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Help!!!New case study on Terryw's deal-loan-structure

Discussion in 'Property Finance' started by Charming, 24th Jul, 2016.

  1. Charming

    Charming Member

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    My case is

    current PPOR (to be IP)
    Market value: 495k
    Loan outstanding: 260k (IO for 10years), the lender does not do LOC

    now, buying a property to move in, as PPOR
    purchase price: 700k
    cash 200k

    After I read Terry's post, still I have not got a fully understanding on how-to. please help me out.

    1. Do I need refinance?
    My current lender does not do LOC, do I have to refinance it ? or I can just apply a LOC from some lender else to clear or offset my current loan?

    2. The loan for the new purchase must be with the LOC lender?
    If this is the case, i will borrow 495k*0.8+700k*0.8=956k,it is over my borrow capacity which is around 600k. how can LOC work?

    3. A private sale (through solicitors without real estate agent), will be accepted?


    My understanding is, in this way I can use the equity to offset my new purchase and increase my taxable deduction on the IP. it doesn't matter if i use cash to buy PPOR or not (unlike the case in Terry's post), correct me if it was wrong, please.


    very much appreciated!
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    1. No need for a LOC but consider the tax implications.
    You will not get a loan with bank B while the property is mortgaged to bank A so you will either had to refinance it stay, for all loans secured by that PPOR.

    2. no
    You must factor serviceability in. If you cannot service then you may have to reduce borrowings

    3. What do you mean?
    Yes a private sale will be accepted.

    Your 2nd last paragraph has me baffled. Equity cannot offset a new purchase.
     
  3. tobe

    tobe Well-Known Member

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    When you rent out your existing place the interest on that loan that you used to buy that place becomes tax deductible. You can't borrow more and make that tax deductible too unless the purpose of the loan is to make an income.

    Over time you can slowly increase the tax deductible loan by debt recycling, by borrowing extra to pay for things like rates repairs renovations agent fees etc that are tax deductible.
     
  4. Charming

    Charming Member

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    3. What do you mean?
    Yes a private sale will be accepted.

    I contacted a lender, it happened to be not accepting private sales.

    Your 2nd last paragraph has me baffled. Equity cannot offset a new purchase.[/QUOTE]

    I don't quite understand how LOC works, I thought with LOC, the money is accessible like cash, then i could put it in my offset account to offset PPOR.
     
  5. Charming

    Charming Member

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    yeah, I thought I could increase the loan against that property by LOC to be tax beneficial.

    you mean borrow money to pay running cost, from where i can borrow? loan top up?
     
  6. Charming

    Charming Member

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    Then, what is the best strategy for me case?

    Is there anyway I can utilize the equity?
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I don't quite understand how LOC works, I thought with LOC, the money is accessible like cash, then i could put it in my offset account to offset PPOR.[/QUOTE]

    The lender won't accept private sales? I have never heard of this.
    Do you mean they won't accept a property as security if it is being purchased without the seller going through an agent?
    If so again I have never heard of this.

    A LOC is a facility which is set up with a limit and allows the borrower to borrow the money up to the limit when they choose. They can also repay when they choose.

    You could borrow money from a LOC to place into an offset account but there would be no point. The interest would not be deductible on the LOC and you would actually be losing money on the rate because LOC rates are slightly higher than term loan rates.
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I think you don't understand the basics, so before you do anything you should spend some time learning. Then get some paid tax advice before proceeding.
     
  9. Charming

    Charming Member

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    yea, newbie, will do.

    regarding that private sales.

    i am buying from a relative, we decided go by solicitors. the vendor's solicitor will act as an agent, keep the down payment in the trust account. anything else is as same as ordinary contract..
    the lender said their policy can't do it. sorry.

    i thought i was the industrial practice.


    Thanks Terry
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This is a related party purchase. Lenders will treat it no different to normal purchases if you are transacting at market rates.
     
  11. Charming

    Charming Member

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    through your reply, i understood, there is no point do LOC on this purchase(as PPOR), it only increases cost and burden, because it is not tax deductible.
    just do 80%+cash, consider LOC on next IP.

    correct?
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Nope - not correct.
     
  13. Charming

    Charming Member

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    could you please give me some brief directions? i can go back and learn before i meet with advisors or brokers, at least i can ask the right questions.
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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