Hi All, sorry if this has already been discussed but I looked thru the forums and couldnt find such.
I have been in contact with a Property Investor with regard to purchasing an investment ( I live in Adelaide ) and the final discussion has amounted to the following – what I would like is for those in the forums with much more experience in this then myself to provide me their opinion if this sounds like a good investment/decision going forward:
1 – setup a LOC on the equity of current home ( less then 1/2 outstanding on loan )
2 – Split loan into two loans – personal loan with Westpac to interest plus capital – IP1 loan to be interest only with another bank.
3- Purchase New Land and house package IP1 in Brisbane that has greater tax deductions then existing house
4 – Pay the loan repayment, plus rent, plus tax variation directly into LOC each month against current home loan
5- Current Home Loan paid off within 5 – 6 years
6 – Move the IP1 into the Interest and Capital Loan and then possibility of paying IP1 off within 6 – 7 years or purchase IP2Can you please provide me the downfall of such method – i have read about the ATO being strict on tax variation ( they can fine and even block future variations if over estimate this amount ) and I aware of LOC loans being more expensive and being disciplined on what we should spend. MONEY aint free.
The property investor can provide the depreciation schedule for free, yes he charges a fee for this..
Also the fact the property will be interstate i dont have the control I would like.
They have provided a list of suburbs for us to research.The plus for me is to pay off my existing loan in 5 – 6 years where at this point i can see it taking 25 years at my current normal home loan.
What do i need to know and what questions to ask ??
Any help would be greatly appreciated.Cheers.
Sam.
Sounds like it could be one of those expensive properties with an expensive loan so be careful. Don't trust them without doing your own independent research.
Your explanation is confusing too – and doesn't make sense. How can you pay a loan repayment into a LOC? Maybe you mean pay the interest on the investment loan from your LOC? if so, this can be a very good strategy, but the ATO has denied deductibility on some of these schemes, so you must set it up carefully and should consider seeking a private ruling before hand. Don't do it without the go ahead from a tax advisor first ( a licenced one too!)
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
Terryw – thanks for your reply.
The loan is a LOC so i would suspect the rate would be slightly higher – yet to get the final figures.
How can you pay a loan repayment into a LOC?
Yeah I am not sure how that works and I still have to find out more – but i think the LOC is split into two loans.
1 is the existing home loan ( principle and interest )
2 is the IP ( interest only )All the money is put into the Loan 1 to reduce it as quickly as possible ( inc the rent, normal monthly payments and tax variation )
This will then pay off this loan quicker.Getting a Tax Advisor is very good advice…
Sam.
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