Advice please on structuring my loan for next purchase

Could I please get some advice to make sure my loan is set up correctly to be most tax effective for now and future .


In 2011 i bought a 1 bed unit for 400k.

260k loan
140k deposit

In 2015 I refinanced with CBA using equity to a 400k IO loan with offset .

This loan was split in two accounts
260k for remaining home loan
140k to be used as a deposit for next IP. (This was seperate and in a offset account and has never been touched as I never ended up finding a IP)

Fast forward to today we are planning on moving out of the unit ,turning it into a Investment and buying a house .

What is the best way to structure the loan if the house we buy may also be turned into a investment one day ?

Current financials

260k loan fully offset by 260k parked in the account . Zero monthly interest.

140k loan (in offset never been touched from 2015)

I also have 80k savings with another bank .

I have contacted comm bank and they will lend me another 140k which would bring my loan up to 540k.


Looking for a house around 600k mark.

So do I use the 140k loan get them to top it up another 140k giving me 280k for next purchase and then use the money in my offset and savings account to fund the rest of the purchase?


I’m very confused on how to purchase the next property tax effectively any advice would be greatly appreciated .

Thank you

 

if it was me, I would use the fund in the offset to pay 20% deposit and borrow 80% from a lender for next purchase ( if serviceability allows)

 

As is probably
repay the $140k back into the loan and reborrow it for the deposit - taking care not to close the loan.
Borrow as much as you can against the new property.
Use cash from the other offset account - the $260k and use the $80k for the rest.

 

Assuming servicing allows, I'd use no more than 20% deposit for the purchase of the next property, and then get a loan for the remainder. I'd use as little of your (cash) offset funds as possible if possible, use the equity release for all the deposit and costs, and a new loan for the other 80%, and sit your cash in offset against that.

If it's going to be an IP eventually, avoid using any of your own cash if you can.

The $140k equity release should be fine to use if it's literally done nothing but sit there since day one, however if the link to the fact is borrowed is unclear, you can do what Terry says and pay it back into the loan and redraw back out. Or get CBA to re-write that split completely into one new loan.

 

With regards to tax effectiveness, you will need to consult your accountant - no broker is legally allowed to comment on tax.

Without understanding your true financial position and income stream the norm would be to load up the investment property to 80% and use the extra cash from the equity and the cash you have saved to pay for the deposit and transactional costs of the new property. Leave any saved left over cash in an offset OR bring down your home debt at settlement or when needed (this is your safety net). Don't be too highly leveraged if your income is not there or just barely services. Both loans to be reviewed and go to different lenders for each property to minimise exposure. Majority of loans from all major banks are approved based on P&I regardless of IO loan (some banks have a minimal hurdle serviceability rate of 7.25%). Common strategy is to P&I home and IO investments, once home is at a suitable level then P&I the investment property. As you probably already know Credit policies are changing/tightening so don't be too highly leveraged. Remember you can always draw out equity again later, what you need to calculate is - are you better off with high debt with parked offset money you cant touch, or lower debt with available liquid money. Your nominated broker needs to understand your future goal strategy and financial position first before working out a loan strategy.
Please take all advice as general advice and not personal advice, and talk to your accountant or financial adviser first especially about the type of acquisition structure, should the next home turn into a IP. Get it right now before the pain comes later.

Hope this helps............ a bit.

Peter

 

I am!

 

This should be a lawyer as ownership structure involves legal advice. Accountants (tax agents) can only advise on commonwealth tax - and financial advisers cannot even do that!

 

Thank you all for the detailed responses .


I earn about 80k base more like 100k with OT
Have a toddler and my partner has no plans to go back to work anytime soon so my serviceability is nearly reached .
CommBank will loan me another 140k so I could have a total loan of 540k from them .

That’s y I’m confused on how to go forward and what money to put where as the banks won’t lend me 80% for next purchase

 

Hi Terry

What does repaying the 140 and then borrowing it back achieve?

Thank you

 

That you are my friend.

 

Yeah I forgot to put the lawyer bit in the sentence. My bad.

 

You originally borrowed that a few years ago so there is a gap between borrowing and use and possible contamination too.

If you put it back in and took it back out, with no detours, you could show this loan now relates to the use of acquiring the new main residence.

If you then later rent out the new main residence you will have more interest to deduct; In the meantime you keep your cash in the offset on the new home so won't incur any extra interest.

If you never will make this one an investment or operate a business etc then it doesn't matter. But sometimes plans change.

Tax Tip 1: Parking borrowed money in an offset account Tax Tip 1: Parking borrowed money in an offset account

 

So you are turning the current PPOR/unit into an IP ?
Then borrowing to purchase a new PPOR.....

So, using funds from current offset for the new PPOR = maximum deductions for the soon to be IP, and less non deductible debt on your new PPOR.

Unless you are planning to upgrade again in a few years yet again ?
Which may affect loan structure.

Are or do you intend to claim the current unit as a PPOR for the period owned ?
If so, you need to obtain one (or more) professional valuations "before" it becomes an IP, to claim/avoid Capital Gains Tax (in the future).
Same in the future PPOR being a possible future IP.

The only way to have a reasonable excuse for future problems is to pay for financial/legal advise (so as to blame THAT advice ) as that will be the latest up to current law/taxation !

All the above learn't from @Terry_w tax tips
After numerous beers previously and today my memory isn't that great, so take the above witb a grain of salt, then do your own DD

Liked the post of @Petros, to quote "Get it right now before the pain comes later"