All Topics / Help Needed! / refinancing investment property to release equity

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  • Profile photo of maxmoolahmaxmoolah
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    @maxmoolah
    Join Date: 2012
    Post Count: 3
    July 13, 2012 - 4:15 am

    Hi
    We've been burned by professional advice before so I am just trying to see if something is possible before I go talk to someone to get the paid professional advice.

    Basically we have an investment property and we have potentially $200,000 in equity in it, so we owe around $280,000.  Over the years we had paid off our principal place of residence so we put the extra cash into the investment property.  Fast forward a few years and we have upsized the principal place of residence and bought a new house and ideally I would like to get the equity out of the investment and put it back into our principal place of residence.

    Is there a way to do this taxlegal wise, or do we only really have the option of selling the investment property and starting again.

    Thanks for any ideas!
    Max

    Profile photo of NHGNHG
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    @nhg
    Join Date: 2010
    Post Count: 198
    July 13, 2012 - 4:37 am

    When you say you put the extra cash into your investment, did you place it into an offset account or pay down the actual mortgage via principal and interest?

    Profile photo of maxmoolahmaxmoolah
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    @maxmoolah
    Join Date: 2012
    Post Count: 3
    July 13, 2012 - 4:53 am

    Extra cash was put in to reduce the actual investment mortgage – so we paid well over and above what we needed to.

    It also looks like when we financed the new purchase principal place of residence that the investment property was reconfigured to lower the amount of the loan therefore it seems we no longer have access to the equity within it.  Not that it is probably that simple due to tax considerations anyway.

    Thanks.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    July 13, 2012 - 5:26 am

    Hi Max

    Welcome to the forum.

    You can access equity in your IP which will be used as the deposit/costs on your next owner occupied purchase.

    The only issue is that these funds won't be deductible. You'll still retain the deductibility on the current $280k loan but won't be able to deduct any of the equity release because it's being used for an owner occupied purchase.

    In hindsight, you should have placed the money into an offset account instead. That would have achieved the same result but would have been much more beneficial from a tax perspective. Here's a blog entry that explains the concept.

    If you do decide to keep your current IP – you'd be best of converting the loan to interest only now and stop paying off any more fo the principle.

    Hope that helps.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024
    July 13, 2012 - 5:30 am

    Hi Max

    Mhhh sorry to hear thatyour so called Professional Advice was not as Professional as you thought.

    Only way around is to:

    1) Either sell the property in the open market.
    2) Look to Transfer the ownership of the current investment property (i.e if it is in 2 names you might look to purchase your wife's interest or similar or alternatively look to sell the property into Trust and borrow 100% of the current value.

    Downside is that Stamp Duty will be more than likely payable on the Transfer and depending on the current value and original purchase price you maybe liable for CGT. There are then Land Tax considerations if the property is held in Trust.

    The numbers need to be worked thru before making a final decision and will be also be dependant on your Marginal Tax Rate.

    It is a question i get asked almost weekly so you are not alone.
     
    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of maxmoolahmaxmoolah
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    @maxmoolah
    Join Date: 2012
    Post Count: 3
    July 13, 2012 - 5:47 am

    Thanks for spelling out a few of the options so basically.  Yep! should have definitely done the offset option, we were young and didn't know any better.  And learnt that getting advice may not actually get you anywhere different, but that it may end up costing you a lot in the process!

    I think we really need to look into the family trust option to some degree as one income earner is on the higest tax rate and we need to look at options to reduce tax etc.  There has got to be a better way than what we are doing!

    Really appreciate the replies.  Will read again and consider much more and work out the next steps.

    Thanks for sharing your knowledge.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213
    July 13, 2012 - 7:57 am

    What is the ownership structure of the investment property and which state is it in?

    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

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