FHB needing loan structuring help

Hi all,
Been reading the forum for some time and thought I'd jump in to get some thoughts on our current situation.

Key details:
Share portfolio worth 400k (not planning to sell any, ever, I hope)
Cash 300k
No other assets or debts
We are a married couple looking to buy a ppor worth 1.1-1.2m

The cash savings are there to be deployed in shares as and when the market offers better value, so ideally I don't want to use any more of it than I have to. As a result, my parents have offered to be guarantors, so we can get a 100% loan using their equity to bring down LVR below 80%.

Should we park the cash into an offset, and then deploy gradually into shares as opportunities arise? My understanding is this isn't taking advantage of tax benefits of debt recycling.

Should I use the money for a deposit? But then I'd have to wait quite some time before enough equity built up to redraw, split loans, and invest in shares. And I wouldn't have the cash available to deploy if opportunities arose in the short term.

Is there any benefit in selling my shares, bringing down my non-deductible debt? If everything sold right now, I'd have capital loss of about 7k, so no CGT issues. However, how would I then structure deductible debt to restart my share portfolio?

This PPOR is unlikely to be turned into an IP down the line, though I'd never say never.

Keen to hear what people think we could do to maximise our efficiency!

 

Income, kids?

With the recent sharemarket gains, how have you managed to not make money?

 

Household income of 200k p/a from jobs, and an additional 18k a year of dividends. 1 kid. Very low current living expenses. Have spoken to a number of banks/lenders and they say our borrowing capacity is around the 1.25m mark.

 

Side question to the brokers. Can you get 105% lvr on parental guarantee? Do the properties have to be crossed, or the parents actually borrow the 25% from their own property?

 

Get some tax and legal advice as there are lots of ways you can improve things

 

Seeing as you asked, yes, I think you should use the money for a deposit. Really lovely of your parents but I don’t understand why you would do that when you have the money for a deposit yourselves.

 

Yes to both questions, with the caveat that the parents have the borrowing capacity for the 25% on their own. There's pro's and con's for both scenarios.

 

From my initial discussions with lenders, 80% lvr of the property value will be 'ours', and the remaining amount will be a loan on my parent's security.

 

The thinking was what improves the financial situation of our family as a whole. We are assuming there are tax efficiencies to be achieved by doing this. What's good for the family as a whole helps them as they entire retirement and will be somewhat dependent on us to support them.

 

Yes. Yes. That would be a different scenario, parents take a mortgage and gift it to you. Not a guarantee, where you are the borrower and your parents supply the security for the mortgage.

 

Thanks Terry, I definitely intend on exploring this further. As things stand, I have gotten some very conflicting advice which is why I wanted to open it up for discussion here. I'm interested to see if there are different ways to approach this.

I've had one broker suggest taking out our part of the loan, split in two. Loan A: 300k interest only, Loan B: the remaining 500k or so (up to 80% LVR) as P&I. He suggested setting up an offset against Loan A, keeping my cash in there, and then withdrawing the money as I buy shares so that it is counted as deductible debt. From my reading of your excellent tips and strategies, it seems to me like this won't fly because Loan A is still being used for buying the PPOR initially. Another broker agreed that this won't be deductible.

 

A broker giving tax advice that is wrong!

Why ask tax questions to a broker?

 

Just remember the deductibility thing cuts both ways. Redraw to buy shares is one thing, but redraw for private purposes (car, holiday, whatever) will not be deductible and mixing this messes up your loan.

 

To be honest I went to him to get a straight forward loan, never even thinking about all the various clever ways of structuring loans that I have since learnt from reading this site. He suggested that structure, and that's when I started doing more research!

I've never used a tax accountant or similar before, and noticed you aren't taking new clients, Terry. Anyone care to point me in the right direction to find a good one for this purpose?

 

You could try @Mike A or his twin brother @Paul@PFI