While discussing Property Investment with a Indian friend yesterday evening, one question pop up, can we use PPOR equity to buy property overseas? Also when you use PPOR equity to pay deposit for a investment property in australia, does it effect repayments of your existing PPOR loan? E.g if outstanding loan balance was 100K and I take out 50K from equity, is my outstanding interest is calculated on 100k or 150K?
Thanks experts in advance.
The simple answer is yes if you establish a line of credit you can use that money for whatever you like.
So if you buy a property overseas you can take funds from your line of credit and use it as a deposit. However what you have to consider is that you will have to pay the interest that you use off shore and in most cases it is not deductible.
However if you use your line of credit in Australia then that deposit would be deducible.
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
Hi MK
It is exactly as Nigel has pointed out.
You can use a Line of Credit or what i tend to prefer or an equity loan as the rate of interest is usually cheaper.
As the equity loan is set up as a separate loan and interest only charged once you utilise the funds the repayment on your PPOR loan is uneffected.
Just make sure your Broker / Banker doesn't suggest accessing funds thru a redraw facility as you may end up contaminating the entire interest deduction.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
I have a several investors from Indian backgrounds who are drawing the equity against their existing properties (the loans are standalone facilities to differentiate the loans that relate to the investment or PPOR loans) and they are parking their cash in Indian Banks earning high interest.
I would use a simple variable loan with a linked offset and have the cash parked there. From there you can use it all at most or progressively. Just need to be aware of the lender has any restrictions on the number of offset accounts you can have (such as ING).
Volatility of the currency is one thing but its a very common occurance.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Nigel,
Why would interest on an Aus loan or LOC used to acquire foreign property not be deductible?
I would have thought so long as the funds were used to acquire a property that has the expectation of generating taxable income then it would be okay.
Otherwise, my addition to the conversation is to warn of the FX gains and losses that will arise when you use AUD to buy foreign assets. You will first need to sell your AUD to buy FX, and so you will make gains and losses independent to your property as the exchange rates rise and fall.
A natural hedge would be to use AUD to fund the deposit (say up to 20%) of the purchase price, but look to borrow the majority via a loan in the native currency of the country where you are buying.
Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
I thought that it was the case too Steve. You need to declare any foreign income such as overseas IP rent on your tax return, so any expenses used on the property should be able to be deducted from this.
Cheers
Tom
Me thinks it was a case of a typo with Nigel's response as we have arranged finance for dozens of his clients and he has always made it clear to them that the interest would be deductible.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Guys, Thanks for great response to my post. I was never expecting a reply from the my main source of inspiration, man himself 'Steve' !!
Let me be more specific about this overseas investment opportunity.
Its off the plan multistory apartment project where only 30% of the total price needs to be paid in within the first 6 months and the remaining money is paid in small amounts over next 2 years as this multi-apartment project gets ready for occupation. Plan is to sell this property after it is ready for occupation as normally you get very good captial growth within this timeframe (above 50%) in this overseas location. This profit may be brought back to Australia or re-invested in another IP overseas. So No rental income only capital growth.
The plan to finance is as follows. Use equity money to pay the initial 30%. This could be equity loan or LOC. For remaining, since it is in small amount, no loan is required and can be paid from monthly savings.
1. Do I need to to declare any foreign income from capital growth on tax return if I fund 30% from Equity loan?
2. Do I need to to declare any foreign income from capital growth on tax return if I DO NOT fund 30% from Equity loan rather pay everything from personal savings?
3. This overseas location has very high captial growth but very low yields. If I dont sell it off and use Equity loan to fund entire property or just 30% of it, will I get tax benefits of negative gearing for overseas IP property during the construction or after it is rented?
I understand the risk of volatility of the currency (when I am sending money overseas or bring back capital growth money ) may have a negative or positive effect in the actual profit.
Thanks for your great help.
Cheers,
Hi MK
That's ok it is what the forum is all about learning from others.
Lets work thru your questions:
1) Yes the interest will still be deductible as long as the intention of the funds is to earn an investment income. Would be the same as buying an off the plan property in Australia. The interest on the deposit will be deductible from the day interest is charged.
2) Can't have it both ways. Yes hate to say you need to declare any foreign income. Where Tax has already been paid in the Country of source you will receive a Tax Credit for the Tax already paid and only pay the balance.
3) Yes you will a Tax deduction on the interest during the construction phase and also remember if you decide to retain the property you may be entitled to receive some Depreciation deductions etc. Must admit one of the QS on the site should be able to help you better on the Indian Depreciation rules.
As long as you understand it might tie up your funds if you end up funding the deal entirely from your PPOR equity.
Make sure your Mortgage Broker is au fait with those lenders that have a liberal 'cash out' policy.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
You must be logged in to reply to this topic. If you don't have an account, you can register here.
