How do I deal with my finance structure stuffup

[Zeddy]

My sorry tale is the result of not knowing better when I bought my first two investment properties. I paid off chunks off the principal as follows:

IP #1
Original loan: $216000
Paid down to: $210700
Reval to: $239000 (To purchase IP #3)

IP #2
Original loan: $224000
Paid down to: $171100
Reval to: $233600

So the affected funds = (239000-210700) + (233600-171100) = $90800

IP #3/PPoR
Loan: $319360

Now I am intending to rent out the other rooms of IP #3/PPoR for the immediate future. The bedroom I occupy is 10% of the liveable floor space.

So of the $90800 of the affected funds, and assuming I am in the 30% tax bracket, and at a average interest rate of 8%, am I correct in understanding that the loss of claimable funds is:

10% x 30% x 8% $90800 = $217.90

Obviously this is very less than ideal, as if I ever decided to stop renting out the other rooms I would be up for the full amount of:

30% x 8% x $90800 = $2179.20

Is this correct?

What can I do to unravel this? The only thing I can think of at this moment is to make IP#3 purely for investment purposes only, and not my PPoR. At this stage in life, this really is not ideal for me.

Are there any other possibilities that I'm unaware of?

 

[Terryw]

Wow, messy.

It looks like you mean you borrowed more money when you say reval. And this money was used to purchase IP 3.

If you can claim 90% of the costs for IP 3 then you should be able to claim 90% of this loan too.

To unravel all this you need a bit of equity and a patient broker to go through it all in detail.

 

[Aaron_C]

Zeddy this can be unravelled but you need time and some careful planning to do so.

 

[Rolf Latham]

Hiya Z

dont despair, at worst, its only money .

Are your loans crossed with the one lender ?

ta
rolf

 

[Zeddy]

None of the loans are cross collateralised. All the loans are with ANZ.

I am also looking at buying IP#4.

Post-settlement of IP#3 in December 2011, I was left with some $45K in my bank account. At the moment I'll be honest, I'm not 100% sure what to attribute the source of this money to.

In this case however I don't think it's critical - the place I'm looking at buying with 100% definitely always remain as a pure IP.

 

[Terryw]

None of the loans are cross collateralised. All the loans are with ANZ.

I am also looking at buying IP#4.

Post-settlement of IP#3 in December 2011, I was left with some $45K in my bank account. At the moment I'll be honest, I'm not 100% sure what to attribute the source of this money to.

In this case however I don't think it's critical - the place I'm looking at buying with 100% definitely always remain as a pure IP.

You can'it just borrow money and have it sitting in a savings account and have the loan deductible. Its a small amount and the interest is negligible, but it is still an issue. Best to set things up to avoid potential issues I think.

 

[Rolf Latham]

In this case however I don't think it's critical - the place I'm looking at buying with 100% definitely always remain as a pure IP.

With tax stuff, a hunch isnt good enough : (

I believe it would be well worth ur while to sit down with an accountant and a broker an clean it up NOW.

By moving fwd without a proper assessment and fix, you arent adding to the issues you already have, you could be multiplying them

t
arolf

 

[Aaron_C]

You are lucky they aren't cross collateralised. So at least you can start to repair the potential damage that will be caused.

 

[Zeddy]

I'll make an appointment to see my accountant for sure. I guess I'd like to get some warning as to how much I should brace myself.

I'll ask how to treat the $45K in offset as well.