I have a unit worth $300K appro. I owe $20K on my mortgage. Planning to buy a land and build a house and still retaining the unit as investment property. I just want advice would I be better of retaining the unit or sell it.
Unit has potential to fetch $350/week
The house and land package is worth $600k
Hi Chanakya
Without having all of your personal details it is difficult to comment as to whether you should sell the unit or not (personally i never like to sell any property and built my portfolio on rental income) but either way assuming the new house is for your own occupation regretfully the entire interest bar $20,000 will be non deductible.
You should have structured the loan with a 100% offset account and that way you could have used the offset funds to cover the cost of the land etc and the interest on the entire amount owing on the unit would have been deductible.
I am assuming the unit is held in your sole name (not joint names) so depending on your marginal Tax rate you may wish to look at selling the property to a Unit Trust / spousal transfer and retaining the property.
As i say hard to comment further without knowing more.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Argh what a shame you diligently paid off the mortgage rather than put all your surplus funds into an offset account, as Richard has pointed out. They don't teach you things like this in high school. It's a huge shame
The reason that the interest on the unit will be non-tax-deductible debt is that presumably you would be intending to borrow against the unit to buy the house and land package for yourself to reside in. Since the "purpose" of the borrowings would be to purchase a house for you to live in (rather than to purchase an investment property) the mortgage interest on the unit would be non-deductible. Even though the dwelling itself would be an investment property, the purpose of the borrowings against it would be for non-investment purposes.
Had you simply shovelled all your spare money into an offset account you could simply have withdrawn a giant pile of money from the offset account and headed off and bought your house and land package with it.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Selling has associated costs so I would only consider selling if you can use the capital to invest in something that has far greater prospects in terms or cashflow or CG or both than the current property.
What does the numbers look like when you compare the new property vs the current unit?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi Qlds007,
I have an off set account which I was using but my interst never came down. When I enquired my finacial institution they said interest only gets reduced if i start paying the principal. As you may have already worked out my knowledge about these were pretty basic and it was very hard to understand this twisted concept.
So this offset account concept would work for primary residence as well?
Where can I get more details about spousal transfer? my wife is not working and will this scenario help? what costs are injvolved?
what is unit trust?
my pay is around $120K before tax and my wife is not working, hope this gives bit more clarity about my situation and might be able to answer my question,
thanks
cha
As I have written in my previous post it didnt work out for me and my bank misguided me I thnk.
Hi Chanakya
Best to get in touch with Richard and have him structure things correctly from now on.
Here's a blog entry that I wrote which explains your predicament and how to avoid it in the future.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
I cannot stress enough the amount of deductions you will be missing out on if you decide to hang onto this property without some seriously good advice. As Jamie says, contact Richard. Within a year or so, he lost opportunity in tax deductions will have you out of pocket more than selling costs would have.
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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