Advice RE equity redraw for Reno and future purchase

[Alex1]

Hi all,

I read these forums every couple of nights but have not been able to answer these questions.


Our situation-

1 PPOR, purchase price $500k in 2011, bank reveal this week $580k
Mortgage of $420$, $20k in offset

1 IP, neutrally geared, interest only at 90% LVR on original purchase price.

The two properties are not cross collateralised or linked.

We are planning a renovation to our PPOR, expected spend $40k. I would like to purchase another IP in the next 6-12 months and a new PPOR in the next 3 years.

If we took our PPOR loan to 80% LVR on the reval of $580, we would have more then enough money to complete the renovation. Taking more is an option, we would have to pay LMI but having the funds available is a nice thought.

Question 1 - If all the borrowed money is placed back into the loan, and funds are only accessed for renovations via redraw, what tax implications would there be if some was used for an IP deposit later?

Question 2 - If our current PPOR is rented out, how would using funds from the redraw facility to purchase a new PPOR affect us? Would it be better to leave the money in the offset account, or would it not matter? Could the redraw money be placed in a new PPOR offset and be tax deductible? (I expect not)

3- any good books or web links on structuring? I have asked my account other questions before but a book would be great to refer back to from time to time. The Ato website is generally unclear.

4 - is there a better way to renovate and then purchase again that I am not seeing??

Thanks in advance

Alex

 

[Terry_w]

1. You would not want to mix loans.
I suggest you set up an increase for the renovation and a separate LOC for access to equity for the IP.
When you move out of your PPOR you want to be able to claim all the interest associated with the purchase and reno of this property.
Don't use your cash to reno or for the IP

2. You would create a mixed purpose loan. Don't do it this way.

3. Julia Hartman's new book on tax is excellent. I have written a few articles on structuring which I will put on my website when I figure out how to.

Get proper tax advice.

 

[Terry_w]

I forgot, make sure you PPOR is interest only now. and consider using a LOC to pay for the existing IP's expenses.

You can fine tune your set up a fair bit.

 

[Alex1]

Terry,

Thanks very much for your advice. I will borrow enough to cover Reno and establish a LOC.

Thanks for the tip regarding the book, much appreciated.

Alex