First IP - Should i Xcoll?

[Snort]

Hi Guys,

I currently have my PPOR with 80k in an offset account. I'm going to need about $70k to get into my first IP.

I was advised by a friend to put the 70k into my PPOR and use the equity in the PPOR against the IP so i get maximum tax advantage. All which made a lot of sense to me.

However, i'm very new to these forums and have since found a lot of people saying they don't think people should cross collateralize? Could you please advise which way you think i should go and why?

 

[Mumbai Indians]

using LOC

Hi!

Your situation sounds familiar. I got LOC setup against my PPOR. That LOC gave me complete control to get the funds for my first IP. Use the funds from your LOC for deposit and set-up costs for the IP and look around for the best possible funding arrangements.

Hope this helps.

Regards

 

[Rolf Latham]

Hiya Snort

Xcoll should only be used if there is much benefit to you

is there ?

ta
rolf

 

[Snort]

Hi Rolf,

Im not sure to be honest because i'm not sure how i would measure which way is best?

Either way im not going to pay interest on the 70k? I'm guessing im better off having that in my PPOR, which is why i don't understand why some people are saying i shouldn't cross capitalize?

 

[travelbug]

If you use the $70,000 in you offset account for deposit/set up etc your PPOR loan will in effect go up by $70,000 (costing you nearly $4000 a year). This is not tax deductable.

If you draw the $70,000 from your PPOR the interest on the $70,000 will be tax deductable (saving you about $1200- depending on your wage).
But your PPOR will be crossed with the IP. (correction). - You could pull the $70,000 out of the PPOR and still do a stand alone loan for the IP. Then they won't be crossed.

Some people hate cross coll. Others like it as it can give you a tax advantage and increase your borrowing power.

Good luck.

 

[BayView]

Hi Guys,

I currently have my PPOR with 80k in an offset account. I'm going to need about $70k to get into my first IP.

I was advised by a friend to put the 70k into my PPOR and use the equity in the PPOR against the IP so i get maximum tax advantage. All which made a lot of sense to me.

However, i'm very new to these forums and have since found a lot of people saying they don't think people should cross collateralize? Could you please advise which way you think i should go and why?

The non-cross collateralising viewpoint is mainly to do with asset protection it seems.

I have done cross-coll, but don't do it now.

Why?

Because I am risk averse mostly. I want to be able to sell any of my properties whenever I want should things go bad financially, or even when I simply just want to sell.

With cross-coll, you are not always able to do this.

If the Bank decides the other properties you have tied up are not worth enough for you to sell one IP and still have enough security to satisfy their requirements, they can stop you from selling, or make you sell up the lot and you could lose out.

From my experience, having individual loans doesn't inhibit the borrowing power, so why cross-coll?

Having no savings patterns, no equity or lousy DSR - these affect your borrowing power, or force you to have to use more risky borrowing scenarios.

 

[kum yin lau]

Hi, your situation isn't very complex. The LOC is the best option as it allows you to do the following.

1) Claim all the costs of the IP including conveyancing, transfer fees etc etc
2) Capitalise any -ve gearing of the IP
3) While capitalising the interest, you can 'pay down' your PPOR loan by putting all excess monies into the offset.

Get maximum LOC then draw down all monies needed to complete purchase. After that, use the LOC to pay for everything related to the IP.

Whatever excess monies, put into the offset account.

Beautiful simplicity.

KY

 

[Snort]

Thanks for all the advice guys, i really appreciate your help on this subject.

I guess Xcoll is more significant the more properties you own and i can see how it would be quite messy (i also now realise why my business partner has had headaches over the past 12 months as he sells 1 property and the bank has taken all the funds which he wanted to use to pay off other debts).

I understand now it also comes down to risk - i'm not a big fan of risk but the property i'm getting involved with is within my comfort zone.

KY - I don't have a LOC but an offset account. I'm not sure i can get a LOC - or how much i could get if i got one. Also, i'm building and i'm not sure the banks will let me capitalize the interest on it during construction. However, i think i see where you're heading with your advice and you've given me a number of good points to raise with my accountant so thanks for that.