Ever green loans questions

I have recently purchased an investment property using the equity on my current house.

The property was mostly purchased for capital growth but I will be renting it initially to help with repayments.

I estimate that if I rent it on a lower amount, I will be out of pocket by about $1500 a month (for repayments, maintenance and rates). As I have quite a bit of equity, I was planning to borrow more than the value of the house and the stamp duty and actually pay the $1500 from the equity amount rather than my own earnings (I am planning to put all of my earnings towards my primary place of residence).

I believe they are called ever green loans for investment properties.

Can someone explain them in a bit more details in terms of what can and cannot be done and the implications of the loan.

Do I need to move the equity into a different bank account and then have it paid automatically on a monthly basis into the investment property loan so the bank doesn't question it?

If the market goes down, can the bank take the extra money (the equity) away?

Can the interest paid still be tax deductible on our income?

Edit:

I have just looked around and evergreen loans may be slightly different but what I want to know is what I have explained above.
 
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Typically, an evergreen loan is another name for an LOC that is interest only for the fill term of the loan.

Most of these are "repayable" on demand, and arent a great facility to have all your borrowings under.

Sounds like you are looking to capitalise interest, which mostly is regarded as a non no in most scenarios- pls seek specific tax advice


ta
rolf
 
While reading your post, I had a couple of :eek: moments.

I'll let the brokers address the finance issues for you.
The property was mostly purchased for capital growth but I will be renting it initially to help with repayments.
You will be renting it initially? So, down the track you will leave it vacant? Is that what I'm hearing? I'm sure the ATO & your insurance company will be very interested in that scenario.

I estimate that if I rent it on a lower amount, I will be out of pocket by about $1500 a month (for repayments, maintenance and rates).

Why would you rent it on a lower amount? You rent properties at market rates. Get a good PM & they'll look after it for you.

I guess this is to "save tax"?
 
While reading your post, I had a couple of :eek: moments.

You will be renting it initially? So, down the track you will leave it vacant? Is that what I'm hearing? I'm sure the ATO & your insurance company will be very interested in that scenario.

Could possibly be the other way around and initially be an IP and then PPOR in the future? Plausible.



Why would you rent it on a lower amount? You rent properties at market rates. Get a good PM & they'll look after it for you.

They are basin their assumptions on the lowest amount on market rent as its not rented yet. I doubt the OP would be 'trying' to rent it at the lowest amount possible.

I guess this is to "save tax"?

Do you need a coffee Skater? :p


pinkboy
 
If you are renting out the property at under market value you may not be able to claim all the deductions in full.
$1500 per month is a large shortfall. You may be able to structure it so that you can set up a LOC and use this to pay the shortfall, but you will be borrowing to pay interest and should get tax advice on this.

LOCs differ between lenders. Some of them do not require a monthly payment and you can allow the interest to capitalise up to the limit. Others require the interest to be paid each month. Most will allow repayments directly from the loan account.

Most LOCs are at call so the bank can reduce the limit or demand repayment in x days. I have seen someone have their limit reduced for a LOC that they didn?t use for a number of years, but I have never seen a lender actually call in a LOC.
 
Ok I am not trying to deliberately get lower rent. What I meant is in a scenario where I get rent that may be at or lower than the average rent in the area I will be out of pocket by about $1500 a month (all up including the repayment of an interest only loan, council rates, water and possible maintenance costs insurances etc).

I am trying to see if it may be a good idea to pay this $1500 a month difference from the extra amount I get on top of the actual loan using the equity (ie: I may have about 50 k extra to work with).

I am trying to understand if others are doing it and what are the implications.

The obvious positive is that it gives you better cashflow, on the other hand you will be increasing the amount on which you pay interest on.

Is there more to it? Can you still claim your costs on your overall taxable income?
 
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