LOC or Crosscollateralize

[Investeroon]

Just a quick one regarding a triplex block I bought, I am concerned about the exit strategy with regards to making the whole lot tax deductable as I want to hold and rent them.

I want to use my Unit as security, build and create the 20% equity and then get the title back so I can go again. I am confident of creating the equity after the build, I have done it this way before.

The other option is, get a LOC on the Unit, use the cash from this as a deposit so the banks don?t have too much control.

I understand using the LOC, but doing it this way I would have to pay interest on it, refinance at the end of the build to get cash out and pay back the LOC so I can go again.

So my question is, if I use an LOC will the tax department view this as me paying off some of the mortgage and then taking it back, similar to using a redraw instead of an offset account ?

 

[Peter_Tersteeg]

A LOC is a product, whilst cross collateralising is a structuring strategy. A LOC credit is often used to access equity (and thus avoid cross collateralising) but you can achieve the same outcome using almost any other loan product.

Regardless of this, there doesn't appear to be any compelling reason to cross collateralise, so don't. There's no need or advantage to giving the bank the extra control over your finances.

If you pay down your existing loan then borrow that equity back as a deposit for an IP, you're borrowing money for a tax deductible purpose. The equity loan is generally considered tax deductible.

If you use the money in your offset account as your deposit, then you're simply using money from a savings account. You're not borrow the money for the deposit and thus there's no extra tax deductions to be enjoyed.

Go with the first option. Use the cash in your offset account to reduce the non deductable loan and create equity. Then use an equity loan (LOC or another product) to get that new equity back as cash and cover your deposit.

 

[Investeroon]

Thanks PT, I will take into consideration.

 

[Aaron_C]

What are the numbers?

 

[Terry_w]

Don't cross.