Okay for IP loan to include buying costs?

Viewing 6 posts - 1 through 6 (of 6 total)

Sundance
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@sundance
Join Date: 2012
Post Count: 57
May 16, 2012 - 12:10 pm
Hi all,
Have just bought an IP for $275k. Our actual IO loan amount is $283k as the loan includes our buying costs – building/pest inspection, conveyancing, insurance etc. Is this okay in regards to the tax side of things? ie should the buying costs be included in the loan or should we pay $8k off the loan bringing it down to the $275k purchase price only?
Cheers,
Sundance
Jamie Moore
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@jamie-m
Join Date: 2010
Post Count: 5,069
May 16, 2012 - 12:39 pm
It should be ok given that it's all IP related so all should be deductible.
I'd be a little concerned that your loan is cross collaterised with another property though – not the best way to structure loans, particularly if you plan on purchasing further investment properties.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
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Richard Taylor
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@qlds007
Join Date: 2003
Post Count: 12,024
May 16, 2012 - 1:20 pm
Sundance as per Jamie's comment i cant see an issue in including all of your acqusition costs in the borrowing amount but from the thread of your post sounds like your lender / broker is suggesting that you borrow the full amount in 1 loan using two securities.
Definately a big no no unless you want to do dig yourself a deep hole in the future.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Sundance
Participant
@sundance
Join Date: 2012
Post Count: 57
May 16, 2012 - 9:29 pm
Thanks Jamie and Richard – the fact that all the costs were included in the loan was my main concern so glad to hear that's okay.
I realise that we have cross collaterised and have discussed my concerns with the bank but as we only intend to purchase one more IP and then pay both loans down I don't feel that this will be a problem unless I'm missing something?
Cheers,
Sundance
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
May 17, 2012 - 8:27 am
Your missing something Sundance.
If you default the lender can automatically take any security property.
If you had them separate it would be much harder and longer for them to get their hands on non security property. You would give you more time to get back on track or to sell etc.
If they are crossed and you try to sell one this will mean the bank will need to give permission for you to sell. They will need to revalue the remaining ones. If they have dropped in value or your LVR is unacceptable because of a change in policy then the bank can direct that you pay down the loan with the proceeds. This may not be a good point for deductibility reasons and for other reasons – such as needing the money.
I had a friend who had 2 properties crossed. He had a heart attack and was trying to sell them but the bank stuffed him up and he went bankrupt as a result.
Don't do it.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Sundance
Participant
@sundance
Join Date: 2012
Post Count: 57
May 17, 2012 - 10:58 am
Thanks Terryw – I hear what you're saying but we have already structured the loan that way so the horse has already bolted so to speak. Am just waiting on the sale of some land and will use the proceeds to pay down the IP loan anyway. PPOR is owned outright so if worse came to worse we would sell it, downsize and pay down IP loan.
Cheers,
Sundance