First IP loan structure

Can somebody please confirm if this is the Ideal setup for PPOR and IP loan to make best use of funds..

I have combined information from current and previous posts. This is assuming you want to have offset account only (no LOC) and PPOR may be turned into IP in future.

PPOR and IP loan with different lenders.

(1) PPOR (IO Loan) (non-tax-deductible)

– Have an 100% offset account linked to the PPOR loan
– All salaries goes to this offset
– All rents from IP goes to this offset
– Personal bills, personal purchases and loan repayment are paid from this offset
– Credit card can be linked to offset if required

(2) Investment (IP,shares,etc) (IO Loan)
– Set up a Offset when you have build up enough equity in IP (To start with, you may have to put funds into offset yourself)
– IP interest, IP bills and capital for share trading are paid from this Offset

When you have build enough equity on IP, top up your offset attached to IP which can be further used to purchase subsequent IPs. (Not sure if increased equity can be added to the existing offset of the IP loan to fund future IP purchases or new offset has to be setup)

When you have build enough equity on PPOR, go to maximum LVR (85% or 90%) allowed by Lender and use equity increase to setup another loan account. (These funds can be used to pay for deposit and other initial cost for subsequent IPs)

Please advise if I have missed out anything??

Apologies for delay in replying..

So are you suggesting all IP related expenditures to come out of the same offset attached to PPOR?

Agreed, my mistake, when equity has been build up, setup new loan account for the same amount (borrow against it) attached to IP which can be used to fund 2nd IP deposit.

So structure will look like

(1) PPOR (IO Loan) (non-tax-deductible)

– Have an 100% offset account linked to the PPOR loan
– All salaries goes to this offset
– All rents from IP goes to this offset
– Personal bills, personal purchases and loan repayment are paid from this offset
– Credit card can be linked to offset if required

(2) Investment (IP,shares,etc) (IO Loan)
– IP interest, IP bills and capital for share trading are paid from the Offset attached to PPOR
– When equity builds up, borrow against it and setup new loan account.

Please comment..

Thanks
Aman

Aman,
The one thing you should consider doing if you can is to also establish a separate LOC secured against your PPOR. I normally recommend a minimum of $120k for each median priced IP you are looking to purchase. The end number will depend on your borrowing capacity. This is a stand alone LOC just used for investment purposes, being the deposit for the IP and any investment expenses. Say $50k to $90k is used for the deposit, the balance is to meet investment expenses and be a safety net for you. It could be a 2 or 3 year buffer depending on how channel use the funds in and out.

You use the LOC to pay for any investment expenses including the interest on the IP loan rather than the Offset. You use the Offset only for private expenses.  In this way, you will increase your Offset faster and reduce the interest expense (or principal) relating to your PPOR loan.
Good luck
Greg

Terry,

That article is a bit of a worry as it goes against some common advice being given to property investors.

I'd be interested to read about any similar cases you know of, or any which arise in the near future.

Thanks for the reference.

I've done a search on the ATO site for the ruling, but it hasn't been published publically (yet?). WIll be interested in reading it.

Deductions?will depend on what the money is used for and who is the owner of the asset being purchased.

eg if you buy a property in your name only you will claim the deductions. If you use a wife as guarantor it won:t matter for the claiming of deductions, you will still g et all the deductions and profits/losses.

No sure why you would want to double your risk and add your wife to the loan/guarantee. If the investment doesn:t work you both sink with the ship then. It also will hurt further borrowing capacity. It may be necessary for the LOC as both names are on title, but not for the investment.

nope.

Talk to your accountant about tax issue, but i htink you can just claim the interest yourself.