Hi All
I new to this & will be getting independant advice later, but just wanted some preliminary info first. I have my principle place of residence (PPR) at the moment with a $90k mortgage on it (council Value is $310k). We want to build our dream home and use the equity in this to buy the land and then get another loan for the building. Once that is complete, we want to rent out our current house. Is this possible? We obviously want to minimise our eventual loan on our new PPR and claim max tax ded for our rental property. We are in Sth Aust. Is this doable?
Hi Dudleydog,
When purchasing land, usually you can only borrow up to 80% against itself… therefore your deposit requried from the home loan will be 20% plus costs (S/Duty, conveyancing & purchase costs, mortgage costs etc). Once you finalise your building contract, provided you have a sufficient serviceable income, you can then increase the loan on the construction and the land to 90% … taking 10% extra from the land (previously 80% LVR).
Be careful not to over capitalise when building as 95% of home builders tend to go over budget.
If possible, by keeping all loans at 80% you can usually eliminate LMI (Mortgage Insurance). Once the home is finished, if you desire to keep the existing property as an Investment Property, there are some new 3.99% repayment loans (for 2 years) which capitalsie the remainder of the interest cost onto the loan. This in effect can halve your investment property repayments (maximising tax benefits) whilst you concentrate on reducing more off your PPR (Bad Debt).
I can give you more information if you require. By the way …. this loan in the example is in conjunction with ING one of the largest banks in the world.
Regards
Hi DD
Look dont want to knock John's idea of capitalising interest but there is far similar way of doing this.
Why not look to sell your existing PPOR into a Trust and borrow the full value of the home as an investment loan.
Utilise the difference between the value and the current home loan as deposit for your land and the construction of your new PPOR.Whilst stamp duty will be payable this will convert over $220,000 (Yes thats $17,600 Per annum) of non tax deductible interest into 100% claimable debt.
Depending on the contract price of the new building you may well find that your PPOR loan is next to nothing.
Currently we structure around a deal a week for clients in the same situation so be happy to help further if required.
Richard Taylor | Australia's leading private lender
Thanks Richard
That may have to be my solution after doing a bit of research. My family already has a family trust in place so could just use that. It looks like at this stage it's my only way around it.
DD – Stop right there.
Dont Transfer the property into a Family Trust controlled by someone else.
There are many considerations.
You will need to ensure that you are the Trustee and also from what you have mentioned the current Trust arrangment will be a Discretionary Family Trust which may not be suitable in this case if you are looking at claiming the negative gearing loss.
Shoot me an email with further information and I would be happy to make some suggestions.
Richard Taylor | Australia's leading private lender
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