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

Discussion in 'General Property Chat' started by Kangaroo, 11th Jan, 2016.

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  1. Kangaroo

    Kangaroo Well-Known Member

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    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.
     
  2. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Not sure it's possible at all...
     
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  3. bez23

    bez23 Well-Known Member

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    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.
     
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  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.
     
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  5. D.T.

    D.T. Adelaide Property Manager Business Member

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    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)
     
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  6. Dwalsh

    Dwalsh Well-Known Member

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

    Greyghost Well-Known Member

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    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
     
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  8. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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

    Foxdan Well-Known Member

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    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
     
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  10. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.
     
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  12. albanga

    albanga Well-Known Member

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    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.
     
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  13. twistedstats

    twistedstats Well-Known Member

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    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.
     
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  14. tobe

    tobe Well-Known Member

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    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.
     
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  15. gwaipor

    gwaipor Member

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    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.
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Define 'best'
     
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  17. Scott No Mates

    Scott No Mates Well-Known Member

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    A little better than "bust". ;)
     
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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

    gwaipor Member

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    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
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes it can be done via either method.

    Interest on option2 wont be deductible.

    Whst state is property in and how is it owned?