Thanks Kenny and Michael, I really appreciate the effort you've put into your responses. I'll look into getting a private ruling, or maybe just split my loans and plead the private ruling above as you say Kenny.
  I already have 17 accounts of various flavours, so the collating of statements is already a bit unreal, but it would be worth it (creating extra ones) to be able to attack the private loan by itself.
Cheers, S/C

Thanks for that Michael. I've always been given that impression by my accountant, ie that everything has to be proportional. I would certainly like to be able to just kill the private half. Perhaps when I bring my shares back out of super it would be appropriate to apply that capital back to the half that was used to fund the shares originally. Sounds like I need a new accountant.

  I know how to apportion private/investment interest; I've written my own database program to do that on a daily basis. I've also used it for my children who have been dipping into my private LOC for years. I apportion interest to each of them. Effectively I spoon feed my accountant who charges me a fair bit just to essentially (with a few minor tweaks of depreciations) transfer my data into his database. I've only kept using him for the odd bit of advice, eg what happens when I pay a lump sum off my LOC which is 50/50 inv/pvt?    I've also used him just so I could stretch my tax bill to June the next year. I'll be doing my own tax this year though.

   Now in regard to your comment about moving my shares into super, there were a few good reasons for it as I'll outline below. I did this of my own accord, ie without consulting my adviser, so I've only myself to blame!

I'm at the TTR stage as I mentioned above, so I'm drawing a tax free pension for that part of my super derived from the undeducted transfer of shares, so I've gone from deductible debt and taxable dividends to private debt and tax free dividends. At the moment I'm ahead because the grossed up (including franking credits) dividends are greater than my interest. That may change shortly of course, but effectively the two scenarios aren't much different net income wise.

Secondly I get better asset protection with my shares in super and my debt out of it.

Thirdly, and this is the most important, I had 200k worth of shares purchased with a 200k LOC. After the GFC they dropped to just below 150k. This fitted neatly under the one year undeducted contribution limit of 150k and I moved them into super. This crystallised a 50k loss in my name, which will come in handy later if I sell an IP. Now that I'm drawing a TTR pension from them, any capital gain I make from them will be tax free. I'm confident they will be worth a lot more when I turn 60, at which time I can sell them and withdraw the lot tax free to kill my private debt and hopefully a fair chunk of investment debt.

  That would depend on the interest rate at the time of course. In the current climate, if I were 60 now, I wouldn't be withdrawing super to pay off investment debt, as the shares in super are grossing about 8 – 9% tax free dividend, compared to tax deductible interest of 5.11% (ie about 3% after tax in the 41.5% bracket)

I hope all this makes sense; sorry if I've hijacked the theme of the post.
Cheers, S/C.

Not exactly Kyla, it's still 50% investment and 50% private. If you make any payment of principal, say 50k, then 25k is considered to be for the private half, and 25k is for the investment half. You have to distribute the payment exactly according to the proportions of each debt, so the only way to clear out the 50% private contamination is to pay the whole 400k. It's not that bad, because the undeducted contribution in super generates a tax free transition to retirement pension, more specifically that undeducted proportion of my super creates an equivalent tax free proportion of the pension (if that makes sense!). It would be nice to be able to kill the private debt before any other debt though. It's safer to chop your LOCs up if you can; don't have one big LOC bucket.
Cheers.

Just remember kyla, that if you're using an LOC to fund the deposit on your IP that is eventually going to become a PPOR, then keep that LOC as a separate sub-account to any other LOCs, so that you don't end up with contamination of private & investment in your LOC. I know you can only afford a small LOC now, but later you'll have the opportunity to top it up as your equity grows. Top it up as a separate LOC or LOC sub-account (depending on how your bank prefers it).

Don't do what I did! I have a 400k LOC, of which 200k funded deposits on IPs, 200k funded share investments. I then shifted my shares into super as an undeducted contribution. That instantly transformed the 200k shares debt into private debt. I can only get rid of that by paying back 400k to zero out the entire LOC.

Hi Fword, just a slightly different train of thought. There isn't much difference between an IO loan and a P&I loan in the first few years if you've set it at a 30 year term. If you're going to live in it forever after renting it for a few years, then there's a lot to be said for P&I. It's just too easy to rob the offset account, and with P&I you'll hardly notice the extra payments, and the principal will gradually sneak down after a while.   

Lets look at year one for a 350k loan. The repayments with IO @ 5.07% will be $1478.75/m and with 30 year P&I it will be $1893.88/m. Your principal will be reduced by just $5099 after 12 months, ie about a 1.5% reduction. This is roughly what your interest bill will be reduced by, eg about $260 which isn't much compared to the $17745 you'd be paying per anum if you were to leave it IO. That's about a $108 difference to your tax return if you're in the 41.5% bracket when you've converted it to an IP. It will increase each year of course, but if you're only keeping it as an IP for three years or so, it won't be very significant.  

It all comes down to the discipline you can apply to your offset account balance. It's great in theory, but having witnessed my children, (and to some extent myself) I'm starting to advocate the P&I approach more now.

Lisa, I assume that if you're considering different lenders, then you don't have a pro package with SGB at the moment? It would be a bit ineffecient if you have two pro packages with the annual fee of $395.
     I used to have three different lenders, but I've refinanced them all with WBC so I could qualify for their pro package. This way I pay no establishment fees, no account fees, no credit card fee, and 0.7% reduction on a loan with offset.
    It would be relatively easy to refinance your SGB one if you had to. It's a lot cheaper now mortgage stamp duty has been abolished. (at least in Qld).  One of my lenders was SGB who never let me know about their pro package although I well and truly qualified for it. They might have garnered a bit more interest out of me for a couple of years, but they lost me as a long term borrower (well until they "merged" with WBC that is!) Come to think of it they should let you use either SGB or WBC with one annual package fee, but I guess they try to remain semi-detached from each other.

I'm sure St George's offset account would be fully transactional Lisa, just as Westpac's is. (They are owned by Westpac after all). Their advantage package seems very similar to Westpac's (which I'm on as you've probably gathered by now). We also have a $395 annual package fee. I'm currently paying 5.11% which is 0.7% off their standard variable. LOCs tend to be 0.15%  higher than their property loans, although I've negotiated mine to be the same.
   I see that St George are offering 1.1% reduction for the first year, then 0.7% after that. Their standard variable is 5.79% at the moment, compared to 5.81% for Westpac. 
 If St George demand all your properties to be cross-collateralised as Richard says, then this is a major consideration. Westpac allows me to have them all stand alone. There's plenty of reference to the nasty problems associated with x – coll'n in these forums.
The banks should tell you all of this; you just have to ask the right questions before you start.
Cheers.

Kyla you can afford quite a nice new four bedroom home for 450k if you're prepared to live a bit on the fringes, eg Heathwood/ Forest Lake etc. It's still only a 25 to 45 minute commute to the CBD from Heathwood depending on the time of day (23km). You can also buy new 3 bedroom townhouses for ~380k at Durack for example (17km from the CBD). My 11 year old two bedroom units in Morningside & Coorparoo sell for about 350-360k. Anything with a bit of land area close to the CBD starts to cost upwards of 550-750k. I'm just showing that you can compromise down a bit (or out a bit) if you don't want to stretch your borrowings so much, without having to settle for a shack.
   It would be a real bummer if you have to sell your first IP. It's just starting to create a bit of equity. By the time you take out all the buying and selling costs, plus the capital gains tax, there won't be much left, especially if you have to deduct the net negative gearing costs along the way.
   My first IPs are now 11 years old, and they are just starting to become positively geared. (only at the current interest rates of course). It's a long slow process when you are a passive buy & hold investor like me. I had 20 years of equity buildup in our PPoR before the penny finally dropped about property investment, so I at least had a good head start with equity, which allowed me to buy four IPs in the same year.
   You need to buy problem properties, not solution properties as Steve tells us if you want to fast track the equity buildup. This involves solving the problems of course, which requires a lot more commitment than I'm prepared to give. I prefer to have them all in the background as much as possible.
Just a few thoughts, sorry to ramble on.
Cheers,
S/C

Hi Kyla, If you keep your LVR on your first IP to 80% then your total borrowing will be 80% of 380k = 304k. That means you can only increase your borrowings against that property (in the form of an LOC) by 12k. This can be used to fund the second. If you were to keep it under 80% LVR, you would only be able borrow 80% of 440k (assuming it values up at the price you're paying) = 352k. I think you'd be making yourself far to vulnerable if you push the second property to over 80% on top of pushing the first property to 80% with the 12k LOC.
 So lets work backwards: You have 12k from the LOC plus 30k from your offset account = 42k. Multiply this by four to get a rough idea of the maximum price you should be paying for any property, ie 168k. This allows 5% for costs, and 20% for the required LVR.
A 440k property is probably far too ambitious yet. You'd need to wait until your first IP increases in value by another 90k or so (which may only take another three or four years) or save as much as you can to help fund the deposit directly.

Gez it's fine to pay off your PPoR loan or save it; it's all good equity of one form or another towards your next IP. Every single dollar of equity you create by either paying off your loan, putting into an offset account or simply waiting for capital growth means that you can borrow another four towards your next IP. You'll probably be surprised how much you can borrow already if your PPoR is just a few years old. It may come down to your debt servicing ratio rather than your equity. Of course the rent from an IP counts towards your income (the banks only recognise about 75 to 80% of it though) which helps. It's a little juggling act we all have to go through as property investors.
   Just one thing Gez, if there's any chance you'll be wanting to convert your current PPoR into an IP one day, then you'd be best to not pay any of the loan; keep all savings in an offset account to preserve the tax deductability of your loan.

If only I knew 25 years ago what I'm preaching now! We went all out to pay out our home loan in just one year with both of us working and sacrificing just about everything so I could go back to uni for four years with no home loan and rent to pay. After uni we wanted to build a bigger house, but had to sell our first home so we could afford the new one. If I could go back in time, I'd tell myself "Don't pay off that first home loan you fool! Save all your cash for the new home and convert the first one into an IP!" I don't think 100% offset accounts were invented back then, but it wouldn't have made a huge difference for just one year. I sold that first home for 53k; they're now getting 400k for the same type in the same area.

Uni educated me on how to make gizmos, but not about property investment. I know which one pays better in the long run!
Cheers, S/C.