If you have non deductible debt then you should have the offset account on this loan. If you set up a second one on an investment loan you will end up paying more tax.

Hi Ossi

Firstly, you have little equity and virtually none that is usable. But this will come hopefully.

The trouble with 2 on title is 2 on loans. So you and the friend would need to apply for an increase. Both of you incomes etc would need to be proven again. You would both be jointly and severally liable. It could be possible to get the LOC in one name with the other person guaranteeing it. Its a bit messy, but not much can be done about it. Also, if you friend suddenly had bad credit – you could be denied the loan.

So assuming you set a LOC up in both names, you should also do a loan agreement with him lending you half of the money you have taken out. This may not be necessary, but you never know and it could come in handy if audited down the track.

You can also get a new loan and have it stand alone with the existing propert playing no part. ie not used for security in anyway. Even the LOC won't be secured on this property. You could pay the LOC back although for tax reasons it may be better not to.

If you do pay the LOC becareful because he could withdraw or start using it. This could happen at any stage. so maybe request 2 to sign.

I odn't think part IVA could apply unless you were paying interest with further borrowings in a scheme like fashion to enable you to pay down your PPOR loan faster – and even then only maybe.

I am a solicitor with knowledge of trusts and I would like to offer that I have a look at the trust set up for you to see if I can help or make some suggestions.

I would have suggested what Paul suggested, but with him putting up cash that will change things. Maybe just give him a larger percentage by giving more % of units in the unit trust.

Are you going to mortgage these properties to get loans later?

Redrawing funds to reno or use on that property would make the loan deductible when the property is rented out – but you would have expended the funds anyway.

Sharve's post has merit. Especially in VIC where there may be no stamp duty payable.

If you have been absent less than 6 years you could possibly claim the first house as your main residence and sell it CGT free.

But the new house will be subject to CGT.

The loan amount after redraw would not be completely deductible. The redrawn $50,000 would be treated as a separate loan. Since you have borrowed this to park into a separate account the interest would not be deductible.

This is why it is important to get the structure right. If this really did happen, ie you were $50,000 ahead in your home loan and then wanted to move out and rent it, thent he lost deduductions would be the interest on the $50k = $3,500 pa. This means every year you could have beeb claiming $3,500 more in tax deductions. Think of the compounding effect that savings could have had.

If you had a $500,000 loan and borrowed $400,000 off your friend and placed it in the offset and paid him 3% then:
$100,000 at 7%
$400,000 at 3%
= better off for you.

probably because of the recent flood of spam messages. One spammer had 246 posts up in a matter of hours os I think some of hte replies here have been deleted because they were spam.