Hi Everyone.
What would happen if i had enough equity in IP1 to pay off IP2 and 3? Would interest still be tax deductible on IP1? Would this be a big mistake?? I understand that that it would mean IP 2 and 3 would be paid off therefore no interest to claim.
I'm not thinking of doing this but is there a situation when this might be a good move?
Would be interesting to see if it would help or decrease your affordability?
Tony Fleming | Triumphant Property Group
http://www.triumphantpropertygroup.com.au
Email MeNSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury
Hi dark night, that was something I was thinking as well. Something tells me this would do more harm then good.
Hi Joe
What would be the point in doing this? You'd still end up with the same amount of debt because if you use equity it is still a borrowing event.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
JacM wrote:Hi JoeWhat would be the point in doing this? You'd still end up with the same amount of debt because if you use equity it is still a borrowing event.
That’s what i thought but wasn’t sure. So there’s absolutely no advantage in this?
Think about what the TOTAL INVESTMENT PROPERTY DEBT is that you currently have between IPs 1, 2 and 3.
Then think about what the total investment property debt would be after this shuffling of money you are talking about.
The two totals will be the same. Who cares which property the debt is against. All that matters is what the total portfolio situation looks like on a balance sheet and a tax return.
The only thing I can think that would be of benefit is if you refinance to a different bank that is offering a lower interest rate. But even then, you do not necessarily need to be transferring debt from one IP to another.
Just think total position. No need to think about individual properties any more. Think about how the whole portfolio works together. All well and good for me to say I guess. I'm a numbers person hehehe. I spend embarrassing amounts of time doing "What If" analysis in my aggregate portfolio spreadsheets, understanding how the entire portfolio looks "if I just tweaked one property…."
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Borrowing to pay out one loan is just refinancing. So if the original interest was deductible the new loan's interest should be deductible. Security doesn't matter for the claiming of tax.
There can be non tax advantages in doing this espeically where the titles are not in the same names etc. Someone may want an unecumbered property for some reason and this may help with that.
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
Thanks Terry, so at the end of the day there is some logic in doing this.
I think(could be wrong/probably wrong) it would help with expanding your portfolio from the point that you could use IP2 and IP3 as security for other properties. When i have applied for more loans the bank has asked me which properties i would like revalued and which ones not, not sure if this is the proper procedure but my bank allows it. It also might work in your favour if you went to another bank with the two property deeds and used them as security. Once again I'm probably wrong that's just my thoughts on it
Tony Fleming | Triumphant Property Group
http://www.triumphantpropertygroup.com.au
Email MeNSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury
Hi DK
Lenders would love to hear that you are offering them other properties as security for another property.
That is exactly what you do NOT do to expand a portfortlio.
Once you hit the serviceability wall with your lender there is no way to go.
Like driving down a narrow 1 way street and not having a reverse gear.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Indeed. Sorry Dark Knight super bad idea. Let's say the three properties you are talking about are each worth $300k and that the bank was doing 100% lend. For the purchase of IP3, why on earth would say hey bank people, if I miss a payment on this one $300k loan, I tell you what, you can seize not one but 3 houses. Insanity.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
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