Switching an IP to PPOR for borrowing capacity

I have a friend (really, I do have friends) who was discussing borrowing capacity as she already has a few IP under her belt and is looking at her next move, either another IP or a PPOR.
As borrowing capacity is usually lower for PPOR, she was considering applying for an investment loan for higher borrowing capacity, rent the property or for a period then make it her PPOR and hope to get the rates reduced as OO rates.
Is this approach viable or does it require a lot more complexity with the banks?

 

The approach is viable and not really a big deal. The main concern would be can your friend really afford the commitment they're taking on under the circumstances.

Earlier this week I put together a deal for a client. After careful analysis, their borrowing capacity was about 20% better if they purchase a PPOR rather than an IP.

I've got plenty of examples of an IP being more affordable than a PPOR as well.

Your friend is probably making an assumption.

 

I am just curious to know under which circumstances will the borrowing capacity be better for a PPOR than an IP considering that the PPOR brings no income ? just something general will do.

 

I guess when your rent cost is higher than the potential rental income from the IP. Note that IP rental income is shed to 70-80%. You get negative gearing add back with IP but IP mortgage IR is often higher than PPOR IR.

 

For example, if you currently rent, you can continue to rent and purchase an IP. Or you can purchase a PPOR and no longer have a rental expense.

The outcome might depend on how much rent you pay and would continue to pay if you purchase and IP.

There's also various niches with different lenders calculation of living expenses that can make a difference.

You can't make an assumption either way without going through all the numbers.

 

I have seen a few people who purchased using investment loan (for increased borrowing capacity) however, the purpose of the purchase is for a PPOR. They now have an investment home loan, but live in it from day one. How is CGT treated if they were to sell the property if their initial "intention" was an investment?

 

@Sakura there's generally no GST on an established residential property.

 

Ok, so the scenario I mentioned is perfectly fine and people can obtain Investment loans for buying their PPOR with no CGT consequences?

 

What the loan is called has no bearing on income tax or CGT (or gst)