Hi everyone,
After procrastinating for a long time, I finally took the plunge and bought my first IP.
I'd like some advice if I should take an IO loan with or without an offset account. I'm currently renting and I am intending to rent out the IP for a few years. However, I may want to move into the IP in future. I am not sure whether I should have an offset account with the IO loan.
The IP that I bought is the rear unit in a block of 2. Although the body corporate was registered, there is no body corporate fees applicable as each unit is responsible for their own building insurance/maintenance etc. My conveyancer advise that I should also take up insurance for the common driveway (at the side of the front unit) and that I could get the owners of the front unit to share the cost of the insurance. However, it appears that the driveway is only used to access the rear unit as the owners of the front unit park their car outside their garage which is facing the street. So, I am not sure if they are willing to share the cost. Nonetheless, I'm wondering if the driveway could be included as part of the building insurance?
I'm thinking of getting an insurance broker to advise me regarding the insurance and I also need a property savvy accountant. If anyone knows a good insurance broker and accountant, please send me a PM with their details. I'm based in Melbourne. Thanks heaps
obiwan,
I would definitely take the interest only loan with an offset account option. This gives you maximum flexibility for whatever you want to do down the track.
With regards to insurance for common area, the accountant is probably advising you in case of any public liability claims. Lets say you call a tradesman around to do some work at your house and he slips over on the driveway… potential lawsuit for $2million bucks! The common insurance can cover that any many other things.
As you suggested, probably best to speak to an insurance broker.
I am in the same situation regarding insurance. No 1 problem is I don't have the name and address of the owner of the front unit- the property manager of the front unit has not passed my details on to the owner or the owner has not replied if the manager hs passed the info on.
No 2 issue is I have only found 1 insurance broker / company that will insure common property only and it is actually more expensive for that, than the building insurance / legal liability insurance that covers the actual building and land. If you can get the other onwer on board, you can get one cheaper policy to cover everything eg-the 2 buildings and legal liability for the 3 areas of land.Hi YI and Chris,
Thanks for the advise and sharing your experience.
If I get the interest only loan with an offset account, do I park all my savings in the offet account? or do I leave that account empty so that I can maximise my tax deduction and only use it when I move into the IP in future?
I'm not sure if the front unit is owner occupied or tenanted. I wonder if the selling agent would know. I'll give him a call to find out later.
Do I have pay the whole cost of the insurance of the common driveway if the owner of the front unit does not want to share the cost of the insurance, given that they dont use it for accessing their property? Is the owner of the front unit liable for any public liability claim should someone gets injured in the common area?
Cheers,
CorinneCorine
Do the sums. If you put your cash in the offset you will save the same as the interest on the loan – about 6%, but since your deductions are less you will pay more tax. If you put the funds in a high interest bearing account you may get around 4%, but will have to pay tax on this.
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
Thanks for the tip, Terry. I've worked that out now
Cheers,
CorinneIf you have a PPOR home loan then put all the interest into an offset account against that loan, rather than the IP loan.
This way you get both the savings and the deductions…
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