Hi Terry,

Thanks for your reply.

Yes obviously your interest repayments would increase when money is taken out of the offset but the whole amount would not be used, just what is needed to do a deal. Once some money has been made off that deal it would be put back in the offset.

The whole point of property for me is to make chunks of cash, I’m not really concerned with going into complex structures to save $2000 a year.

Is this type of structure you suggest suitable for someone like me that is flipping property or more for someone that holds long term investment properties?

Cheers
Rod

Hi,

I would buy my PPR with as high an LVR as possible and then sit all my cash in an offset to reduce interest.

From there I would use the cash to manufacture growth in other deals which I would sell.

Eventually your PPR is owned outright and you would have enough spare cash for further investments/ deals to keep moving forward.

This is the way I am doing it in the current market. Less risk as you are not holding property apart from your PPR.

Hope this helps.

Rod

SELL SELL SELL!!!

Although would be good to know more about your personal situation eg. Serviceability to buy more property, equity position, goals in Proprty etc…

But based off those numbers, me personally, I would sell.

There is an opportunity cost of holding something that’s not performing and the potential to buy something else that will perform better.

Having said that, if you can move forward and purchase more property without having to sell, and if there was any growth potential in the near future then possibly hold and use the 3500 loss per year as a tax right off.

Everyone’s situation is different though so need to know what your goals are.

Hi Bjoern,

I think your over thinking/complicating the idea of an offset account…

The way I see it is interest for bank deposits is a lot lower than the interest we pay on an average home loan.

Where would you rather put your spare cash to work for you ?

Would you rather be “earning” interest on a low interest rate or “saving” interest on a high interest rate? I always say a dollar saved is the same as a dollar made, it’s money in your pocket.

Saving tax shouldn’t be a motivating factor for investing. So if money in the offset account is allowing you to keep more of your rental income then happy days, it’s more income/savings.

And if paying more tax on the extra income is still a concern just remember the depreciation benefits of an IP that will most likely offset the extra income anyway. Win win in my view.

• This reply was modified 8 years, 4 months ago by  pascoe_82.

I think the best way to crunch the numbers is 10% profit on the higher valued properties, 400k and up, and 20% under 400k. That’s how I would look at it anyway.

…And for your 10mill property just use the 1% rule. Haha

I Reno full time and as a basic rule I have a minimum nett profit of 10% of the purchase price. I use the 10% minimum as a basis to work off when doing initial numbers on a property but in most cases my profit is 20% or more.

Eg if I purchased a property for 200k I would expect a minimum nett profit of 20k before I even considered putting an offer in. In the early days I was happy to take a 20k profit and was doing most of the work myself. I have now become a bit more savvy and years of physically doing renovating take there toll mentally and physically. I would now only make an offer if I could expect to safely make at least 40k profit off a 200k purchase. I am averaging about 8 renos a year depending on the market and my appetite.

Obviously the rule of 10% doesn’t apply for cheaper properties as I have purchased property for 120k and definitely wouldn’t waste my time if I was profiting 12k.

I like to pick and choose which properties I keep for the portfolio depending on a few things, cashflow from the individual Proprty, future growth potential, my own serviceability, etc…

Hope this answers a few of the questions.