Potential first IP, advice needed

Discussion in 'Loans & Mortgage Brokers' started by Tati, 15th Jul, 2018.

Join Australia's most dynamic and respected property investment community
Tags:
  1. Tati

    Tati New Member

    Joined:
    2nd Jul, 2018
    Posts:
    4
    Location:
    Melbourne
    Hi All,

    We are new to PI and wanted to get some of your thoughts on our situation. Currently have loan A of 370K (P&I) on PPOR which bank evaluated @ 600K. Our combined Gross annual income is 170K

    Would like to use the available equity of 110K to fund an IP (2BD Townhouse) valued @ 450K (all costs inclusive).

    Question/s on setting up the loan structure & Tax deductions, (both loans will be with same bank and aiming not to Cross-collaterise)

    1. Loan (A) will come to 480K (P&I) with a linked 100% offset & new IP Loan (B) would be 340K (P&I as well). Is this sensible ?

    2. Or should I have the IP loan to the max and use as much less equity as possible ?

    Thank you !
     
    Tati, 15th Jul, 2018
    #1
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    42,005
    Location:
    Australia wide
    1. No.
    2. Sounds like you misunderstand deductibility of interest.

    Have a read of my tax tips.
     
    Terry_w, 15th Jul, 2018
    #2
  3. marty998

    marty998 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    627
    Location:
    Sydney
    You need to take a separate loan for $110k on your PPOR, which will be split from the existing $370k one. This means the interest will be deductible on all the funds borrowed for investment purposes.

    Out of curiosity, what interest deduction were you planning to claim under the setup you proposed?
     
    marty998, 15th Jul, 2018
    #3
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,654
    Location:
    Gold Coast (Australia Wide)
    I know thats not what you are asking, but with 370 k non ded debt and apparently middlish marginal tax rates, the IP side of the loans is just ONE equation for maximum tax efficiency.

    Having a structure in place that allows Active and Ongoing Debt Recycling ( on a managed or DIY basis) will usually aid paying off that 370 k much more quickly

    ta
    rolf
     
    Rolf Latham, 15th Jul, 2018
    #4
  5. Tati

    Tati New Member

    Joined:
    2nd Jul, 2018
    Posts:
    4
    Location:
    Melbourne
    @Terry_w

    Did read your "Ideal Loan Structure" over the weekend. Priceless & Fantastic stuff. Thank you

    Below is take 2 of my Option 1:

    Loan (A) will be 370K (P&I) with a linked 100% offset. Loan B for 110k (P&I) LOC which is deposit for new IP and PPOR is security. Loan (C) would be 340K (P&I) and IP will be security.
     
    Tati, 16th Jul, 2018
    #5
    Terry_w likes this.
  6. Tati

    Tati New Member

    Joined:
    2nd Jul, 2018
    Posts:
    4
    Location:
    Melbourne

    Hi @marty998

    For the 340K (loan C). I will miss out on the 110K. Does my take 2 put me in better tax deductible situation ?
     
    Tati, 16th Jul, 2018
    #6
  7. Tati

    Tati New Member

    Joined:
    2nd Jul, 2018
    Posts:
    4
    Location:
    Melbourne
    Thanks Rolf.

    Still getting my head around various aspects of PI. May be I am asking the wrong questions but willing to learn.
     
    Tati, 16th Jul, 2018
    #7
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    42,005
    Location:
    Australia wide
    This is probably in need of some updating as circumstances have changed dramatically since I wrote it.
     
    Terry_w, 16th Jul, 2018
    #8