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sorry, please copy and paste the whole link to be able to see it. if you click on wont work.
i'm on the same situation at the moment. As far as know you can use part or the full amount of your PPOR as a deposit or to avoid LMI on an investment and still able to claim the interest as a tax deduction. please refer to the link of the ato website CLAUSE 23.
Hope this help.
http://law.ato.gov.au/atolaw/view.htm?rank=find&act=2000%2F2~Public%20Rulings,%20Determinations%20and%20Bulletins&criteria=AND~(%3F%222000%2F2%22)~docref~exact&target=EA&style=java&sdocid=TXR/TR20002/NAT/ATO/00001&recStart=1&PiT=99991231235958&recnum=1&tot=10&pn=RDB:::RDBi'm fairly new in investing but to answer your first question let my tell you that the reason why your broker is sugestingthis is to maybe avoid morgate insurance and some other cost and also would avoid having your house(ppor) cross secure with your investement as the new lender(80% loan) would see it like you saved the 20%.
as for your other question the deposit amount doesn't have anything to do with how many houses you can buy is all about the debt that your income + rent can serve. In other words you can divide 20% into 4 deposits but if each property is worth 250,000 your total debt would be 1 million dollars compare to using a 20% deposit on a 450,000 dollars.i hope this help and didnot made it worst to understand.