Renting out PPOR advice

[brawlo]

Hi guys,

I used to lurk here a while back and have been reading up on investing to some point. Time away has proved knowledge lost.

After 3 long years of renovating a second residence on a family property, we have moved in. So we are going to rent out our PPOR. This will become our first IP.

My principle question is what steps do I need to take in making the changeover?

Do I need to let the bank know about the change in use of the property? We are waiting for a shed to be demolished before we rent out the house, and we are then looking at borrowing for a new double garage. We will either redraw on extra repayments made or refinance which then probably takes the current bank out of the equation.

Other things I know are to drop the contents part off the home insurance (they won't insure where we've moved to), and I will begin chasing down some Landlord's insurance. Any shortlist of better policies would be greatly appreciated.

Once we have taken a breath, and new tenants are in, we will soon be looking at another property. Perhaps I should leave refinancing until that point to reduce fees etc.

Thanks for any help you may provide.

 

[The Y-man]

We will either redraw on extra repayments made or refinance which then probably takes the current bank out of the equation.
... Perhaps I should leave refinancing until that point to reduce fees etc.

Be very careful what you do with you loan from here on.

There are all sorts of tax deductibility issues on the interest in the scenario you have suggested - for instance redrawing can cause issues down the track in terms of accounting etc.

The Y-man

 

[brawlo]

So does that mean that redrawing on moneys acculmulated while we were living in the house is a no no? Is refinancing to close out the original loan the "cleanest" option?

I am aware of keeping a line drawn on what is used for personal and what is used for investment purposes money wise.

We'll be building the new garage after tenants are in place. Our accountant has advised us to draw against the house for this purpose for tax reasons, hence my looking at refinancing.

 

[The Y-man]

So does that mean that redrawing on moneys acculmulated while we were living in the house is a no no? Is refinancing to close out the original loan the "cleanest" option?

I am aware of keeping a line drawn on what is used for personal and what is used for investment purposes money wise.

We'll be building the new garage after tenants are in place. Our accountant has advised us to draw against the house for this purpose for tax reasons, hence my looking at refinancing.

Drawdown for the Garage is fine - sounds like you are aware regarding personal use so that's fine.

The Y-man

 

[w0nnie]

Also a valuation on the PPOR -> IP property will be required for determining CGT down the track, this will be then the cost basis for any calculations if the property is sold.

You dont need it for IP -> PPOR though, for that direction they use a pro-rata calculation and charge CGT on the % of time it was a IP.... go figure?