Structure of IP2 Loan

Discussion in 'Accounting and Tax' started by big unit, 10th Jun, 2014.

  1. big unit

    big unit Member

    Joined:
    27th May, 2014
    Messages:
    6
    Location:
    Sydney, NSW
    Hello,

    I'm looking at purchasing my second IP in the near future.

    I have a loan of 320k for IP1. IP1 currently valued approx 450k.

    I was looking at using the equity available as deposit for IP2.

    From what I can gather, my available equity will be 40k ?

    Am looking at IP2 approx value 280k. The 40k equity available will not be enough to avoid LMI I understand that. I would be looking at including the LMI and stamp duty in the loan (for ease of argument, making it a ~300k loan)

    My question re: loan and tax structure is if I were to include the LMI and stamp duty in the investment loan -

    1. is the interest on the LMI and stamp duty tax deductible over the life of the loan?
    2. should the LMI and stamp duty be a separate loan or all inclusive? (split loan)

    I'm pretty sure this makes sense and I'm sorry if it has been covered a million times before - whilst I have one IP I am obviously still learning like everyone else and want to build my knowledge base :)

    I look forward to the help!

    Thanks
     
  2. superAndrew

    superAndrew Member

    Joined:
    4th Jun, 2014
    Messages:
    251
    Location:
    Brisbane, QLD
    Yes the interest is deductible. You will only be using one loan.

    The stamp duty will also form part of the cost base when you calculate CGT.

    The LMI is a borrowing cost and is also deductible over 5 years.

    Andrew
     
  3. Rolf Latham

    Rolf Latham Member

    Joined:
    2nd Mar, 2001
    Messages:
    18,791
    Location:
    Confused = Sydney, Brisbane and Gold Coast
    Hiya

    A little would depend on if you ever paid lmi previously.

    In addition, and depending on your strategy it may very well be worth going down the LMI route for the deposit loan ( secured only to the ppor) and the core loan ( 80 or 90 %) secured only to the IP

    Have a chat with your banker or broker about your goals

    ta
    rolf
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

    Joined:
    29th May, 2001
    Messages:
    8,506
    Media:
    1
    Location:
    Melbourne
    $40k is enough to purchase a property worth about $260k with a 90% LVR, LMI would also needed to be capped on top of the loan (not all lenders will do this). For a $280k purchase you're going to need to get together about $42k - $44k; it's probably not a huge stretch.

    As you've indicated, you can pay some LMI and access the equity in your PPOR beyond 80% to get a little more if need be. How this LMI would be treated will really depend on the circumstances, it's best to get more specific accounting advice.
     
  5. big unit

    big unit Member

    Joined:
    27th May, 2014
    Messages:
    6
    Location:
    Sydney, NSW
    Thanks.

    The loan is an investment loan not PPOR but still same principles I guess.

    Okay so the loan for IP2 will be the one loan inclusive of LMI and stamp duty. What I don't understand is if LMI is deductible over 5 years what happens after those 5 years. Is interest still deductible on the full loan or only on the loan minus LMI total?

    Cheers,
     
  6. superAndrew

    superAndrew Member

    Joined:
    4th Jun, 2014
    Messages:
    251
    Location:
    Brisbane, QLD
    Simple example: LMI $10,000. Deduct $2,000 over 5 years.

    At the same time deduct interest on loan including LMI and stamp duty. If you offset or pay off the loan the interest will decrease. If not it will stay the same.

    Andrew
     
  7. big unit

    big unit Member

    Joined:
    27th May, 2014
    Messages:
    6
    Location:
    Sydney, NSW
    Simple is good. Makes perfect sense. Thanks Andrew!
     
  8. HD_ACE

    HD_ACE Game-Changer

    Joined:
    13th Sep, 2011
    Messages:
    1,487
    Location:
    Perth
    First step, get the ip valued by the bank that will best suit your needs and then you will know what you have to work with.

    Cheers