Hi all,
This is my first post, and any advice would be greatly appreciated.
Am I able refinance an investment property loan to gain access to the equity therein to purchase another investment property, resulting in two benefits:
a) using IP1’s equity as a deposit for IP2, and;
b) rendering IP1 back to a much more negatively geared property assuming I can claim the tax benefit of the portion I’ve used to purchase IP2 as a deduction against IP1.Essentially, all I am trying to do is turn IP1 back into an 80% LVR Negatively geared loan…as if nothing had ever been paid off it. It also helps that we are looking to buy our 2nd IP.
Thanks in advance!
Hi and welcome aboard.
A) Yep it's possible
The equity release for IP 2 would be deductible. Is that what you mean?You don't really turn the loan back to an LVR of 80% – you're increasing your borrowings against that IP to purchase another IP – therefore bringing the loan back up to 80%.
All sounds ok to me. Just avoid cross collaterising your properties.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
The answer to both questions is "yes", do you have a PPOR as well though? To maximise the tax efficiency of your structure you need to address all debt, debt payments and income flows, but you are on the right track.
Hi headspin,
In your case with what you are planning to do, I would say the equity loan secured against IP1 to be used for IP2 would technically be deductible against IP2. Your accountant or someone else on here might be able to verify or dismiss this.
In the end though the net outcome would be the same.
Cheers
Tom
Hi PLC,
Thanks, yes this is what I have been hearing also..
So if I refinanced and took say $100K from Loan 1 (IP1) and used that as the deposit for Loan 2 (IP2) then any deductions for that $100K must be come from IP2. Therefore the net result for IP1 is the same.. no benefit. Its still just as geared (negatively or positively) as it was before it was refinanced.
Is there a way I can move IP1 back into the red again after it has become positively geared? I've heard the only real way is for renovations that are deemed critical for tenant occupancy, or if I sell it and essentially start again, this time being far more aware of the benefits of using an offset account. Lesson learnt: Never pay down a loan, and always use an offset account. Even for your PPOR, as some day your PPOR might become an investment property and youll wish you hadnt paid it off…
Seems like a lot of hoops to jump through for something which should be ok'd by the ATO by now… after all, the process is possible, its just not easy.
Is that right?
headspin wrote:Lesson learnt: Never pay down a loan, and always use an offset account. Even for your PPOR, as some day your PPOR might become an investment property and youll wish you hadnt paid it off…Correct! That's the reason why a decent finance person will always ask about your longer term plans and will structure your finances with that in mind – rather than just focusing on the immediate transaction.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
headspin wrote:Hi PLC,Thanks, yes this is what I have been hearing also..
So if I refinanced and took say $100K from Loan 1 (IP1) and used that as the deposit for Loan 2 (IP2) then any deductions for that $100K must be come from IP2. Therefore the net result for IP1 is the same.. no benefit. Its still just as geared (negatively or positively) as it was before it was refinanced.
Is there a way I can move IP1 back into the red again after it has become positively geared? I've heard the only real way is for renovations that are deemed critical for tenant occupancy, or if I sell it and essentially start again, this time being far more aware of the benefits of using an offset account. Lesson learnt: Never pay down a loan, and always use an offset account. Even for your PPOR, as some day your PPOR might become an investment property and youll wish you hadnt paid it off…
Seems like a lot of hoops to jump through for something which should be ok'd by the ATO by now… after all, the process is possible, its just not easy.
Is that right?
There is the option of selling it to a spouse if you have one. However you may be up for stamp duty and CGT costs.
But why do you want to negatively gear that particular IP1 property?
Cheers
Tom
headspin wrote:Seems like a lot of hoops to jump through for something which should be ok'd by the ATO by now… after all, the process is possible, its just not easy.Is that right?
If you do it yourself it will unlikely be easy (no offense). If you get a professional MB to assist with the loan structures it will be comparatively easy.
Colin Rice | CDR Finance
http://cdrfinance.com.au/
Email Me | Phone MePerth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
Hi Headspin,
I agree with Jamie;
1) avoid cross collaterisation
2) a good broker considers your future plans
BTW remember to take tax advice from your tax agent, but there are good point your can discuss with them.
Have fun.
PS when invest think nationally, it helps reduce land tax (a cost) to managing your portfolio.
Hi Headspin
Whilst the interest will deductible against the property for which the funds were used irrespective of the security which was taken as long as the buying entities are the same it will all be netted off come Tax time.
Ideally when we structure an investors loan we like to see the 100% of the loan secured against the property for which the funds are used but in this day and age that is not possible.
With regular debt restructuring and the right property in the first place you can there over time.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
The equity release for IP 2 would be deductible. Is that what you mean?
You must be logged in to reply to this topic. If you don't have an account, you can register here.
