Loan structure for property development

[Housechopper]

Hi Folks

Just wondering if a broker or accountant can provide some advice. I have a PPoR and am looking to purchase an investment property and complete a subdivision - building at the rear of an existing house and selling the new home after.

My current loan is a 80% interest only with offset account.

I was wondering what the best way to structure the new loan for the investment property is?

I would like to maintain flexibility to be able to move into one of the houses on the investment property in the future. My bank manager suggested that I pay all the money I have in the offset account into the loan on my PPOR then they can draw down a separate loan of 100% on the investment property.

This would be good from a tax deductibility perspective, but would make the PPoR useless as a future investment with principle paid down.

Any thought would be greatly Appreciated.

Thanks

House chopper

 

[Terry_w]

Don't take tax advice from brokers or bankers!

You should borrow 103% of the value of the new property without cross collateralising. How you do this will depend on your set up.

 

[Peter_Tersteeg]

The advice you've had is about 50% correct.

By moving money from your offset account to pay off the loan, you're creating equity in your PPOR. Without knowing all the details, this is probably reasonable.

It's then been suggested that you use this equity as security for the IP. This could be taken to mean that you cross collateralize your PPOR with the IP which is generally a bad move. A better way to do this is to access the equity back via a loan account (separate from your PPOR loan). This turns your equity into cash which can be used as a deposit.

By borrowing the money (rather than using it straight up as cash from your offset account), you're effectively creating a loan which if used correctly may be tax deductible.

A more specific implementation will depend on the figures involved.

 

[Rolf Latham]

HC, as a fellow Melbournian, have a chat with Pete who posted above.

While the bankers idea in and of itself may be appropriate, its highly likely that a more flexible option is out there, which may involve a different funder - in which case a specific bank may not be the solution.

While your current loan is at 80 % lvr, did you ever pay LMI on same ?

ta
rolf