Hi guys
In the process of getting my third (possibly 4th) property and just realised my current 2 properties may be cross collaterallized.
Have a current property. Bought for $215k ( loan is split at $150k and $65k). Increase the loan of $65k to $85k to use the $20k deposit to buy another IP for $380k ( I also threw in some cash)
From what I have read this would mean cross collaterallized?
CUrrently have 2 IPs
Property 1) Current value approx $310k. With loans of $235k (again this is split)Property 2) Current value $410k . WIth loan of $350k
I want to buy another one or two properties. I want to cover all costs.
1) How should I do this?
2) If I use equity to cover stamp duty and solicitor fees, will this be tax deductible?I was thinking I could increase IP 1 with a line of credit of approx $35/40k to use as deposit for next IP
and then
increase IP 2 loan with a line of credit of $20k for stamp duty and solicitor costsThat is using my basic knowledge of the whole process.. Thanks in advance
Is the separate loan of $85k a line of credit? Doesn’t sound like you’re crossed from what you’ve presented. You’ve just drawn on equity to pay the deposit – or did the banker (broker?) arrange it all for you?
On face value, by the looks of it, the loans are secured against IP1 and IP2 is stand alone but it’s hard to say. Have a look at your loan contracts or a call to your bank will confirm for sure.
In answer to your questions (or how I would do it):
1) Draw on equity of your existing IP’s and get LOC secured against them. The values you put down – are they bank valuations or what you think they’re valued at? IP1 has an LVR of 76% and IP2 85%. Did you want to enter LMI territory as anything above 80% attracts LMI. With the figures you’ve quoted it sounds like you’d be entering LMI territory so that’s another cost to factor it. Have a chat to a broker who can go through options, scenarios and costings with you.2) I’m not an account so you should get professional advice but generally they are. But it depends if it comes off the cost base when you sell or a yearly deduction.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Thanks for the reply Kinetic.
The IP 2 has had the bank valuation so that is confirmed. I am happy pay LMI. For me it is a necessary evil.I think I understand the LOC part now in regards to have separate loans to avoid CC although the tax deductions on the stamp duty interest I am still unsure about as I thought it wasnt tax deductible
The ATO has some good information regarding what can and cannot be claimed and when.
Rental property expenses
What you can claimYou can claim expenses relating to your rental property but only for the period your property was rented or available for rent; for example, advertised for rent.
Expenses could include:
advertising for tenants
bank charges
body corporate fees and charges
borrowing expenses
capital works
cleaning
council rates
decline in value of depreciating assets
gardening and lawn mowing
insurance
interest expenses
land tax
legal expenses
pest control
phone
property agent fees and commissions
repairs and maintenance
stationery and postage
travel undertaken to inspect or maintain the property or to collect the rent
water charges.What are capital expenses?
Expenses you incur when purchasing/acquiring or selling/disposing of your rental property are capital expenses.
Capital expenses include:
conveyancing costs paid to a conveyancer or solicitor
title search fees
valuation fees (when it is a private valuation conducted by your solicitor)
stamp duty on the transfer of the property.You may be able to include capital expenses when calculating the ‘cost base’ of your property. The cost base of a capital gains tax (CGT) asset is generally the cost of the asset when you bought it. However, it also includes certain other costs associated with purchasing/acquiring, holding and selling/disposing of the asset. This can help you reduce the amount of CGT you pay when you sell your property.
https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/ind00342353n17290613.pdf
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This reply was modified 10 years, 5 months ago by
Kinnon Bell. Reason: Links didn't work
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
I just wanted to add that if you throw in some cash again, to try and get that from a tax deductible source. So if you have a PPOR, pay down a loan and redraw a LOC for investment purposes. In your case you should be getting tax deductible loans for 102% if you set it up correct, which in this case it sounds like you’ll probably do.
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This reply was modified 10 years, 5 months ago by
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