Hi all,
first of all I’d like to say that this forum has given me alot of good tips by just reading other people’s posts and replies. But I’d love some advice on my own situation, as I’ve just bought my first IP.
The property is valued at $500k, and I’ve taken a loan out for 90%LVR.. I’ve read on the forums that if it’s an IP then I should setup my loan with an IO loan + offset account and that will give me more cashflow in the future if I do need to take money out for another IP/PPOR.
But there’s a dilemma.The rent that my agent proposed or market rent is going to be around/same as the interest rate per week, and with even more money put into the offset account over time the interest would slowly go down, so does this basically mean that I can’t negative gear this property? so if I’m not entitled to negative gearing on the property, then would it be better to live in it (I’m entitled to FHOG) while saving up for my next property?
and one more thing that I’m kinda stuck on thinking is, the interest only period is going to be 5 years. So what happens/ what should I be doing after 5 years if a.) I want to move into this property as a PPOR. or b.)I want to take all the money in the offset account to put a deposit for another IP?
any advice is good advice, as I’m doing this for the very first time.
Cheers
Hi Michael
You can usually roll the IO period over for another 5 years – its generally not too much of a hassle.
In regards to the negative gearing – what’s the big issue with having an IP that doesn’t cost you money??? Negative gearing is one of the benefits of IP ownership – but if your property is achieving positive cash flow, then great! More money in your pocket.
Do you have a depreciation schedule for the property? This will allow you to claim a bit more.
Do you have any non-deductible debt such as credit card, store cards, personal loans or a PPOR debt? If so, put money towards these first before placing it in your IP offset.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Michael
Firstly welcome to the forum and i hope you enjoy your time with us.
You start your post by saying you have taken out a loan of 90% lvr so i think the time for getting the structure correct might have been and gone. Firstly it will depend on whether your current lender offers such a product.
Ignoring this what you have to understand is that an interest earned from the offset account is offset against charged on the mortgage account so when you say that the rent being received is equivalent to the interest being charged i dont think you full understand the concept.
In essence what you would do is add to your Gross income the Gross rent you receive and then from this figure you would deduct all of the expenses both "cash" expenses such as interest, rates, insurance etc as well as "non cash" expenses such as Capital Allowance and Depreciation.
You then come to a reduced net income figure and you pay tax on the adjusted amount.
Yes whilst an offset account can be an important feature of loan there are other considerations and without hard data it is difficult to assess what your requirements are.
In regards to what happens after the expiry of the interest only period you can either roll the loan over to another interest only period (subject to your lenders criteria) or revert the loan back to a P & I loan. Some interest only loans are everygreen for 25 years whilst others are for a fixed period. As i say each lender is different and it will depend on who you loan is through.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Duplicated post
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thank you guys for the warm welcome and getting my questions answered.
Qlds007, I was thinking something abit differently and didn’t add in other expenses and depreciation schedule for the property, so I thought I was going to be cash flow positive with the IO + offset setup. Thanks for making it clearer for me as I now understand how it really works.
Cheers guys!
Michael
sorry for my ignorance – but what's an IO + offset setup?
i think I understand the IO part, but not so much about the offest part…
Interest only with an offset account.
The offset account is used as a place to park spare cash – as opposed to paying off the loan principle.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
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