Terryw’s Ideal Loan Structure

Yes a bit of a mess.
It might be able to be fixed depending on the circumstances

 

Thanks for all the Tax Tips @Terry_w I am quite addicted to your posts. Read them few times to understand. Below is what I am trying to do. Did i get it wrong?


Loan Split A and Loan Split B were fully paid off and re drawn from zero balance.All these are with NAB so I cont pay straight from Loan,but from its own offset account. Will interest from Loan Split A and Loan Split B tax deductable?

 

See Tax Tip 1 Raj

 

Hi Terry I made sure I did not park in offset account for Loan split A. Paid off the split A and borrowed to an empty offset account and paid deposit and leagal fees.

I can do the same for expenses like insurance water bills etc from split B, but can't do that for interest payments. I have made sure I have paid off split B and borrowed and parked money into offset B (this empty before borrowing). I will be seting up direct debit from offset account B for interest from all investment purpose loans (split A, split B and IP loan). Does this sound right?

 

No.

See
Tax Tip 16: Capitalising Interest Tax Tip 16: Capitalising Interest

 

I thought so Terry, I had my strong doubts about it.

If I don't direct debit the interest and only pay expenses like I do for Loan split A, will that be OK?

 

See

Tax Tip 4: Borrowing to Pay investment expenses Tax Tip 4: Borrowing to Pay investment expenses

 

Thanks Terry I have read all your tips multiple times. Wish you were taking clients last week I could have picked you brain personally.

I am doing exactly what your saying in your tips with only one exception, that I am not paying straight from the loan, but with an intermediate account (this is its own offset account with zero balance between each transactions) if that makes sense.

 

Hi Terry @Terry_w

I was wondering if you could give some general advice in terms of loan structure to our case as follows:

We are soon to settle an OTP apartment which is purchased on my name and my wife's name. The 10% deposit and the stamp duty for this property have already been paid (by cash), and now we are going to access equity in my other IP (on my sole name) to cover any additional deposit (another 10% or so depending on the bank assessment) and other expenses required at the settlement; in fact we have asked our broker to start the valuation and loan top up process.

Our intention is to settle the apartment as owner occupied to take the benefit of the $15,000 NSW Government FHOG. We then will hold this property for 6 months before we can decide to rent it out or sell it. At the moment we think we will convert it into an IP.

My concern is what would be the optimal format for our top up loan and whether it is worth considering splitting the loan if the amount of the accessible equity in my current IP is going to be much greater than the required deposit for the settlement of the new apartment.

Sorry for a lengthy question and I will very much appreciate any advice you would give.

 

The general principals still apply = borrow 105% if possible and avoid LMI if you can. if you can't avoid LMI structure the loans so that it is more likely to be deductible.

 

If I can access to an extra 200k from the existing property but would need only 100k additional deposit for the new property, should I use all the accessible 200k to minimise the amount of the loan against the new property, or use only 100k from the existing property and borrow the maximum against the new property, or the two approaches are indifferent?

 

I can't answer without knowing more about your situation. See proper advice.

 

thanks terry for all the tips and advice
i have set up loan B at $80k to pay deposit, stamp duty etc. i have the cash in my offset. do i set up the loan account, then transfer the money into the loan account (making sure it is under $80k), and have disbursements at settlement taken from this account?

 

You should seek specific tax advice. You would probably want to borrow to pay these costs.

 

i'ts been set up with a loan split from our PPOR loan to pay these costs.
i was more just making sure i was routing the money through the correct pathway

 

As long as you are paying direct from the loan then it should be fine.

 

Any updates in the thread/post you were working in in regards to borrowing to invest with no ppor debt @Terry_w ? Cheers

 

Hi, hopefully some of you may be able to check I am on the right track.

I have just refinanced an investment loan and split it into 2 parts

Loan 1 fixed p&i loan
Loan 2 I.o cash out for investment purposes.

The loan 2 amount has been deposited into a new account and is available right now. (This was done by the bank at settlement)

I am just wondering about the deductibility of this cash. The cash will be used for purchasing costs and deposit, with some left over. From reading I think the best thing would be to set up another offset account and place all income in it. This would then give me 2 loan accounts, 1 cash account with the surplus funds from loan 2 (offsetting loan 2) and another cash account with my own cash also offsetting loan 2.

I would then use all excess funds in cash account 1 from the cash out to pay investment running costs. This way I do not use my own cash, don't have an account with mixed funds and can use my own cash in the future as needed without tax headaches.

I hope this kind of makes sense but I may not have explained it too well.

Any help or ideas would be greatly appreciated.

 

Just read tax tip number 1 and think that answers my question and I am on the right track with my above structure. Still love to hear anyone's thoughts.

Thanks.

 

Hello, quick question


Owner Occupy Value: $1M
Loan A: Owner Occupy Loan Balance: $500K
Loan B: Equity release from Owner Occupy loan: $1M * 80% - $500K = $300K

New Investment Property Value: $400K
Loan C: $400K * 80% = $320K

If I use $80K from Loan B to pay for IP deposit, can i use the remaining $220K on Loan B to pay Loan A. Thinking that Loan B interest is tax deductible and Loan A is not.

Am I all going to get tax deduction on the entire Loan B interest or just the portion I used for IP deposit?