Paying Deposit at Auction before Borrowing against Current Property

amorphous2111 on 12/08/2025 - 12:10

Hi everyone,

We are looking to buy an investment property. 80% will be borrowed against the to-be-purchased IP and 25% will be borrowed against our current house for the deposit and buying cost. We are in the process of applying for these two loans via a mortgage broker.

But there is a house coming up for auction tomorrow that we like. While our loans are not yet approved or pre-approved this property is valued lower than what we could borrow (as per mortgage broker estimate and multiple borrowing power online estimates from various lenders, taking into account even the lowest amount) so we want to try. The problem is that we don't have the fund from the 25% loan yet to use for the deposit so it is legalled used for the purpose of purchasing the IP and thus its interest can later be tax-deducted.

We can come up with the 10% deposit from other source. So the question is: If we do so (i.e. paying for the deposit using our own money), can we later take the 10% back from the 25% loan and claim the whole 25% as against the new IP.

Thank you for your suggestions.

Financial

Comments

  • MS Paint on 12/08/2025 - 12:26
    +34

    Sounds risky and potentially stressful.

    • Dr Phil on 13/08/2025 - 18:51
      -4

      Agree 100%

      Rule 1 for Investment
      Dont get emotional about any property!

      There is always another one to buy, maybe with a better return

      Rule 2
      Have all your finance in place before you even go looking

      Rule 3
      Set up measureable parameters and performance objectives into which the property must fall
      "Liking" a property is NOT a parameter nor a reason to buy an investment property
      Its a recIpe for FAILURE and DISASTER!

      These 3 rules reduce both the risk and the stress of an investment property purchase

      • MS Paint on 13/08/2025 - 20:50
        +5

        Replied to first comment ✅
        Used the word thier (sic) ❌
        Replied 24 hours later ✅
        Provided thread summary to appear intelligent ✅
        Classic Dr Dill ✅
        Can go get stuffed ✅

    • foursaken on 12/08/2025 - 15:16
      +3

      …triggering a capital gains event. The amount of half baked financial advice here makes my brain hurt, and I know almost nothing.

  • jv on 12/08/2025 - 13:02
    +5

    No

  • Drakesy on 12/08/2025 - 13:18
    +31

    Australia's economy in a nutshell

    Using debt to take out debt.

    • 6079 Smith on 12/08/2025 - 15:14
      +15

      And then asking the taxpayer to subsidise your loss

      • boozler on 13/08/2025 - 21:32
        -1

        You still have to pay all the outgoing before any subsidises is realised

      • Lunarboogie on 14/08/2025 - 18:12
        +2

        The beauty of negative gearing. Boomers will explain (as they do countless times per day on this site alone) that it is their God given right to share losses with tax payers while paying only half the capital gains. Somehow this is in the national interest.

    • AustriaBargain on 13/08/2025 - 05:57
      +2

      To generate wealth only on paper because investors heavily favour existing properties ready to rent.

    • RTX9090Ti on 13/08/2025 - 18:43
      +2

      the ol classic trick of having those 18 properties:

      https://www.dailymail.co.uk/news/article-14912963/This-coupl…

      they call it equity, in fact its a 'fake' equity.

    • nobro25 on 14/08/2025 - 23:31

      Rich dad, poor dad?

  • Hybroid on 12/08/2025 - 13:18
    +1

    No idea the answer to your specific question, but, you can always negotiate a 5% deposit. When we were buying, this was a common request our solicitor recommended and most times it was accepted in principle. That may help your situation.

    • jv on 12/08/2025 - 13:19
      -4

      you can always negotiate a 5% deposit.

      not 'always'.

      • Hybroid on 12/08/2025 - 13:23
        +1

        You can always negotiate (read: ask), they don't always have to agree.

          • smartazz104 on 13/08/2025 - 07:51
            +1

            @jv: try to reach an agreement or compromise by discussion:

            • jv on 13/08/2025 - 08:28
              -3

              @smartazz104:

              negotiate: (verb) obtain or bring about by discussion.

        • RTX9090Ti on 13/08/2025 - 18:44

          negotiate

  • Fredfloresjr on 12/08/2025 - 13:25
    +5

    This is life Paying afterpay with Paypal pay in 4.

  • kobeduck on 12/08/2025 - 13:36
    +4

    Seems an emotional purchase but hard to ascertain without details. Sounds like a horrible plan. See what the mortgage broker says.

  • Duckie2hh on 12/08/2025 - 13:45
    +1

    can we later take the 10% back from the 25% loan and claim the whole 25% as against the new IP.

    No.

    • amorphous2111 on 12/08/2025 - 14:15

      Yeah I inclined to think this way.

    • Porker on 12/08/2025 - 14:25
      +1

      ^^ This

      Once capital is paid, it can't later be withdrawn to reset or increase the debt to be able to claim a deduction. Once the deposit is paid, the remaining 90% is what any deductions are calculated against.

      (at least that's what I was informed by my account when I was earlier (in life) using re-draw function instead of an offset account)

      • HardQuiz on 13/08/2025 - 05:45

        using re-draw function instead of an offset account

        Explain this please.

        • larndis on 13/08/2025 - 08:07
          +1

          Additional repayments paid onto the loan cannot be redrawn and considered to be 'for investment purposes', therefore the interest on the redrawn amount would not be tax deductible (the fact the loan may be secured against the IP is irrelevant).

          Money in an offset account, however, can be withdrawn and used for any purpose, this does not affect the tax deductibility of the loan interest.

          So, you can't convert a PPOR to an IP by refinancing against it and claiming the loan interest. If you want to make additional repayments on an IP, or a PPOR that could ever one day potentially be an IP, only put the money into offset; never onto the loan.

          Not a tax accountant.

        • inertia8 on 13/08/2025 - 08:09

          Lookup the article "keeping your interest deductible" by BANTACS.. essentially using redraw resets the purpose for the redrawn portion of the loan.. withdrawing from offset does not, as it is not a new loan and is just you repurposing your savings.. thus using redraw on an IP loans for personal purchases can make interest calculations messy/complicated..

  • garetz on 12/08/2025 - 15:00
    +3

    You are putting yourself in a precarious position, unless this place is so amazing you are willing to risk not having enough to pay the deposit on the day and lose that money then I wouldn't do it if i was you.

    • ihbh on 12/08/2025 - 16:52
      +1

      unless this place is so amazing

      … and no one else thinks so. Otherwise, OP is going to get a lot of opposition at the auction.

  • ramb9 on 12/08/2025 - 17:27

    You need to negotiate with the vendor to see whether they will accept your bid against your buying condition.

  • joka on 12/08/2025 - 18:45
    +6

    Go for it. Looking forward to the post next Monday for recommendations on an exit strategy.

    • serpserpserp on 13/08/2025 - 09:08
      +3

      "My IP loan didn't come through, am I cooked?"

  • miwahni on 12/08/2025 - 20:51
    +3

    I feel antsy just reading this. Have you checked with your broker that the property would be considered acceptable security for a loan? Not within 50m of overhead transmission lines, not company title, sufficient floor area etc…. please tick that box before you consider bidding.

  • try2bhelpful on 12/08/2025 - 23:32
    +9

    The odds are the price will be no where near what the real estate agent is quoting.

    • Cluster on 13/08/2025 - 16:24

      It's an auction. Anyone who has ever attended any auction knows the estimates are best guesses and often completely wrong.

  • virgo76 on 13/08/2025 - 07:46
    -1

    Get proper advise

  • NanoDuke on 13/08/2025 - 08:57
    +2

    Get specific advice. Your broker probably is not licensed to give tax advice.
    But as for your question, you need to think about the purpose of the borrowed money. When you get your loan for the 25%, if 10% is going towards paying back your great 2nd-uncle on your mother's side, then that is probably not tax deductible.

    But reading back, your OP is really two questions/challenges.
    1. Should you buy now without approval? - Maybe, that's the risk that you cannot get the full loan in time before settlement. Could be costly in the future.
    2. Should you buy now with the 10% deposit? - If Q1 is a non-issue in your eyes, then go for it. Forgoing deductibility on 10% of a loan is not a big deal, especially if it is your dream, forever home.

    Also I'm surprised no one has called out your point about it being lower valued than you can borrow. Let us know how much over the price guide it lands at auction today ;)

    • amorphous2111 on 13/08/2025 - 11:43

      Lower value means my own valuation, based on recent sales in the area, the guide from RE + some %, and multiple online valuations. Let's call it X

      Our borrowing power, based on the words of the broker (after punching some numbers into his computer), and my own online estimates from multiple lender is 1.5 to 1.8X, at the lower end and higher end.

      I don't see a huge risk here, just want to make sure I can structure this purchase in the most tax-efficient. I don't think I can given the time frame, but just ask in case someone has done this before.

      • V2L on 13/08/2025 - 12:51

        if property is going to auction it's unlikely banks will value it as anything other than the auction price as that by definition is the market price unless it's significantly above 'market' rate or high risk area

        • amorphous2111 on 13/08/2025 - 13:22

          Yeah I think it's correct. Well I have my reserve anyway if it goes over that then it's not for me.

  • serpserpserp on 13/08/2025 - 09:07
    +1

    Just wait

  • MrMarket on 13/08/2025 - 09:09
    -1

    you essential takes out 105% loan for this IP, 25% draw equity and 80% loan
    very risky, loan may not approved and you will lose your deposit

    I doubt the value RE give you will be a true reflection of the property value, you can only find that out on auction day
    a lot of auction properties are slightly underquote to attract more people and drive competition and on the day emotions take over and people over commit

  • V2L on 13/08/2025 - 09:13
    +1

    speak to your bank/broker and conveyancer to negotiate - there are different ways around this - reduced deposit or deposit bond even, sometimes banks to structure the deposit as a higher rate personal loan to be rolled into the investment loan after settlement.

  • bigbadboogieman on 13/08/2025 - 09:20

    Only way is to talk to the bank. I know someone pulled off a similar thing with Westpac on private treaty purchase but they already had pre-approval in place. They paid 10% deposit and then Westpac returned the funds to their account at settlement. Basically the bank covered 105% of the contract price using a combination of equity release on PPOR (25%) + IP (80%). The extra 5% covered stamp duty and other charges.

    • amorphous2111 on 13/08/2025 - 11:10

      Yes I understand. The only problem is that I don't have enough time. Anyway they take 5% deposit so it's ok.

      • bigbadboogieman on 13/08/2025 - 11:41

        What I was trying to say is what you are trying to do is achievable but depends on the bank and your relationship with the lending manager.

        • amorphous2111 on 13/08/2025 - 22:52

          Yes, borrowing 105% of the cost is generally considered as the most tax-efficient way of structuring IP loan in personal names. If I have some time I would structure a personal loan with the fund to be paid directly into the agent’s trust account as the deposit, and when the 25% loan is approved use some of it to pay off the personal loan. In that case all the fund is used toward the IP and fully deductible.

          Anyway the house went for 25% more than the guide, I missed out as I was only willing to pay up to 15% more than the guide.

  • Alonzo on 13/08/2025 - 20:32

    Whatever you do, don’t ask an accountant. Far better to save that cost by asking around. What could go wrong?

  • The Wololo Wombat on 14/08/2025 - 14:04

    As an experienced property investor… just do it. It'll be fine. You'll figure it out!

    Just expect it to be a little stressful.

    • amorphous2111 on 14/08/2025 - 15:05

      Well I missed out but thanks anyway, next one might come at a better time.

  • wetsandwich on 14/08/2025 - 16:16

    Emotion runs high, but there is always a better, more perfect, and cheaper house around the corner. Never rush into it. You will later laugh at the idea of ever living in the horrible dump that you just 'missed' out on, trust me.

    • amorphous2111 on 14/08/2025 - 17:59

      yeah I knew the RE underquoted that house, and the fact that it is a nice house to live in kind of makes it not ideal for IP anyway.

  • SuperMid on 14/08/2025 - 18:16

    I wonder if op knows their $100k deposit is non refundable

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