket. In her name only, as she is the one with the higher income)
    Total security value $980K

    Need to borrow $550K against their combined value (56.12% LVR) to purchase the new property and all the costs of the purchase. The entire $550K is for investment purposes, so therefore all expenses incurred on this investment are tax-deductible. Although the $550K loan will have to be taken in joint names, the tax benefit belongs to who’s on title.

    Both IPs are cross-securitised for now but the PPoR is stand-alone and secure on its own.

    The way I see the outcome is the same just less complicated.

    Pay interest only on the $550K and any excess income from rent bank into the family home to pay it off sooner.

    As I said, this is only one scenario. Many ways to skin a cat.

    Take care.

    Angel

    Profile photo of Free@last[email protected]
    Participant
    @free-last
    Join Date: 2005
    Post Count: 13

    Thanks for the reply Terry and Angel, they are valuable inputs.

    Angel, I see where you coming from but would it be better if I minimise the borrowings of the new ppor since it is not tax deductible? If I do your way, I will end up having a mortgage on the new ppor of 470k (670k purchase – 200k from offset) and thus higher non deductible interest.

    Of course I see your point of not collateralising the ppor, but is x-collateralise with ppor a bad thing?

    Cheers,
    [email protected]

    Profile photo of angelinsydneyangelinsydney
    Participant
    @angelinsydney
    Join Date: 2011
    Post Count: 270

    Hi [email protected],

    Your question: Is x-security with PPoR a bad thing? Not necessarily. But it would be nice to keep it apart. I think it is less messy and it doesn’t get tangled with the rest of the “spaghetti noddle” x-collaterialised becomes. Especially as your portfolio grows.

    If you do it as suggested to you, all you’d end up with are Properties A and B. You juggled everything about, incurred more costs, just to re-jig loan size. It didn’t give anything else.

    I am, of course, assuming that you can borrow $470k for the family home and at the same time borrow $550K (just as an example) for a 2nd IP. If your servicibility does not allow you to get another IP, then yes, it makes sense to do as suggested.

    That’s just my opinion.

    Take care.

    angel

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    I would suggest you always avoid cross coll.

    It is possibly ok with just 2 properties – but only as long as things go well. If you have a problem and have to sell one property but the other has dropped in value, then the bank may be able to prevent you from selling unless you can pay down the remaining loan. This may not be possible or if possible it could be a disadvantage from a taxation point of view.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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