Help with loan structure(and investment advise) on new development.

Discussion in 'Loans & Mortgage Brokers' started by GoneFishing, 15th Jun, 2017.

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  1. GoneFishing

    GoneFishing Active Member

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    Hi all,

    My wife and I have just signed an engagement agreement with an architect\builder and we're about to embark on our first development(Two townhouses - Eastern suburbs Melbourne). We plan on moving from our PPOR and living in one of the new townhouses and renting the other.

    We own our current PPOR outright worth $1.5M, which we may return to one day. We also own 3 other IP's(All in Melb) totalling $3M. We have $500K cash in the bank offsetting $1.1M we owe on our IP's. All properties, including PPOR are jointly owned(I know it's not the best setup as we pay way too much Land Tax!).

    I am looking for some advise as to how to tackle my finances? My thinking is to use my cash in bank($500K) to pay for the townhouse we are going to live in and get an investment loan for the other lower quality townhouse($450K) of which we will setup as part Interest Only(I am aware of recent changes here). This way, I won't have to pay interest on my new townhouse home loan which won't be tax deductible. Only downside to this is the $500K cash will be all used up preventing me from investing it elsewhere. The other townhouse($450K)will be negatively geared. No big purchases on the agenda ATM and my wife and I are on pretty good incomes so can save quickly. Although we can spend quickly too - those damn holidays!

    PS. I have no intention on selling anything ATM, even though it is tempting to sell PPOR as I would be exempt from Capital Gains Tax on this sale. But there is no need, so I have no reason to. And we will also move into new townhouse, as we need the room as kids are growing up.

    Am I on the right track? Your recommendations and advise would be very welcome!

    Thank you.
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    subject to borrowing capacity id always look to borrow the 500 k for the owner occ and offset it

    Easier to meet challenge or opportunity

    ta
    rolf
     
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  3. Brady

    Brady Well-Known Member

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    Why not borrow the full funds and park the money in the offset against the townhouse you live in.
    Gives you the flexibility for if/when you move out.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    I would suggest some legal advice on

    Ownership structure

    Funding structure

    Asset protection

    Etc

    Development is risky so both of you signing agreements will mean both are at risk if disputes arise. Even where you have plenty of cash to bail yourself out if these things end up in court and you lose you would both wear a judgment.



    On the funding side – is this one title of land now? It is likely going to be very difficult to pay cash for one property unless you have 2 separate titles and 2 separate builder contracts.



    A way around this is to borrow 100% now and split the loans when finished and then you can pay off the one you will live in.

    See https://propertychat.com.au/communi...down-ppor-and-build-duplex-and-rent-one.3195/
     
  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Tax advice too maybe....For example selling the one you will live in soon after could trigger issues such as GST. Living in it doesnt mean its not a enterprise. But if you arent planning to sell ...No issue ?

    One of you could borrow and the other owner not.....A few options. eg you borrow but partner uses cash...Also who says both of you must be on title for a main residence ? One could in theory be owned by one person and the other owned by partner. Partitioning ?
     
  6. GoneFishing

    GoneFishing Active Member

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    That's why I used to love this place all those years ago when it was Somersoft! Can't remember my login name back then, but rejoined as Gone_Fishing.

    Great advise Rolf! For some strange reason, I was thinking I could only offset Investment loans!

    I'm looking forward to jumping back on the bandwagon and contributing where I can.
     
  7. GoneFishing

    GoneFishing Active Member

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    Super advise. Thank you!
     
  8. GoneFishing

    GoneFishing Active Member

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    Valuable - I shall only put my name on the contract. Thank you!
     
  9. Brady

    Brady Well-Known Member

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    Personally I look to take as much money from the bank, when I don't need it - best time to borrow.
    Always a lot harder when you need it :)
    In this ever changing financial climate it would be savy to take what you can when you can.
    Key is to make sure you're not wasting it for because you have it.
     
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