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Turning PPOR into IP

Discussion in 'Property Finance' started by Yellaalley, 24th Jan, 2016.

  1. Yellaalley

    Yellaalley New Member

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    Hi all, I am very new to this. And looking at changing my PPOR into an IP as we have found another property that suits us better. I have been reading a lot on this forum and now realise that we have stuffed up in how we have payed our current loan. We have paid our loan out almost. And it would not be deductible at tax if we were to create a new loan on the house. (Is this correct?).

    My plan is to create 2 loans one for Old PPOR (now an IP) at 80% of the property value interest only. And the remainder into the loan of the new PPOR.

    Basically I can not claim any of the loan of the IP at tax. What are my options? Also I have calculated that we could be gaining positive cash flow from this property.

    I have read people say sell and buy another IP but this property has development potential in the future and is in an up an comming area.

    My third though has been to purchase another IP and offset it against the two property's. But I don't want to get in too deep yet as I am learning this game. We would probably wait 12 month before we did this too.

    We only have a short time to work out finances as we will be putting an offer on the other house.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You could sell yet keep - spousal sales, related party sales,

    Or just use the cashflow to help pay down the new PPOR (or into the offset so you don't end up with the same problem again).
     
  3. ZachAnsel

    ZachAnsel Well-Known Member

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    @Yellaalley,
    We also make the same mistake, lucky we paid just a little. I dont have that level of knowledge back then.

    We did convert PPOR to IP, and this is what we did :
    1. Convert the loan to IO, to maximise deductable loan
    2. Re-val the property, draw equity on separate loan (LOC)
    3. Use that separate loan to purchase investment. So the loan interest is deductable from tax point of view.
    4. Rent the new PPOR using cashflow from all investment properties

    Before that we use think doom and gloom, and the only option is to sell. But turn out this is win win solutions for us :
    A. Our LOC bigger, since we reduce our PPOR loan
    B. As Terry mentioned, we use cashflow positive to offset rent better PPOR (better location, amenities). Its cheaper cost too, if we buy current place will cost us $1.2 mill, and currently we renting it for $630/week
    C. We have better serviceabilty by doing this. Then we use equity + serviceability to accumulate IPs.
    D. We didn't follow our accountant advice to sell on 2012, and Sydney boom 2013-2015. Imagine if I follow that advice. Will regret that forever..

    Hope my experience can lead options/idea for you
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  5. Yellaalley

    Yellaalley New Member

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    What if I was to sell to a company set up by us? What would be the costs. Can we do this legally?
    Property is joint owned by partner and myself. We plan to keep this property long term as there is major development of a marina near where it is just might be another 10yr before completion. Also great highway access and exposure. 3 acres of land. Our loan left is only 10k and we have done redraws. It does have an offset. We had no idea the problems of paying it out would do.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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