Hi
After 2 years of procrastinating, we (my husband and I) have gone from 0 IP’s to 2 IP’s in a month!! We are now hoping to get some help on structuring our investment property loans and keen to set up right now rather than find we’ve done the wrong thing 12 months down the line.
We have 2 investment properties;
IP1 – in NSW. Current value = $600k. Current mortgage = $330k – recently rented out for $600 p/w and neutrally or very slightly positively geared. Owned 50/50 and up to last month, was our PPR.
IP2 – we have just signed contracts for a land and house package in QLD. PP = $435k. Mortgage will be $348k (using equity from NSW property as the deposit). We are not sure how property will be geared, dependent on rental market once the property is built! But hope it also to be neutral/slightly positive down the line. Ownership split 90/10 to my husband.
My husband is self-employed paying himself approx. $90k.
I am currently on maternity leave but returning to work part time in Jan 2012, earning approx. $50k. I hope to have another child in 2013 resulting in another year of maternity leave, thus reducing my income again.
We have approx. $150k in our offset account which was reducing our mortgage payments well when our NSW property was our PPR (we now rent).
Our questions are as follows:
1) The land and house elements in QLD are being set up separately. The construction/build will be set up as a home loan, however we have a choice as to whether to set up the land loan as a HOME LOAN or LINE OF CREDIT. We can’t see a huge difference for us in either – unless someone can tell us differently??
2) Now our PPR has become IP1, we will be looking to change the mortgage to interest only. IP2 will also be interest only. Where is the $150k in our current Offset account best placed? Still against the NSW property? Because the NSW and QLD loan amounts will be so similar, we are not sure.
3) Is there still a benefit to having an offset? With St George (who both loans are with) you can have a Repayment Offset Option which reduces the amount of interest paid each month on the interest only mortgage. This will be extra money in our pockets each month but less deductions to claim at tax time. Or we can have a 100% offset which our lending manager says will eat into the capital (even though it’s an interest only loan).
Any thoughts on our current situation would be gratefully received.
Thanks.
Hi,
Firstly congratulations on your purchases, but first thing first…you need to set up some kind of protection and buffer, as i see you may have few issue that may come up
1. Your applying for a construction loan- a lot of $$ will be used here, cost that isn’t part of your building contract ie flooring, gardening, fencing etc…expect to fook out an extra 10-20% on unexpected cost.
2. income will change- expecting next child soon, so it’s always safe to have a buffer
3. Self-employed, Business can be great one day and bad the another.
Being a young family and the above issus, i would consider a range of insurance as protection + speak to financial advisor/legal rep.
—
Now to answer some of your questions.
1. regarding the QLD property, i personal would go for LOC for the land if it doesn’t cost much more in the rate..the LOC will give you the flexibility in repayments should things turn for the worst OR you run out of $$Also note even though it set up as 2 separate account, they should not charge you an application fee again- so make sure you check the fee
2. Where you place this $150k funds won’t make a difference as they are both IP, but as long as you place it into an OFFSET account and not an re-draw (mortgage) that’s fine
3. Not sure i get your question here. St George has 2 type of offset, one is an full offset (100%) while the another one is partial, both will allow you to claim your full tax deductions! but the difference is how much of the interest is charged/saved.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
“But hope it also to be neutral/slightly positive down the line.”
Sounds like thorough planning and research went into this venture
Another lamb to the slaughter!!!!
Hi
I would not suggest a LOC for the main loan for the investment property. I think an IO loan would be the way to go. If you use a LOC people get tempted to make deposits and withdrawals and this could contaminate the loan.
Maybe you could set up a LOC on the IP1 NSW and then use this to pay for some expenses.
Assuming you both own 50/50 of each then it wouldn't matter which house your offset account was attached to. The net result would be the same.
Since your husband is self employed maybe you could save some tax if his business could employ you to average out the incomes.
Make sure you get the full offset account. St G is unusual with offsets.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Michael and Terry for your constructive comments, really appreciated.
thanks for advice re. insurance it's something we will certainly be looking into. We also checked with the bank, and they're not charging double fees.
Both mortgages will be interest only. To clarify, the IP1 NSW is 50/50 the IP2 QLD 90/10 (in favour of my husband). Does this still mean that it makes no difference where the offset goes against?
thanks again
That may change things.
The offset account will be saving you interest. So if it goes on the QLD property your husband will have less interest to claim. He is on the higher income so less deductions = less tax back. In this case it may be better to put the offset on the 50/50 property
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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