Join our investing community

refinancing principle!

Discussion in 'Accounting, Tax & Legal' started by Triu, 23rd Jan, 2007.

  1. Triu

    Triu Well-Known Member

    Joined:
    1st Sep, 2006
    Posts:
    161
    Location:
    WA
    Hi can someone explain in basic english the refinancing principle with regard to HDT. I have read Trust Magic but i am still missing something.

    Is it if i borrow for an asset eg property and i buy special income units in the trust, the trust buys property at X value and then 2 years time for example i get it revalued it has gone up to Y value can i then refinance the with a new loan and take out the equity for my own use. Or am i missing the point.

    any ideas?
     
  2. NickM

    NickM Co-founder Staff Member

    Joined:
    20th Jun, 2005
    Posts:
    321
    Location:
    Sydney
    not quite.
    If you take out a loan in your name to purchase SIU.
    say that loan gets repaid over time.
    Trust then takes a borrowing up to the original value of the units.
    money used to repay your initial capital and hence the trust can now claim a tax deduction for the interest.
    You end up claiming interest twice on the same property.

    I do not think in practice many would implement this strategy as most would utilise the increased capital growth to buy IP no 2 etc

    Cheers
    Nickm
     
  3. Redwing

    Redwing Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    476
    Location:
    PERTH..WA
    So it would be better to have that Loan as P&I in Trui's case?

    As for using the CG achieved to purchase IP2, would the best course of action be to access the equity via a LOC and use this for the next IP's deposit and costs..then take another sperate Loan for IP2?
     
  4. NickM

    NickM Co-founder Staff Member

    Joined:
    20th Jun, 2005
    Posts:
    321
    Location:
    Sydney
    You could go P & I but i advocate that Int only is usually the best way to accumulate Investment assets.

    Yes a LOC would then be utilised against the property