To sell ppr or convert to ip

Hi all. This is my first post on the forum.
I currently have 10K owing on my residence which can yield 600K in the present market.We are building a bigger home on which we will owe 500K in 6 months time when we are ready to move in. Both homes are in a high growth, high demand suburb of Melbourne.
Is there any means to have investment loan of 500-600 K on the current ppr and then rent it out and transfer the money into new ppr thus reducing personal debt.Unfortunately, the adviser in the bank did not have an answer for this.
looking forward to some feedback.
:):confused:
 
Hi all. This is my first post on the forum.
I currently have 10K owing on my residence which can yield 600K in the present market.We are building a bigger home on which we will owe 500K in 6 months time when we are ready to move in. Both homes are in a high growth, high demand suburb of Melbourne.
Is there any means to have investment loan of 500-600 K on the current ppr and then rent it out and transfer the money into new ppr thus reducing personal debt.Unfortunately, the adviser in the bank did not have an answer for this.
looking forward to some feedback.
:):confused:

In a word, NO!

The ATO will look at the purpose of the loan. So, in your case, the purpose of the loan is to purchase your new PPOR. This means that as you have your current PPOR (almost) paid out, you have little in the way of deductions, so will have to pay tax on the income earnt from rent as well.

There is one way out of this though. If in joint names, one could sell their half to the other, or if already in one name only, sell to the other partner, thus making it tax-deductable, however this will trigger both CGT & Stamp Duty.

I am not an accountant, so the first thing you should do, is go & see one.
 
would the ato let you extend your loan on your ip to fund a new car/holiday and allow you to claim the exess interest as a deduction??? put bluntly thats what your asking.
 
This won't help you Ecogirl, but for possible future reference, or for others reading, the next time you buy a PPOR, only pay the minimum installments, or pay interest only. Pay all other extra money into an offset account. Then in the future, if you want to upgrade (or downgrade) to a new PPOR but keep the 'old' PPOR as an IP then you take all of the money in the offset account and put it towards your new PPOR, keeping the original loan for the newly converted IP.
 
sell

In all honesty I would sell the first PPR then no Capital Gains, from the sale you put more $ into your new mortgage (reducing that) but leave some cash to but an IP because then you can claim back mortgage and running costs in your tax return.

If you keep your current PPR then you'll have a huge mortgage on your new PPR and rent from the first PPR (now IP) will be income with not much to offset.

I you decide to keep your curretn PPR and then rent, do a valuation when you move out so CGT is only calculated on the value past this valuation.
 
Ecogirl ... I also would sell the PPOR ... put the proceeds into an offset account against the new PPOR and use it as security to borrow 100% for an IP.

That way you get the advantage of very small debt repayment on PPOR (which is non tax deductible) and full benefit of depreciation and gearing on the new IP (particularly if you build or buy one which is fairly new)... and still have the money on hand if you ever need it to buy more IP's

My opinion only of course
 
Ecogirl ... I also would sell the PPOR ... put the proceeds into an offset account against the new PPOR and use it as security to borrow 100% for an IP.

That way you get the advantage of very small debt repayment on PPOR (which is non tax deductible) and full benefit of depreciation and gearing on the new IP (particularly if you build or buy one which is fairly new)... and still have the money on hand if you ever need it to buy more IP's

My opinion only of course

Im interested in how the bank would view the $ in the offset account as security to borrow against to purchase an IP? Its not as if they have ownership over the cash in the offset and you can pull it out anytime you wish, so there goes their security. Is this even possible? as in borrowing against cash in offset account?? I cant think of why it would be, because essentially the bank doesnt have security.
 
Ecogirl,

I would probably sell as well but let's see if there is a reason not to.
Is your current PPOR in 2 names?
Are you both working?
Do you intend to buy more IP's after you move into your PPOR and if so
what do you want to buy?

Cheers
 
Im interested in how the bank would view the $ in the offset account as security to borrow against to purchase an IP? Its not as if they have ownership over the cash in the offset and you can pull it out anytime you wish, so there goes their security. Is this even possible? as in borrowing against cash in offset account?? I cant think of why it would be, because essentially the bank doesnt have security.

Astute observation.....

though if the lender applied the same reasoning to anyone with an IO loan, they'd never give a LOC greater than original deposit, no matter what the growth.

Owner equity will always be a combo of principal paid off and growth

and many investors leverage off the growth the lender determines with a reval.......
 
Im interested in how the bank would view the $ in the offset account as security to borrow against to purchase an IP? Its not as if they have ownership over the cash in the offset and you can pull it out anytime you wish, so there goes their security. Is this even possible? as in borrowing against cash in offset account?? I cant think of why it would be, because essentially the bank doesnt have security.


great post, good to see someones thinking.
 
In my experience, it is possible to use a term deposit as (part) security on a mortgage. They take a lien (or equivalent) over the cash and you can only withdraw it with their say so.

I've done it twice - albeit for short periods of time (several weeks).

M
 
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Sell the property into a Trust structure borrow 100% of the transfer value and claim the interest deduction on the total loan. Use the net proceeds to construct the new home.

We do about a deal a week at the moment for clients asking the same question.
 
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