Hi all, first time so please bare with me!
I have just bought a second property and have decided to keep my first house as ip, I have a rough understanding of neg gearing but my question is.
What is the best thing to do with the all items that are tax deductible eg, your interest, rates ect.
do you put these funds into a linked offset account to the ip loan?
regards,
Are they both IP's or is one of the properties a PPOR?
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi, just one, I am moving to live in the second house and shall be renting my first house
Hi Trent
Welcome aboard.
Generally you have IP loans set up as interest only and PPOR loans either as principle and interest or interest only with an offset.
Personally, I prefer interest only on all loans with an offset against one – the PPOR loan.
This article I wrote for API magazine explains the concept in more detail.
Hope that helps.
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]
Ok so the existing property will be turned into an IP and the new purchase will be your PPOR – is that correct?
Also are you planning to convert the new PPOR into an investment anytime afterwards?
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi Trent
Best to keep first property as interest only. There's no point paying down a deductible IP debt when you have a non deductible PPOR debt.
I'd also keep the second property as interest only too – but with an offset attached. Park all your spare cash in this offset and make an effort to place regular installments into the account. However, if you think you'll be tempted to simply make the minimum interest only repayments each month then principle and interest could be a better option for you.
How are the current loans structured?
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 jamie,
i have re dawn to use the funds from the first to buy the new house which will become my live in prop. This loan will be interest +principle loan with offset acc.
the house that is now going to be the ip is now set up as interest only.
just had my first house valued today and all good, both loans are under 80% so no insurance required.
i think I am on the right track, any thoughts greatly appreciated
regards,
Trent
Hi Trent
The structure doesn't sound too good.
Redrawing from the now IP loan to purchase the new PPOR could have tax deductibility ramifications.
Basically, the only funds that would be deductible is the original loan securing your now IP before you redrew those funds.
By redrawing those funds you've mixed up deductible and non deductible debt.
Ideally, it should have been set up like this:
IP
Loan 1: Original loan securing the IP
Loan 2: Funds to cover the deposit/costs on your new PPOR (this is what you've redrawn – it should have been set up as a separate loan)
PPOR
Loan 1: Balance of funds to make up the difference between the purchase price of the PPOR and the deposit used from loan 2 above.
With this structure, you've avoiding cross collaterising your properties and you're able to distinguish deductible debt (loan 1) from non-deductible debt (loans 2 and 3).
Hope that makes sense.
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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