Forums / Property Investing / Help Needed! / Equity transfer

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  • Profile photo of matt_decatmatt_decat
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    @matt_decat
    Join Date: 2010
    Post Count: 21

    gday

    I have a rental property at the moment which is positively geared and still have around 250k owing on the property and is a P&I loan. I am currently looking for a PPOR to live in and wondering if its possible to ‘transfer’ equity. As the property is worth around 400k, is it possible to refinance the house for 350k (100k more than what I currently own) and make the loan an IO loan. This will then make the property close to neutrally geared, therefore reducing tax and my monthly repayments. with the extra 100k, if i then put that onto my loan for my PPOR to reduce the required repayments and my non tax deductible debt.

    firstly, is it possible to do this? secondly, would you advise someone to do this (will obviously get my accountants approval prior to going ahead with it)?

    Profile photo of JpcashflowJpcashflow
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    @jpcashflow
    Join Date: 2007
    Post Count: 575

    Hi Matt,

    Firstly: Depending on how your IP is set up, you may want to look at shifting the loan to interest only.
    I think its essential you look at the right structure not just from a taxation point of view but also from a loan point of view.

    More then happy to help if needed :)….

    Jpcashflow | JP Financial Group
    http://www.jpfinancialgroup.com.au
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    Your first port of call in finance :)

    Profile photo of ducksterduckster
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    @duckster
    Join Date: 2004
    Post Count: 1,674

    You can’t borrow money from your investment property and then use it for private use and then try and claim the increased interest costs as an investment expense used to earn investment income. The tax office will notice the increase in interest costs and will ask you to explain or (tax audit you) why the loan has increased and what the purpose of the loan was for. The ATO has programs that check for these common mistakes that taxpayers try to claim.

    Here is a link you might find useful to read

    https://www.ato.gov.au/General/Property/In-detail/Rental-properties/Rental-properties—claiming-interest-expenses/

    As I do not know your specific financial situation and do not hold a financial adviser license I can only give general advice and would advise you to seek professional advice.

    • This reply was modified 5 years, 4 months ago by Profile photo of duckster duckster.
    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    gday

    I have a rental property at the moment which is positively geared and still have around 250k owing on the property and is a P&I loan. I am currently looking for a PPOR to live in and wondering if its possible to ‘transfer’ equity.

    I would covert current IP loan to IO now – no point in paying down this debt further if you’re going to be taking on a non-deductible PPOR debt shortly.

    As the property is worth around 400k, is it possible to refinance the house for 350k (100k more than what I currently own) and make the loan an IO loan. This will then make the property close to neutrally geared, therefore reducing tax and my monthly repayments. with the extra 100k, if i then put that onto my loan for my PPOR to reduce the required repayments and my non tax deductible debt.

    You should be able to increase the loan to $350k – but only $250k will be deductible (the current loan) and the other $100k won’t be (it’s being used to buy a PPOR).

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of TheNewGuyTheNewGuy
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    @thenewguy
    Join Date: 2014
    Post Count: 151

    As already covered, if you owe $250k on a $400k house. I would:

    – Get the bank to revalue the house.
    – Change to an IO loan now.
    – Refinance the loan, to something like:
    – $250k. IO loan that is 100% tax deductible
    – $100k. Loan to use as purchasing cost for new PPOR (deposit etc). Either IO or P&I depending on what you want. Secured against the IP and not tax deductible. Just consider what LVR you want to go to with Mortgage Insurance etc.
    – $x. Loan for the remainder of the PPOR. Secured against the PPOR.
    – Offset account. All loan repayments from here, all salary into here.

    I’m not a financial advisor either, however, this is quite similar to what I’ve done in the past. Even the numbers are the same!

    • This reply was modified 5 years, 4 months ago by Profile photo of TheNewGuy TheNewGuy.
    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
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    Spot on newguy – good post.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

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

    As others have mentioned, unfortunately the equity you pull out for a PPOR wont be deductible as purpose of the loan determines deductibility, not the security it’s based against.

    You need to make sure the existing $250K loan and $100K equity loan are separate loans and not one mixed one otherwise that will create a mess. Also the IO as others have mentioned.

    Basically structure the loan correctly from the start and it makes it so much easier for you long term.

    Cheers

    Tom

    • This reply was modified 5 years, 3 months ago by Profile photo of PLC PLC.

    PLC | Phoenix Loan Consulting
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    Melbourne based Mortgage Broker | Making Finance Simple

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