Hi,
I am new to this site and new to investing so please excuse me as I have limited knowledge.We live in Emerald a mining town in CQ, we have been deciding on buying another property to live in and turning the house we have into a rental, due to the fact my husband earns good money we thought this might be good for tax and investment, but our problem is when I dont think we have enough debt in this property to make it work for us.
Is there a way to make our loan bigger, a friend said about getting aline of credit and saying its for renovations or furntiure, not sure of this is possible. We dont really want to sell yet as we have new mines opening up and at the moment our house would not sell for what we would like. Emerald has very good rental returns and although we would get $400 easy a week and our repayments are only $330. It would be nice if we could take some sort of loan to put towards another house if that makes sense.
We havent had a chance to speak with anyone yet, but I found this site and thought maybe I could get some ideas of where to start, do we see a financial Planner or an accountant?.Or our Banker?.
ConfusedHi Emerald mum,
The only way that you can increase the deductible portion of the loan is if it is used for something that adds capital value to the property. As your friend suggested, renovation is a good example of this.
eg: Your current loan is $100,000 and you complete $20,000 of renovation – The new loan is $120,000 and this will be fully deductible.
Unfortunately any redraws for personal or domestic use will not be tax deductible.
In terms of who to see I would go to the accountant, then fin planner and then banker…
Thanks for your help, so if we already have done extensions etc at our own costs, can we get a loan to pay us back?..LOL
No, you can't get a loan to 'pay us back'. The borrowing would be for a private purpose.
Emerald mum,
Have you looked at selling your share of the current PPOR property to your husband ?
He is the one on the higher Tax rate and would be able to claim your share if he bought you out under the "natural love and affection" clause in Qld.
Richard Taylor | Australia's leading private lender
There is a way you can make the loan bigger and have it all deductible, but you have to be very careful and should get a private ruling before doing so.
This is how it works. You get a LOC on the existing property. You use this LOC to pay all associated expenses related to this property once it becomes a rental. The interest on the LOC will be deductible as it is for investment purposes. Then you also let the interest on this loan capitalise. Interest on interest is deductible depending on the purpose of the original borrowings.
Taking it a stept further you then borrow from the LOC to pay the interest on the original loan.
All rental income and wages etc are placed into a 100% offset account on the new PPOR loan.
The end result is a high and increasing investment loan with a rapidly decreasing PPOR loan (or actually just the interest will decrease if using the offset).
Please see a good tax advisor to implement this strategy.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I'm still contemplating getting a tax ruling on that one Terry.
I ran some numbers and it is a very powerful strategy as you pointed out in a previous post.
Have you ever seen someone called up on Part VIA or similar breach of the Taxation Act for it?
Thanks
I've never actually known anyone who has done it. I am just doing some sums now and think with $150k of equity you could potentially pay an extra $10k pa off a home loan.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Sounds about right – My sums showed around $6,360 off the home loan based on $100k LOC… I suppose it depends what interest rate you use in your calcs.
Factor in placing the extra funds from the tax savings into the home loan too and it gets even better.
And, maybe buying high yielding shares with a LOC and getting a margin loan and letting both the margin loan and the LOC capitalise while you put all dividends and tax savings into the home loan.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Emerald Mum
Not sure about how to increase loan on your existing house but if you considered the renovation option you would want to make sure you do not overcapitalise and that you would get extra rent to make it worthwhile.I am tending to think that selling would be the option, transfer your loan to your new home (if it is transferrable) and buy a new property on 100% loan. The tax savings could make this the best answer. If you rebought you could possibly get a new or newer house and also get depreciation allowances.
When you talk to an accountant make sure they specialise in investment properties.
Please leave your strategy when you have decided as it would be good to hear your decision.
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