I have a house in which I belive is better to hang on to rather than sell. Its in good rental belt.
I have 46% equity in roughly new value? Whats the best way to structure for my new house to live in to
get the best use of equity alrerady acheived when purchasing my new home and keeping the existing one
as a rntal property? Do I take new loan out on existing (rental) use the equity for a second loan against
a new home to live in, therefore having maximum interest deductible from rental property and giving me
at least 20% in a new house? Please adviseno !.
If you borrow against your first home to release equity to claim as an expense against earning rental income ,
you have to have the purpose of the loan being used for investment
rather than as a deposit for your private use main dwelling or primary place of residence.You may have to use the first house as security against the second loan – it is not the best way of doing it but if you do not have enough LVR for house number two you can combine the two houses as security over the two loans.
There is a risk of losing both houses if you get behind in the loan repayments.
Investajt,
One thing you can do is get a Line of Credit facility and borrow up to 80% LVR of your existing property. Split the facility into 2 subaccounts. One subaccount for investment purpose and the 2nd subaccount for PPOR purposes. You will be able to claim interest on the investment subaccount only but the interest on the other PPOR subaccount will not be tax deductible.
Here is a numerical example. Say your existing property is worth $400k. You said you have equity of 46%, which implies your LVR is 54%. 54% LVR for $400k property is a loan amount of $216k. You can refinance to a LOC facility to 80% LVR, taking your loan limit to $320k (80% of $400k). So you have an increase in borrowing capacity of $104k ($320k – $216k). So you split the LOC into 2 subaccounts: $216k for the exisiting property to be rented out and $104k as deposit for your new PPOR. The LOC will calculate the interest on the 2 subaccounts separately so you will be able to claim interest on the $216k loan and the interest on the $104k loan will not be tax deductible.
At least this way you are able to claim tax deduction on most of the interest on your LOC facility. But more importantly you will have $104k CASH for your deposit for your new PPOR. That is release equity without "tainting" your investment loan.
You can actually increase the investment subaccount over time while paying down the PPOR subaccount.
Thanks for your comments, (Duckster) I was advised on the weekend, exactly what you were saying, but also to the point that
I can have the current house revauled for the purpose of turning it into a rental property change loan into interest only and complete a assest survey for future depreciation and this would allow me to be able to claim the interest payable on the outstanding amount in the loan only, plus repairs and depreciation etc. Obviously I would then have to use this property to help secure a Home to live in.
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