Tax-deductible loans

[Ivanhoe]

Hi all!

I have couple of questions that search did not help to clarify and I've asked my accountant but want to pick your brains a bit.

What is the best way to structure loan for the following situation: I'm buying a unit in LAQC's name, getting 90% mortgage from bank A, 10% deposit comes from equity in my PPOR, lending is with bank B. I will also need around $10.000 for cosmetic renovations. So new lending will be 10% deposit+10k in MY name secured against PPOR, but I'm not sure if it will make interest on this loan tax-deductible. I heard about "introduced funds" - can you comment?

You help will be highly appreciated!

[graemeh]

new lending will be 10% deposit+10k in MY name secured against PPOR, but I'm not sure if it will make interest on this loan tax-deductible.

Why don't you get your bank to lend the 10% deposit + 10k directly to the company?

They will want a personal guarantee from you as owner of the PPOR.

The bank doesn't really care what name the loan is in, they use the personal guarantees to tie you in.

We have this exact structure on our home at the moment, the only difference is the home is owned by a family trust.

[toby]

Never cross collateralise your home with your investments.
Take out loan with bank A for $10,000 plus the 10% you need then lend that money to your company and the company uses it for reno and deposit.
Raise a mortgage with different lender for IP.
Do not use the same lender for the two loans!
You now can claim the interest costs and if things go pear shape you won't loose the lot or have the lender control your future borrowings as they each only have one house.
Refinance IP down the track and pay yourself back or put into next deal.

[Ivanhoe]

thanks for advise, guys, that's why I have two banks instead of going to my "main" bank - they love me there, but I'd better start relationship with another and have home loan with one, investments with another...

[murray-spi-investments]

All your loans sound like they are deductible. The LAQC loan in the LAQC, which will pass to shareholders and the personal $10k + $10k should be deductible in your personal name. I am assuming you are buying the property yourself ie not with someone else which changes things a bit but not importantly I would think (your accountant can advise).

Personally I am not fussed in mixing my personal property with investment properties as it allows a greater degree of leverage (assuming your personal property has equity).

The issue I repeatedly tell my clients is when you have a personal home and investment properties both with mortgages always put your personal home on maximum principal reduction and make your investment properties interest only. This serves to reduce your non tax deductible debt ie your home and maximises your tax deductible debt ie your investments. There is (generally) no reason to pay down your investment properties while still having debt on your personal home.

I advised some one last week how had a car loan they were paying off over 4yrs at 14% while still paying off investment properties. For a few hours work by them going to the bank and finance company and changing payment structure they have saved $1000 per year and will pay the car off in less than 12 months.

[toby]

Using equity from your own home to invest in property can be a wise decision, cross collaterising is not!

I had an interesting conversation with a lender today who had given me a mortgage on properties that I no longer owned - they never discharged the loan! They wanted security now - four years later!
I was in control because I had the money and they didn't have or nor could get security the reverse happens when/if things go pear shape.
There's a really good book around on bankruptcy etc written here in NZ that I can't remember the title of- everyone should read it.

[Ivanhoe]

Thanks for your help, I went to another bank to get finance for IPs - forming relationship and avoiding crosscllateral were two main reasons. All tax-deductible borrowing will be on IO, PPOR - P&I. No car loans to juggle around... actually, no consumer loans to juggle around at all. I think John Burley's book is good too - for it's dept reduction strategies.

[xris]

Using equity from your own home to invest in property can be a wise decision, cross collaterising is not!

I had an interesting conversation with a lender today who had given me a mortgage

.................

[Aston]

There's a really good book around on bankruptcy etc written here in NZ that I can't remember the title of- everyone should read it.

..........

[essence]

Bankruptcy book

There is a book in some of the public libraries called "Banks, Bankers & Bankruptcy". I don't believe that it is a NZ book, some of the information is great.

Half yellow colour if my memory serves me correctly.

[Aston]

I had an interesting conversation with a lender today who had given me a mortgage on properties that I no longer owned.

What!!!!!!!

[toby]

Aston/Xris - Don't know what's happened to your posts, but yes a unsecured loan that was supposed to be secured totallying $60k, originally on a house I owned.
Yher that's the book Essence, maybe it's Australian, I can't remember. Very interesting all the same.

[Marcus]

Hey Toby,

The ............ normally indicates a request for more information.

Cheers,
M.

[toby]

O.K Marcus, sorry not up with the PT code talk.
Why the loan stayed in place yet the properties were sold I can only think that at the time I had one or two properties secured against the loan and when one was sold they didn't change the security so when the second was sold they had no security at all.
In reality I have no idea and they were confused to.
I mentioned it to a broker years ago and they said that shouldn't of happened - no kidding.
So I just kept using it.

[Dean@Massiveaction]

Sometimes if you have equity in another property and they don't formally cross collateralise everythin this can happen. I currently have a $450,000 mortgage on a $410,000 property because of having equity else where.