Transferring Equity

[RS10]

Hi,

Am about to purchase a home to live in. Already have 2 investment properties in Auckland, both cash positive by around 2-3k per year. (Purchased 2-3 years ago). I have a cash deposit for the the purchase of my home (next purchase). I heard it is best to top up my investment loans and transfer equity to my home (as the interest is tax deductible on the investment properties and not home). However, if I do this, the investments no longer will be cash positive. I can afford to pay full mortgage on home purchase without transferring equity. But is it better financial sense to move the equity across?

Any advice would be appreciated.

[speights boy]

So, you want advise as to how you can get the taxpayer to effectively subsidise your owner occupied mortgage ?
Is that basically your question ?

[elguapo]

SB, that's a heretical statement on this site surely? I'm surprised you haven't been burned at the stake yet!

[speights boy]

And all this time I just assumed my invite to the PT Xmas bash got lost in the mail

[TheLibrary]

see your accountant, transfer the equity..........

[RS10]

Haha, no..actually I was referring to the fact that I have been advised to "top-up" investment loans to 80% and transfer to my home purchase. I am not sure if that is the best thing to do given it will change it from a current comfortable position of +ve cash to -ve cash flow. Not that I want to rip off the system, just how to use the system that is already in place to suit my situation. I don't make up the tax rules, just happy to spend some off my own time learning how to work around it, rather than just complaining like the majority of the country.

[speights boy]

You cannot claim

interest on money which you borrow for some purpose other than financing the rental property, even if you use the rental property to secure such a loan

[RS10]

Thanks, I thought that might have been the case as well. Cheers.

[BigDreamer]

You really need to talk to your accountant (which I would hope you have given you have had 2 properties 2-3 years ago).

[Rosco]

Hi RS10,

How do you own the rental properties? If this is through a Company, then it could be a really basic restructure if you have built up a shareholders current account.

If the rentals are just owned in personal names, then there are still options but you need to compare the costs vs the benefits, and make sure you are getting greater benefit!

With any restructure it needs to be done properly, so I would suggest getting advice from a Chartered Accountant who specialise in property.

Ross

[Ivan McIntosh]

You can achieve your object, all above board, but it sounds like you might need to restructure the lot...speightsboy points out the obvious problem with borrowing against the existing rental entity.

The question will be whether the interest deductions over time justify the immediate cost of restructuring....if they do, then why not?

Given the banks are usually paying costs of borrowing these days it might be prety cost-free? Certainly worth looking into.

[RS10]

Thanks for all your help. Yes I do have a good property accountant so will discuss with him as both properties are currently under own name. Thanks for all the advice.