Hi all,
I’m living in my own house which owes $260K and is valued at about $600K. I’m now looking at my first IP, and I have a redraw facility up to $350K.
Am I correct in saying that I can use some of this redraw to fund a deposit and apply for an investment loan without risking the residential home?
Appreciate any responses on this one.
Thanks Rob.
My wife also has a house with about 90K owing worth around $300K. Her parents live in it, and give token monies each month.
This property was originally purchased as owner-occupied, and we haven’t done anything to change the status of that loan.
Is it cumbersome to perhaps change the state of that loan to take advantage of negative gearing, particulary as we aren’t earning income from it at the moment. It’s obviously good equity, but how best to take advantage of that?
Thanks in advance for further discussion.
Originally posted by The Mortgage Adviser:I would be talking to my accountant to see how much you are owed for the time since you have not lived in your wife’s property. It doesn’t matter how much rent you get or don’t get in an investment property as long as you can show, if audited, that you tried to rent it out. You would at least be able to deduct all the interest you have paid and any maintenance, rates, etc you have paid since you moved out. You will be getting a fat tax return!!! [cigar]
I would probably sack my current accountant for not telling me!!!
Rob
The Mortgage Adviser
[email protected]Comments made are of a general nature and should not be construed as advice to any particular individual.
Hi Rob,
I think your above recommendation about being able to claim all IP expenses on a property rented at a nominal rent is incorrect. Refer to the ATO Rental Properties publication document (NAT 1729-6.2002 or later version) on Non-commercial rental. If you rent a property at less than commercial rent then you can only claim expenses up to the rental income received.Tasman
Hi Ritchie,
As MB has indicated you have a big bucket load of equity available to use and depending upon your serviceability capacity you have the ability to leverage these funds even further.
My counsel would be for you both (wife and you) to sit down and work out what you want to achieve and then seek the advice of a good accountant and broker and make these people part of your ‘team’. Spend some time now setting things up correctly to maximise your capacity while at the same time ensuring the structure you employ to own properties is consistent with your plans.
Having good people working with you will minimise the likelhood of you defaulting. Sound research will also maximise your likelihood of enjoying success.
Above all you need to remember to start slowly and get used to owning an investment property and then when the time is right coonsider another, and another and so on. There is no need to ‘rush things’ – make haste slowly.
Changing the status, and informing the bank, of the property from owner occupied to investment as per your wife’s property won’t affect repayment rates. That thought is a ‘hangover’ from the ‘old days’ when banks charged different interest rates for owner occupier and investment loans.
As Tasman indicated the ATO expects property to be rented at market rates for full deductibility to be maintained. A letter from the local Property Manager is usually sufficient to establish the going rent for the property and ensure you fully comply with ATO requirements.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Ritchied,
To put it simply, any loans you have against your owner occupied home (i.e. $250K current debt, extending up to any redrawn amount) are secured by your current home PPOR. So if you default and default the bank can sell that home, your PPOR.
The loan you take out for the IP which will likely be 80% of the value of the IP, will be secured by the bank by the IP. So defaulting on that loan will not affect your own home. The exposure you have taken against the collateral of your owner occupied home is limited to however much you use from your redraw.
I probably digress too far… but basically if you don’t cross collatorize (which some banks may try to get you to do) your risk on the Owner Occupied home is limited to that loan you have now – whatever balance it may be. You really should not have to cross collatorize (offer both titles ie owner occupied AND investment as security).
You should be able to split your current loan into two seperate accounts, one for your investments so that your accountant can trace which funds are for what purpose easily.
I hope I am clear?
Liz Wilson
Mortgage Lender
Rob,
If the ATO deem that you renting on a non-commercial basis (renting to relatives at a low rental would be a prime example) then yes you can only claim expenses up to rental income. Makes sense really, you can hardly expect to give free rental accommodation, and then expect to claim an IP business rental loss, as you are not operating on a business basis.However if you were renting on a commercial basis (through a real estate property manager would help establish that it was a commercial venture) and the vacancy rate was very high due to market conditions, the resulting high losses would be claimable.
Tasman
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