Do you debt recycle? Any tips?

Discussion in 'Investment Strategy' started by Btaylor, 23rd Feb, 2018.

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  1. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    disagree a bit

    it can fly with even small amounts of equity, or indeed no equity that one pays off and in stages and breaks off over time.

    The real power is in the discipline ..........and the asset diversification

    ta
    rolf
     
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  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It can work with absolutely no equity at all.
     
  3. L3ha7

    L3ha7 Well-Known Member

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    @Terry_w And @Rolf Latham -thanks for your thoughts.

    I am reading about it to get myself familier and decide if it is suitabke for me and talk to an expert.

    Just to confirm when you mention NO Equity I assume it can be done for brand new loan?
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes.
     
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  5. wohoo

    wohoo Member

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    To all the debt recycling gurus there, I have a few questions regarding my situation and its a dilemma.

    Currently I have PPOR under me and misses's names.

    I am on the 47% bracket for tax
    Misses is only on the 32.5% percent

    The loan is with CBA @ 3.72% for a 269k loan.(P+I, variable with offset)

    To demonstrate to ATO that the money I redraw is intended for investment purposes with CBA split loans
    of $30005, Would I need to:

    Day 1: pay $30000 into the $30005 split loan of the PPOR @ 3.72%
    Day 2-5: redraw the money out $30000, put in bank account B
    Day 2-5: buy shares (currently in Vanguard) with bank account B

    Then start to keep record of the interest I paid for the $30k split loan for tax deduction purposes.?

    If I buy shares soley in Misses's name, given her tax rate is 32.5%, how would one split the interest deduction, given the PPOR loan and the loan split would be in 2 names?
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You would need to borrow to invest to claim the interest
    See my tax tip 1 re the issues depositing into account B

    Deductibility will depend on who owns the asset - so if you wife borrowed to buy shares she would generally claim the interest.

    Seek specific tax advice.
     
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  7. euro73

    euro73 Well-Known Member Business Member

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    My Tip is....

    buy assets that operate at a surplus. Then reinvest the surplus towards extra repayments .

    If you do this month in and month out, year in and year out it will become an impressive beast over time.

    It will give you equity you wouldn't have otherwise had. It will restore borrowing capacity. It will hedge against future changes of circumstances such as redundancy, rate rises, P&I re-sets etc.

    Most importantly , it will leave you with a passive income for retirement even if you get zero growth
     
  8. wohoo

    wohoo Member

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    Thanks for all the advice, I do and will engage with my accountant in September regarding debt recycling strategies. Looks like its not an good idea to park borrowed money in an transaction account. but what if you redraw and transfer into NAB Equity builder account instead? would that portion of redraw money be tax deductible?

    Quesntion 2

    What if I paid down the PPOR by $30,000, then ask my bank to split and separate out the loan by $30,000

    So now I would have a loan A = $230k, Loan B = 30k, Then use the 30K to be transfered to NAB equity trader, to borrow an extra 70k to invest in 5 different dividend producing stocks > 7% yield ( VHY, VAS, etc). Would Loan B be tax deductible ?
     
  9. ttn

    ttn Well-Known Member

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    Not sure if this would consider as debt recycle but every month I used the offset a/c to pay off the credit card a/c balance and rinse & repeat for too many months/years and seems never end ;)
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It depends

    Seek your own specific tax advice, and read my tax tips
     
  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    double geared margin lend........... eek

    hope you got some cash there to buffer the winds when they come

    ta

    rolf
     
  12. Perthguy

    Perthguy Well-Known Member

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    I have done this. I think I had 8 individual loans (called splits) against 3 properties. It was a nightmare to undo but only because the bank's settlement solicitor could not understand what was being done. My broker and his boss met with them personally to explain it all but the settlement solicitor still could not grasp it. The final structure was simple:

    loan 1 secured by property 1
    loan 2 secured by property 2
    loan 3 secured by property 3

    After having 3 properties and 8 loans, 3 properties and 3 loans was wonderful. :D

    I highly recommend doing it.
     
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  13. wohoo

    wohoo Member

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    I do, well, eventually in an years time. I just felt the need to convert some dead debt into good deductible ones. Turns out my banker is okay with paying down the debt by $30k, then reapply a 30k loan against the property and keep the interest rate same. Maybe that way the debt is now deductible if I invest? LOC rate is 5+% :/
     
  14. Marcus1

    Marcus1 Member

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    Does anyone have any debt recycling spreadsheets they'd care to share? Cheers.
     
  15. Silverson

    Silverson Well-Known Member

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    Id hate to be 'that guy' but I too have a similar goal in terms of passive income and time frame, however you may want to sharpen your pencil, I'm not aware of too many of the older LICs yielding a 9% gross dividend. Also I think I read that 50k pa was net? If so you would be needing an unencumbered share portfolio (or 100% offset) in excess of that magic million. I know your a high income earner and your partner works also but you'd need to be contributing circa 200k a year to hit the mark.

    Without giving away too many personal details ie income etc how are you thinking of having an unencumbered 1m portfolio in 5-6years?
    Not trying to be a smart &ss, I'm genuinely keen on hearing your plan of attack as I'm aiming for a similar target myself and would love to compare notes!
    Cheers