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Want to buy a new PPOR

Discussion in 'Real Estate' started by pindone, 29th Aug, 2012.

  1. pindone

    pindone New Member

    Joined:
    29th Aug, 2012
    Posts:
    1
    Location:
    Melbourne
    Hi,
    So, I currently own my own home outright. It is valued at a little over $300K however has become too small. My plan is to buy another home (larger) and treat this as my PPOR and rent out my current house.
    Is it possible to get a loan against my the place I own, taking advantage of the tax benefits and negatively gear so that I could purchase the larger PPOR?

    I hope that I have made sense.

    Thanks
    Mark
     
  2. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    Not possible to claim interest on the money borrowed to buy the new PPOR because this is a private expense. You could borrow against the existing property though.
     
  3. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
    Posts:
    273
    Location:
    Berwick Vic
    Mark,
    It is a common issue, you have done the 'proper' thing and paid off debt and if that was going to be the only home you lived in or that you would not consider converting it into an investment property, it is what you should have done.

    For potnetial investors, a better strategy is to have an interest only home loan with a 100% offset account, pay the same funds into the offset account rather than pay down the loan. The result is the same in terms of net assets but now structured so you have greater flexibility for the future. You could have simply pulled out the $300k from your offfset, use it to fund or part fund the purchase for your new PPOR and thereby reducing the debt required for the PPOR yet the old PPOR (now IP) has the original debt that interest becomes tax deductible.

    Your options are essentially three:
    1. Purchase a new PPOR with a high debt portion (depending on what other assets/cash you have) which is non tax deductible. Your old PPOR once rented will generate a taxable income. You could look at whose name is on title to see whether you can transfer to a spouse (if you have one) who is on a lower marginal tax rate.
    2. Refinance the old PPOR to release equity that can be used for a 20%+ funds for your new PPOR and then purchase your new PPOR with < 80% lend from another lender. Same issue as before, still a high non deductible debt and tax issue on rental income.
    3. Sell the old PPOR, CGT exempt, use funds to buy new PPOR with a lower LVR. Once settled, look to refinance and establish a new split loan facility (part for your now new PPOR - non deductible and part for investment purposes - which interest will be tax deductible). Then buy another IP using another lender and loan structure is 100% deductible for what is used for the IP.

    I get this a lot from clients and posts to this and other forums continually raise this same issue, poor initial 'advice' on how to set up the funding of their PPOR with no view as to the future.

    For readers of this forum, it is worth considering changing your loan structure now if you are simply just paying down on a P&I loan on your PPOR and are looking to invest in the future using equity built up.

    Let me know if I can assist.
    Good luck
    Greg
     
  4. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    Also, I notice that Mark is in Melbourne.

    VIC stamp duty laws allow for a property to be transferred from one spouse to another without the payment of stamp duty - or just a nominal sum I think. The transfer doesn't have to be by way of a gift either, the transferee spouse can pay full market value and borrow to do so.

    This means that Mrs Mark (if there is one) could sell Mark her share of the main residence and Mark could borrow to do so and the interest on this borrowed money would generally be deductible. If Mark owned the house in his name only then he could sell the whole thing to Mrs Mark. Probably no CGT either if it was the main residence.

    This transaction will effectively transfer debt from the new house to the old house and make it deductible.

    It wouldn't work in NSW unfortunately. Perhaps this is another reason to invest in VIC as a couple could pay off their home loan sooner by selling to each other after capital growth has occurred - every few years maybe.