Hi all
Would like some input with your opinions.
Say IP is 80% LVR.
PPOR has LOC split part personal/Investment
say value of PPOR 400000 owe 150000…so
400000@80%=320000LOC-150000=170000for investment.My questions are:
If i borrow the lot and use the 170000 for investment i would have to pay a substantial stamp duty bill.
Is it more beneficial to just borrow whats required for a deposit for say an IP. Or are there additional costs doing it this way.
Is it better to have small buffers designated to a IP as above for eg
Loan on IP + say 20000 buffer in LOC…the other 150000 for deposit on further purchases.
2nd IP same, loan at 80% with a LOC attached of say 20000 buffer
etc.
Interest on each LOC is tax deductibleleaving the rest of whats left over for the same process.
Or
Is it better just to have one big LOC 170000 and pay deposits and shorfalls and expenditure etc all in one irrepective how many IPs as is possible. This is designated for IP related expenses and deposits so interest is tax deductible.
Cheers
SGRegarding your stamp duty question, it is only stamp duty on the mortgage which is not that expensive.
As you are concerned with costs, I would suggest losing all your expensive LOCs and using standard loans or setting up a structure with an offset account attached.
Robert Bou-Hamdan
Mortgage Advisera friend of mine quite likes the set-up he’s using now which involves having an loc attached to the loan of the ppor which he then uses for deposits for ip’s that he buys. the balance of the ip is financed with a regular i/o only. he tells me that he is very strict with how he uses to the loc, with drawings only made of an investment nature only. no personal expences allowed. I’ll be adopting this structure just as soon as I can build more equity in my ppor. Eric
Neo, do you think your friend would be happier doing exactly the same without using a LOC and at a lower interest rate?
Robert Bou-Hamdan
Mortgage AdviserHi all
Robert good to see you back although i read that you may be going to greener pastures.I ask the questions in light i have transferred my IP to another lender. This IP is 80% LVR.
My PPOR is with my current lender but it makes sense to me anyway to transfer my PPOR over to the new lender because of a package arrangement so no ongoing fees.
Now i am looking as to have my Loan on my PPOR which is say a 1/3 of what the value of the property is so it is currently at 33% LVR. If i borrow the whole 80% LVR on my PPOR then i would have the Loan say $100000 on my PPOR and the rest in a LOC say $140000 which is the same rate as variable and this would be for investments only.
If i borrow the lot then i pay stamp duty etc on the whole amount which may sit there for a while.Or should i just borrow and refianance the my PPOR with a smaller LOC and top up as required.
My PPOR loan would have a Offset account linked to it.
Cheers
SGThanks Star. It is good to be allowed back. I missed the place.
I always try and leave any investment property at 80% LVR with an interest only loan if there is a non-deductible debt. I also try and place as little debt against the PPOR as possible.
I like that you have the $100,000 non-deductible debt and the offset account being set-up. It might be good to set this up as interest only as well in case you move later.
I would not bother with a LOC but take another loan as a split instead. There is no real need to take the maximum unless you intend to use it or foresee some problems where you may need it. It is not that expensive to increase your loan if you need to and it can be done very quickly. Also, under the right package, it will not cost you anything except the stamp duty on the mortgage for the upstamped amount.
The greatest benefit to you will be how you use your finance package. All income and rent from all sources should be deposited into the offset account.
Minimum fortnightly direct debits should be setup from the offset account to only pay the interest on all the loans (including the PPOR). This would result in cash accumulating in the offset account instead of having to use redraw which might help you later if you need it.
If your total borrowings are more than $500,000, you should get a rate of 6.62%. If less, it should be no more than 6.72%. Most packages will not include the value of the line of credit in the total borrowings to get better discounts.
Robert Bou-Hamdan
Mortgage AdviserHi Rob
I always try and leave any investment property at 80% LVR with an interest only loan if there is a non-deductible debt. I also try and place as little debt against the PPOR as possible.
OK. Lets get down to some numbers i guess as i undertand better your directionI was actually going to increase the Loan to $120000 as to have a $20000 buffer also adding new pergola may need another car in the near future etc.
This would look like this:
PPOR LOAN…..120000
In offset account…..20000
This would be an interest only loan.in case you move later.
Yes if i move later i can leave the loan as is and the interest become tax deductible if i change the PPOR to an IP and use whatever funds i have in the offset as a deposit. This is only to have the flexibility to do this i may not i may just pay the PPOR of. Once you pay down a LOC then in most cases the option is to sell as you have small tax deductible debt if you held on and big non tax deductible.
The Question i guess is would the whole 120000 be tax deductible if changed to an IP or only the 100000. I would also need to get it revalued for CGT purposes.I would not bother with a LOC but take another loan as a split instead.
You have lost me hereThere is no real need to take the maximum unless you intend to use it or foresee some problems where you may need it.
My thinking was to have deposit available if opportunity presents itself. By taking from LOC then the interest is Tax deductible for the draw down.It is not that expensive to increase your loan if you need to and it can be done very quickly. Also, under the right package, it will not cost you anything except the stamp duty on the mortgage for the upstamped amount.
Yes
The greatest benefit to you will be how you use your finance package.All income and rent from all sources should be deposited into the offset account.
I have been told that for the ATO it is best to have everything seperate even the rent should go into the account which pays the expenses for the investment property. If a shortfall occurs the LOC would pick it up and the interest is tax deductible.Minimum fortnightly direct debits should be setup from the offset account ATO?
to only pay the interest on all the loans (including the PPOR).
Only PPORIf your total borrowings are more than $500,000, you should get a rate of 6.62%. If less, it should be no more than 6.72%. Most packages will not include the value of the line of credit in the total borrowings to get better discounts.
YesCheers
SGOriginally posted by The Mortgage Adviser:Neo, do you think your friend would be happier doing exactly the same without using a LOC and at a lower interest rate?
Robert Bou-Hamdan
Mortgage AdviserI guess so Robert?? You’d have to ask him. I take it you’re not an advocate of loc’s???
You are right there neo, I am very much against them. Only one or two in the market are cheap enough to warrant using them. Besides capitalising interest or not having to make any payments (which I think both are crazy), I see no benefit using them.
Robert Bou-Hamdan
Mortgage AdviserOriginally posted by stargazer:I was actually going to increase the Loan to $120000 as to have a $20000 buffer also adding new pergola may need another car in the near future etc.
This would look like this:
PPOR LOAN…..120000
In offset account…..20000
This would be an interest only loan.Sounds like a good plan to me.
The Question i guess is would the whole 120000 be tax deductible if changed to an IP or only the 100000. I would also need to get it revalued for CGT purposes.The pergola could be included but the car wouldn’t.
I would not bother with a LOC but take another loan as a split instead.
You have lost me hereI am not a LOC fan as you can do what you need with other products.
My thinking was to have deposit available if opportunity presents itself. By taking from LOC then the interest is Tax deductible for the draw down.The funds do not need to come from the LOC to be deductible. You could have another loan with redraw or offset on your PPOR and do exactly the same as what you would do for the pergola and car.
I have been told that for the ATO it is best to have everything seperate even the rent should go into the account which pays the expenses for the investment property. If a shortfall occurs the LOC would pick it up and the interest is tax deductible.The ATO does not care as long as you declare everything properly. Keeping expenditure seperate makes it easier and cheaper at tax time. Mixing up the income is never a problem as you will have rental statements and your transactional offset account will clearly show where the funds are moving.
Minimum fortnightly direct debits should be setup from the offset account ATO?What about the ATO? The ATO have no problem with this. You are not capitalising interest to reduce non-deductible debt.
Robert Bou-Hamdan
Mortgage AdviserThanks for your response Rob
I would not bother with a LOC but take another loan as a split instead.
Sorry Rob i am a bit lost here could you explain this to me.
regards
SGCheck out the following link…
Line of Credit v Loan with Offset Account
It outlines my position.
Robert Bou-Hamdan
Mortgage Adviser
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