Hi once again i need to be clear on this.
I need to understand how to correctly structure future IP’s investments with stand alone loans and using a LOC against my PPOR as the Deposit and extra costs for purchasing.
Can someone please advise me if this is correct:
Step 1. Set up Line of Credit against my PPOR – this will be used as 20% deposit + 6% costs for other govt charges.
Step 2. Purchase next IP at 80% using a stand alone loan against this property so not crossed with PPOR. Use other 26% costs from Line of Credit.
All okay so far I think.
My other concern is if the IP rent is not covering the loan and there is a monthly shortfall.
- Then the Line of Credit will feed the shortfall, with the rent and tax depreciation benefits going into the Line of Credit. But I should not mix any personal income into this Line of Credit otherwise it would hard workout what is deductible and what is not is that also correct.
Can someone also tell me about the 100% offset facility and how it works, I also have a loan against my PPOR which is I/O but that is because i want to purchase a new PPOR and turn it into a IP.
Still learning about all this structure and loans stuff
Thanks for any help a detailed reply would be appreciated.
Generally speaking, the above sounds OK (aka "I'm no expert").
The offset is a bank account (same bank as your lender & tied against a P&I (usually) or IO loan (some banks apparently permit this). I am not aware whether you can do this with a LOC (there is no point as this is a constant drawdown facility). Any money in the offset account is treated as a reduction in your principal on the P&I loan thus reducing your interest bill (wether for a few days, weeks or months). As it is a deposit account, you can withdraw to pay your living costs (eg wages in/bills out) – you are not borrowing this money (unlike your LOC). There is no interest recieved as the balance is treated as if it is principal (hence you are getting a reduction in interest payable).
What happens with IP2-IP4? You will need to revalue the IPs so that you mantain the max LVR of 80% by possibly using a LOC on these to finance the deposit on the next IP or increase the LOC on the PPOR to cater for the next deposits/legal costs.
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