Subdivision and Loan and Tax Deduction

Thanks Qld007. Very helpful comments. The house is very old and tiny 2 bedder with a colourbond roof. So the value is mostly in the land. Isn’t subdivision usually going to create instant value in the land when approved so it’s rare for banks to value subdivided blocks less than the initial value in an appreciating market?

With the maximising loan question, what if the existing loan is $1m but at the same time we have $990k cash sitting in the offset account and the $$ will then be used to pay for construction of two townhouses.

When subdivision occurs, would the bank split the original loan into two separate loans and one for each subdivided block?

Whatever amount we withdraw from the offset to build the townhouses will drive up the loans and am I correct to say that the amount taken from the offset to build the investment prop and the separate loan attributed to the subdivided block on which the investment property sits, is interest tax deductible? Gosh am I over complicating things here…

Yes. I see what you are saving now. With the apportionment of the loan according to land split, is that something the bank does when they divide the original loan into two loans or is it something I need to do with the help of an accountant and professional valuer?

Thanks TerryW. I managed to get through to a home loan specialist at my bank this morning and she confirmed what you said. ;-)

Lol. Why r u concerned Terryw…

Nah. They were not giving tax advice, that is the job of accountants. They merely confirmed to me the existing loan can stay unchanged after subdivision or they can divide it into two separate loans one for each block. They did say it’s very rare to ask borrowers to top up the loan after subdiv and demolition as long as we can show that we are building new townhouses on the blocks immediately after. The building cost can be out of my own pocket or they can organise construction loan.