PPOR refinanced for commercial property purchase

[P.Rabbit]

I've seen some great ideas and advice from this forum, so I'm reaching out for some help.

I want to buy a commercial property (~$500k) in joint names with the missus. The idea is to let her run a small business and if that doesn't work out, keep it as an investment. Given the high cost of business financing and tighter LVR requirements, I was looking to fund this entirely with equity from my PPOR (individual owner) by increasing my mortgage.
1. What is the best tax/legal structure to purchase the commercial property and potentially operate a business through?
2. How do I ensure the loan is deductible? Or should I look to other ways to finance the purchase?
Thanks!

 

[Shahin_Afarin]

Why buy in both names? I would only have it in single names but obviously you need to get specific accounting advice on that.

If you are doing the equity release against existing resi property - make sure its a separate loan split and not a loan top up or redraw.

 

[Terry_w]

1. generally not personal names.

A SMSF is a good option to own the property with a separate Pty Ltd company to run the business.

A trustee of a trust, either discretionary or unit may be another option

A company is a 3rd option

You need specialist advice.

2. Make a separate split as a LOC or an IO loan and lend this money to the purchaser of the premises - seek advice, from a lawyer, on this before hand.

 

[P.Rabbit]

Thanks for the super quick replies.
I was hoping for a simpler low maintenance option, but doesn't seem like it would be the best idea.

 

[Terry_w]

Thanks for the super quick replies.
I was hoping for a simpler low maintenance option, but doesn't seem like it would be the best idea.

There are greater risks of disputes and litigation with commercial property so buying in a personal name would be lower maintenance until problems happened.

 

[Shahin_Afarin]

Terry's suggestion of SMSF is an excellent one.

This is why its good to talk to a professional about the best structure to purchase an entity as its costly to change it at a later stage.

 

[P.Rabbit]

Thanks Terry and Shahin
I've been trying to digest the options and a SMSF starts to make sense especially for the long term and other investments. I'm only in my 30's, so super wasn't even a thought.

 

[Shahin_Afarin]

You will need a decent amount of deposit for commercial properties so it may use a considerable portion of your super.

Max LVR will 65% (can do 70% but more likely around 65%). This is regardless of doing under an SMSF or outside.

 

[Terry_w]

The thing about super is a SMSF pays tax at a max of 15%, but your company will be saving 30% of the rent it pays the SMSF. Straight out gain of 15%.

 

[P.Rabbit]

You will need a decent amount of deposit for commercial properties so it may use a considerable portion of your super.

Max LVR will 65% (can do 70% but more likely around 65%). This is regardless of doing under an SMSF or outside.

Unfortunately my super balance is rather low.
I've got enough equity in my PPOR (thanks for rising Sydney house prices) and was looking at using that to fully fund the purchase (100%). The challenge is making sure it's fully deductible. If I could get a commercial property on as good terms as residential, I'd jump at that option.

 

[Shahin_Afarin]

Unfortunately my super balance is rather low.
I've got enough equity in my PPOR (thanks for rising Sydney house prices) and was looking at using that to fully fund the purchase (100%). The challenge is making sure it's fully deductible. If I could get a commercial property on as good terms as residential, I'd jump at that option.

Depends on your strategy but I would be reluctant to use up all my equity against the resi property to fund the commercial property. You can get early 5%'s for the commercial loan w/ no upfront fees other than the valuation fee.

 

[P.Rabbit]

The thing about super is a SMSF pays tax at a max of 15%, but your company will be saving 30% of the rent it pays the SMSF. Straight out gain of 15%.

Again a great idea. I can imagine it also helps take pressure off maintaining a high loan balance and aim for a positive return.