New Investment?

[Brenton]

My partner and I currently have a $200,000 loan on our house which is worth approx $600,000.
What we want to do is build a new house to live in maybe worth $350,000-$400,000 (house and land) and rent out the current house we have now. The tricky thing that I cant work out is what to do about the interest only loan? Obviously we want to get the tax deduction but don't want the new loan on interest + principal.
If that makes sense at all can someone please give your thoughts.

Cheers

 

[BayView]

The ATO looks at the PURPOSE of the loan for tax deductibility.

The loan for your new PPoR that you are planning to build will NOT be tax deductible, as it is not being used for investment.

The interest on your current PPoR when it is converted into an I.P will then be tax deductible. So will all the other costs associated with the house; rates, insurance, maintenance etc - even depreciation if the house was built after 1987.

You could probably still get the loan for the new PPoR as an IO loan though, and from the description of your current PPoR and how much you owe, and depending on the rent you receive from it, there is a good chance it will be cashflow positive, which will offeset some of the new loan payments for you.

You need to get hold of a property savvy accountant and mortgage broker to guide you through this.

 

[Modal Harmony]

Quite agree with LA Aussie; these 2 characters are a MUST for commencing the IP route. Another really useful person is a good property manager (PM) who can manage the day to day affairs of the rental for you.

Some people like to do this themselves, but you have to be prepared for more time commitment for this. We have 5 IP's at the moment managed by 1 PM and she has been worth it (especially when more than 1 property is part of the portfolio).

I would get the MB to discuss refinancing the current PPOR to IO and then P&I as usual for the new PPOR.

 

[Brenton]

Ahh what a shame.

I suppose we can just rent the new house out then.

 

[Qlds007]

Why not consider selling the property to a Unit Trust for current market value and borrowing 100% of the valuation.

Use the borrowed funds to repay the existing home loan and the surplus funds to buy your land and construct the new home.

This way the interest on the IP (current PPOR) will be fully tax deductible and the burden of debt will be switched from non deductible to deductible.

You may still find that you need to top up your borrowing depending on the price of the new PPOR but dependant on your marginal tax bracket the savings could be significant.

Stamp duty will be incurred but can be added into the loan amount.

 

[Brenton]

Ok..

Im pretty new to this stuff and that made absolutely no sense.. sorry.

Did you mean sell our house that we have now? If so, we want to try and keep it.

Eventually hopefully have a few houses.