Join Australia's most dynamic and respected property investment community

New IP loan - plan to convert to PPOR later

Discussion in 'Property Finance' started by Azazel, 6th Jul, 2015.

  1. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,113
    Location:
    Brisbane
    Hi guys, is there anything I need to keep in mind in getting a loan set up for an IP that we plan to move into in a couple of years? Have it as interest only, put extra money into the offset, then change it to principle and interest when we move in? I've read a bit about the other way around, not much this way. I know there's probably a reason... CGT. I'm guessing we should wait to do any improvements until after we moved in.
    Should we just set it up as P&I from the start?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,952
    Location:
    Sydney
    Think ahead and plan carefully the name or names it will be in. This could allow for some spousal transferring strategies later.

    Not much really on the loan side. Try to start off with 80% LVR on the bank loan, possibly borrowing 104% using another loan secured by other property. Keep cash in offset on current main residence and move it to this one once living in it.

    House will be subject to CGT based on time period owned. The longer you live in it the lower the % subject to CGT will be. Loans don't effect CGT directly but just keep a record of your interest and other costs while it will be a main residence as this can be used to reduce CGT. Keep all receipts forwever - and give them to your executor on death.
     
    Azazel likes this.
  3. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,113
    Location:
    Brisbane
    Thanks for the detailed reply @Terry_w , much appreciated.
    I'll do some research into names and such.
     
  4. WestOz

    WestOz Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    625
    Location:
    WestOz
    Great point! hadn't thought of adding this to the long "just-in-case" list
     
  5. vtt

    vtt Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    254
    Location:
    Inner West, Sydney
    Hmmm... Is it worth getting a valuation when moving into the property as well, or is the CGT only ever calculated on a % of time rented versus owned?

    We are in the exact same position, and are about to move into our IP as we have sold our PPOR. We are currently renovating the IP before moving in, so how does that factor into the CGT calculations when selling, as the renovation will certainly increase value and we don't want to pay CGT on that.

    Thank you
    vtt
    :D
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,952
    Location:
    Sydney
    when moving into a rental valuation doesnt matter as CGT is worked out on a % basis.

    Keep a record of all costs incurred as you can claim most off the CGT when you sell
     
    vtt likes this.
  7. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,113
    Location:
    Brisbane
    What about if you don't plan on selling?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,952
    Location:
    Sydney
    Statistics show 95% of people die at some point (+/- 5%).

    Circumstances change too.
     
  9. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,113
    Location:
    Brisbane
    Ha, very good. I mean do you pay CGT when you convert it from IP to PPOR, then claim CGT discount when you sell?
    I don't care what happens after I die ;)
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,952
    Location:
    Sydney
    Only pay CGT if it is sold. Same after death too - no CGT on inheritance, only when sold.
     
  11. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,113
    Location:
    Brisbane
    Ok, thanks Terry.
    So if we go with IP at 1st, and do some improvements, does that effect anything when we move in or only if we sell?
    If we convert back to an IP at some stage, CGT isn't a factor, only if we sell? Like IP-PPOR-IP.
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,952
    Location:
    Sydney
    Tax will only be payable if the property is sold. Just keep all records so you can minimise the tax.
     
  13. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,113
    Location:
    Brisbane
    Thanks for the quick replies @Terry_w