Sounds like a touch of CBA itis.

As the boys have pointed out NO the interest will not be deductible as it fails the "Purpose Test".

Also watch out with the MISA Account as it is not a fully transactional offset and may prove useless if you have regular transactions going in an out of the account through the construction phase.

Hi Emma

Have to slightly disagree with Ajay in relation to his statement The most advantagious approach is usually to have the property in your own name. Trusts and companies are mostly useful for asset protection reasons.

There are many reasons why investors buy property in a variety of entities each depending on their own circumstances as well as the particular property.

Whilst buying in your name initially might suit the average investor when you starting increasing your asset base and your personal circumstances change i.e you get married, have children etc your requirements change with you.

Difficult to make a recommendation without a lot more information however even if you didnt want to go to the slightly extra expense of a Corporate Trustee nothing to stop you utilising a Discretionary Family Trust structure with a Individual Trustee.

This way you will have asset protection as well as flexibility when it comes to income distribution. Of course if you need to rely on negative gearing then this may not be the way to go.

As a Financial Planner we find many of our clients adopt such a structure and enables them to grow with their portfolio. 

Of course like everything it is not for everyone.

Hi Ashk

Firstly welcome to the forum and I hope you enjoy your time with us.

You would be suprised how many horrow strories i hear from clients who have been to financial adviser, charged a fortune and then been recommended not to buy a property but to put the money into managed funds etc. 

As a Financial Planner we must be one of the only firms that actually recommends property to our clients.

Problem is the way in which FInancial Planners are remunerated as most are driven by the commission they receive from managed fund style product recommendations.

Ok enough of that onto some constructive suggestions.

Certainly from first glance you appear to have sufficient equity to purchase a new IP now however the loan would be fairly highly geared so might be worth get your broker to organise a valuation on your PPOR to see what numbers you are playing with. 

Then subject to this you can start to thing about how you structure the new loan and look to move forward.

Remember any new borrowing will need to cover not only the purchase price of the IP but also sufficient to provide for the acquisition costs along the way such as Stamp duty etc.

Set up properly you could in fact find that the Tax savings enable you to pay down your PPOR quicker by buying a new IP than at present relying on your own incomes.

Once you get the property investing bug you will find it hard to stop and will  at the same time be making provision for your own future.

Hi again

I think the LVR would need to be down to around 60% before you got a better discount.

Mal & Jean

Has the Vendor provided you with a copy of his Installment Contract yet.

If not i would wait until he has done so first so you can make sure it is UCCC compliant.
 
Depending on what the purchase contract looks like i have someone who would act on your behalf in the deal.

Without being funny at a 78% lvr you are unlikely to get any lender offer much more than the Bank West 0.9% discount.

In the good old days we regularly obtained 1-1.2% discount for our bigger clients however now a days 0.9% is Max.
Lenders dont feel they need to offer anything else as the competition has disappeared.

Course if all depends on what the SVR is in the first place. A 0.9% discount isnt much chop if the lenders SVR is 0.2% higher from Day 1.

Last issue is getting the loan approved and Bank West will want everything.

Might want to check out the in's and outs of the Managed Investment Act before you start launching that advertising.

Many a Company has come a cropper in SE Qld by falling fowl of such legislation.

To be honest i fail to see why you have an opposition to use a Line of credit or an offset account especially given the interest savings such products bring with them.

Remember unscrambling a cross collateralised loan is not as easy as you thing especially in the current climate.

The fact you want to use as much of your equity as possible in your own home seems a strange decision in respect of asset protection as most investors try and use as little as possible. 

LMI wont be payable if the loan is under an 80% lend anyway but you would never save and put in 20% deposit whilst you have a non deductable interest by way of a home loan.

I think you might want to re read your original post and response as i am not convinced you fully understand the processes involved and the reasoning behind my suggestion on your funding style. 

If you are using a new lender to secure the 90% lend on the IP then LMI will only be payable on this loan assuming the Line of credit you have set up on your PPOR to fund the balance keeps the existing loan under 80%.

Interest deductability depends on the purpose of the funds so if the purpose of the line of credit was to funds the deposit for the IP then Yes the interest would be deductable.

Remember when you sell your IP you may incur CGT so i would make sure the reason for selling it is more than the fact that you need to reduce your non deductable interest.

I am suprised your Broker has not suggest ways in which to reduce the interest on your PPOR rather than running out and selling a IP then buying another one.

I must admit unless thru financial hardship i would never recommend to a client to sell their property merely to repay their PPOR debt. You could look to sell the property into Trust and obtain the same net result yet still retain ownership.

Hi Ms T

Firstly welcome to the forum and I hope you enjoy your time with us.

Whilst using the equity in your PPOR is a way of securing your first IP purchase it is how the equity is used that is more important.

Rather than offer your lender the balance of equity i would personally structure the arrangement differently.

Look to secure a Line of credit behind the current ppor home loan and use this facility to fund the 20% deposit and acqusition costs for the first IP. I will assume that your current loan is linked to a 100% offset account.

Then using a separate lender or separate faciity secure a loan of 80% of the purchase price of the investment property solely on the new IP itself. This avoids cross collateralising the loans and will avoid problems down the track.

Once the IP increases in value look to increase the loan to maintain the 80% lend and use the additional funds raised to paydown the line of credit.

Repeat for each property.

Unfortunately it is unlikely your Bank manager will have idea or exeperience in how to structure an investment loan other than to cross collateralise the securities which is certainly of benefit to the Bank and not you.

A good independant mortgage broker can assist in this arrangement.

Secondly in regards to the entity to use when purchasing your IP.

Certainly a Discretionary Family Trust has added benefit when it comes to Asset Protection or the ability to distribute the surplus income to the named beneficiaries. If however  the property is negatively geared then you will be unable to claim the losses thru the Trust. 

There are a couple of further considerations but with the equity you have you appear to be on the right track.