When to purchase your 2nd IP? How do you determine/decide this?

but in this case the purpose of my PPOR loan wasn't for a business, so wouldn't this imply that I can NOT get a tax benefit on the interest? (i.e. we're talking about redrawing on a personal loan to use a deposit for a IP)
 
but in this case the purpose of my PPOR loan wasn't for a business, so wouldn't this imply that I can NOT get a tax benefit on the interest? (i.e. we're talking about redrawing on a personal loan to use a deposit for a IP)

The rule is was the interest incurred in the production of assessable income.

If you take out a loan against your PPOR in order to use as a deposit on an IP, the IP does produce assessable income, so the interest on the loan IS deductible.
Alex
 
Pardon my ignorance people but is PIA a specific program or a general name for programs of that nature? Would appreciate a link if someone has one. Cheers.
 
eg say you have $150k equity in your PPOR. Take out a LOC for max of $150K then use this for a deposit to purchase an IP for say $400k.
Oh, just noted here that in this case my PPOR Loan is in both my/wife's name, hence would the negative gearing effect on interest for this portion have to spread 50% across myself and my wife (who's on a lower marginal tax rate, hence less gearing effect)?
 
Hi mixedup,

It's all to do with your comfort levels. We have to get out of our comfort zones in order to achieve great success.

As I heard Ed Chan state on more than one occasion... don't buy real estate... buy time. Get the biggest buffer in the form of a line of credit against your home. It doesn't cost you anything if you don't use it. Then use the line of credit for a 20% deposit + costs + buffer.

You decide when to purchase another property when your buffer is big enough to cover the deposit, costs and shortfall for as many months/years that you feel comfortable... and everyone's different.

We recently did this for our third property... and our buffer was reduced to $5k! We really pushed ourselves this time, but our incomes can help cover the shortfall and increase the buffer, as well as property working its capital gains magic as well.

Good luck!

Oh, and just buy PIA already. It's a great tool. :)
 
Thanks MJ, thats a neat way of considering the question when to buy again.

So re the negative gearing aspect I guess you're suggesting not to worry about this for this deposit portion? Let me try to be more clear with where I'm still not clear. So...

Assuming: If you borrow the 20% deposit from your PPOR loan (in wife/husbands name) then the interest on this amount can still obtain the tax benefit as its being used for your IP (based on responses earlier in the thread.

Question 1: If the IP is in husbands name (i.e. has higher marginal tax rate) does the interest incurred from the PPOR loan have to be (a) spread across the husbands tax return & wife's tax return 50:50, or (b) can it be 100% put down on the husband's tax return on the basis that it is for the IP which is in the husbands name?

Question 2: If the answer to Q1 is (a), then is there another way to maximise the negative gearing effect?

Thanks
 
Hi mixedup,

It's all to do with your comfort levels. We have to get out of our comfort zones in order to achieve great success.

As I heard Ed Chan state on more than one occasion... don't buy real estate... buy time. Get the biggest buffer in the form of a line of credit against your home. It doesn't cost you anything if you don't use it. Then use the line of credit for a 20% deposit + costs + buffer.

You decide when to purchase another property when your buffer is big enough to cover the deposit, costs and shortfall for as many months/years that you feel comfortable... and everyone's different.

We recently did this for our third property... and our buffer was reduced to $5k! We really pushed ourselves this time, but our incomes can help cover the shortfall and increase the buffer, as well as property working its capital gains magic as well.

Good luck!

Oh, and just buy PIA already. It's a great tool. :)

Just another example of a buffer...

I recently purchased my first IP using my PPOR equity as a 20% deposit plus $15K purchase costs. As this is my first IP and I've only had my PPOR for 2 years of capital growth I've got little more useable equity in my PPOR for the moment (that is, using no more than 80% of my PPOR equity). Although if I exceed the 80% of my PPOR equity I will only incur what will work out to be a very small amount of LMI which would only be applicable to the small amount for that loan - say it might be $70K. Not too much of a drama really.
Anyway, for me, the buffer in my mind is that I'm far enough in advance of my PPOR repayments that I could take a break for a few months if I needed to. Hence if my rental property was for some reason vacant or costing money I could simply redirect my PPOR mortgage repayments to it.

Nowhere near as good as a cash or LOC buffer, but it'll have to do until my portfolio becomes more sizeable.
 
Thanks MJ, thats a neat way of considering the question when to buy again.

So re the negative gearing aspect I guess you're suggesting not to worry about this for this deposit portion? Let me try to be more clear with where I'm still not clear. So...

Assuming: If you borrow the 20% deposit from your PPOR loan (in wife/husbands name) then the interest on this amount can still obtain the tax benefit as its being used for your IP (based on responses earlier in the thread.

Question 1: If the IP is in husbands name (i.e. has higher marginal tax rate) does the interest incurred from the PPOR loan have to be (a) spread across the husbands tax return & wife's tax return 50:50, or (b) can it be 100% put down on the husband's tax return on the basis that it is for the IP which is in the husbands name?

Question 2: If the answer to Q1 is (a), then is there another way to maximise the negative gearing effect?

Thanks

No wonder your mixed up with all these questions ;)

I believe (may be one of the accountants on the forum could confirm) that if the IP is in your name only then it doesn't matter where the deposit came from you can deduct the full amount from your income.

Cheers,

Bazza
 
Thanks MJ, thats a neat way of considering the question when to buy again.

Question 1: If the IP is in husbands name (i.e. has higher marginal tax rate) does the interest incurred from the PPOR loan have to be (a) spread across the husbands tax return & wife's tax return 50:50, or (b) can it be 100% put down on the husband's tax return on the basis that it is for the IP which is in the husbands name?

The PPOR loan is in both names, so the 20% deposit is claimed by both husband and wife.

The IP loan is in the husband's name, so the interest costs is only claimed by the husband.

I'm not an accountant, but I think that's how it works. :) Get yer own professional advice. ;)

Question 2: If the answer to Q1 is (a), then is there another way to maximise the negative gearing effect?

Yes. Use a discretionary trust so you can decide who gets the negative gearing benefit. One day the IP may be cashflow positive, and then you will not want the property to be in the high income earner's name... because now you'll be paying more tax on the income. ;)

For our situation, the loan for the deposit was in both of our names (and we jointly claim 50% of the costs each), but we used a hybrid discretionary trust to purchase IP #3, so at tax time my accountant and I decide who gets the negative gearing benefits. ;)

Once again, get professional advice before just getting "any" trust, or even a trust for that matter.
 
For our situation, the loan for the deposit was in both of our names (and we jointly claim 50% of the costs each), but we used a hybrid discretionary trust to purchase IP #3, so at tax time my accountant and I decide who gets the negative gearing benefits. ;)

Yeap. I have a HDT and that's exactly what I do. But, nobody wants to talk about HDT's :(

Cheers,

Bazza
 
Question 2: If the answer to Q1 is (a), then is there another way to maximise the negative gearing effect? Thanks
Rang the ATO direct and confirmed that I can both (a) claim an interest benefit and (b) I can put it all against my name (not wife's) on the basis that the IP title is in my name only. Good news. :)
 
I'm wondering if anyone has a quick formula that works out roughly how much the bank will lend you. I have 1 IP but want to work out how much the bank will lend me for my second? Thanks
 
No. Every bank have different serviceablity calculators. The results can be wildly different.

I think your best bet is to speak with a good mortgage broker.
 
Back
Top