borrowing from 3rd party for IP

[feihong]

Hi all,

I have some urgent works that need to be done to an IP. Currently I am a bit short of working capital and would not be able to refinance any of my properties for additional equity as I have purchased all my properties within the last 6 months. The question is, is it possible at all to borrow money from family or friend first (with full interest) and pay them back when additional equity becomes available while claiming all interest occurred as tax deduction? Thanks in advance.

 

[marg4000]

I cannot see why not, but then again it may be best to check with your accountant.

If you do go ahead I would be very particular with paperwork, maybe get your friend/relative to pay the repair bills directly (to prove that the money was spent on your IP) and then you claim interest on the EXACT amount of the repairs.
Marg

 

[feihong]

Hi Marg:

Thanks for the suggestion. I will talk to my accountant regarding this.

 

[alexlee]

I'd just ask: what security do your lenders get if you don't make the payments?
Alex

 

[feihong]

I'd just ask: what security do your lenders get if you don't make the payments?
Alex

Alex, do you mean what security does my friend/relative get if I don't make the payments?

 

[alexlee]

Alex, do you mean what security does my friend/relative get if I don't make the payments?

Exactly. I'm assume they're not going to register a lien on your property.
Alex

 

[Sunfish]

If your cash flow is stretched now, Alex's Q is valid. How will you pay it back?

 

[feihong]

If your cash flow is stretched now, Alex's Q is valid. How will you pay it back?

I'm getting my properties refinanced in April, and that's when I will be able to redraw the money out and repay them.

 

[Sunfish]

Do the sums on this. By next Apr interest rates are sure to be higher. If you fix while refinancing it will be at a higher rate than current variable rates anyway, add the extra loan repayments and you will still be stretched further. Only you know if that is too far.

 

[feihong]

Do the sums on this. By next Apr interest rates are sure to be higher. If you fix while refinancing it will be at a higher rate than current variable rates anyway, add the extra loan repayments and you will still be stretched further. Only you know if that is too far.

When I refinance my PPOR in April and repay the loan, I'm actually converting non tax deductible component into tax deductible, and effectively reduce my burden, even though the interest is higher. Another thing is that after I've done the upgrade to this investment property, it will be very close to cashflow neutral (after fixing the interest). Thanks for your advice though, really appreciated