WOW!!! this topic has been swamped…
OK where to start…
Oh yes, sorry I thought you already had an IP… Having an offest account on your PPOR is not that advantageous… (but worth having on your IP loans..)
Yes, the interest on your PPOR is NOT tax deductable. I alredy said that, if you re-read my first post… (I am guilty of the same!!)
Rugbyfan,
You do have heaps of lazy money in your house … you just can’t see it yet…
All you have to do is use the equity in your PPOR to purchase other properties…If you are going to buy 1M worth of properties I would seriously consider using trusts..
And then again be very careful what you buy as things are slwoing down considerably…
Talk to as many professionals as you can to get a good understanding of what it is you REALLY want to achieve.
I think the rest have covered the other major points.
Cheers,
Pin
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ALL welcome!Thanks Pinit
We looked at trusts but not going to down that road as yet. There are some upsides but the major downer is that Land Tax is accumulated from the first dollar, there is no threshold. Once I get to near the threshold levels I will probably do it.
Thanks for all the advice though.
Everyone else too.
Hi Rugby Fan,
When you buy an investment property you can borrow everything, including all the costs. You just need to link your principal place of residence as collateral to the mortgage for the investment property. Provided you buy well there should be no risk. For example, say you have PPOR that the bank’s current valuation for is $400K, with a $100K mortgage. You find an investment property for $220K including all costs. The bank value your property at $210K (i.e. excluding costs and = your purchase price). To avoid mortgage insurance you only want 80% of this property to be the bank’s security, so $168K. But you want to borrow $220K, so you have to offer the bank additional collateral to cover the missing security of $52K. This is where your PPOR comes in. $80K of that (20%) isn’t touchable, because you need, overall, to have at least 20% equity in the combined properties to avoid mortage insurance. All you do is include it as security on the IP mortgage. It’s not a second mortgage. You don’t take any money out from your PPOR. The IP mortgage is separate, i.e. the loan account has a didferent number and you get a separate statement. From a tax point of view your interest on the entire $220K is tax deductible. All you have done is given the bank additional security.
So finally you have:
Combined value of properties $400K + $210K (excl costs) = $610K
Minimum equity to avoid mortgage insurance = 20% ==> 20% of $610K = $122K
Maximum borrowings = $610K – $122K = $488K
(This is equivalent to 80% of $400K = $320K + 80% of $210K = $168K ==> $488K)Total borrowings after buying investment property = $100K (PPOR mtge) + $220K (IP mtge) = $320K
Uncommitted equity = $488K – $320K = $168K, which is then available to invest in a second (third etc) IP.
Good luck with your investing
KatKat, all valid points on LVRs etc, but there’s no way I would recommend cross collateralising for many reasons that have been discussed on these boards previously.
Instead, a LOC/Second mortgage (same bank as PPOR loan and at standard rates) against the PPOR to use as the deposit. This will mean that there are two separate loans for the IP, but both are deductible and investment debt. It’s the purpose for which the money is borrowed, not the security.
Cheers
MelSpot on Mel.
Easy to set up and saves exposing the PPOR as well.
The PPOR debt can be split to show the two loans one of which will be deductible.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi Rugbyfan
You are in a similar position to myself but you have access to alot more cash then myself. Yes it is harder to find a +ve property if u have to borrow the full amount including costs but once you find them it will be easier to find. I have found many but on the side of caution only purchased the one at this stage.
Regards Bear
Excuse my ignorance but does everyone who is on these boards and have purchased positive cash flow property either:1. find property with 20% yields or better
2. Have no mortage on their PPoR
3. Have a lazy $5,000 – $20,000 lying around to use as a deposit.If 1, then lucky them, I will have to look harder. If 2, then good on them, we will be there soon (Feb I hope) and if 3 then I have to envy them very much!!!
SNAP,Re Xcoll
Mel and Simon,[]RugbyFan,
Can I recomend you contact Simon or Mel from this forum, I am in VIC, But Simon and Mel are up your way so to speak, Both will steer you in the right direction,
Kind Regards
Steven[email protected]
http://www.mobilemortgagemarket.com.au
Ph: 0402483216RugbyFan
one more bit of advice that will save you.
GET A GOOD TEAM AROUND YOU!
What i mean is, find a good accountant, solicitor
and mortgage broker. i prefer to use ones that invest in property themselves… why? because they will know the pitfalls you havent even run into yet, they will save you from yourself and will be able to help you along the way.
An example of a useless accountant i had.
I owned an pos cashflow IP 3 years ago, accountant didnt tell me anything, and said i couldnt write off half the things i thought i could. i also didnt know about depreciation.
for three years i neg geared a pos cashflow IP.
My ignorance cost me, so now i only have people who at least know i’m ignorant but help me.Hi Mel,
Cross collateralising is only a temporary situation. Once the IP has increased in value sufficiently, as per the bank’s valuation, to give you a 20% equity in the IP, the bank will unlink the securities, releasing your PPOR. Borrowing via a second product like asset builder is typically half to one percent (for the extra borrowings) more expensive approx than doing it this way.
One product I would recommend is getting a professional package. The Commonwealth and Westpac’s products are fantastic. Not advertised typically – you have to ask for them. The cost about $300 a year but they’re great. No application fees for the mortgage, redraw whenever you like at no charge, and half a percent interest savings (I heard doctors can get more) over the normal rate. We saved around $1,500 a year for a $300 a year investment.
Kat
Shaun,
Why don’t you re-lodge your tax return for the last 3 years and get your money back!
yes this is very easy to do… talk to your accountant about it…Just think about it carefully though since it may not be worth it now… (since when you sell you will have to take into account the depreciation… and pay a little more tax on your profit …)
Depends on your situation, circumstances etc…
If you want me to run through the numbers I would be happy to do it … for the benefit of all.
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ALL welcome!Hi Kat,
Never give the banks more security than is necessary,
ANZ and StGeorge also offer a decent Pro Pack
Regards
Steven[email protected]
http://www.mobilemortgagemarket.com.au
Ph: 0402483216Pinit,
i know i could do that, but the problem is i used the FHOG on it. i was intending on living in it, but was then sent overseas to a couple of warzones for that time. Although i can justify why i couldnt live in it to the ATO, not sure i want to tell them anything unless they ask.
as for running through the numbers… why not!
what do you need to know?,
it may not be worth it, cause everytime i came back from oversea’s i was dumping anything from 5k – 20k into the loan (i paid it off in three years)
Oh yes, sorry I thought you already had an IP… Having an offest account on your PPOR is not that advantageous… (but worth having on your IP loans..)Yes, the interest on your PPOR is NOT tax deductable. I alredy said that, if you re-read my first post… (I am guilty of the same!!)
Hi Pinit,
In your quote above, you say that having an offset account on your PPOR is not advantageous, but having one on your IP is. Why is that? I would have thought you are better off having a offset account over your PPOR as the interest isn’t deductible, therefore every dollar you put in there completely offsets against the interest.Hope this makes sense.
I’ve found the ANZ not so positive on the income side of things as either Westpac or the Commonwealth. I agree not to give the bank security if you don’t have to, but not at the expense of having to pay more interest than strictly necessary. Having a good bank manager is worth having. Ours has told us about financial products I wouldn’t have known existed if not for him. Every half a percent you save is $10 a week approx per $100,000 borrowed.
Shaun,
I think you should see a decent accountant as to redoing your tax for the past few years.
I don’t believe that the ATO polices the FHOG. Regardless you have a very valid reason to leave the place and I would be surprised if you have much trouble with anyone over it.
I also agree that Pro Packs are very useful for those considering multiple properties. We use them a lot here in the office with our investors.
And lastly, I can’t imagine the situation where I would consider having an offset account on any loan apart from the PPOR one.
Cheers team,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Kat, when getting second mortgages on my properties, I have not been charged a higher interest rate, so it’s not been a problem in getting that second loan.
Getting the bank to release that security costs money anyway, so there may not be that much of a saving by cross collateralising. It also ties you to that one bank, whereas if you got the 2nd mortgage with the same bank as your current PPOR, your investment loan could then be with whoever you choose.
Cheers
MelThanks guys lotsa info in there to digest in the next day or so. We are on a Pro Pkg with CBA and get the half% of etc etc. My wife is a solicitor (not conveyancer, – corporate) but we have a v good conveyancer that we have used a few times ( we have two IP’s already – 1 X neg, 1 x neutral).
We probably need a better accountant though, ours is not that cluey on this stuff!
Any recommendations in Sydney (North Shore).
Ta
Simon,
I thought having an offset account on an ip loan would be useful to have whilst saving for rates and repairs etc. (If you don’t have a ppor loan otherwise it would be better sitting there)
Josh
Josh,
Doesn’t hurt but it isn’t particularly effective either when you think it through. My comments were directed at the earlier post which talked about PPOR vs IP debt having the offset.
If you have a non working spouse then consider putting it in something like ING Direct at call account in the spouses name – just an idea.
Kat,
If you are paying a higher rate for an IP then I suggest you need to take a second look at what is available out there.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi Shaun,
as for running through the numbers… why not!
what do you need to know?Hmmm, actually it would be a bit too personal … I guess you could give us “dummy” numbers… Actually it would be too involved … I will leave it for your accountant to do
it may not be worth it, cause everytime i came back from oversea’s i was dumping anything from 5k – 20k into the loan (i paid it off in three years)Was that your PPOR loan or an IP loan?
Hi Pinit,
In your quote above, you say that having an offset account on your PPOR is not advantageous, but having one on your IP is. Why is that? I would have thought you are better off having a offset account over your PPOR as the interest isn’t deductible, therefore every dollar you put in there completely offsets against the interest.*****
OK, let me clarify… An offset account is only really useful for an IP loan ONCE you have fully repaid your PPOR loan!
*****OK so let’s say you have fully repaid your PPOR loan and you now have a IP loan ($100,000)… with an offset account… You come back from overseas with an extra 20K and dump it into your offset account. (so you only pay interest on 80K) Then you decide to go on holidays with your family and say it will cost you 20K (yea, I know …) well if you take it out of your offset account you then pay interest on the 100K BUT it is all tax deductable….
Let’s say you didn’t have the offset account… and put the money straight into your IP loan and then decided to go on holidays… well this means that since you have used 20K for personal use, the interest on that 20K is no longer tax deductable! So you can only claim the interest on the 80K and not the whole 100K if you had the offset account…
Hope this clarifies things…
Pin
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