In my opinion it would be unlikely that interest would be deductible  on any money borrowed and placed into an offset account and then later used for investment.

I am not sure what you can do. but you have to be careful as you could pay the builder a progress payment and then the builder go under without doing the work.

You also have to be careful about supplies taking back goods which they have supplied the builder and they have not received payments for – the supplier will often retain title to goods until they are paid. So they could try to come back and remove hotwater systems etc.

A SMSF cannot purchase from related parties. But one exception is business real property. This is defined to include leasehold property – ie the land with the building as being part of hte land. The SMSF couldn't buy hte building from a related party unless it is attached to the land.

It would likely that the deductibel part of the loan would be much less than $274,000 – even if this was the lowest balance.

This is demonstrated by a quick eg:

$300,000 loan starting balance.
pay down $1,000 per month PI
Interest $500 each month

Month 1
balance is $299,500

Month 2 $299,000

etc

Then after 10 months balance is $295,000.

If you then pay the loan down to $274,000 and then realise your mistake – you may increase teh loan to $295,000 again.

But of this $295,000 you could only attribute $274,000 of it to the purchase of that property. The extra $21,000 redrawn is a new loan. The deductibility of this would depend on the use of this money.

Now you have a mixed purpose loan.
$21,000 used for other expenses
$274,000 used for the purchase of that property

This means that
21,000 / 295,000 = 7.1% other
92.9% for the home portion

—

Now it gets more complicated

Each subsequent repayment must come off the loan and be attributed to each portion in accordance with the percentage of the portions.

So each month you pay $1000
7% must come off the other portion
93% must come off the house portion

Interest of $500 would be added each month and this too must be added to each portion of the loan
7%
93%

—

as you can see as time goes on it gets increasingly complex.

The net effect is that a must lower portion of your loan will be attributable to the purchase of the house and so if this house becomes an investment property you will only be able to claim a lower portion then the $274,000 which was the minimum balance before.

Does this make sense?

If this house will never be rented then it won't be a problem. If it will be rented it could be worse than you think as a very large portion of the loan woudn't be deductible.

For further investments you should not redraw from the loan – as then you will have a mxied loan. You should set up an entirely new split.

your PPOR should only be security for the LOC (and original loan). The IP should be the only security for hte investment loan.

You should not be paying the investment loan fortnightly as this would mean extra repayments – these should be going to the PPOR loan (not the loc) as this is non deductible.

IO would revert to PI.

Why is the loc interest rate so high? If that with a different bank?

Let me respond in order
1. Yes, insure for all risks
2. There are some tax benefits – see below – and general structuring benefits
3. Yes
4. Depends who owns the units – units are property so would be dealt with under a will whereas the trustee owned assets such as hte house wouldn't.

I think that hyrbids can still be useful even if it wouldn't seem to give any benefits initially.

Imagine a HDT buys a property. X borrows to buy units. 10 years down the track the property has double in value. X thinks it is time that this property was placed into a discretionary trust. If the property was in his own name he would have to sell it to the trust – title deeds would change.

But as this is in a HDT – which is essentially a unit trust at this stage – he has 2 options:
1. Transfer the units to a discretionary trust – stamp duty and CGT would apply. But not change in trustee or legal owner – ie no change in title.
2. The trustee could buy back the units from X. CGT and stamp duty would apply.

Stamp duty would generally be cheaper to transfer units than the transfer land. CGT could be reduced by selling the units in stages over  a few years. And with 2 the trustee could borrow to buy the units and to claim the interest on this as a deduction.

It may also be possible to transfer teh units to a SMSF near retirement – many issues involved here.

Forget the selling in portions bit – it just won't work.

Recently it took me 14 months to sell a property – you may have to reduce the price further and change agents to get a result.

A caveat is notice to everyone that someone else has an interest in the property. It may or may not prevent the dealing with that property – such as mortgaging it or changing names. However someone with a caveat could have their interest take priority over your interest.

eg. in NSW there is a case Black v Garnot. I forgot who is who, but the seller of the property had money problems. The purchaser paid the 10% deposit and on the day of settlement the solicitor checked the title – looking for any last minute caveats. After checking they went to settlement – about 2 hrs later. It was during this time that someone who had a debt owed and had a judgment actually lodged a caveat on the title. They had a writ to take possession of the property and the question was who had the greater priority – the person with the writ or the person who had paid the deposit but hadn't settled yet.

It turned out that both had interests in the property and both could have protected these itnerests by lodging a caveat. The one who lodged first was deemed to have prority over the one who didn't.

Therefore in NSW now it is recommended that lawyers advise clients purchasing proerties that they should lodge a caveat after exchange of contracts.

Yes, could be done but would be very costly and you would probably need a prospectus lodged with ASIC.

Also many tax issues.