buying our first invetment property help needed with legalstrucutre and finance

[warek]

Good morning
Buying our first investment property, need help to set up in most tax effective way. Need a large loan and best way to structure property.
We currently have the house we live in paid for but the mortgage has not been discharged. We plan to retire to Tasmania in 5-8 years and have just bought a retirement house in Tasmania with settlement due in Jan 2013. The cost of the house in Tasmania is 520000 plus stamp duty of 20000 and 1200 in conveyancing fees. We plan to lease out the Tasmanian property for the next 5-8 years, move to Tasmania and lease out our Victorian property for 2 years until we are sure we like living in Tasmania so we have the option to return if needed.
My wife is a wage and salary earner and earns around 110000 and packages a car which cost 13000 a year. I am retired with a super income of 37000 a year.
We need to borrow 520000 minimum to pay for new property although I have 100000 in a super fund in options that I could get back. I am aged 57. Not sure how this is taxed. Should I wait until I am 60 to cash this in?
My initial thought was that my wife should have the Tasmanian property in her name and that she should take out the housing loan. Tasmanian rental income is low, 250 a week and property management fees are high at 10-10.5% and rates and land tax will be about 2300 a year. The property will run at a significant loss each year.
My initial thought was that she should become the sole owner but now I am thinking we should be joint tenants. Am I correct that if my wife has the loan in her name she can claim all of the interest even if we become joint tenant in the property? Would joint tenants reduce her ability to borrow 520000?
Thinking that is she can claim all of loan interest and we are joint tenants then we can share rental income and claim half of expenses each this must be better than my wife being the sole owner, and receiving all rental income and claiming all expenses. Is this correct?
Secondly finding it difficult to borrow 100 percent of property and may have to use part of Victorian property as extra security, which is worth about 500000. If we take out new loan say 100000 on Victorian property and 420000 on Tasmania mortgage will have no problems with finance. Would the interest on the Victorian Mortgage be deductable against the Tasmania property as it is used to finance the Tasmania purchase?
And if it is deductable then should that loan also be in my wife’s name only?
Should I cash in my super get 100000 back, put that into Tasmanian and not have a loan against Victoria property?
Thanks for any advice, not want to mess this up

 

[Aaron_C]

For tax deductions it is apportioned to the owners of the property, not the borrowers. So as joint tenants you will both get a 50/50 split in the income and deductions on the property.
If you took out the $100,000 loan on the Victorian property and put it towards the Tasmanian property then yes, the $100,000 portion will also be tax deductible. Make sure you don't tie the securities together though.
As for your superannuation - I am not sure what you should do with it as it is a very, very complicated and complex area.

 

[Terry_w]

Yes, title usually determines deductibility.

have you considered the estate planning aspects too? Plan for the 4 Ds - Death, disablement, divorce and d'bankruptcy.

You have some super potentially available as you are over 55. There may be some strategies available such as taking a lump sum and then paying down one loan/offset account and then salary sacrificing some back into super from your wife's wage. etc

It may be a good idea to buy in the wife's name to get the extra deductions initially.

 

[warek]

Not sure what you mean about dont tie securities together

Aaron

thanks for the reply, can you please expand on your comment about dont tie securities together though, not sure of the negative implications

Kevin

For tax deductions it is apportioned to the owners of the property, not the borrowers. So as joint tenants you will both get a 50/50 split in the income and deductions on the property.
If you took out the $100,000 loan on the Victorian property and put it towards the Tasmanian property then yes, the $100,000 portion will also be tax deductible. Make sure you don't tie the securities together though.
As for your superannuation - I am not sure what you should do with it as it is a very, very complicated and complex area.

 

[Aaron_C]

Warek - what I mean is don't get a loan that is attached to both the Victorian and the Tasmanian property. This is what banks will do from day 1 and is their bread and butter. The negative implications of this is that they control how much of the loan is paid off if you sell one or the other - and it restricts your flexibility when it comes to refinancing one of the properties away to another lender for a better deal / extra cash.

 

[warek]

Still unclear about loan interest split between both of us or claimable in full by

Thanks for the replies, and just an update on my thoughts and issues I am still not sure of

Current thinking is as follows, if we buy as joint tenants, better when one of us dies. Income from lease property - all expenses including construction cost write down and depreciation of plant etc would be a profit per year of 500-1500 dollars, shared between both at 50-50 split, we may make a profit of 250-750 a year, excluding loan interest.

Still trying to get confirmation that if my wifes borrows the loan in her name only even though we are joint tenants then the interest costs per year will be about 28000, fully deductable against her income. So to my way of thinking she then has a tax loss of 27250-27750 a year and I will have a profit of 250-750 a year. Is this correct?

Not sure what will happen in 5-8 years when we use house as our PPOR with any capital gains tax implications but expect that there will not be a lot of gain.

Kevin
.

Yes, title usually determines deductibility.

have you considered the estate planning aspects too? Plan for the 4 Ds - Death, disablement, divorce and d'bankruptcy.

You have some super potentially available as you are over 55. There may be some strategies available such as taking a lump sum and then paying down one loan/offset account and then salary sacrificing some back into super from your wife's wage. etc

It may be a good idea to buy in the wife's name to get the extra deductions initially.

 

[Aaron_C]

warek - ALL people on the title of the property have to be borrowers for the property loan as well. It can't just be in your wife's name if you share it with her in a joint tenancy.

 

[warek]

Joint tenancy owners must be on loan application?

Aaron

Been reading a bit, can't remember exactly, but think I read somewhere that I could go as a guarantor on loan and loan could be in wifes name. Although that may have been when I initially enquired about my wife being the sole owner of property. Does that change the situation? Does this make any sense?

Does being tenants in common with 99 wife and 1 % split provide any benefits here?

Thanks
Kevin

warek - ALL people on the title of the property have to be borrowers for the property loan as well. It can't just be in your wife's name if you share it with her in a joint tenancy.

 

[Aaron_C]

You will be a guarantor/borrower of course. No real benefits to a tenants in common split.

 

[warek]

2 loans 2 securites do I need 2 banks or stick with 1

G'day Aaron

Follow advice about borrowing money for Tassie property, am I correct in keeping existing mortgage with Nab and then taking out home equity line of credit loan for 20-25% of money needed borrowed probably in both names as we are joint tenants in Victoria property and then new loan 80% secured against Tassie property in wifes name only. Would only need one offset account?

Can do both of these with same back for one application fee, or are we better to use two banks?

Seems nuts but I could then refinance with Ubank, get 500 eftpos card and a lower varaible rate of 5.62%. Or bank of melb and get 700 cash incentive to refinance.

Would seem that as we intend to live in Tassie that we should take out p+i loan rather than IO as we would want to reduce principal and then pay loan out after 5-8 years, Or is it still better to keep cash in 100 offset account until we decide to pay out the loan?

Thanks again for your advice

Kevin

You will be a guarantor/borrower of course. No real benefits to a tenants in common split.

 

[Aaron_C]

warek - there are lots of issues here. Just because you currently own the Victorian property in both your names doesn't mean you have to structure the loan that way. In Victoria you can transfer the properties from one spouse to the other without paying stamp duty. This can help you achieve the most tax effective loan structuring. I do suggest that you get a broker on-board to help you work out the intricacies of the loans etc. The UBank product is suitable if you want a simple, straight forward loan but it really does have its limitations in your situation I think.