All Topics / Finance / Going to build IP … how to structure finance

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  • Profile photo of mortgageman1mortgageman1
    Member
    @mortgageman1
    Join Date: 2011
    Post Count: 3
    February 7, 2011 - 11:31 am

    Hi all,

    We are looking to build an IP. Our current situation is PPOR owned freehold (worth ~$350k), one IP with mortgage of ~$75k with a value of ~$350k.

    Reading some posts, there is advice along the lines of borrow 80% for the land/build with one bank and have a LOC and expenses fund with primary bank  (the one that holds the current mortgage on the IP). Do I have that right?

    I was wondering why it is necessary to use two banks? Also, how is a LOC set up – against the capital gain in the current IP or against the freehold PPOR? Obviously we want to maximise our tax deduction.

    Any advice about the above would be appreciated.

    Thanks!

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    February 7, 2011 - 12:14 pm

    Yes wouldnt have an issue in funding in the way you suggested.

    LOC on the existing IP to cover the 20% of land and constuction with the new IP financing the balance.

    Post completion have a look at getting the property revalued and drawing back up to 80% of the valuation and using this to pay down the LOC on IP 2.

    This way you keep your PPOR out of the mix all together.

    The security you offer iwll have no bearing on the amount you can claim as a deductible expense.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of mortgageman1mortgageman1
    Member
    @mortgageman1
    Join Date: 2011
    Post Count: 3
    February 7, 2011 - 9:34 pm

    Thanks for the response Richard, you've been very helpful (both against this post and other similar ones I've been reading!)

    Just wondering – if it is necessary to go the two bank option? Can't really see the point at this stage.

    Also, there is some extra funds in a redraw against the current IP, I know taking them out of the loan for personal reasons is a no-no, but would have thought that they could be used in the same was as a IOC and withdrawn for IP purposes/expenses – any thoughts on this?

    Thanks again! :)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    February 7, 2011 - 11:53 pm

    If you use one bank then they have control over both properties. If something goes wrong they may keep money from the sale of the first property to reduce the loan on the second – even if the loans are not cross collateralised. They will also know intimate details about your situation. Spreading the loans helps compartmentalise your secrets!

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of mortgageman1mortgageman1
    Member
    @mortgageman1
    Join Date: 2011
    Post Count: 3
    February 8, 2011 - 12:54 am

    AAhhh … so that's the reason. thanks!

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