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Thanks Jamie!!
I had an idea that was the case, I guess the question was more for confirmation purposes.G'day Richard, how are you?
Yes mate, We have no real plans to move out just yet but will eventually turn the P&I to an I/O sometime down the track.Cheers guys
Heath
Jamie,
I agree with you on the structuring of the loans; however, I have a question for you myself.
Should Franky set up an 100% offset account against PPOR?
So the structure would look like this:
1. Current loan against PPOR + 100% offset
2. IO equity release against PPOR (used for deposit/costs on IP)
3. IO loan for IP
Ta
HeathJamie M wrote:Hi IDV8Welcome to the forum.
What you've described is quite common and can be a handy way to take advantage of Govt. concessions whilst kick starting your portfolio.
From a finance perspective, if this property is going to become an investment then I'd consider a couple of things.
Firstly, I wouldn't pour too much of your own money into the deposit. Why? Because you'll be reducing the loan amount on a debt that will become deductible in the future. It may also allow you to keep some cash as a buffer.
Secondly, I'd set up the loan as interest only with an offset account as opposed to principle and interest. Instead of paying down the principle, you'd place your savings into your offset account which basically provides the same result. When this property becomes an investment and you purchase your next PPOR, you can withdraw the funds from the IP offset account (which boosts your deductible debt back to its original level) and move it onto your PPOR debt (which is non tax deductible).
It's a difficult concept to understand when starting out – but read it a couple of times and it should become clearer.
Hope that helps.
Cheers
Jamie
I'd follow Jamie's advice above.
With your capital, and depending on the type of property you buy, you may want to consider doing some cosmetic reno work on the property you buy. This may help in increasing the rental return and also the value of the property. I turned a $240/week rental into a $315/week rental by doing this exact thing. You can do these reno's over the year in which you will be living in it??
Hi David
It depends on what your investment strategy is and also your current position. There is merit in both with the way the current market is at the moment.
I guess most people tend to go an IO as the higher the interest the better it is for tax deductions.
I personally have an IO set up with a 100% offset account for my IP. I like the flexibility of it and it also reduces the monthly loan repayments so I have more cashflow each month (which is being saved anyway).
Heath
