how to fix a personal loan mistake

[bianca]

Hi all,

Back again with a couple of questions. Hope someone has some ideas.
Son is battling the post divorce blues-slowly getting on top. However I think he has made a few mistakes and I am wondering if there are any remedies.
He bought land-block 1- loan $70K. Now worth $240k
block 2-loan $150k. Now worth $220K
equity $240k market value.
He then purchased a house with fiance, in her name, as his divorce had not settled properly-$300K. Fiance had absolutely no money, so the bank adviced him to take out a personal loan of $80k against his equity, for the house, so she could get the loan.
He then contracted a builder to start building his new house on block 2-$385K, with the view of getting it built quickly and renting it out. Then doing the same with block 2. However, the builder has not started yet-10 months after the contract!- and his money is tied up for at least an other 12 months-no claimable expenses there. The payments for the blocks are killing him, and because he has signed up for the loans and paying interest, his servicability is just about gone.
Is there some way the personal loan can be converted to make it an investment loan, because I can't see how he is ever going to be able to get rid of it?
Is there a financial advisor/mortgage broker on here we can talk to? Qld based would be good, but I think we realy need some help to get on the right track. He works in our business, so we can help if needed. we would like to at least buy one ip while he is waiting for house 1 to be built.

cheers all

 

[julia]

Bianca,

Can't help you with the refinance side but if your son is building the house with the intention of renting it out he can claim the interest and rates on the property as a tax deduction while it is "being" built. If he lodges a PAYG variation with the ATO you can take less tax out of his pay which may help his cash flow.

Julia
www.bantacs.com.au

 

[Bandita]

He then contracted a builder to start building his new house on block 2-$385K, with the view of getting it built quickly and renting it out. Then doing the same with block 2. However, the builder has not started yet-10 months after the contract!- and his money is tied up for at least an other 12 months-no claimable expenses there. The payments for the blocks are killing him, and because he has signed up for the loans and paying interest, his servicability is just about gone.

Hi Bianca,

I'm not an accoutant - but my understanding is that if you're building a property for rental puposes (i.e. to generate income which you will have to pay tax on) - then the interest on your loans are tax deductible. I would change it to an interest only loan immediately (if not already), try to take out a LOC on the increased value in the block and use that to pay all shortfalls until the house is built and can be rented out. As all the funds are based towards producing an income producing investment, I believe the interest should be tax deductible.

Cheers,
Jen

 

[bianca]

Thanks Jen,

i will have to check to see if his loan is interest only, and follow the LOC idea. Any idea on how to get rid of the personal loan, or is that the loan you are referring to?-thanks for coming to my aid so quickly! xxxxxx

 

[Mr. Fabulous]

H bianca,

Contact Rolf Latham - he'll be able to help you no worries.

Mark

 

[Bandita]

Thanks Jen,

i will have to check to see if his loan is interest only, and follow the LOC idea. Any idea on how to get rid of the personal loan, or is that the loan you are referring to?-thanks for coming to my aid so quickly! xxxxxx

Agree with Mark! Talk to one of the great brokers on this forum - such as Rolf!

Cheers,
Jen

 

[regrow]

QUOTE]try to take out a LOC on the increased value in the block and use that to pay all shortfalls until the house is built and can be rented out.[[/QUOTE]

Have just tried to do this but was unable until the loan has been fully drawn down.

Not sure whether it was just my bank (CBA) or all banks have this policy.

Regards

Regrow