Fully paid off PPOR, how to buy a property as new PPOR ? got stuck.

Again, this is a mistatke when I bought my current PPOR. I fully paid off the current PPOR, got the title paper as well.

Now wife and I would like to buy a house in the very near future as our new PPOR. In terms of finance, how to buy the new PPOR with a new loan while making this new loan tax deductible ?
The old PPOR will be rented out. I prefer NOT to sell the current PPOR, unless I have to.



Thanks in advance.

 

Not sure it's possible at all...

 

Unfortunately, the only way that the equity is tax deductible is if you use it for income producing purposes such as buying another investment property.

This is why structuring your finance is so important ie IO with offset.

 

Not possible if the new loan is used to acquire a private residence. Interest will only be deductible if you borrow to produce income.

Possible work arounds
1. One of you sell their share to the other, or
2. Sell and borrow to buy another property, or
3. Sell to a related entity.

And plan ahead with your next purchase so this doesn't happen again.

 

What I'd do is:
- Sell the current ppor, buy a new one using as small a loan as possible (depending on the value of each). E.g. sell for 500k, then buy for 800k with 300k loan.
- Top up the new ppor to 80%, this loan will be deductible. So 340k in this example (640k minus 300k)
- Use those 340k as deposit(s) on IP(s)

 

You pretty much have to sell it, it's where all you money is. It is the only way to get your money out.

 

Terry what about a spousal transfer for his half to her?
At least then some of the loan will be tax deductible (without need to incur costs, sell, etc)?

Edit (per your point #1) noted haha

 

I don't think there's much you can do now. A spousal transfer might be a possibility depending on your state.

 

If they rent out the existing ppor, they miss the tax deductions but they would gain the rental income as an addition to their existing income. Depending on how much they earn, couldn't you use this to increase serviceability. They could then claim the "missing" tax deductions on future IPs that they could now buy?
If they are average income earners, saving tax might be minimal compared to the opportunity of accessing more loans.
Id rather save less tax and have a higher asset base

 

Unless I misinterpreted this comment, I don't think it works this way...

 

Yes, they could use the extra rental income to pay down the new PPOR loan quicker, but they would be up for more tax for the next 10 years or so. If they sell to a related party they get to keep the same amount of property, but incur stamp duty to release funds to save tax. So it is the best of both worlds - depending on how long it takes to make the costs of the sale and purchase.

incident I have a private ruling application in with the ATO atm involving this scenario with the persons selling the former PPOR to a unit trust in which they will borrow to buy the units. Will let you know what the response is when it comes back. I am not that confident.

 

What is it about the property that makes you not want to sell it and keep as investment? If it's exit and entry costs then crunch the numbers and see if you can get a better return elsewhere.

For example if it's in Sydney I would be getting out now whilst the market is at its peak but cooling. Cop the exit costs then wear the re-entry into a locarion that is at the bottom of the cycle. You will make up any losses fairly quickly in actual positive groeth equity versus losing money which you likely will in Syndey over the years to come.

 

I feel for you @Kangaroo. Made the exact same mistake, this little predicament is enough to wipe the grin off my face from the satisfaction of being debt free.

 

It's a great problem to have.

How about renting out the current ppor then debt recycling? Borrow for rates repairs real estate fees and capitalise the interest. It'll take a while to gain momentum. You could also just buy a third property that is negatively geared depending on your serviceability.

 

Is someone able to summarise the best method - I am in a similar situation. Paid of PPOR, looking to buy a new PPOR using equity from the old PPOR, and then renting out the old PPOR.

 

Define 'best'

 

A little better than "bust".

 

There is no one best solution. It depends on your situation and what younare trying to achieve.

 

The aim is to buy a new PPOR - question is whether this can be done through 1) selling old PPOR or 2) drawing equity out from old PPOR and renting out

 

Yes it can be done via either method.

Interest on option2 wont be deductible.

Whst state is property in and how is it owned?