Help with structuring home and investment loans

[tiger97]

Hi everyone, great forum!

My wife an I are looking to buy our second investment property, a unit for about $500,000.
We have another IP valued at about $400k which we owe $140k, and our primary residence worth about $600k owing $200k

At the moment we have too much bad debt and not enough good debt, so I am trying to work out how to structure everything to maximise good debt.

I guess I really need to go and see a property financial advisor, but not sure where to go, so this is my first step!
Any advise is greatly appreciated!

Scott.

 

[neK]

1. Dont see a property financial adviser. They will only flog you off the plan property

2. Dont see a financial adviser. They will only try and flog you managed funds. However on the off chance you do find a good financial adviser, they will show you how to structure your loans and cash flow. But that is rare.

3. See an accountant instead.

Without knowing your financial position. Here's something you may wish to consider.

1. Set up an offset account if you dont already have one.
2. Have all your pay go into the offset account.
3. Have all loan repayments come out of the offset account.
4. Change the existing IP to interest only.
5. Assuming you've actually paid money directly into your PPR and IP loans. Setup a Line of Credit and draw the funds from either PPR or IP to fund the 20% deposit for the new IP. Alternatively you can use your PPR or IP as security but that would mean cross collaterallising your assets. Can be good or bad (im sure someone else here can tell you which option is better).
6. Borrow 80% to fund the new IP.

 

[Mr. Fabulous]

Go see a mortgage broker to set up your loans. I suggest contacting one of the mortgage brokers on here, particularly Kristine, wonderful lady!

 

[Rolf Latham]

Hiya

Much of what has already been mentioned

Depending on ur circumstances I would add

1. Debt recycle Strategy to convert bad to good,thus allowing you to build wealth more quickly

2. Get your accountant, to come on board with the structure, because I have learnt that whats comfy for one accountant is waaaaaaay out there or another, and they are BOTH "right".

ta
rolf

 

[tiger97]

Much appreciate the advise. It is sinking in slowly.

Will do on the mortgage broker, so make the existing IP interest only?

And I don't quite understand the idea of debt recycle Strategy to convert bad to good?

Thanks again for the great help.

Scott.

 

[Qlds007]

Strategy is simple.

Interest on your own PPOR cannot be claimed as a deduction against your other income.

Interest on an IP or where the funds where used to invest in an income producing asset can be claimed.

Idea is that you want to reduce the non tax deductible interest and increase the deductible amount.

Couple of ways of doing it albeit at some form of cost.

As Rolf mentioned all depends if your Accountant is on board and embrasses the structure. Be suprised how many wouldnt have a clue.

 

[neK]

Debt Recycling example.

Say you got $50,000 in shares.

Sell down those shares.
Use the proceeds of $50,000 to pay down your home loan.
Take out a line of credit of $50,000 and repurchase those shares.
This makes the $50k tax deductible without changing your actual debt levels.

Downside:
Capital gains tax payable on gain of shares (if its a loss, its not so bad).
Brokerage fees resulting from buying and selling of shares.
Out of the investment market during that time, so if shares go up, you dont get any benefit from the increased value.

That said, from what you've posted, it doesnt appear you have anything to implement a debt recycling strategy with, so that strategy may not be for you.

So either post up everything you got on a public forum (which i dont recommend) or see an accountant.

Also the Mortgage broker isnt an accountant so may not be familiar to with tax rules (nothing against you Rolf, you seem to a pretty knowledgeable guy, but ive personally be burnt before by bank lenders with 20+ years experience telling me there is no tax difference between an offset account and redraw facility).

 

[Rolf Latham]

Also the Mortgage broker isnt an accountant so may not be familiar to with tax rules (nothing against you Rolf, you seem to a pretty knowledgeable guy, but ive personally be burnt before by bank lenders with 20+ years experience telling me there is no tax difference between an offset account and redraw facility).

Hey no argument from me

ta
rolf

 

[tiger97]

Thanks nek.

One question, would I be better off to have all of our investment properties as interst only loans?

Scott.

 

[cu@thetop]

Also the Mortgage broker isnt an accountant so may not be familiar to with tax rules (nothing against you Rolf, you seem to a pretty knowledgeable guy, but ive personally be burnt before by bank lenders with 20+ years experience telling me there is no tax difference between an offset account and redraw facility).

Pardon ones ignorance but what is the difference if both are being used for income producing purposes?

 

[Rolf Latham]

Hi CU

Assume your Investment loan is 100 k , and your monthly net income is 10 000, and you also spend the whole 10 k

With a redraw or LOC facility you direct salary credit the 10 k becaie obviously that saves interest. Over the next month you spend that 10 k by progressively redrawing it fo your living expenses.

Good thing is u have paid a little bit less interest over the month, because thats only due on the daily outstanding balance.

Bad thing is whileyour loan is now back at 100k, the nature of the debt has changed. Its now 90 k deductible and 10 k non

10 mths or so later you have converted all your good debt to bad debt ..................

ta
rolf

 

[THEGREAT888]

Hi Nek

Your advice in this thread

" Without knowing your financial position. Here's something you may wish to consider.

4. Change the existing IP to interest only.





If I have a choice, I would rather not to pay a cent on the investment property and put all my funds to my primary residence

May I have your your opinion?

t