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pay of own house!! Help!

Discussion in 'Accounting, Tax & Legal' started by Triu, 1st Sep, 2006.

  1. Triu

    Triu Well-Known Member

    Joined:
    1st Sep, 2006
    Posts:
    161
    Location:
    WA
    Hi can anyone please advise me what the best way to handle this situation. I want to sell my existing principal place of residence into a HDT but am not sure if i should pay the loan down completely then redraw the equity for a new principal place of residence. :confused: I want make my exisiting principal place a investment property. Can anyone advise the best way!

    thanks

    Triu:)
     
  2. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    Hi Trui

    As a principle you want to:

    a) minimise your non-deductible PPOR debt; and
    b) maximise your tax deductible IP debt.

    Thinking it through though, does it matter? Just borrow as much through your trustee on the security of the house as possible. Those loan proceeds once in your hands are tax free sale proceeds. If the bank will lend enough on the house to pay you the full value of the house, i.e. to clear the debt plus make up the difference between that and the value, then that's good. if not then you still end up with tax deductible debt and a lump of cash which you can now apply to your ppor.

    bear in mind that whilst there'll be no cgt on sale of your home, stamp duty on transfer and possibly on new mortgage will be payable.

    cheers
    N
     
  3. Triu

    Triu Well-Known Member

    Joined:
    1st Sep, 2006
    Posts:
    161
    Location:
    WA
    Principal place of residence

    Hi Nigel thanks for the reply, but i was wondering do i have to pay capital gains tax if selling my principal place into the a Hybrid Disc Trust? or do i just have to pay Stamp duty and other costs.

    Can you explain further how the concept works - I want to buy a house worth up to $700k so if i sell my existing house to the Trust which is worth say $500k and i owe $200k do you think that is a good idea. Does that meani could borrow up to $500k and then borrow that $500k to put down as a deposit on the $700k house with a small loan of $200k for example if that is all i had to owe. Or would i borrow up to 80% of the total value of the new house.

    Sorry i am a little confused still as i am new to this sort of investment thinking.

    thanks again

    Triu
     
  4. TryHard

    TryHard Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    863
    Hi Triu

    Not to interrupt Nigel's advice (bit like Dame Edna doing a fashion parade after Megan Gale) but we just did something similar so I think I can help explain, in case Nigel has logged off to enjoy a weekend ;-)

    You can sell your PPOR CGT-free. You should get an independent valuation for the maximum justifiable amount possible as part of your paper trail. Sell it to the HDT, (you'll probably apply for an Interest Only loan as unitholders in the HDT) - the major exposure will be stamp duty and legal fees, and maybe mortgage insurance. We went for a 100% loan on the amount and wore the extra costs involved. Get a Depreciation Schedule etc done on the property at the point of settlement or thereabouts. Try to rent it out (to an unrelated party) as soon as possible after settlement. (We're stuck in ours waiting for new house build, so can't claim deductions yet)

    Any of the cash proceeds from the sale, you can use to purchase the new PPOR. The remaining debt on the new PPOR is of course not deductible. Ideally if you can improve the new PPOR and apply for a LOC later, you could use those funds to invest in something tax deductible and generate some income to pay off the non-deductible debt as quickly as possible. (prob. depends on your personal situation)

    Rolf Latham at www.asapfinancial.com.au was a great help for organising the funds (as was NickM setting up the HDT). There's plenty of hurdles in the set up and getting banks to lend, but all bearable if your advisers have the experience of people like Nigel and these blokes

    Have fun !
    Carl
     
  5. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    Hi Trui

    I was going to get back 2 you further...but Carl has given a great answer!

    So I'll head back 2 the catwalk :p (check the about us page and you'll see how wide of the mark Carl's analogy is! :D )

    Cheers
    N.