IPs have I contaminated my loan?

[propertydreamer]

Hi guys

Read some of the other posts so I hope I'm understanding this correctly. Please let me know if I'm contaminating my loan by using cash savings and equity to purchase my next IP. May some more experience investors have a better suggestion. A novice here, my purchases were a bit of luck so really I don't know what I'm doing.

Situation: no PPOR, just have IPs. I've revalued IP1 and have been approved for a top up. IP2 has potential for a top up as well.

IP1:
Loan $238,000, split into 2 loans I/O
Loan 1: $130,000
Loan 2: $108,000

After top-up of loan; $298,000
Loan 1: $190,000
Loan 2: $108,000
So now I have an extra $60K of equity to use for my next IP in Loan 1 sitting in the redraw/loan account.

IP2:
Loan $315,000, split into 2 loans I/O. Should be able to revalue to get $40K equity
Loan 3: $160,000
Loan 4: $155,000

I'm looking to purchase an off the plan apartment ~$500K and need to pay a $5000 deposit by cheque. But the redraw/loan account for Loan 1 only has bank transfer or bpay no cheque option.

If I pay the $5000 deposit from my cash savings from another transaction account and then later pay the remainder of the 10% deposit $45K from the redraw account, is all the interest on Loan 1 after redrawing the $45K still fully deductible? I intend to pay the rest of the stamp duty and legal fees with the remaining $15K which would be stilling in the redraw and then any remainder fees with my cash savings at settlement.

By using the combination of the equity and cash savings to pay for the purchase of IP3 would all the interest in Loan 1 still be tax deductible or have I now contaminate my loan? Or is there a better way to structure this?

From what I understand is as long as I don't transfer the $60K to other transactions accounts and only directly do a bpay or bank transfer from the redraw account to pay for the remaining deposit, stamp duty and legal fees, then there is no contamination and I can still claim the full interest from Loan 1.

My intention is to purchase another property IP4 shortly after ~$600K again off the plan and then use the equity from IP2 $40K equity to pay for the deposit and the remainder of the deposit with cash savings. If I use the $15K from Loan 1 for IP4 deposit is this also mixing/contaminating the loans? Would this make it very difficult to track in the long run if I sell a property or my one of the IPs into my PPOR?

All properties would be 90%+LMI

Going on a punt, hopefully there is going to be some good capital growth in the coming years for these. If there's a bubble bust I'll be in trouble.

 

[Terry_w]

You can't pay cash for something and then later reimburse yourself for this. So the interest on the reimbursement portion would not be deductible and therefore you would create a mixed purpose loan.

Why not just get a bank cheque drawn from the loan? Or get transfer directly into the real estate agents trust account from your loan.

 

[propertydreamer]

I don't intend to reimburse myself for the savings I use. Whatever the equity can't cover I'll use my savings to cover. It will purely eat into my savings and considered as using savings for a future investment.

IP3 $600K property:
1. $5K deposit - source: savings from transaction account. Nothing is deductible, since this is own savings from an offset account and doesn't affect any loan deductibility

2. $45K remaining 10% deposit - equity from loan 1. Interest from the redraw of $45K deductible since going towards purchase of investment property. Directly transfer from redraw account

3. $15K towards stamp duty - equity from loan 1. Interest from the redraw of $15K on loan 1 will also be deductible since it's going towards purchase of investment property. Directly transfer from redraw account

4. $15K towards remaining stamp duty and legal fees - source: savings from transaction account. Nothing is deductible, since this is own savings from an offset account and doesn't affect any loan deductibility

In total $20K will be pure savings. The first redraw $45K is tax deductible on loan 1 and the second redraw $15K will also be tax deductible as long as the funds are not transferred to my offset account but rather directly EFT the deposit payment to the vendor/solicitor

 

[Terry_w]

Not sure what your question is.

but, if I understand correctly,

If I use the $15K from Loan 1 for IP4 deposit is this also mixing/contaminating the loans?

If you sell a property securing these loans it could be an issue when the loan has to be repaid but the property the loanw as used for is still owned. So maybe best to increase the loan on the new property in say a years time and refinance these small loans secured by other properties.

 

[s0805]

From what I understand is as long as I don't transfer the $60K to other transactions accounts and only directly do a bpay or bank transfer from the redraw account to pay for the remaining deposit, stamp duty and legal fees, then there is no contamination and I can still claim the full interest from Loan

Run this pass your accountant.....but

have you considered parking money from redraw to brand new savings account or something, write a cheque from it then close the account.My understanding was key point to not to mix it with personal money.....

 

[propertydreamer]

Sounds like easiest options is to directly transfer from the loan to pay the 10% deposit.

Haven't got an accountant yet. Need to find a accountant but hard to find one seems like choosing one is like a lucky dip

 

[perthguy]

Sounds like easiest options is to directly transfer from the loan to pay the 10% deposit.

Haven't got an accountant yet. Need to find a accountant but hard to find one seems like choosing one is like a lucky dip

I don't like to pay for things I don't need and do most things myself. However, in a case like this the savings can be in the order of 10s of thousands of dollars over the long run. I my view that makes the small amount spent on good advice worth the investment. You raise an excellent point about finding a good accountant though. Years ago I paid top dollar for a local "pro" in the area who was recommended to me by a number of people He turned out to be a dud. My advice is to ask on the forums ask around then interview a couple and see if you track down a good one. I eventually did and it has been well worth my while.