Thanks guys, I wasn't aware it could be difficult as your always hear the stories 'refinance to release equity' .. I didnt realize there were specific uses for the money your allowed if you get it across the line.

If you refinance to say 90% does that open up more doors? i.e. less strict lending criteria? 85% less again? Or it as simple as, an internal refinance means your limited, regardless.

Thanks

PPOR, commbank will only partial offset the fixed at 1.5%, so i wasnt sure if i could say what loan the offset will be linked to. I was planning on fixing 90% at 5.29% IO, and having the variable rate at 5.8% with the wealth package and the offset linked to that.. Then revisit it after 2 year, i should have close to the 50k in variable payed off..

When borrowing to invest, i’m wondering if someone can tell me if you can capitalize costs, and how LMI is impacted?

Say I wanted to borrow $144k on a property, 160k. Thats a 10% deposit;

i) Is the LMI quoted on the 90% LVR figure? or the figure of the 144k + LMI = quote? (91-92% or there abouts?)

Can you capitalize other costs, such as stamp duty, fees etc.. If so, is this figure taken out of my cash deposit, or added onto the property price?

$144 borrowed, LMI quote, etc.. if stamp duty is say 5k, is this 5k added to the price of the 160k property, meaning a 10% deposit is no $16.5k instead of 16k, or is it added to the 144k borrowed, bumping it up to 149k, and is LMI then quoted on the final figure?

Hope that makes sense..

Thanks Michael, makes total sense.. And I can see how that could happen in those financial times..

I’m not to fussed about the interest rate as such, I was quoting it to say it appears really good, and raised the questions because its safe to assume there’s something up with it.

If these smaller lenders are so open to volatility in their books, how do they get 5 star cannex and other awards..? I think i’ve seen Rams Home loans win awards also?

I bought Rams home loan shares for $1.18… Sold for something like 15c (sure pays to do your research!)

Thanks for the response guys. I’ll tryin’ explain best I can.

House price is $165k. should be looking at purchase price of around $160k.

10% deposit or $16k.. or maybe $17k just to be be sure i’m under the 90% LVR. I’ll pay stamp duty, fees etc out of my own pocket, so the loan balance should be around $144k or there-abouts.

Looking at doing renovations around 10-12k.., which should value this property around the 190 mark, perhaps 200k.

I should be able to refinance to 90%, being 180k of the property value, pay the additonal LMI top up premium, and release $36k equity, correct?

Hope this helps!

Has given me a lot to think about. Thanks!

I was thinking if bought in a trust, yes there would be inital losses, but if say every 2nd year another IP was added, by the time you got to year 7-8, the first property or two should be CF+ to offset the new additional properties… Just wondering if the inital $5-7k loss in tax per year if a worthwhile cost for the sake of a 25-30 year portfolio, or longer..?

Sorry Terry, it was a bit all over the place that 2nd half.

So it appears the trust would be beneficial if there were enough income generated to pay tax? I’ve heard people say a trust is good if your earning a decent amount 70-80k+ .. So if this was the case, it would require 4-5 properties in this price range to make that happen, which could take years to accumulate.

A loss of $6150pa for say 7 years will equate to a bit over 40k loss. Would that be worth it in the short-medium term, for the years beyond?

To transfer a property to a trust, you have to pay stamp duty for a 2nd time, correct? if this property is around 4-5k stamp duty, in 7 years, it could be possibly 6k? add that to 5 other priced properties, and your up for around 40k in stamp duty costs. I hope i’m on the right page here..

If i bought the property in my name, since the first 3-4 years will have some tax deductions to it in the early days, then perhaps look into the trust structures, when we add more properties to it, hence making the trust structure viable with an income of perhaps 60-70k+

I see what you are saying now. I was misunderstanding the refinancing. I would keep the house long term, no intention to sell.

This is all hypothetical at this stage, no house inspection / building inspection has been done.

So, if all things are as assumed (rarely?) and we decide to purchase, with a cost of say, 160k. 10% deposit + costs, say 25k, with a loan of 144k approx.

$144k IO @ 7% is $193.84pw = Leased @ $170pw (neg $23.84pw)

Holding costs, approx (guesstimate) $4000 = $~80pw + $23, so approx $100pw negatively geared.

Of that approx $5000 negative geared, i’d receive around $1600 in tax deductions. which leaves $3400, which could be depreciated (estimate of coruse) .. So, does this make the property ‘theoretically’ neutrally geared? Doesn’t cost me to keep? Pending repairs of course, etc..

Now in regards to the purchase post finance. I was hoping to purchase for around 160k, add 12-15k in work, and increase the lease to around 210-220p.w which is quite achievable.

Since the refinancing amount does not bring up the amount of interest claimable on that particular property, then yes i’m with you now. If the new value is $200kl and refinanced to 80% of the new value, that will bring the loan balance to $160k to avoid LMI. The original balance if i buy today for example, will be the $144k. So if refinanced, the balance will increase to $160k, but that 16k is NOT deductible, unless used to fund another investment, correct?

Once refinanced, 160k @ 7% = $215pw, leased at 220pw for this example.
Holding costs approx $4000, my tax return of 33%, depreciation of a few thousand from renovations (is this where the 4% rule comes in between reno’s and capital expenditure).

This should create a neutrally geared property, with rental increases, creating a positively geared property within a couple of years or so.

No intention to sell, house is paying for itself.. Just hold and allow for growth to take its toll.

Any thoughts would be greatly appreciated on where to go from here. Is a DFT the best structure? Are they complicated to set-up / manage, etc..

Are there other options for tax deductions in my name, and income to go to my wife?

I expect the house to be neutrally geared / positive geared. I could possibly continue to re-finance to keep it negative, right?