[?]My partner and I are considering applying for a LOC facility and I’ve scoured all previous threads on this subject. I’m sure a few of the more experienced investors have set this type of facility up and can answer my questions on how to use them.
Q1.Is the normal idea to divide the LOC facility into at least two separate accounts, say one used for personal day to day (acccount 1) expenditure/income and the other (account 2) a dedicated amount for funding deposits/costs on IP purchases? Has anyone also split the LOC into more accounts, say a third for a home business’ income/expenses?
2. Would each separate account attract a monthly service fee?
3.If you have IPs, is the rental income paid into account 1 along with salary payments from your employer?
4.If the rapid home mortgage reduction idea is to keep the balance in the LOC as high as possible for as long as possible, should we make our loan payments from the LOC on our IPs monthly rather than weekly/fortnightly? Does it matter whether the IP loans are I/O or P&I loans?
Thanks in advance for your help.[
]kitdoctor
Hi kitdoctor, it is late, so forgive me if I don’t fully answer your questions.
1. We have had an LOC split into four accounts before, three to show the deposits for the three properties that were purchased, and the fourth to be a ‘miscellaneous expenses’. If you will have some non tax deductible debt, then definitely have separate accounts.
2. Yes, unless you can do some negotiation with your bank, or your mortgage broker sets it up well for you.
3. Again, if you have tax deductible debt I would do it this way. If you do not, I would prefer to have each IP ‘stand alone’ for accounting purposes. Although there are benefits either way. It depends how you want to structure it. If you have IPs on fixed, IO loans, you probably don’t want to have to have another 6 cheque accounts etc., so deposits into one account would make sense.
4. If you have non tax deductible debt, a good idea is to have all IP loans as IO until that debt is vanquished (cool word huh?). Pay IO loans monthly. Once non tax deductible debt is gone, make the decision on whether or not you want to start P&I for IP loans.
Hope this helps.
Cheers
MelI agree with Mel.
having split accounts may attract extra fees, depending on the bank.
If you have a home loan still, direct all income into that account do reduce it asap. then just pay the interest on the LOCs (which you would be using for investment purposes). You cannot pay your home loan repayments form the LOC as this would be borrowing to pay back interest and principle on a non deductible loan. (actually you could do it but cannot claim the interest)
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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