Hi all
I have a PPOR with a loan outstanding of $130,000 P&I payments of $1250.00 mth. (non deductable interest)
I am looking at building a IP at a cost of $160,000 (land already owned) inclusive of landscaping and whitegoods etc. (deductable interest)
Estimated time from drawing up plans to compleation probably 12 mths.
Would it be beneficial to borrow the full amount now (interest only payments of $896.00) place it in an offset PPOR account therefore all debt would be tax deductable and place the savings in another offset account againts another IP owing say $100,000.
As the progress payments are made say 6 x $30,000 the extra savings is then taken out of the other IP and payed off the PPOR as a lump sum.
I guess you could keep doing this with other properties and not end up paying as much interest on PPOR or do I have these figures all wrong?Thanks all
DaveOriginally posted by Dave L:Would it be beneficial to borrow the full amount now (interest only payments of $896.00) place it in an offset PPOR account therefore all debt would be tax deductable
Hi Dave,
I like the way you think – however when banks lend for construction purposes they initially approve the loan based on their valuation of the plans – but hold onto the money.
The building contract stipulates when and how much is required through a series of progress payments. At each of these stages the builder will invoice you and/or the bank. The bank will then make the payment directly to the builder in accordance with the agreed process.
At least this is how it worked when we built our house.
Derek
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I see your point however if there was enough equity in other properties and I had a very good bank manager who is quite understanding do you think its worth doing and would the Tax Man approve?Sounds like a potentially good idea.
The initial sum is borrowed for the investment, but temporarily held in a savings account. So it may work. best to run it by your accountant. If they say no, try a few others too, just in case.
Terryw
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Originally posted by Derek:Originally posted by Dave L:Would it be beneficial to borrow the full amount now (interest only payments of $896.00) place it in an offset PPOR account therefore all debt would be tax deductable
Hi Dave,
I like the way you think – however when banks lend for construction purposes they initially approve the loan based on their valuation of the plans – but hold onto the money.
The building contract stipulates when and how much is required through a series of progress payments. At each of these stages the builder will invoice you and/or the bank. The bank will then make the payment directly to the builder in accordance with the agreed process.
You are both right on this one. Derek, generally the banks manage the Draw Downs for construction lending, however, in so saying there are some lenders who will allow you to manage your own. It depends on the individual requirements.
The majority of lenders also charge a loading throughout the construction period to cover their “extra costs”.
If you can do that and use the funds to smash out some non deductible debt thats fine. I am not the ATO, but I would suggest as the funds are primarily intended for investment as will be evidenced by the construction of the property I would think the account you are holding them in in the meantime prior to drawing on them to pay your invoiced amounts is irrelevant.
Sounds like a good plan to me anyway…
Stuart Milne
Non-Conforming Specialist
READY Mortgages
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Mob: 0404 056 055Thanks all
I shall make the appointment with the accountant in a couple of weeks and let you know what he says.
I also would imagine one could do this when buying off plan units when construction finish dates were 2 yrs or so away. Just draw down the PPOR outstanding amount or a portion of it and it is Tax Deductable.Dave
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