Hi All,
My Wife and I currently own a home in NSW and are thinking of purchasing a new land & home package in the next couple of weeks. The build is not due for completion until May 2011 (12mths). We are also very keen to start a property portfolio in the next few months and would like some guidance in regards to structuring our finances around both proposals.
– 1 income (mine) at $160k
– Current PPOR valuation $450k
– Outstanding loan amount: $95k (ANZ Break-free package)
– Offset account 10K
– Future PPOR Land $345k + House $355k1. Should we sell our current PPOR to finance our future PPOR and IP portfolio or hang onto it and register it as an IP once we move into our future PPOR?
2. How should we structure our finances/loans in order to minimise PAYG tax and claim maximum depreciation on any IP we tend to purchase?Thanks to all for any assistance you may be able to provide us.
If you hang on to your existing house you will probably have to pay tax on the rent – the rent received would be more than all the outgoings. All of your cash will be tied up in it too, so that will mean you will have a larger loan on your new PPOR and will be paying a lot of interest which isn't tax deductible.
If you sell you will end up paying legals, loan exit fees, agents fees and eventually stamp duty again when you buy a replacement property.
You will have to do some sums and work out if you think the selling costs will make if worthwhile to sell.
Loans won't really have much affect on depreciation – in fact none. Names on titles can affect tax payable – but there would be no tax payable on the new place and it is too late to change the old place now – or stamp duty.
I would suggest you look at getting a IO loan with a 100% offset account for the new place. Don't pay it down (in case you may move out again). Just put your cash into the offset – but only do this if you are disciplined.
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
As Terry has mentioned as long as your existing PPOR is in an area where you feel you can achieve a good rental return and the area has good capital growth prospects then I wouldnt sell the property in the open market.
However in saying this if the property is owned Jointly I would certainly do the numbers on you buy your wifes share to maximise your gearing on the property and use the funds to put down as deposit on the land and ongoing construction. Keep the loans separate.
You wont be able to do so during construction with Anz but when the property has been completed have a look at setting up either a LOC or investment facility against the to use as deposit for future IP's.
Might just need a little careful handling when setting up the faciltiy as the loan Anz Branch will probably have no idea.
Richard Taylor | Australia's leading private lender
Thanks Terry & Richard for that advice, we really appreciate it.
Terry,
Can you please elaborate a little more on the IO + 100% Offset account loan structure?
If we were wishing to invest in additional IP's how would this loan structure affect us doing so in the future? i.e if we have not paid down a portion of the principal then would we not have built up any equity to allow us to purchase additional IP's?
Richard,
If I were to buy my wife's share of the current PPOR, would I need to take out a seperate loan to do this and would it involve any additional costs, e.g Stamp duty on the sale?
With the additional funds (Wife's share) what type of loan structure would you recommend we set up prior to purchasing our future PPOR?
Thanks again to both of you for all your advice
IP
Purchasing your wifes interest in the property would not incur Stamp Duty in NSW under from memory Section 8 of the Duties Act in NSW. Of course once the property becomes an IP this is a different story.
Also need to be careful how you structure the deal to maximise your deductions.
SImply what you are wanting to achieve is a shift in the debt from non deductible interest to deductible and this is one way of doing so.
To answer Terry's point Interest only gives you flexibility. As you have already seen what starts off as a PPOR can often end up being a IP and therefore interest only with 100% offset has its benefits.
Of course by all means if you decided this is the PPOR for you forever and a day and want the comfort of seeing debt reduction you could pay the debt down and switch to a P & I loan.
Richard Taylor | Australia's leading private lender
Thanks Guy's,
You have given us alot to think about.
It's time to go and crunch some numbers
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