Would banks consider this a refi?? Any way to get around it??

[Mamaof3]

Hi SS'ers

There's a house we wanna buy and settle in 2 weeks. Given this is an unrealistic timeframe for banks to process the loan app and settle, we were thinking to pay cash for it first and then take a loan out against it immediately after. Vendor has no mortgage against it and we have the cash at hand so the 2wk settlement would be achievable.

Thing is i'm assuming the banks would probably consider this a refi because we would have already settled on it so we'd be up for break costs and new loan fees etc....just wondering if there's a way around this because really, we'd be submitting the loan app as soon as purchase contracts are signed if that makes sense??

 

[Player]

If you are purchasing this property (as an IP) in a trust or a Co, ensure you have a written agreement between yourself and the "entity" that it is a loan to be reinanced later thru a bank or other external sources. Paying yourself back later when bank finance is in place will be a cleaner procedure.

If you are buying in personal name(s) seek professional accounants advice as to whether you can create a debt once you've bought and settled for cash unencumbered.....otherwise you may have a frustrating time claiming interest on the loan as an expense to offset other income. There may be a time frame to achieve this, however whenever I've used cash (on the few occasions as a deposit) I have always retrieved those funds at settlement as I borrow the full purchase price and closings. Some form of written plan in any case will help your case if ever audited or asked to explain by the ATO

Of course, I am assuming this is an IP. You don't make it clear what the intent of the purchase is.

 

[marg4000]

If it is an IP then don't do it.

The purpose of the loan will be to pay the money to yourself, and therefore not tax deductible.

To be tax deductible the purpose of the loan must be to purchase an income producing asset.

There may be a way around it that I don't know of, but I would get very good advice before you go down this path.
Marg

 

[Mamaof3]

we're drawing money down from LOC that is used for business purposes only....every part of that loan is business related....so would it still make a diff if the loan is to repay us for the tax deductible debt we incurred when we drew down on the LOC to settle on the IP??

we buy in personal and business entities depending on what bank we end up going with and its made no difference tax wise for us and our accountant assures us the way he does it, it ends up working out the same as if we bought in company (i'm not an accountant so i don't knw the ins and outs of how it all gets done)...

 

[The Y-man]

kimanand, I think you misudnersttod the questions above.

No problem buying the property with cash (i.e. unencumbered).

Then you go and mortgage it (fyi, I don't htink it's a refinance - it's a first time mortgage - but I don;t think this matters in this case).

What then do you do with the money you get from the loan?

(because this is the point where the tax thingies start coming in - that money you get AFTER you have settled AND got the loan)

Cheers,

The Y-man

 

[Mamaof3]

hmmm, the money we get from the bank will go straight back into the LOC where the money was taken out from....would this be ok?

technically it would be going to us first and then we put it back into the LOC.....

didn't think it was this complicated

any accountants here that can clarify??