Is this the best strategy to convert PPOR to IP?

[Curious Investo]

Ok, here's the scenario:

My wife and I both own a property which we purchased in a our own names a few years before we met. The properties are both 2 bed units.

Currently we are living in my wife's property and I have been renting my property, which thanks to current interest rates / rental increases has become +ve geared.

In the next 6-12 months we intend to purchase a larger property (more bedrooms needed) and retain IP's. I would like to extract some equity from the two IP's to free up cash to purchase our property?

Is the best strategy (in terms of negative gearing of investment loans) to refinance my current IP to extract equity to purchase my wife's property from her. At this point all the loans are purely for investment only. The proceeds of the property sale are passed to my wife who can then (with me) buy our larger property.

The IP loans would be a maximum of 80% of property value (avoiding mortgage insurance). I earn the greater salary and hence would be benefit the most from any -ve gearing strategies.

I am new to property investment and have stumbled into it by accident rather than design. However, I do find very interesting to read some of the advice on this website.

Any comments would be greatly received,

Thanks

The Curious Investor!

 

[BayView]

Yep, this'll work.

Your wife will have the cash from her sale to you.

You will then own both IP's and the debt on both will be yours, but so will all the deductions.

The only problem is the stamp duty and other transaction costs such as legals to be paid by you on the sale.

However, I notice you are from Melb, so you might be able to invoke the "for love and affection" clause and avoid the stamp duty. This allows you to transfer your property to your spouse without any stamp duty being paid apparently.

I'd speak to a property solicitor about that bit.

 

[Propertunity]

I earn the greater salary and hence would be benefit the most from any -ve gearing strategies.

Just also bear in mind that one day, maybe 10 years from now, maybe 5 years - dunno, but some day............that all properties go cash flow +ve and now you have the highest salary AND the +ve cash flow from that property to pay tax on. Just a thought for the future

 

[mortgageman]

Hi Curious,

As Bayview said, this would work, as long as you are eligible for the stamp duty exemption, otherwise you would have to calculate whether the negative gearing benefits are worth the costs. From a loan point of view, make sure that if you are accessing equity to purchase a new place of residence, seperate the original debt on the investment property and the amount taken out as a deposit on the new place. Also, avoid cross-collaterising the properties as this will give a lender too great a control on your finances.

Kind Regards,

Cameron Perry
Perry Financial Strategies

 

[Curious Investo]

Thanks all for your quick replies. I will look into avoiding stamp duty (who wouldn't!!) via the 'love and affection' clause. Also, will consult a property solicitor or similarily qualified professional. Does anybody have experience with the 'love and affection' clause in avoiding stamp duty or can anyone recommned a property solicitor?

To answer Mortgageman / Propertunity:
I fully envisage the two IP's will become +ve geared in the future. However, future IP's are likely to purchase in either wife's name or both names. The loans for IP's would not be linked to home loan. I intend these to be entirely separate. I would extract equity from one IP to purchase the IP from wife (PPoR). Naturally, I am a newbie and welcome any better suggestions.

Thanks

Curious Investo