Best Way to Access Equity

Discussion in 'Property Finance' started by jon2378, 27th Sep, 2013.

  1. jon2378

    jon2378 Member

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    My uncle has paid off his debt on 3 properties he bought around 25 years ago, including his PPOR, a block of land and an IP.

    The properties are worth ~$2.5m. 2 of the 3 properties have mortgages on them, cross-collateralised, with about $20k owing on the IP.

    The IP generates around $45k/yr, but this isn't enough for my uncle to retire off, and he's looking to access equity to live off/invest.

    He has used an offset account for the last 5 years, but chose to pay down the principal as well, so now potentially he could take back ~30k from the offset (ie. offset is for ~50k of debt, 30k + remaining 20k).

    What is the best way for him to access this money? I think it would have been best for him to make the IP offset with 0 repayments, that way any money he had put in the IP, he could take out and the interest on that amount would be tax deductable.

    He wants to have an income of 100k/pa, and would also like to be able to purchase an additional 1 or 2 IPs. He's looking to retire in a few years time.

    What would be the best way for him to access the equity? It is very straight forward for him to redraw from his IP and invest in another property. That would make the deposit, stamp duty and everything tax deductible for a new purchase I believe?

    Is there anyway he could re-arrange his current loan structure so that he could access his money for his own uses and the interest would be tax deductable (ie. as though he had just put money in an offset the whole time?).

    Ideally, he would like to be able to take out money from his property (paying interest at 5.2%, but being tax deductible @ 32.5% bracket, so effectively he pays interest of 3.51%). He would then lend the money to his children, who are uni students and pay no income tax, who could invest it or use it for a deposit on a house.

    Thanks in advance
     
  2. Aaron_C

    Aaron_C Finance Broker

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    Well given your uncle's net asset position I think he knows what to do...

    If he wants he can set up a line of credit against his property and use that to purchase (subject to serviceability). Pretty standard stuff.
     
  3. Colin Rice

    Colin Rice Perth Mortgage Broker

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    Split the line of credit if he requires a portion for personal use to avoid contaminating the investment debt.
     
  4. greedy2000

    greedy2000 Member

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    Why not tell him to speak to a financial advisor.......
     
  5. Brady

    Brady Big 4 Banker

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    How old is your Uncle?

    Gearing into property might not be the best option?...

    It could be the perfect option... but after seems odd that after 25years now only going to get back into it. And to increase cashflow by $45,000 will take a bit.


    He could sell all his properties $2.5M x 5% return from shares (grossed up) = $125,000 take out $25,000 a year ($480p/w) for rent and has $100,000 gross p.a plus growth from the shares.

    Would obviously have taxes and alot of things to consider... but different option.
     
  6. Rolf Latham

    Rolf Latham Member

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    Id not make those assumptions / generalisations.

    conversely, I find some folks that doit tough financially are more amenable to have a better knowledge of making $work simply because they have had to.

    I have come across some people with big bucks that have no clue about financial structures

    ta

    rolf
     
    Jamie M likes this.
  7. Rolf Latham

    Rolf Latham Member

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    speak to someone that may be able to advise on a re gearing strategy - perhaps a part sale of the portfolio to a unit trust

    ta

    rolf
     
  8. Terry_w

    Terry_w Member

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    Perhaps he should look at borrow to pay all expenses associated with the properties and then he will have more rent money to live on. In the early years the expenses won't be much but this will build up over time.
     
  9. Rixter

    Rixter $uper Investor (Retired)

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    Several Lines of Credit work for me. :)