Join our investing community

Convert Principal place of residence (PPR) to Investment property

Discussion in 'Accounting, Tax & Legal' started by champ2008, 5th Sep, 2008.

  1. champ2008

    champ2008 New Member

    Joined:
    5th Sep, 2008
    Posts:
    2
    Location:
    sydney,NSW
    I am currently living in a home that I purchased 5 years back in joint name with my wife. Current valuation 350K, loan balance 200K. I redrew 50K to put deposit on buying a new home. I would make the new home as PPR in a month's time. New home is worth $450K, loan balance $400K.

    Looking at the fact that current market is not a good market to sale and both of us does not have common agreement to sale, we would like to keep the existing property and rent it out.

    I would like to know possibilities / scenario to provide me with structure (like trust etc.) where most of my outstanding loan ($200K + $400K) is part of investment (say $325K instead of $200K) and hence claimable and smaller loan asgainst my PPR and at low initial cost.

    If some account can offer feasible solution - I would be happy to use their services in setting up the structure.

    cheers,
    Champ2008
     
  2. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Champ

    Redrawing $50K will make that amount non tax deductible.

    I suggest you sell the old place or if you don't want to do that
    buy your wife's half but you are only accessing an extra $80K max
    and you will still need to pay stamp duty for half of the value of the property.

    Even if you did sell to a trust you will still need to pay stamp duty.
    I think it's best to sell and start fresh and don't worry about selling in a quiet market because with interest rates coming down there will be more buyer activity.

    Cheers
     
  3. jrc77

    jrc77 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    147
    Deductability is determined by the purpose of the draw down of the loan. If you draw down (or take out a new loan) to buy a PPOR then then interest will not be deductable.

    Don't think you can do what you want legally and without risking the wrath of ATO.

    Interestingly if you had been putting money into an offset account rather than paying off your existing loan, you could take the money out of the offset account to buy a new PPOR and the interest on the original loan would be all deductable (as this is for the original property which would now be a IP).

    If you really don't want to sell the original place have a look at the debt recycling strategy (search this website for it).
     
  4. champ2008

    champ2008 New Member

    Joined:
    5th Sep, 2008
    Posts:
    2
    Location:
    sydney,NSW
    I know that ideally Sale is the best option but there are few issues

    - Current Market is not going to give me better value
    - I and my wife both have different opinion on whether to sale or to keep it
    - If I sale the property now I would spend around approx 2% as selling cost and approx 3% on stamp duty when I buy another property as investment when we begin our property investment that is extra 20K in costs

    - We are only looking at legal ways of doing it and primary motive is to have investments that can help us in our retirement.

    - What is the website address for debt recycling stretegy?
     
  5. jrc77

    jrc77 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    147
    Just search this site for debt recycling.