All Topics / Finance / To leverage, or not to leverage … that is the question

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  • Profile photo of tysmeistertysmeister
    Participant
    @tysmeister
    Join Date: 2015
    Post Count: 3
    January 11, 2015 - 9:45 pm

    All,

    To provide a bit of background, the wife kids and I live in Sydney’s Inner West. Hoping to capitalise on the hot market we sold our 3BR Victorian terrace in December 2013 … unfortunately the market has gone up another 10 – 15% since then. We have a reasonable amount of capital from the sale currently earning a fairly poor rate of return with the various banks because we haven’t found a suitable upsize home to buy.

    However, we also have a sizeable block of land in the Eastern Suburbs of Adelaide, and have decided to sub-divide and build. Based upon a number of estimates for the project from various builders we have more than enough capital to finance the project without borrowing. So the plan is to stay in the rental market in Sydney for the next 12-15 months whilst we complete the project, and then rent out the homes that we are going to build in Adelaide. The plan would be to use the homes in Adelaide as part security towards borrowing for buying our next home in Sydney.

    This has got me thinking however that a better strategy might be to part finance the build of the homes in Adelaide, and benefit from negative gearing. Would appreciate thoughts from the community.

    Thanks
    tysmeister

    • This topic was modified 9 years, 3 months ago by Profile photo of tysmeister tysmeister.
    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    January 12, 2015 - 5:50 am

    Hi Tysmeister

    Firstly welcome to the forum and hope you enjoy your time with us.

    I certainly would NOT use your own capital to construct an investment dwelling as when you come to buy your own PPOR down the track the interest will not be deductible yet the rent you will receive on the new investment property will be added to your Taxable income.

    If you structure the loan correctly you should be able to borrow the full construction cost of the new Investment property and retain your cash funds for your own non deductible PPOR when you come to buy again.

    Using a 100% Offset account will also reduce the amount of interest paid on the investment loan until you utilise the funds for the PPOR.

    I am not sure whether the current land is mortgaged but there are a couple of additional ways to maximise the deductions.

    I am currently working with another forum member in exactly the same situation as your own and we are re-structuring the borrowing to maximise their deductions.

    Come back to me if you have any questions of need a hand.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    January 12, 2015 - 8:57 am

    Be careful in using cash. Once used it will be tied up and there are tax consequences. Get some legal advice on some related party loan strategies so you could still avoid the banks but use the cash and not suffer the tax consequences. Asset protection is another bonus.

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

Viewing 3 posts - 1 through 3 (of 3 total)

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