Forums / Property Investing / Help Needed! / Best way to buy a second PPOR

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  • Profile photo of Free@last[email protected]
    Participant
    @free-last
    Join Date: 2005
    Post Count: 11

    Hi All,

    My wife and I (both are working) owned a PPOR property outright in Melbourne (under both names) and wish to buy a second PPOR due to its proximity to good secondary school. We want to rent the current one out and do not want to sell it since the current market is not favourable. So what is the best way to unlock the equity and the most tax-effective on the current property? A couple ways I can think of to convert into IP:
    1. Get new loan for new 2nd PPOR and rent 1st PPOR (now IP) out but this will results in positive geared investment – not tax effective and loan on new 2nd PPOR will not be tax deductible
    2. Could we go under ‘love clause’ and sell to my wife (higher income)? Few years ago I ‘sold’ my PPOR to her and convert it to IP so I can unlock the money to buy our first PPOR and avoid paying stamp duty. I am looking to do the same but not sure if we can still do it.

    Any advice or suggestion will be much appreciated.

    Regards,
    Jan

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

    No such thing as a love clause!

    You could sell to your spouse, but this would result in duty in VIC. There used to be an exemption for transfers between spouses, but now only if gifted and end up 50/50 owners.

    Here is a link to an old thread on here where I outlined 13 strategies you could consider:
    https://www.propertyinvesting.com/topic/5037824-13-strategies-for-when-you-move-out-of-the-ppor-and-want-to-keep-it/

    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 Free@last[email protected]
    Participant
    @free-last
    Join Date: 2005
    Post Count: 11

    Hi Terry,

    Thank you very much for your reply. That is a great thread and excellent information for my consideration. I was effectively doing Strategy 2 when I sold my property to my wife.

    Now I have a slightly different situation whereby the current PPOR owned by us both. A question on strategy 3, how ATO or banks determine how much shares my wife and I each have? If I am selling my share to my wife, obviously we want to maximise the loan that she can get to pay for the new PPOR. So what stopping me of saying that I am selling 80% of my share to her and thus get a bigger loan?

    Or is Strategy 3 is now no longer allowed by ATO?

    Cheers,
    Jan

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

    Shares of a jointly owned property are fixed at settlement. You will either own as tenants in common which could be 50/50 or any unequal % or as joint tenants which is considered 50/50 for tax purposes.

    It is still possible to use strategy 3 – one joint owner selling their interest to the other joint owner. Must be the whole interest though for this to work. i.e. end up with one owning 100%

    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/

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