Best way to fund PPOR?

[BlackSpider]

Just trying to plan ahead a little here.

If I have 1.5 million cash available for a PPOR, what's the best way to structure the loan.
The goal is to purchase some IP's in the near future.

Should I put down the minimum cash deposit, maybe 300k, and borrow the other 1.2 mil.
And get the loan as I/O with an offset, and put the other 1.2 mil in the offset to use as deposits when required.

Would this be the best way to do it?

There will be no cash left after this, but serviceability is very good from salaries.

If this way is possible, it seems to be the best result overall, as we get to enjoy a nice PPOR, and continue to invest.


Thanks
Spider

 

[Rolf Latham]

Hiya Spider

Thats generically the way I would suggest when you first buy. But not structured with the intentions you have there. I would not use any cash from the offset. because it would not be deductible.

Id do the 80 % lend, with 100 % io offset.

Say you borrow 1.2 on 1.5

Then when you are ready to buy an IP for say 500 k, put in a 120 k separate split into the 1.2 k. You now have 2 splits, one for 1080, and one for 120 k.

This way you maximise future flex ( like for example you might turn the PPOR into an IP), and get the best tax deductios to boot

There are various variations on this theme depending on your current resources and your future goals.

This might be one of those times where a good broker will be able to help you stucture things better than most bankers

ta

rolf

 

[Indifference]

Maybe I am missing something here, but wouldn't the 1.2M be borrowed for the PPOR which = nondeductible debt.....

Reduce PPOR debt to $0 with cash (as you state $1.5M is available), borrow against the equity for IPs....

 

[Bradsdad]

Maybe I am missing something here, but wouldn't the 1.2M be borrowed for the PPOR which = nondeductible debt.....

Reduce PPOR debt to $0 with cash (as you state $1.5M is available), borrow against the equity for IPs....

I think what Rolf is getting at is borrow 80% against PPOR on an IO basis. then if $120k is needed for deposit on an IP & fees then paydown the $120k off the PPOR and borrow it again as a seperate facility so that portion related to deductable debt.
What you're saying is correct in that the PPOR debt isn't deductable. Spider could pay the cash and then borrow against PPOR at a later date for IP acquisitions. The problem with this comes should Spider wish to turn the (now) PPOR into an IP at a later date. There would be little or no debt associated with this property for deductability. Rolf's suggestion should maximise tax benifits if the initial use was changed down the track.

Should Spider have absolutely no inentions of turning PPOR into a IP, that absolutely, then either way would do the job.


Regards
Steve

 

[BlackSpider]

Wow, fast replies, thanks very much.

As far as I can see, there would be no intention to convert the PPOR to an IP further down the track.

So, how does this work "then if $120k is needed for deposit on an IP & fees then paydown the $120k off the PPOR and borrow it again as a seperate facility so that portion related to deductable debt."

A little confused with this.


Thanks
Spider

 

[Rolf Latham]

Hiya

On intentions ..............Life is what happens to you while you are making other plans ( John Lennon), there are one too many times where clients have said....never, and then well, never became reality.

Expected that youd find that confusing, most of my "educations" are terribly confusing at first, becasue you can only get a snippet of the soft data in a post.

You need to keep the PPOR and IP borrowings separate for tax management purposes...............that bit you probably got, the 120 comes from the money needed to buy a hypothetical 500 k ip, that being 100 k deposit and 20 k costs, with the pther 80 % coming from a separate loan against the newIP

ta
rolf