Selling to buy PPOR

Hi Property chat,

I current have three properties and I’m intending to sell one of them. I’m trying to figure out what’s the best way to restructure my loan.


Property A: was PPOR, rented out and we are now renting somewhere else. Planning to sell this and buy a new PPOR.

Outstanding loans against property A:

$175K

$45K (used to buy Property B)

$290K (used to buy Property C)

Total loan balance outstanding: $560K


Property B: IP from day 1

Outstanding loans against property B:

$840K


Property C: IP from day 1

Outstanding loans against property C:

$408K


I currently claim interest expense on these loans:

Property A: $175K, cash flow positive

Property B: $840K + 45K , cash flow break even

Property C: $408K + 290K, cash flow break even


My understanding is when I sell Property A I do not incur CGT, taking advantage of the 6 year rule.


I intend to hold on to properties B and C for another 20 years.


When I sell property A, all the loans against it will be paid off, which means I can no longer claim interest expense on $45K on property B and $290K on property C.


I see two problems here:

1. Properties B & C will become cash flow positive and I would start paying tax on the rental gain
2. What’s worse is I would be left with very little cash which won’t be enough for a deposit for my new PPOR

My understanding is once the loan is paid off, if I take out another loan to buy a property to live in, I can no longer claim interest on the loan. Is that correct?


The goal I’m trying to achieve is to maximise the cash I can get out of selling property A and also preserve the deductible interest expense I can claim on property B & C.


What options do I have?

 

Speak to a mortgage broker about the options. If there is suitable equity many lenders may consider moving the equity in your home to a term deposit at the time that sale settles and use this as loan security to retain the IP loan. And later switch security back to new home if that has equity.

 

The solution is not to pay them off, but refinance or substitute security.

 

Does that mean I must have sorted the refinance (“move” the loans related to IP out of the PPOR to the two IPs) before I sell the PPOR?

 

Yes