Reno fliP finance

Due to the clawback, the broker will need to charge a service fee – otherwise it’s simply not financially viable for them to write the loan.

If going direct, probably not a good idea to inform the lender that you plan on paying out the loan within a few months.

Cheers

Jamie

Also what name the loan is in makes NO difference to CGT. It's who owns it (as in who is on the contract).

something else you could discuss with a lender/broker is setting up a loan with a bank who allow substitution of security for the loan. So you could buy a property (could do loan in joint names to get better borrowing capacity but put contract in partners name only if tax works out better), then when it comes time to sell the house and realise the profit – instead of DISCHARGING the loan and releasing the title, the bank can deposit funds from the proceeds of sale pretty much equivalent to the loan value and hold this in a term deposit and keep the loan alive. Then you buy next property and substitute the security of the deposited funds to the new property.

An example:

Buy a house for $320k, get an 80% loan for $250k

Sell renovated house for $450k, put >$250k (bank may request $255 or 260k, need to check with their policy) in a term deposit and secure the loan of $250k against this deposit and release the title. Loan gets paid at 6.5% interest, or whatever it was already on and monthly payments continue. Deposit earns interest at 5% ish, leaving a funding shortfall of 1-1.5% interest to keep loan alive. Obviously this is not ideal if you leave a lengthy time between deals, but if you’re looking to regularly turn over a new transaction then the cost of a few hundred dollars in interest for a month or two may be well worth it.

What this means is one ongoing loan rather than having to reapply each time for a new loan. The lender could set it up and keep trailing commissions. Less credit applications/checks on your credit history, and a better long term relationship with the bank + lender.

Any of the experienced brokers on here will no doubt have an opinion on this strategy and I’m looking forward to reading their replies. Please note I am not a finance broker nor advisor, but am an investor that is currently talking to my bank now about this exact scenario as it suits my personal circumstances.

As a side note there are some banks out there that will not clawback commissions from the broker, so it can always pay to check if the recommended product for you does clawback or not. If not, let the bank pay the broker, if it does then dip into your pocket and pay for their advice. Be open and honest about everything with a broker, they’re an important member of your investing team. but if you choose to go to a bank direct, you don’t need to share all plans with a lender… just confirm the portability of loan

Good luck!
Emma

Jamie – in the above situation, given the original loan account was for investment property and provided the new purchase is also for IP, can one safely assume that the income payments required to keep the loan alive can therefore be tax deductible as they are borrowing costs for investment purposes?

OR do they lose their tax deductibility because the loan is not at that time used for an income producting purpose? though one could argue there is interest being earned off the term deposit held as security?

let me know your thoughts on this, otherwise will flick it to the accounting forum and see what any of the tax gurus have to say.

More or less, yes Jamie but if there’s a brief pause between IPs and loan is secured over a term deposit at that time? My thoughts are that the funds should remain deductible so long as the loan then gets ported to a new IP.