Using the equity in my PPOR towards an IP

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wade anthony
Participant
@wade-anthony
Join Date: 2007
Post Count: 53
May 16, 2011 - 11:29 am
Hi people, I'm looking at using equity in my current PPOR to fund my next PPOR then change PPOR1 into an IP. What I want to know is:

– if I use the equity is it taken as a paper value ie. it comes off the next loan, or is the first loan then refinanced to current value of the PPOR then taken away from the new loan? At current loan rate it would be +ve with rent but if refinanced it would became -ve. Other words no use to me.
– If I keep the existing PPOR1/IP for a couple of more years then sell is CGT based on the value from when it became an IP or from when it first became my PPOR? I have lived in it for 9 years.
– Should it be sold CGT free then just use the cash to fund my next PPOR.
If there is a better working scenario in doing this please let me know or am I just thinking about it the wrong way? Cheers
Richard Taylor
Participant
@qlds007
Join Date: 2003
Post Count: 12,024
May 16, 2011 - 12:18 pm
It is a question that raises its ugly head on a regular basis and regretfully the answers are much the same.
If your Broker or Banker had set the loan up as an interest only loan with 100% offset account the issue would not have occured.
Of course if this has not been the case then you have a couple of options depending on the numbers
1) Look to buy out your spouse's interest in the property.
2) Sell the property to a Unit Trust at 100% of market value
Depending on the numbers will determine whether the savings outweighs the costs and if so it maybe worth considering.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
May 16, 2011 - 12:40 pm
wade anthony wrote:

– if I use the equity is it taken as a paper value ie. it comes off the next loan, or is the first loan then refinanced to current value of the PPOR then taken away from the new loan? At current loan rate it would be +ve with rent but if refinanced it would became -ve. Other words no use to me.
Ideally you’d setup a second loan against this property. This will be used as the deposit and purchasing costs towards your IP (the remaining portion would be organized through the same or another lender – just depends on where the best deal is for you). So you’d have to components of your current loan 1) your existing loan which should now be converted to interest only and 2) a loan for the deposit and purchasing costs towards your next PPOR. The first loan would be deductible whilst the second wouldn’t be.
wade anthony wrote:
– If I keep the existing PPOR1/IP for a couple of more years then sell is CGT based on the value from when it became an IP or from when it first became my PPOR? I have lived in it for 9 years.
– Should it be sold CGT free then just use the cash to fund my next PPOR.
If there is a better working scenario in doing this please let me know or am I just thinking about it the wrong way? Cheers
You’d only have to pay CGT on the two years it was an IP (with the usual disclaimer that I’m not an accountant). Should you sell it? Do you think it will make a good IP? Have you paid down a significant amount of the loan which means your tax deductible debt will be minimal? If so, Richard’s touched on some options above.
Hope that helps
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
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