Hi All,
I have a property which I had purchased for $224,000. This was a 100% loan.
Now the property has $74,000 remaining. I earn $100,000/year and get taxed around $2,000 a month from PAYG income.
I was wondering if I should do this:
-> Buy another home as a PR (interest only)
-> Turn the current PR into an IP (interest only)
-> Pull out all the money from my offset account (224,000-74,000) and put it on the new PR
-> Use the IP to offset my income, so instead of tax office keeping the $2000/month I can claim that whole amount back from the interest only paid on the IP.
-> take the rent returned by the IP and dump it on the PR.
Have I got the right idea here? is there a better way to do this? Will I be able to claim back majority of the $2,000 / month I get taxed from PAYG to pay off the interest on my IP?
It sounds like you have been cross securitised – I would fix that up first.
If you are going to purchase a new property then 'borrow' 105% instead of using cash so that you maximise the tax deductibility.
What is PR?
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
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Hi Hoping
Unless i am mistaken you only have the one property at the moment and it is your PPOR.
If so then i hate to say for your strategy going forward you may have structured the loan incorrectly and this my hinder you doing what you want to do.
More information would be needed but if you decide to rent the current property out then you are only going to be able to claim the interest on the current balance of $74,000 (assuming the additional funds are not held in the offset account but been used to reduce the loan balance instead).
Of course all boils down to your wealth and property goals going forward but on your income and that equity available if you wished to Turbo charge your property portfolio going forward you certainly appear to have the ability.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi all,
thanks for the replies, apologies if my explination previously wasn't clear, allow me to try again.
Current scenarion:
– Own 1x PPOR
– Current PPOR has a redraw account and an offset account
– Current PPOR redraw account holds $110,000 cash
– CUrrent PPOR offset account holds $44,000 cash
– Orrigianl PPOR loan amount is $224,000
Proposed scenarion
– Rent out current PPOR making this my IP
– Buy a new PPOR
– Take the 110,000 cash (I can access this cash anytime myself) and the $44,000 cash and use it as a deposit on new PPOR
– All rent earned from the IP will be used to pay of my new PPOR
– The IP will always sit on $224,000 principle owing as I'll be paying the interest only
– the tax portion of my income (~$2,000) will be used to pay off the interest only amount of the IP
Please let me know if i need to provide any further details?
Hi Hoping
Ok well the problem you have is that the interest on redraw funds are not Tax deductible.
Had the redrawn funds been sitting in the offset account then you could have used them as deposit on the new property or alternatively borrowed 100% and used the case as Term Deposit security.
Not sure which State the property is in or whether you own the property solely but depending on this a Spousal Transfer or UT sale could be an option.
Of course alternatively transfer the loan to interest only de-link the offset account and then make a separate application for the new PPOR with a separate lender that doesn't charge for an offset account and put it down to a back loan structuring.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
The redraw amount will not be tax deductible which is why you should always use the offset account when converting a PPOR into an IP.
What is the plan after the PPOR purchase? Will you be purchasing further properties or converting the PPOR into an IP again?
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Thanks guys, can't I just transfer the $110,000 funds that are currently in credit on my current PPOR to my offset account? so I can then take the funds out of my offset accuont when I find the new PPOR?
I havent decided yet what the new PPOR will be in future if I can take advantage of the tax portion of my PAYG then I can afford a nicer PPOR which means it'll be our plan to raise the family here. Otherwise if I'm not able to use my taxable income to pay off my IP then my new PPOR will be eventually converted to another IP (depending on my future wealth).
Btw the current PPOR loan is already interest only.
Edit: both properties are/will be in NSW, Sydney.
this is the loan i have:
http://www.bankwest.com.au/personal/home-loans/home-loan-products/super-start-home-loan
the word i was looking for is the loan holds $110,000 in surplus funds.
Hi Hoping
Yes you can transfer the $110K in advance repayments to your offset account but regretfully you cannot claim the interest as a deductible expense and that i guess is where you have gone wrong.
Hopefully your Bank didn't tell you that you could.
If you think you might do the same thing with the new property just be vary careful how you structure it to avoid similar issues down the track.
Guess it is a matter of accepting the fact and then moving on with the next property.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
thanks guys.
You can't claim the redraw amount as you will be in trouble if the ATO finds out. Why on earth are you with bankwest?
BTW – I think its good the plan you have is good and its also good that the loans are IO. Make sure you have a linked offset when you do the PPOR purchase and have the funds sitting there since that loan is not tax deductible.
Regards
Shahin
TheFinanceShop | Elite Property Finance
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I dont understand why you dont park all the money in your offset account from the begining
Yes my sentiments exactly about Bank West.
Would normally never suggest a client refinance for refinance sake except where they are with bank West and maybe a couple of other lenders.
Course so many investors think it is solely about the interest rate they forget the other parts of the jigsaw.
GOM – Always wise in hindsight but regretfully clients listen to what their Bank or Broker tells them and hate to say that is not always true or accurate.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
god_of_money wrote:I dont understand why you dont park all the money in your offset account from the beginingAgree 100%
However, the reality is that most people/bankers/brokers are simply unaware that this option even exists. Which is a pity, because it ends up costing them (the mortgage holder) a lot in the future.
It's also drummed into us that debt is bad (and some types are) – and must be paid off as soon as possible. However, there's smarter ways of going about it.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Qlds007 wrote:Yes my sentiments exactly about Bank West.Would normally never suggest a client refinance for refinance sake except where they are with bank West and maybe a couple of other lenders.
Why you said that? Bank West offers an attractive package with offset account…flexibility?
GOM yes they do but probably have the worst level of service and credit policy in the market.
That's why they have to keep coming up with short term attractive rate products because the net outflow of business is ridiculous.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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