We would like to purchase our first investment property. I have been doing a lot of research and it all points to seperating your IP loan from you PPOR loan. My partner wants cross collateralise the loan.
I am suggesting we don't.
We recently borrowed $30,000 of our equity to start some much needed renovations on our PPOR. Stumps (essential), bath and kitchen (in tired old ex-rental house condition) and any left over for a couryard covered area. The money is not spent yet but my partner says I would have to forfeit these renovations to pay for the deposit on an indepedent loan.
I say we could borrow more equity to get a deposit on another loan for the IP house.
Who is right and what would you suggest?
We have at least $100,000 in equity.
How could I explain the right choice to my partner?
I think he is afraid of the extra loss of equity and the higher debt placed on our PPOR. It has been re-assuring watching the place grow in value around us even though we have done very little towards it.Ok, my partner called the bank to talk about seperating the loans. They said we would need to borrow $50k from our PPOR equity for the deposit for a seperate loan. They said then we would only be able to tax offset $200k of the IP, not the full $250k of the house. Is this the standard situation?
Hi Cosmic,
Need just a little more information. What is the value of your PPOR and the current loan value. What price range are you looking at for a IP
Hi agaain,
from you last post I'm assuiming you are buying a $250K IP. If you have a $200k loan secured against the IP and then a seperate loan account of $50k secured against your PPOR which all funds drawn from this account have only been used for investing purposes then both loans will be tax deductable
The budget is about $250k depending on what we find.
Cosmic
They said then we would only be able to tax offset $200k of the IP, not the full $250k of the house. Is this the standard situation?
Good to hear the Bank are right up to date on current Tax legislation.
Absolute rubbish you would be able to claim a deduction on the full $250K borrowed for Investment.
Where possible do not cross collateralise your loans and talk you partner out of it.
Richard Taylor | Australia's leading private lender
Never believe a bank worker!
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
That's why I am here looking for advice and clarity.
I remember years ago a bank worker telling my parents they should be paying off an investment loan as fast as possible – while they still had a owner occupied mortgage.
I also see client with loans set up incorrectly from the bank they went with. eg. LOC for an investment property where all of their salary is deposited. THis is a tax disaster.
So it is good to not beleive anything on face value, but to see further opinions and to ask why something is recomending a particular product/strategy.
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
I've heard the most stupendous things coming out of the mouths of some people at the bank. Some of them really know what they're talking about, but some of them are just downright dangerous. Best to be on the safe side and get your "advice" separate to your products.
I'm with Richard, don't cross collateralise – he's got a good article on his website that you can show your partner (in the downloads section). That might help with your "presentation".
Best of luck!
Ok, he gets it now and that hurdle is over. Now for the next one!
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