Hi all,
i have my small townhouse fully paid off. its roughly worth 250k now. i have all money sitting in redraw
we have really liked a bigger house, for 440k, but wife is due in 2 weeks time and she plans to be away for 1 year.
was wondering is it a good time to make the big move and buy the bigger home, transfer 208k from this property to the new home.
convert this property to an IP, it should rent for 320 per week.
what are your thoughts, is it too early, or timing should be ok.
investhut
Hi Investhut,
the first thing to do here would be to work out your net position at EOFY for your PPR when it becomes and IP. Have a depreciation estimate prepared (BMT quantity surveyors do these). Im assuming the townhouse is a bit older so this may be quite a small amount. Also ask yourself if this townhouse will achieve much capital gain in the next 5 years. If you think it will be low then it may be worth moving it on and look at buying something with higher potential CG once you’ve settled in to the bigger house.
If you do transfer it to an IP have a valuation done when you do and keep it for when you sell so you can differentiate your CG from when it was a PPR and in IP.
What state are you buying in? In most cases it is a good time to buy with lower consumer confidence you might get a good deal on the big house. This would also raise the question on not selling the townhouse until the market picks up depending where you are.
Cheers,
Of course the bad news is that the interest on the redrawn funds will not be Tax deductible so the entire debt on the new property will be non deductible interest.
Had of course the loan been correctly structured by using a 100% offset account amount then it would have been different but from your comment this is not the case.
Net result will be that you will be adding the net rental income to your taxable income and not be able to claim any interest deduction.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard,
For my current property, i have say 185k available in redraw, as I bought the property for 220k with 20% deposit.
would I not completely refinance, but home and new property that I want to purchase with a new company.
they would offer 2 separate loans, for townhouse say its worth 260k now.
they would make the loan for 208k, leave 20% in there.
for the new home/prime residence, bring forward the 208k, the loan will be 232k on a 440k property.
I am assuming, that for townhouse, 208k loan, interest will be tax deductible, am i wrong in this understanding??
investhut
Hate to say NO.
The purpose of the redrawn funds / new loan is not for investment and therefore disqualifies the deductibility of the interest.
The security is immaterial as the purpose test has failed.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
hi richard,
thanks for your responses. i checked I am on this loan:
https://www.loanaustralia.com.au/Our-Home-Loans/Other-Home-Loans/Flexi-Plus/default.aspx
so it looks like I am with full offset facility only, from what I can read/understand
regards,
investhut
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