G’day,
In an effort to clear the (bad) debt on my owner occupied place I am considering selling an IP.
Does anyone know if a financial institution will allow the mortgage on an existing IP stay outstanding and re-secured by a new IP? This would enable me to tranfer all proceeds from sale of the IP onto my owner occupied debt, rather than some of the proceeds going to pay off the good debt. I hope that makes sense.Toe Edge,
As far as I am aware, assuming that you are saying that your two IP’s are cross colateralised, when you sell one the bank will require you to leave enough cash in a term deposit that they will then hold security over. When you buy another IP they will lokk at the equity in both again and if you have enough equity in the the existing IP then they will cross colateralise these two again.
If you don’t have enough equity, then if you want another one you will have to use cash.
This is the way I would do it – If you desparately want to sell then sell. Before you sell make sure you are aware of your Capital Gains implications. When you sell pay down your home loan. See your bank and look at getting a Line of Credit against your home and then use the funds in here to give too the bank as the security need on the other IP. This LOC can then be used to assist other purchases and as long as you only use it for investment purposes it will remain tax efective. And you home is not directly collateralised against your IPs.
Your situation seems as though it can be structured to achive what you want.
One last comment – if the IP you are thinking of selling has appreciated well then, maybe it will continue to – I’m personally happy to have debt against my home and keep my properties for as long as possible.
Petters
Thanks for the response Petters. The idea of the TD is interesting. Also, to reduce the impact of CGT I intend selling after June.
Just to clarify. The IP I intend to sell is secured (cross colateralised) by my PPOR, but there is more than enough equity for them to stand alone. All I really want to do is release all of the value of the IP and use it to reduce my PPOR debt. My intention is to purchase more IP’s almost immediately anyway. In short I am trying to turn bad debt into good debt. This idea only just popped into my head and it means a difference of 150K going on to my PPOR debt.
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