Forum Replies Created
In general lenders won't take 2nd mortgages except in some exceptional circumstances. So you would need to take out the loan with the same lender for that particular property as security.
Depending on the circumstances, the lender may allow up to 95% of the property value. Obviously you and the other party would need to meet the lenders policies and serviceability. Now how you decide to split the overall structure depends on the agreement you have between yourselves.
In terms of tax (assuming it's an investment), it all depends on who is on title and the percentage of the property owned. The same ratio is then used for deductibility.
For future borrowing capability, a lot of lenders will take the full debt into account (even if its a 50/50 split) as they see you as jointly and severally liable, and only half the rent.
Cheers
Tom
headspin wrote:Hi PLC,Thanks, yes this is what I have been hearing also..
So if I refinanced and took say $100K from Loan 1 (IP1) and used that as the deposit for Loan 2 (IP2) then any deductions for that $100K must be come from IP2. Therefore the net result for IP1 is the same.. no benefit. Its still just as geared (negatively or positively) as it was before it was refinanced.
Is there a way I can move IP1 back into the red again after it has become positively geared? I've heard the only real way is for renovations that are deemed critical for tenant occupancy, or if I sell it and essentially start again, this time being far more aware of the benefits of using an offset account. Lesson learnt: Never pay down a loan, and always use an offset account. Even for your PPOR, as some day your PPOR might become an investment property and youll wish you hadnt paid it off…
Seems like a lot of hoops to jump through for something which should be ok'd by the ATO by now… after all, the process is possible, its just not easy.
Is that right?
There is the option of selling it to a spouse if you have one. However you may be up for stamp duty and CGT costs.
But why do you want to negatively gear that particular IP1 property?
Cheers
Tom
Hi headspin,
In your case with what you are planning to do, I would say the equity loan secured against IP1 to be used for IP2 would technically be deductible against IP2. Your accountant or someone else on here might be able to verify or dismiss this.
In the end though the net outcome would be the same.
Cheers
Tom
Hi melbinvestor,
As Jamie mentioned, unfortunately it won't make any difference to the deductibility of the loan and in fact could make your existing loan worse off if you tried to do it.
If it was as simple as you were contemplating, everyone would have their PPOR's paid off and their investment loans maxed out.
Cheers
Tom
I think you will find it hard to locate a mortgage broker who will be willing to give you all their commission, as this is the only revenue that they receive (i.e they don't charge the borrower).
There's a common misconception that the commission brokers receive is added to the interest rate of the borrowers product when it is far from the truth as it doesn't have any effect at all. So in effect by asking for trail commission a borrower would be asking for a cheaper rate.
My clients come to me and utilise my services in the knowledge that I am looking after their needs and I actually ask for nothing in return from them. So a payment from the lender I think is fair.
Cheers
Tom
Mark Coburn wrote:However if you had bought a House and Land on one contract then the total value of the transfer would be subject to Stamp Duty.
This is where Victoria has an advantage. House and land or OTP sales have their stamp duty calculated on the value of the property at the time of contract (which in most cases will be land only).
Cheers
Tom
Hi Matt,
For Victoria as of 1st July this year, the First Home Owners Grant (increased to $10K) is only available for properties that are purchased brand new (never been lived in before) or that will be newly built. It is no longer available for old established properties.
There is also a stamp duty discount of 40% that applies to first home buyers which is applicable to all purchases whether they be new or established.
Cheers
Tom
Hi Natasha,
As Terry mentioned, any money you redraw to pay for a new property you intend to live in won't be deductible. You would be stuck with whatever is owing on the current loan once it becomes an IP (assuming you haven't used the line of credit for other personal purposes).
Cheers
Tom
reido30 wrote:Thank you all again for your input.Whilst I wish my broker made me aware of this when setting up the mortgage, I'll take the long view here and cop the hit.
I've decided to put a bit of my own cash into the build to bring the LMI down to a more bearable figure.
Thanks again.
At least try to get it to under 90% LVR as that's where there is a decent jump in LMI.
Did you pay LMI on the land portion and capitalise it, and if so did they take that LMI as part of the base amount when working out the LVR for the complete land and construction?
Also in regards to construction costs, they can come in lower if the valuer thinks that there are some items in there that don't add value to the property.
Cheers
Tom
In addition to the above, estimate what the standard rent is for the area so after it is returned to yourselves, you can calculate what type of yield it will offer as it most likely won't be near the 8% you will be receiving initially. Depending on what you find, it might not seem like a good deal then.
Cheers
Tom
Agree with Richard above, the loan manager has no pull when it comes to approving the application, what they executed on you was a sales technique.
As for your broker telling you that you can only go with ANZ or Westpac, that is not true. Many lenders out there who do up to 95% LVR.
Cheers,
Tom
Previous tax returns can be changed through amendments (I had to do it once), however from memory the time limit on how far back the ATO allows depends on the taxpayers structure.
As Jamie mentioned, see your accountant and ask them for an answer.
Cheers
Tom
Hi Nat,
As you mentioned that you would have to pay tax on the rental income and your accountants advice on selling the property, it sounds like you would be positively gearing the current property if you rented it out. If so, that's not necessarily a bad thing. All comes down to the numbers.
From what I understand you can move into the new property (don't understand why you are calling it an investment if you intend living in it), and still declare your current property as your main residence for CGT purposes.
However in the end there will be some CGT to pay down the track as you can only claim one of them at any time as your PPOR.
Cheers
Tom
As Shahin mentioned, the property you are going to live in should have the loan linked to an offset account in which to place your funds. In addition the continuing investment property should be an interest only loan. That way you will maximise your deductibility.
Depending on what you also intend to with the property you move into, it might be worthwhile having that interest only as well. A decent broker can help you out.
Cheers
Tom
As the above two posters said. Be prepared to spend whatever you feel it is worth and terms you are comfortable with.
Don't get involved in a bidding war. There will always be another opportunity around the corner.
Cheers
Tom
Nigel Kibel wrote:The problem is that people do less due diligence on an investment property than hey would a blue ray player. If you buy something and regret it because you have not done your own due diligence then you only have yourself to blame.This is what really surprises me no end. People will do all their homework and consult for minor stuff, yet when buying a $500K property they don't want to spend an extra few thousand and consult professionals but instead attempt to save costs by trying to do things on their own (i.e. taking out loans through websites, doing their own conveyancing, etc).
Most of the time this decision ends up costing them more in the long run.
Cheers,
Tom
You would think that these "loadings" would in Genworth's eyes be due to the attributed risks with their respective classifications. I can understand self employed, but investment properties, cash out and debt consolidation (considering max LVR is 90%), surely the risks of default isn't that much higher to substantiate the premium increase?
All this does is makes it harder for people to borrow close to the maximum LVR limits as borrowers generally cap their LMI and lenders generally have a limit of the LMI that they will allow capped.
Cheers
Tom
Hi Radioboy,
Basically any income and expenses are attributed to whoever is on title. So if the title is under your name, then you have all the income and claim all the expenses in your tax returns. If the title is in joint names, then it's split 50/50 your way. You cannot just allocate amounts ad hoc for your own favorable situation.
If negative gearing, then you would normally like to have the property in the name of the higher earner as it is more beneficial, however you need to look at the bigger picture. The reason for investing is twofold. First to get the rental return to a stage where negative gearing no longer exists. Secondly to allow the property to realise capital in future years. If sold at this point then CGT is applicable and if in the name of the higher earner only more tax is paid.
Your wife starting work next year will change the scenario as well.
Cheers
Tom
Yep, as Jamie mentioned it can be done and should be done as a separate loan. Depending on your situation on how much you equity you decide to pull out for deposit, costs, etc you might be up for LMI, however this also may be considered deductible debt. An accountant would be able to verify this.
Cheers
Tom
