Please kick my tyres.....

[Rolf Latham]

Hmmmm, errrrrr might have slipped up on that one Terry it's all in the one account. Surely I was better off lumping savings all in there to offset at 4.62% rather than having it a savings account earning 2 to 4% and paying tax?
Or do you mean I should have put the extra borrowing in a different LOC?

Why is it an issue?
Wish I joined SS 3 years ago!

TW can help you sort the tax issues, and likley organise the refinance to a lender where the loan should probably be.

Nab is probably not where you should be with a PPOR loan if you are looking to build a stoking IP portfolio.

NBA i s a high serviceability lender that should be used when you need them, not early in the piece when a lower serviceability lender is a better fit.

Lots to learn.

Its simple, but not obvious

t
arolf

 

[TheSilverBear]

Anyway, I am tired now and going to bed to mull over all your kind contributions. I cannot tell you how much I appreciate all the advice.

If you don't mind I will continue to post and may even PM a couple of you.

I would love to attend the next Sydney meetup but Wednesday is tough as Mrs SilverBear works a late shift.

 

[datto]

Thanks Datto.
I was hoping a wise poster like you would throw me a bone, perhaps I'll have to come down to the Sydney meetup in 2 weeks and buy you a schooner

or two

You going?

Wenty Leagues? Yeah I'll be there, I'm getting at least two free beers, right? lol

Hang on though, I think I'm still allowed in there, my 12 months should be up by now.

 

[knightm]

But maybe not!
Maybe a higher-yielding portfolio would have a lower total return over 10 years.

The good thing about places like this is that they help you reveal your true opinion sometimes. A few suggestions in different directions and from your responses it sounds like you are forming your view about a way forward, and also deciding on what you don't want. That is a good thing regardless.

 

[Michael_X]

Hi TheSilverBear,

Congratulations on all the hard work and putting yourself in a great position!

Reading your story, I couldn’t help but think you have a lot of the foundations to be successful in the property game. For instance

- Willingness to forgo current lifestyle for future benefits
- Not afraid to get your hands dirty through renos
- Clear goals and answering the big question of ‘why’ you are doing this

My suggestion is continue hanging around Somersoft, speak to like-minded investors and over time your strategies will become clearer and more refined.

In terms of the specific questions

Buying in Sydney – you hit the nail on the head with CharlieandKath’s thread on Sydney. If experienced investors like Skater are selling stock then it’s really telling you something. Don’t get me wrong, I love Sydney and can’t wait to buy here again but not now. I hate the 4AM fly flights to Brisbane, but as long as the numbers work I will keep investing there and when it doesn’t I will move onto the next area.

Trust – speak to an accountant. You don’t want to get this wrong from the beginning. Several good accountants on Somersoft so you have plenty of options.

Goal – certainly reachable. As I mentioned earlier, all the ingredients are there so I am certain you will do very well. The strategy will develop over time, which is actually the easy part. I guess perhaps like your IT business, you learn how to use a program, takes a little while to get use to and with enough practice it becomes second nature. Similar to property investing strategies, you learn the mechanics and over time, it will become second nature. The mindset & why is the harder part, which you have down pat.

Hope this helps. Best of luck on your journey!
Michael

 

[Brady]

TW can help you sort the tax issues, and likley organise the refinance to a lender where the loan should probably be.

Nab is probably not where you should be with a PPOR loan if you are looking to build a stoking IP portfolio.

NBA i s a high serviceability lender that should be used when you need them, not early in the piece when a lower serviceability lender is a better fit.

Lots to learn.

Its simple, but not obvious

t
arolf

Good handball Rolf, well played.

Terry why not just tell him how to resolve it straight away.

Silverbear, if you currently have mixed purpose offset simply take amount from the offset put funds into redraw and take out (redraw) when required. The redrawing of the funds will create a new purpose so what ever the funds are used for creates the deductibility.

As for what you're looking at doing Silverbear you have an excellent platform to leap from that would make a lot of people very envious. I would spend a lot of time on SS reading through some thread, the is a lot of gold. Try to leverage of as many people as you can. Personally if I was in your shoes I would be looking at properties with development potential, not necessary that you develop now, but something that has the potential for when you do have your head around it. So far seem pretty intellectual, I'm sure you will be a wizz in no time. Best of luck and welcome to SS.

 

[HiEquity]

Good handball Rolf, well played.

Terry why not just tell him how to resolve it straight away.

Silverbear, if you currently have mixed purpose offset simply take amount from the offset put funds into redraw and take out (redraw) when required. The redrawing of the funds will create a new purpose so what ever the funds are used for creates the deductibility.

This is why Terry probably needs to talk to the guy. If it was that simple to back out of this mistake, I think a few people would have mentioned it.

Doing what you're suggesting would create a mixed purpose loan with the potential for constantly varying proportions of deductible and non deductible debt (is the loan P&I or IO for example - if the former, which portion is being paid off?). At the very least it's messy and at worst if poorly handled with continual redraws etc it can become an absolute ball of string that can't be unravelled without the services of someone like Terry in any case.

To the OP - the first rule of Australian tax deductibility applies here - never mix deductible loans with personal (PPOR) loans - it has a high likelihood of creating a tax accounting nightmare and setting up a confrontation with the ATO. Keep it simple...

It may be possible to split the loan into two (one deductible and the other not) but even that has "strings attached" at this point.

 

[Terry_w]

Silverbear, if you currently have mixed purpose offset simply take amount from the offset put funds into redraw and take out (redraw) when required. The redrawing of the funds will create a new purpose so what ever the funds are used for creates the deductibility. .

Sorry Brady, no offense but this is why mortgage brokers shouldn't advise on tax. That would make the problem worse.

 

[Brady]

Sorry Brady, no offense but this is why mortgage brokers shouldn't advise on tax. That would make the problem worse.

This is why Terry probably needs to talk to the guy. If it was that simple to back out of this mistake, I think a few people would have mentioned it.

HiEquity it actually is quiet that simple, and even still now Terry hasn't suggested a solution. Terry please tell me I'm wrong.

Take the funds from the offset put back into the loan. When the funds are used it creates the deductability. You woulnd't want to keep the loan as one. It should be a split loan (seperate HL or LOC). Don't want to have one loan with multiple purposes or multiple securities.

 

[Terry_w]

example
Take for example a $1.5mil loan which was originally $900k. $600k increase with money released parked in offset.

There are 2 main problems with this:
1. One mix loan relating to 2 purposes = mixed purpose loan
2. Borrowed money mixed with non borrowed = interest cannot be traced to investment

Summary So Far
$600,000 increase relates to offset parking (this is 40% of the total loan)
$900,000 relates to purchase of existing property (possibly) (this is 60% of the total loan)(owner occupied portion)

Borrowing $600k and mixing with non borrowed savings means the interest on this portion won't be fully deductible even if $600,000 is later used to invest.

Bad Solution ? Don?t do
You may think a solution may be to pay $600k into the original loan and redraw again. But this will create a further mess because that original loan is mixed.

Depositing $600k back into the loan will result in this
$600k x 40% will come off the $600k borrowed to park in the offset, or $360,000.
$900,000 x 60% will come off the owner occupied portion or

Now the portions of the loan will be
$600,000 - $240,000 = $360,000 relating to the mistaken parking in offset
$900,000 - $360,000 = $540,000 relating to the owner occupied portion

Total loan is $900,000 again with $600,000 available in redraw.
If the main residence was ever rented out the max interest claimable would be on the $540,000.
The loan is still one big loan and redrawing would result in even more mixing.

Solution ? it?s simple really
Refinance the loan into 2 relevant portions.
$600,000 and $900,000.
This must be done before repaying any more money.

Once the portions are separate then $600k can be taken from the offset and used to repay the $600k loan (make sure bank doesn?t close the account).
Since the loan balance is now nil the $600,000 can then be borrowed and used for investment purposes and all the interest would then be deductible.
The $900,000 loan can be run as per normal.

 

[Terry_w]

Sorry about the formatting that was copied and pasted from my draft book preliminary title is "Loans and deductibility of Interest" - written 100 pages so far

 

[sanj]

Sorry about the formatting that was copied and pasted from my draft book preliminary title is "Loans and deductibility of Interest" - written 100 pages so far

You are a machine Terry!

 

[HiEquity]

Yep - I agree with Terry!

Elegant solution too... best I have seen for this problem.

 

[Brady]

This is why Terry probably needs to talk to the guy. If it was that simple to back out of this mistake, I think a few people would have mentioned it.

Solution ? it?s simple really
Refinance the loan into 2 relevant portions.
$600,000 and $900,000.
This must be done before repaying any more money.

So there was a simple solution.

Thanks for sharing Terry, would of loved for you to post something like this straight up.

I can't see an issue with how I suggested, you say the original loan being mixed purpose is a problem but I can't see that as an issue, there isn't any deductability in loan as it's for the PPOR and always was and will be so no tax issue. Unless this changes in the future and OP decides to rent out the $2.4M property. The $600k which is used for investment purpose would be still deductable (and should be set up correctly as a seperate loan).

 

[Terry_w]

So there was a simple solution.

Thanks for sharing Terry, would of loved for you to post something like this straight up.

I can't see an issue with how I suggested, you say the original loan being mixed purpose is a problem but I can't see that as an issue, there isn't any deductability in loan as it's for the PPOR and always was and will be so no tax issue. Unless this changes in the future and OP decides to rent out the $2.4M property. The $600k which is used for investment purpose would be still deductable (and should be set up correctly as a seperate loan).

Lawyers make their money from providing advice. Giving away free advice on the net means no one needs to see you. Also it took me 30min to write the above so it is time consuming.

This issue with your answer was that it would have resulted in a mess if the loan portions were not split.

 

[Brady]

This concerns me. Hope you sought tax advice and have split the loan and made sure that no non borrowed money ever touches that offset account?

Potentially Huge issue considering the sums involved. You have destroyed the deductibility of interest and made a mixed purpose loan. Best to get this rectified, as much as it can be, before proceeding any further. get some advice.

Lawyers make their money from providing advice. Giving away free advice on the net means no one needs to see you. Also it took me 30min to write the above so it is time consuming.

So you post on here just to bait clients into seeing you? I would suggest if you spent more time sharing your great knowledge that you have that you would see more customers. I've seen you post some great stuff here, but see way to much 'seek advice' one liners. You do some great articles etc, but dropping hints and baiting I don't like. If you're going to spend the time to comment, especially more then once give them the full details. Is this not what this forum is for?

The OP sounds like a great candidate to see you, I would be extremely surprised if you weren't able to assits them with better structuring of their finances along with possible asset protection etc given s/e business.

 

[neK]

So you post on here just to bait clients into seeing you? I would suggest if you spent more time sharing your great knowledge that you have that you would see more customers. I've seen you post some great stuff here, but see way to much 'seek advice' one liners. You do some great articles etc, but dropping hints and baiting I don't like. If you're going to spend the time to comment, especially more then once give them the full details. Is this not what this forum is for?

The OP sounds like a great candidate to see you, I would be extremely surprised if you weren't able to assits them with better structuring of their finances along with possible asset protection etc given s/e business.

I disagree with what you're saying there.

TerryW does provide helpful advice.

However there are some more complex matters that a person would be better off paying for.

Adding to that, if a person acts on the solution to a complex situation and does not implement it correctly, then its easy for them to blame another person.

Brady, your heart is in the right place, however give it a few years and you'll understand the reason behind this logic.

 

[D.T.]

So you post on here just to bait clients into seeing you? I would suggest if you spent more time sharing your great knowledge that you have that you would see more customers. I've seen you post some great stuff here, but see way to much 'seek advice' one liners. You do some great articles etc, but dropping hints and baiting I don't like. If you're going to spend the time to comment, especially more then once give them the full details. Is this not what this forum is for?

The OP sounds like a great candidate to see you, I would be extremely surprised if you weren't able to assits them with better structuring of their finances along with possible asset protection etc given s/e business.

Agree completely.

 

[Brady]

I disagree with what you're saying there.

TerryW does provide helpful advice.

However there are some more complex matters that a person would be better off paying for.

Adding to that, if a person acts on the solution to a complex situation and does not implement it correctly, then its easy for them to blame another person.

Agree he has great knowledge and shares some excellent stuff on here and in newsletters etc.

By he's own accord this was a simple solution.

More concerning to me is the comments about lawyers making money and free advice on internet. This forum wouldn't be what is if everyone operated the same. I believe that he would get even more business if he was to give better advise on here instead of 'seek advise'. His post was great once he got it out. I even suggested the OP would be a great potential client that he could help. I think the OP would be more inclined to seek the services of Terry after his post explaining rather then 'seek advise'.

 

[Terry_w]

I can only provide so much. I can't keep answering the same questions over and over again but I agree that sharing information is good and will lead to more clients. I have to suggest people seek legal advice as I may be answering a snippet of information but there is way more to things usually and someone may think that my one liner is a definitive answer.

e.g. Should I buy in a trust?