Equity extraction sources

Hi everyone,

I have questions about which property to extract equity and best way to pay for next purchase.

I have 2 properties atm, one is my current PPOR with 50% LVR, the other one was my PPOR but now is my IP with no debt. Now I want to extract the equity out to buy my next property. Which property is best to extract the equity regarding tax deductibility benefit and borrowing capacity. I'll be able to borrow more if get equity out from the IP or PPOR?

One more question. I'm buying in a pretty hot market, which means I need to act quick and to boost my buying power, I intend to pay the full amount of the property which means no finance involved. I'll use the equity extraction above to pay for it. What do your thoughts on that?

Is there anything I should consider regarding my next purchase?

Thanks folks

 

I don't think the source of the equity matters (unless it's a contaminated LOC). It's the destination that matters.

As for using this equity, no I think your strat is fine, and in fact the smart thing to do. Always be pulling equity when times are good even if you have no use for it, for when times are bad or you need to move fast. That's exactly the same strat I'm about to use as the banks won't lend me any more money as I've maxed out and my LOC's are all I have left.

 

You can't extract equity.

All you can do is borrow against property.
Security for a loan doesn't impact deductibility of interest. see
Tax Tip 22: Security for a loan does not determine Deductibility of Interest Tax Tip 22: Security for a loan does not determine Deductibility of Interest

Serviceability generally won't change either way. But with some lenders you can get owner occ rates if the security is owner occ property, and this applies even when you use those funds for investment purposes. This lower rate can improve serviceability.

On your last paragraph are you saying you will pay for the new property with the loan secured by other property and not mortgage it? No tax issues that I can think of with that. But there are some legal and estate planning issues to consider - speak to your lawyer about that.

 

Vietnam is hot sure but a long way to grow. Driving all Asia now. I lived there for a year before moving next door to China. I will be using the same self-financing strategy as you so I'm watching here.

 

Not sure where the reference to Vietnam came from, but my reply was based on purchasing property in Australia

 

Hi @Terry_w ,

Yes, I'll purchase the next property outright, no mortgage, funded from the borrowed money. Let say $350k from my PPOR equity.

What are the downsides of this ?

Could you just hint what legal and planning advices should I consider

Thanks

 

security for the loan - bank will take this property before non-secured.
Debts generally come out of the security for the loan, not the use:
Legal Tip 74: Loans Death and Inheritance Legal Tip 74: Loans Death and Inheritance

I think i covered it in that one.