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How to maintain deductibility when selling & buying new PPOR

Discussion in 'Property Finance' started by Kirsti327, 2nd Jul, 2015.

  1. Kirsti327

    Kirsti327 Active Member

    Joined:
    2nd Jul, 2015
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    Location:
    Newcastle NSW
    Hi everyone, this is getting a bit complicated for me.. I hope you can make sense of it and give me some suggestions.

    I have previously paid off my PPOR and drawn on the equity to the tune of $228k for deposits on IPs.

    I now want to sell my PPOR and upgrade myself to a better one. If I sell the PPOR though, I will have to repay these deductible loans and then borrow to buy the new PPOR, making it non deductible.
    I'm trying to figure out how I can preserve these investment loans when I sell my current PPOR.

    I've had one of my IPs revalued and I can increase it's LVR and refinance about $45k onto it, but that still leaves a bit over $180k that I need to find a way to preserve.

    1. The best options would be to either arrange simultaneous settlement and switch securities, or to obtain bridging finance to buy a new PPOR then pay it off with the sale proceeds. The problem with both of those is that I haven't found a new one I like yet but I may have an offer on my current one already, so it's happening in the wrong order.

    2. Another option I had thought of was having my parents write me a loan for $180k, so refinance to an unsecured loan from them. I haven't approached them yet though so they could say no. I believe they have enough liquid assets to be able to afford that but it might be a bit complicated.
    How does the ATO look upon large loans to family? I assume my parents would pay tax on the interest I pay them. Would I still be able to claim a deduction as it is a refinance of my IP loan?
    That arrangement would only be for a few months until I find, and pay cash for, a new PPOR. I could then draw on the equity to repay them and hopefully the loans would still be fully deductible after all of that.

    3. But that sounded complicated, so I started thinking it might be cleaner if I was able to use my parents equity as security on my existing loans - so add them as guarantors to my current accounts, then discharge my PPOR mortgage, then when I found a new PPOR I could add it as a new security to the same loans and release their guarantee.
    Does that sound possible?? (current lender is Adelaide Bank if it makes a difference)

    4. Fourth option is to not buy a new PPOR at all. Simply rent a nice place and invest the rest of the cash. But in this case I'd still be tempted to try and refinance the $180k to a loan from my parents (see option 2 above) so still interested to know if that would work
    I'm not adverse to renting, but one of the reasons I wanted to buy a new PPOR is to get the CGT exemption in a (hopefully) booming blue chip suburb.


    Are there any other options I haven't considered?

    Thanks
    Kirsty
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Buy the new PPOR first and the restructure the loans - if you service.

    Other than that the related party loan is easiest, just get legal and tax advice. You can maintain deductibility this way.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You might be able to temporarily secure the IP loans with a term deposit until there is a new PPOR to secure it with. Not all banks are willing to do this but its worth asking.
     
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  4. Kirsti327

    Kirsti327 Active Member

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    2nd Jul, 2015
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    Location:
    Newcastle NSW
    Thanks Terry and Jess
    I had a look at the cash secured loan but the interest rate makes it less attractive than a related party loan (until I sell my PPOR I don't have enough cash to secure the entire $180k anyway)
    Hopefully the timing will work out right to be able to get bridging finance for my new PPOR and then restructure. I approached one lender and serviceability is a bit tight, but should be able to work something out
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    When you sell the property you let the bank take your cash and you keep the loan open.
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    portability may work as a simple soln and may be worthwhile if the time between sale purchase setts isnt months

    ta

    rolf
     
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  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Perth WA
    You don't need the cash - once the house sells, the main loan will get paid out and the IP loans will be secured by a term deposit holding funds from the sale.