Thanks for the response. Yes we did consider the option of letting a agent find a tenant and manage the property for the 12 months. At least that way we can establish if the tenants are decent.

We where in similar circumstances a few years back and from the start the tenants knew us (pretty much in the same street). In the end it was easier for us to deal with tenant (agent was not very good and did not add any value). We were fortunate back then that the tenants were very good people and we had no issues what so ever. Yes, the paperwork work part of it is easy. The challenge is always finding good tenants.

Thanks guys. Yes, I meant in relation to the interest only be deductible prior to renting. Once the property is rented then the expense may be deductible or depreciable depending on what it is as well as any interest on it is if it builds up the LOC. BTW I am not an accountant either

Hi Jamie,

When we move out and start to rent the house it will continue to be a LOC loan (as it currently is) unless I change it to IO loan.

From what I understand if I have a LOC loan with cheque book attached I can pay council rates, water rates, property insurance etc. for the IP and it can go on the loan – plan to to do this to free my funds to pay down the non-tax deductible PPOR mortgage.

Correct me if I am wrong but I see this as the main advantage for the LOC loan versus converting it to a IO loan when it becomes a IP. I assume that the ATO does not view a LOC any different to a IO home loan for a IP when it come to claiming interest?

George

Thanks Terry but if the loan increased due to expenses directly associated in preparing the property for rent then it should be okay?

The intention of taking out a LOC for the rental was ONLY to cover for direct cost of rental property improvements and any on-going costs such a water rates, council rates etc. I do not want to "contaminate" the LOC with wages going in or car loans etc.

Thanks TerryW,

No intention to deposit wages in the LOC and have not. The LOC loan is only for the rental property to cover on-going expenses solely for that rental property such as on-going maintenance, council rates, potential land tax payments etc. As mentioned the LOC was only set up 6 weeks ago since we plan to move out of this property within the next 3 months in order to rent it.

For what will become our PPOR (new home), I plan to have a P & I loan with offset account – it is here that we will place our wages. They are seperate loans. 

Is this a sound loan strategy or should I revisit it before the current PPOR becomes a rental?

Thanks for the advise Terry and Richard. Appreciated.

Thanks Terry. As far as CBA a concerned they will classify it as a business LOC. I will give NAB and the others a go but the establishment/valuation fees will be alot higher.

Thanks guys. Rather than a line of credit or a loan with a offset facility. Can I have a simply have a IO loan with additional available funds in redraw and a CBA Streamline account with BPAY facility to be use exclusively for the property expenses such as rates, insurance etc. That way from a paperwork perspective it is auditable. Would this work also?

Thanks Terry. Sound like the issue may be the intention of the use of the funds freed this way – it would have to be for income producing purposes.

Another question. Would a family trust be a better option? Not sure how complex this is to set up and how the ATO would view this as per my original post?

The main objective is to reduce the high mortgage on what will become our home. Saying that if the loan on our PPOR (to become IP) will also increase means she can claim more on tax anyway by default.

Would the ATO see this negatively even though it is not the overriding objective?