Forums / Property Investing / Creative Investing / Asdvise re PPOR and IP loan structure

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  • Profile photo of VickVick
    Participant
    @vick7870
    Join Date: 2017
    Post Count: 7

    Hi

    I am new to investing and was hoping if someone could provide advice re my scenario on how best to structure my loan.

    Currently I have a PPOR property with a loan of $300K from Bank A.
    I also have a recently purchased IP property with a loan of $600K from Bank B which is my first IP.

    I will be moving to my IP next year until which it will be tenanted. Then, I will make the switch (will make PPOR as IP and IP as PPOR).

    I see that my loan on future PPOR (which is currently my IP) is high which means I won’t have good tax benefits if I make this switch next year since the new IP will have a low loan compared to the current one. In an ideal world, I should be living at my current PPOR only however that’s not an option unfortunately next year.

    I also understand since I have loan with 2 different banks, I am unable to re-structure/split the loan. If I was with one bank only, I think I might have been able to split the loan to have high balance on my future IP (which is my current PPOR).

    Do anyone have any advise or strategy on what can be done to maximize tax-benefits while being with different banks or should I increase my loan balance on current PPOR if there is some equity on it.

    Thanks

    Vick

    • This topic was modified 1 year, 11 months ago by Profile photo of Vick Vick.
    • This topic was modified 1 year, 11 months ago by Profile photo of Vick Vick.
    • This topic was modified 1 year, 11 months ago by Profile photo of Vick Vick.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    What do you mean by ‘making the switch’? A property will qualify as a main residence once you move in, no switching necessary.

    Restructuring the loan could not increase your deductible debt because it is the use of borrowed funds that determines deductibility not security.

    There are many strategies which you could possibly implement depending on the circumstances. I suggest you get specific legal/tax advice.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of VickVick
    Participant
    @vick7870
    Join Date: 2017
    Post Count: 7

    Thanks Terry

    By switching, I mean I am going to be moving out from my current PPOR where I live. The IP which I purchased will be my new PPOR where I will live from next year and hence my current PPOR will be on rent making it an IP. Hope that provides clarity?

    If merging two loans won’t work for tax deduction as you mentioned, what is the solution for my current circumstance.

    I am sure this is a common scenario many people would come across.

    To summarize and clarify,

    – My IP is going to have lower loan (300K) while my PPOR will have a higher loan of 600K. This means my tax-deductable debt is 300K only.

    Is there any advice if there is a better way to structure this to maximise tax-deductable debt?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    There is nothing you can do in one hit to change deductibility as it stands.

    However there are several strategies which I designed for clients. Some are potentially costly which could result in quicker deductions while others are cheap to implement but will have slow effect.

    Here is a copy of a recent post:
    https://www.propertyinvesting.com/topic/5037824-13-strategies-for-when-you-move-out-of-the-ppor-and-want-to-keep-it/#postnewtopic

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of VickVick
    Participant
    @vick7870
    Join Date: 2017
    Post Count: 7

    Thanks – Selling my property all together and selling to my partner is not an option either as its in our joint names but my serviceability will be too low to buy another property on my own.

    Am I able to top up loan on my future IP (which will have lower debt) and then use this extra money to reduce my high debt on my PPOR?

    Otherwise, I might leave everything as it is for now and wait for any future reviews.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    You can still sell your share of the property to your partner or they can sell their share to you. If the property is in VIC you still have 6 hours or so to do this without stamp duty too!.

    Am I able to top up loan on my future IP (which will have lower debt) and then use this extra money to reduce my high debt on my PPOR?

    Yes you are. But the interest will not be deductible and you will create a mixed purpose loan with further complications.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of VickVick
    Participant
    @vick7870
    Join Date: 2017
    Post Count: 7

    Thanks for the advise Terry. I will leave as it is but will contact again if anything further.

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