Advice needed from investing pro's

thanks tailcat, so it is better to use an LOC to access the equity in the IP instead of just extending the loan to invest? I am just concerned about all the different Loans I will have and all the different interest bills I receive? I always thought that taking a big loan with one interest bill was better than a lot of little loans with seperate interest bills?

 

Your choice.

However, IO loans usually have a slightly better interest rate and can even be fixed!!!!!

LOCs are usually a little more practical. You can have a cheque book for paying costs, say a broken window?????? Also, while not really recommended you could in times of need let the interest payments compound.

You need to examine what you intend to do in the future and how best to do it. Also, you should examine what loan products your current financial institution offers.

Tailcat

 

Do concider break fees though, if all these loans are new, the cost of swapping to IO may outweight any benefits...

in the mean time for not converting it to IO, you could set up an IO LOC and use this to to pay the principal part of the loan, and you calculate the amount of interest and pay it from your personal account (if you dont want to capatilse interest). That way while the IP loan would be decreasing due to princpal payments, the payments would be coming from another loan so it would still remain deductable.

Could be more trouble than its worth (and i suspect it would be) and youd want your accountants tick of approval before implenting such plan...

While you may save your deductability, the opportunity cost of wasting a 20k LOC for a ~$50 per week transfer would probably cost you more in the long run. It would only work with a portfolio style set up where you can have small LOC's

 

ok thanks a lot guys, I think I need to see my accountant now and thrash things out, just one last question a little unrelated, Is there any other way to make a large non-investment purchase like a car without using saved monies? I know you can lease a car but ths is only tax effective if you own a business isn't it? is there some way of purchasing a vehicle through a trust and leasing it from the trust? maybe i am way off but just need some ideas.

 

Hunting Dollars, I don't think you can make a car legally tax deductable unless you use it to generate a income. So if you use your car for work, then you can claim a %.

 

What i was referring to is that the money payed into your P&I investment is not really an issue because you'd likely only be using it for further investment. So whether you set up a LOC, or redraw at a later date is all still works..

This is depending how close to the wind you want to sail in regard to serviceability. As tailcat pointed out, by changing this to I/O then you get better serviceablity (ie your payments will be lower). The surplus in this case can be directed into your PPOR offset thus reducing your non-deductible debt.

Don't get too hung up about multiple accounts. Generally all you need to do it account for the EOM interest charges and attribute them back to the correct property.

 

HD,

You can use the equity in either your PPOR or IP to buy the car.

You just need to totally isolate it into its own loan. The interest payments would not be deductible. Presumably, you would then pay down this loan fairly quickly.

Basically, what everyone is trying to say is that you must build a very big wall between any monies that are used for personal use and anything that is used for investing either now (your IP loan) or in the future (Your 259k PPOR loan that is totally associated with the house that will become an IP in the future.)

Tailcat

 

This is true if HD never plans to change PPOR. If he plans to move to another house and keep the current house as an IP then the 100% offset account balance can be transferred to the new PPOR. This will then reduce the bad debt on the new PPOR. If he continues with the P&I then there is no way to transfer the `Principal' payments to the new PPOR. Yes, it can be used for investments easily enough. but not against the bad debt of the PPOR.

Tailcat

 

Thanks tailcat, how is best to isolate the equity from my loans for non-investment purposes? is it by withdrawing into a seperate loc and using it to finance the car?

 

Oh I think It just clicked, I don't redraw any money from the loan on the investment property to buy the car, what I actually do is use the equity built up in it to start a LOC (which would involve the bank to value the house and then I could borrow against it, not use the actual principle.) I then cap my Investment loan at what it is now and I will still have all that good debt to claim but also my LOC will remain seperate for my car purchase. Am i Right Here?

 

I believe so.

You need to be able to look at each account and tell whether or not it is totally good (or potential to be totally good) or totally bad. The trouble comes if it is mixed...... Then eliminate the bad ones asap.


Tailcat

 

Check out the ATO website, legal database:

TR 2000/2

An oldie, but a good place to start regarding the Commissioner's point of view.

Cheers,

Rob

 

hope you've finally gotten all this sorted

Wow lots been said on this topic! Great to see that there are those out there who have educated themselves and are helping to educate others!

I am a Mortgage Planner, and there has been some great advice given here. What i do say HD is that if you havent already gone and gotten yourself organised, make sure you get a package that will save you on fees, charges and the rate, but also allow you to move forward as your investment strategies change. You must always keep your personal debt separate from your investment debt.

Oh and just quickly, in ten years time, if you want to keep your existing PPOR and make in into an investment (and say you have chosen to pay it all off)- purchase your wife's share of the property by getting a loan for your new investment debt, and then give the proceeds of the loan to your wife and you together can buy your new property.

* please note that the scenario above is subject to many different variables based on your personal position at time of enquiry. it is generalised advice only.

 

hey eifers, any chance you could elaborate on that one?

 

transferring debt

did you mean the transfer?

if you have an existing PPOR debt free, and you want to make it and investment property. The only way you can claim interest is if you have a) have a loan against the property and b) you fulfill the purpose test for use of funds with the ATO.

So organise to 'purchase' 50% of the property (what your wife currently owns) then get an investment loan to pay her that 50%. She now has x amount of dollars to do whatever with, and you have a legitimate investment loan for tax purposes, because you used the funds to purchase an investment.

Cheers