I have a block of land, on which I plan to build an IP, but I need some assistance on the best way to structure the loan.
Currently I have about 40k in an offset account as well as 31k of available equity in another IP.
I have a loan of 428k on my PPoR, which was valued earlier this year at 530k.
The cost of building the new IP is 250k, which means I need 50k to avoid paying LMI.
Should I do one of the following:
1. Make up the shortfall from cash in the offset account (i.e. 31k equity + 19k cash).
2. Pay the cash off my PPoR and then set up a LOC and redraw the additional funds to cover the shortfall. This way I reduce my non-tax deductible debt and increase my cash flow by reducing my repayments on my PPoR.
3. Pay 30k cash off my PPoR and keep 10k in the offset for a rainy day, and then set up a LOC and redraw the additional funds to cover the shortfall. This will also reduce my non-tax deductible debt and increase my cash flow by reducing my repayments on my PPoR.
4. Pay LMI.
5. Wait until I have built up enough equity to cover the 20%.
Any other suggestions would be appreciated.
Are the loans cross collateralised and what is the details of the other IP.
Do you own the land outright ?
Is any of the PPOR loan tax deductible or was the entire loan used to purchase the property.
Richard Taylor | Australia's leading private lender
Hi Richard,
Yes, the IP is crossed with the block of land and the PPoR (not the best arrangement, but the PPoR is very close to being under the 80% LVR, so I will remove the cross when it reaches this point). The IP was valued at 190k earlier this year and currently has 86k owing.
No, I don't own the land outright, and there is no available equity in this property as it was purchased with 100% finance.
The PPoR loan isn't currently tax deductible.
It is generally best to pay down non deductible debt first, so I would go for option 2.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Terry,
I appreciate your feedback.
My preference is actually option 3 (keep some cash for a rainy day), but I thought I would check with some of the guru's on this forum to make sure I was on the right track.
Thanks for your advice!!
The end result will be the same overall, in terms of interest, but may be different from a tax POV. You would have access to spare cash via the LOC if needed – but I guess that if you needed cash for personal reasons it wouldn't be good to start using a LOC which you have used for investment up to that point. So option 3 may be better.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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