Hi all,
Am I understanidng this correctly?
If you had 20 properties, I am guessing this is the way your portfolio will run;
All properties will be owned by a trust. The trustee will be a pty ltd company. Its only share holder is me.
The trust has a LOC (derived from equity built up in my PPOR). Use this account for deposits. Top it up as required.
Each IP has an IO loan. Each loan has an offset account attached. 20 properties means 20 loans with 20 offset accounts.
Am I understanding it correctly?
PJ
In essense you are correct but assumes that you have No PPOR undeductible debt otherwise the offset account would be linked to this loan.
Also i dont think 20 offset accounts is necessary as 1 would be sufficient. (depending on the loan balance & savings amount)
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
why you need 20 offset accounts???
Richard,
I have a minimal amount remaining on my PPOR however, I thought the offset account was for the purpose of reducing interest payments on the IP's or at least the LOC.
Initially I am not looking for maximum tax deductions as I do not have a tax problem. I am interested in minimising the strain on cashflow needed to service debt. This will keep me in the game long enough to realise capital gain.
Great to hear only one offset account can work. However, does this assume all my IP loans are with the same bank?
Also, how does the bank allocate the offset from one account with a range of different loan amounts?
PJ
PJ
An offset account can be allocated to any loan (assuming the lenders offers such a product) but i cant see why you would ever need 20 of them.
Assume the IP loan balance is $350K then you would need more than $350K in the offset account to have the requirement of a
2nd one. No you wouldnt need to have all of your loans with the same lender.You have to make sure that you have sufficient funds in the offset account to make sure the savings outweigh any monthly fees or higher interest rates / application costs etc.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard,
If I had twenty different IP loans with a range of banks and a range of values all linked to one offset account, how is the offset account attributed to each IP?
If the offset accunt has 100K in it does this get divided up to service the 20 IPs or does each IP benefit from the 100K as if it was the only loan being offset?
Please excuse the ignorance.
PJ
Hiya PJ
You'd only have one offset account against one loan. That $100k would offset the balance on ONE loan. If you have a PPOR debt, it would be ideal to have the offset account attached to that loan.
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Also, I don't think it wise to have 20 properties in one trust – don't keep all your eggs in the one basket.
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
Guys,
Now I am confused.
I understand an offset account works to minimise the repayments towards the loan it is attached to up to the value of the IP loan.
If I had 20 IP's with a number of different loan amounts with different banks and credit societies, How many offset accounts would I have to minimise the interest payments to those loans?
A – One for each IP?
B – One only for my LOC?
C – Only one for all 20 IP's?There is no point attaching an offset account to my PPOR as it is essentially paid off already. This is where all my equity is sitting.
If the answer is A – One for each, then that means I have 20 offset accounts
If the answer is B – One only for my LOC, then that means only one account servicing my LOC.
If the answer is c – One for all 20 IP's then how does one account with a particular bank attribute an offset amount to a range of IP loans of different amounts with different lenders?
PJ
Try and think of it like this: imagine if you had 20 different loans. Just have one offset on the loan that has the highest interest rate and put all your spare cash in there. That way you'll save the most money. Who really cares which precise property loan was the one that you saved against. It's the overall numbers that matter. Does that make sense?
And the matter of having 20 properties in one trust; the boys are suggesting this might not be wise, no doubt, for asset protection reasons. What if a tenant trips on a bit of threadbare carpet or something and sues "the owner" (ie the trust) ? Conveniently for the tenant, the "owner" owns 20 properties, so there is a giant pot of cash up for grabs in a law suit. However if that trust only owned one or two properties, well those are the only properties you would stand to lose in that law suit. The other 18 properties would be tucked safely away in other trusts.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
propertyjockey wrote:Guys,Now I am confused.
I understand an offset account works to minimise the repayments towards the loan it is attached to up to the value of the IP loan.
If I had 20 IP's with a number of different loan amounts with different banks and credit societies, How many offset accounts would I have to minimise the interest payments to those loans?
A – One for each IP?
B – One only for my LOC?
C – Only one for all 20 IP's?There is no point attaching an offset account to my PPOR as it is essentially paid off already. This is where all my equity is sitting.
If the answer is A – One for each, then that means I have 20 offset accounts
If the answer is B – One only for my LOC, then that means only one account servicing my LOC.
If the answer is c – One for all 20 IP's then how does one account with a particular bank attribute an offset amount to a range of IP loans of different amounts with different lenders?
PJ
Just think that you can only use your money once. So how many accounts you need would depend on how much cash you have. if you have 5 x $500,000 loans and $500,000 cash you could have 5 offset accounts with $100,000 in each or one offset with $500,000. Whichever way you use it will result in the same interest savings and if it is the same person that owns all houses it won't really matter which way you go with.
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
propertyjockey wrote:Guys,Now I am confused If the answer is c – One for all 20 IP's then how does one account with a particular bank attribute an offset amount to a range of IP loans of different amounts with different lenders?
PJ
I think you misunderstand how offsets work. One offset account only works against one loan. So the money in offset A will only offset loan 1.
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
Terryw wrote:I think you misunderstand how offsets work. One offset account only works against one loan. So the money in offset A will only offset loan 1.So if if I want to have an offset account working away to reduce interest payments on an IP and I have 20 IP's that equals 20 offset accounts.
Which is what I said in the beginning.
In any case, I would have thought if I had that much cash to spread around it would be better working for one or two IP's only. Or, as security to bolster your LOC to buy more property.
PJ
No.
1. Just have one offset against your PPOR loan.
2. If you've paid off your PPOR loan, setup an offset acount against the IP loan with the highest interest rate.Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
I'll show my ignorance here.
Would there be any reason to have an offset account against an IO loan?
My understanding is that an offset account against a PI loan means you'd be paying off more of the principle as the amount in the offset gets subtracted from the loan amount before the interest component is calculated? (That's not worded very well but hopefully makes sense to someone
)no offset account:
interest 7%
loan amount $500,000interest = $35,000 pa
$1346 per fortnightif the repayment was $1500 per fortnight
$1500 – $1346 ($154) would come off the principle.with $100,000 in an offset account:
interest 7%
loan amount $500,000
so interest calculated is $500,000 minus
the $100,000 in the offset ($400,000)
interest = $28,000 pa
$1077 per fortnightif the repayment was $1500 per fortnight
$1500 – $1077 ($423) would come off the principle.—
MarkWhy would you want 20 offset accounts?
Imagine the administrative hassles of filing all the statements.
I don't think it has sunk in on how they work yet
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
MRW wrote:I'll show my ignorance here.
Would there be any reason to have an offset account against an IO loan?
My understanding is that an offset account against a PI loan means you'd be paying off more of the principle as the amount in the offset gets subtracted from the loan amount before the interest component is calculated? (That's not worded very well but hopefully makes sense to someone)no offset account:
interest 7%
loan amount $500,000interest = $35,000 pa
$1346 per fortnightif the repayment was $1500 per fortnight
$1500 – $1346 ($154) would come off the principle.with $100,000 in an offset account:
interest 7%
loan amount $500,000
so interest calculated is $500,000 minus
the $100,000 in the offset ($400,000)
interest = $28,000 pa
$1077 per fortnightif the repayment was $1500 per fortnight
$1500 – $1077 ($423) would come off the principle.—
MarkYou would simply save interest each month – which means less to pay.
(unless you had a St G IO loan with offset and then you may find they will reduce the princple)
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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