Financing a new PPOR

Hi Paul

Sorry you mentioned 50% gearing in MF, I took this to mean that you had half from cash sources.

In actual fact you are nearly 100% geared into MF of which 50% is through a margin loan.

If this is the case then you are right in not being able to use these funds to finance a new PPOR.

Back to that forest as described by Tryhard

Cheers

 

I'll have a go....

You would need to play around with the actual figures to try and make it work but how about this:

1. Sell the Navra funds and pay out the PPOR loan.
2. Using the PPOR as security, buy units in a newly created Unit Trust and have the Unit Trust buy the PPOR from you.
3. The Unit Trust rents out the property.
4. The funds received from the sale of the PPOR to the trust are used to purchase the new home.
5. Refinance against the new PPOR and buy back into the Navra fund.

You would be left with a tax deductable loan for the units in the Unit Trust (secured by the property in the trust) and a tax deductable loan for the Navra shares (secured against the new PPOR).

 

Another Clarification

Hi folks,

thanks for the input so far. I don't think I have communicated my problem and goals very well. Ideally what I want to do is postpone the sale of my current PPOR for a few years so that I can wait for a market upswing. As I understand it, if I sell it within six years of leaving, the proceeds will be capital gains tax free.

To clarify, lets set some labels and restate some data:

PROPERTY 1

Our current residence

Market Value; $450K

Potential Rental; $380/wk

Current mortgage:$343K (all for 'investment purposes.' The home loan had previously been paid off.)


PROPERTY 2

Our future residence, we hope!

Market Value: say $620K

Potential Rental: $550/wk

INVESTMENT PROPERTIES 3

Value: $980k

Achieved Rental:$740/wk

Current mortgages: $776K

NAVRAINVEST PORTFOLIO

Current Value:$1M

Finance from property loans:$450K

Finance from margin loan: $500K

Nett Value: $50K

So my own thoughts are:

1.Purchase PROPERTY 2, defer settlement as long as possible.

2. Then finance PROPERTY 2 by

i. raising $496K i.e. (80%) against the new property as an investment loan

ii. redeeming say $310K from Navrainvest to pay $155K for the balance+ purchasing costs. and retaining the same Gearing Ratio.

Putting in a tenant, possibly the current owners, paying $550/wk.

3.Somehow paying off the loans against PROPERTY 2. My thinking/wondering is to temporarily increase the borrowing against either INVESTMENT PROPERTIES 3 and /or the remainder of the Navrainvest units.

4. Move from PROPERTY 1 to PROPERTY 2.

5. Put a tenant in PROPERTY 1.

6. Raise a new loan 'for investment purposes' against PROPERTY 2 and pay off the additional loans raised against INVESTMENT PROPERTIES 3 and the NAVRAINVEST PORTFOLIO.

I have two concerns:

The temporary increase in risk caused by step 3.

Whether this would all be looked at unfavourably by the Tax Office. I am too old and cowardly to want to pull a fast one! What do you think?

Paul

 

Hi Paul

I think the 6 year time frame is only whilst you have no other designated PPOR. So one possible fly in the ointment.

Cheers

 

Hi Paul

I might be misunderstanding, but it still looks like your situation is similar to the one we previously faced. However, we never intended to sell our current PPOR out from under our ultimate control, while it looks like you would prefer to do that (our reasoning was there will be similar costs and more unknowns in purchasing a future IP, and this was a good property that we knew well, and met all the 'Navra' criteria anyway, so the stamp duty was a 'small' cost in the long term scheme of things).

So in case you're open to suggestions, this might be irrelevant but herewith $0.02 :

1. SELL CURRENT PPOR TO NEW HDT ?
a) Obtain sworn valuation from registered valuer (you might find its worth more like $500K with a 'proper' valuation done, rather than market gut-feel)
b) Sale price to HDT will be say $500K ideally with costs and stamp duty bundled in to the loan.
c) With the sale proceeds of $500K discharge the existing debt $343K leaves say $157K cash available
d) Move out of the existing PPOR which is now a 'legal' IP (and you can't claim neg gearing benefits while you are still the 'tenant')
e) You'll then have a $520K (ish) loan fully deductible, which you've used to purchase units in the HDT and to fund the purchase costs
f) Presumably there'll be a shortfall of about $2,000 per month you'll need to come up with to cover the difference between IO loan repayments and the expected $380 per week rent received. (forgive my maths - its something like that though? - before tax deductions, depreciation and other benefits applied)

2. REDEEM NI UNITS
a) Assuming the $450K loan from property includes the $343K from above ? Redeem $686K worth of units to come up with $343K cash
b) added to the $157K from above, you'll have $500K cash (I think ?)
c) Your holdings in NI reduce to $314,000 - the income from which could be used to reduce the non-deductible debt (from below) as quickly as possible or you could redeem the whole lot and put it towards the PPOR I guess ?

Apologies if I have misunderstood your source of funds for the NI units ... I might be on the wrong track here ?

3. BUY NEW PPOR
a) Use $500K cash from (1) and (2) to place deposit on the new PPOR, and arrange loan for the shortfall ($150K? ish or less if you cash in all the Navra Invest stuff)
b) Move in and enjoy the new house - the difference in rent shortfall etc between the old and new PPOR doesn't look substantial enough to worry about waiting and muddying the waters with PPOR's becoming IP's etc later in the piece - live a little

4. LATER - REFINANCE
a) When the market upswing you're waiting for occurs, you'll still control the original PPOR, meaning the increased equity will be available to draw down
b) Additionally your 'new' PPOR will presumably have increased by even more and free up some more equity to invest in the old 'system' again

Sorry if I have the wrong end of the stick

Cheers
Carl

PS if any of that sounds like an option, the combination of NickM for HDT and Rolf Latham to find the lender to give dough to the new structure worked wonders for us

 

Carl

Don't know if you've answered Paul's question but you have answered mine for me, thanks. My situation is not exactly the same but similar. Certainly know where and who I need to go to now to get everything up and running.

Cheers
Glenn

 

Hey Glenn

Cheers .... as long as you do your homework and talk to the experts . Setting up a structure based on my confused mind could be like going to war with a battle plan produced by The Teletubbies

Cya
Carl