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Viewing 20 posts - 1 through 20 (of 27 total)
  • Profile photo of chanakyachanakya
    Participant
    @chanakya
    Join Date: 2012
    Post Count: 26

    Hi All,

    Total newbie and my first post in the forum. I am scared when it comes to managing my finances and this has really turned me off in going for an investment property.

    I made few wrong decision in 2001 bought a unit in Southwest Sydney and the property value hasn't appreciated as expected. Though the rental market since 2001 has doubled.

    I would like to get view on what options I have and what would be worth exploring:

    1, I am living in my unit in Liverpool, NSW now. I have still $40K outstanding on my mortgage. I am planning to buy a house withdraw $220k of my unit and put as a deposit to my house. Move to house and make my unit as an invest property. My unit is more than 20 years old and have potential to fetch $350/week rental income.

    2, sell my unit. buy a house, move into the house and once settle down then look for a unit. If I do this I need to pay for the stamp duty which is an additional cost.

    Any views, please.

    Thanks

    Cha

    Profile photo of N@than[email protected]
    Participant
    @n-than
    Join Date: 2010
    Post Count: 241

    Hi Cha,

    I'm sure one of the experts will respond soon but personally I would go with option 2. If you are withdrawing the deposit for your PPOR out of the Investment loan then this amount will not be tax deductible, and you would end up not being able to claim a large amount of your overall interest repayments.

    If you sell and use the funds to minimize your PPOR debt on your new house then you can structure everything correctly from the start to maximize your tax position.

    I am surprised you havn't seen any growth since 2001! That is a severely underperforming property and I wouldn't hold onto it 'just in case'

    Cheers,

    Profile photo of Josh AthertonJosh Atherton
    Member
    @josh-atherton
    Join Date: 2011
    Post Count: 269

    Hi Cha, 

    Nathan has a point, if the unit has not seen growth since 2001, why? and what would change in the future for growth to occur? however your ROI could be quite good of you rented it out. as your equity is also quite good, the rent could increase your serviceability (potentially). I would recommend you do a full cost analysis on each of your options. 

    cheers

    Profile photo of chanakyachanakya
    Participant
    @chanakya
    Join Date: 2012
    Post Count: 26

    Hi Nathan,

    What is PPOR?

    As I said my present unit is not investment. I live in that unit, If I have paid off $200K, I do have right to withdraw that money and use it as an deposit to another property? Am I right in saying that? 

    My unit will be turned into Investment property owing $260K wahich i can claim -ve gearing. 

    Thanks

    cha

    Profile photo of chanakyachanakya
    Participant
    @chanakya
    Join Date: 2012
    Post Count: 26

    Josh,

    I was under the impression that the appreciation of property have 7-8 year cycle. Which hasn't really taken place in my situation. But the option of making my existing unit a IP was based on the charges that I incur If I purchase a new IP. like solicitor fees, stamp duty etc..

    Thanks cha

    Profile photo of N@than[email protected]
    Participant
    @n-than
    Join Date: 2010
    Post Count: 241

    Hi Cha,

    PPOR is Principle Place Of Residence. Or in simple terms your primary house or where you live.

    Yes if you have paid off $200K then you have every right to withdraw that money and use it as a deposit.

    Yes your investment property loan will then go to $260k but you will not be able to claim this! Do not think about where the money comes from just think about it's use. You are using the money as a deposit on your new house so it cannot be claimed. That is why if you intend on eventually turning your house into an investment property it is best to set it up correctly from the start with an IO loan and an offset account.

    This is why I think option 2 would be a better idea.

    Cheers,

    Profile photo of N@than[email protected]
    Participant
    @n-than
    Join Date: 2010
    Post Count: 241

    Cha,

    7-8 years is just a guide and shouldn't really be held as law. The last property boom was roughly between 2005-2008. This was when everyone seemed to be making a mint from property. Unfortunately if your property didn't move much during that time then I wouldn't be holding onto it. I don't think anyone is expecting to see that sort of growth ever again or at least for a very long time!

    Profile photo of PLCPLC
    Participant
    @plc
    Join Date: 2012
    Post Count: 400

    Nathan is correct Cha.

    Its the purpose of the loan rather than the security it is borrowed against that determines deductibility. Since you will be using the $220K on a home to live in (i.e personal) then it is not deductible. You will only be able to claim the amount that is originally outstanding when it becomes an investment ($40K).

    Cheers

    Tom

    PLC | Phoenix Loan Consulting
    Email Me | Phone Me

    Melbourne based Mortgage Broker | Making Finance Simple

    Profile photo of chanakyachanakya
    Participant
    @chanakya
    Join Date: 2012
    Post Count: 26

    God this confusing!

    I was under the impression that I can use this money as a deposit. OK now what If I use $200K for my personal use like buying car or holiday. Can I then claim $269K as -ve gearing?

    Ta 

    Cha

    Profile photo of N@than[email protected]
    Participant
    @n-than
    Join Date: 2010
    Post Count: 241

    Basically redrawing money is considered new borrowings. It is irrelevant where it comes from.. if you use these newly borrowed funds for anything of personal use (PPOR, Car, holiday  etc.) than you would not be able to claim the tax benefits.

    If you use these new borrowings for an investment purpose eg. another rental property, than you would be able to claim the tax deductions from the interest payments!

    Hope that clears it up a little for you?

    Cheers,

    Profile photo of chanakyachanakya
    Participant
    @chanakya
    Join Date: 2012
    Post Count: 26

    Nathan,

    You might start hating to reply to my queries, I am sorry mate!

    Basically redrawing money is considered new borrowings. It is irrelevant where it comes from.. if you use these newly borrowed funds for anything of personal use (PPOR, Car, holiday  etc.) than you would not be able to claim the tax benefits.

    I with drew money for personal use from my PPOR 6 months ago, the balance goes up say upto $269K. 6months down the track I will buy a house and want to use the money which I with drew a year ago for my initial deposit, what happen then?

    I had transferred $200k from my PPOR to my savings account 6 months ago, the balance goes up say upto $269K. 6months down the track I will buy a house and will not use the money initially for my house deposit. At this point of time if I make my unit an IP, can I claim negative gearing?. One year down the track I will transfer $200K to my home loan which is my PPOR, can I still claim negative gearing on my IP?

    Thanks,

    Cha

    Profile photo of N@than[email protected]
    Participant
    @n-than
    Join Date: 2010
    Post Count: 241

    Hi Cha,

    Dont be sorry! Not that long ago I was in your position trying to get my head around all this information out there. That's where this forum is great I think!

    I'm not really sure what you mean in your first scenario as if you use the money for personal use how can I then still have it to use as a deposit?

    as for your second scenario, the new loan is still not being used for an investment so no you wouldn't be able to claim the interest. 

    For the best tax position you should sell your current property. Buy a new house with an interest only loan with an offset account,  put all funds from the sale of your house into your offset account which is effectively like paying down the loan but helps to avoid the situation you are in now. Then buy a new investment property borrowing all money with an interest only loan.

    You should speak to a good mortgage broker and they will help you set it all up and their services are nearly always free! Invaluable I reckon!

    cheers,

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Hi Cha

    Before you rush off and list the property for sale i believe there are other factors to consider.

    The ATO apply the "Purpose Test" to the use of the funds although I am assuming you own the property in your sole name and not jointly. If so a spousal transfer could be an option.

    There are a couple of actions i would probably take now to ensure that you don't contaminate the interest further whislt you are deciding on what to do.

    Get your mortgage broker to run the numbers on both scenarious and see what difference it makes compared to the cost of selling the current asset.

    Cheers

    Yours in Finance

    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 chanakyachanakya
    Participant
    @chanakya
    Join Date: 2012
    Post Count: 26

    Thanks a lot Nathan.

    I have learnt a lot in a day about IP.

    As you have suggested, If a buy a new house to and make it my primart residence do you still see Interest only loan is suitable? I though Interest only loan is suitable for IP.

    I will definetly do more homework and speak to a mortgage agent.

    Thanks

    cha

    Profile photo of chanakyachanakya
    Participant
    @chanakya
    Join Date: 2012
    Post Count: 26

    Hi Qlds007,

    yes, I solely own this property, what purpose does spousal transfer serve?

    Thanks,

    cha

    Profile photo of N@than[email protected]
    Participant
    @n-than
    Join Date: 2010
    Post Count: 241

    No Worries cha,

    Depends on what you plan to do with your new home in the future. If you think you may one day rent it out then yes an interest only loan with an offset account would be best.

    If you had that set up on your current property then you could now move all your money out of your offset and into your new property offset account and would then be able to claim the total loan amount on your original property.

    But yeah do some research and ask plenty of questions and you will learn pretty quick.

    Hope it all works out for you!

    Cheers,

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Hi Cha

    Could have sold the property to your spouse, borrowed 100% of the market value and then claimed the entire amount as deductible interest.

    Cheers

    Yours in Finance

    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 chanakyachanakya
    Participant
    @chanakya
    Join Date: 2012
    Post Count: 26

    Hi all,

    I was explaining my wife or tried to explain my wife as to what I have written in my post previously money withdrawn from a PPOR cannot be used to buy a IP and claim tax on it.

    From what I understand on a $250K loan if I have paid $200K up front which would reduce the interest on my loan considerably. If I withdraw that $200K and invest that money to buy a new PPOR and make my pervious PPOR as IP then I am claiming negative gearing on the amount which I have already used to reduce my interest rate on my previous PPOR. Which is not legal.. am i right? or got all mixed up?

    cha 

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    In the example above, you could only claim interest on the remaining $50k balance when that property becomes an IP.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of chanakyachanakya
    Participant
    @chanakya
    Join Date: 2012
    Post Count: 26

    I got that. but why?

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