If most debts have been paid off and you have some spare cash on the side, is it best to use that cash to reinvest in IP? Or would it be better to take out a loan for the entire purchase cost of the IP, plus other fees and charges, and place the cash in an offset account?
I'd appreciate any input anyone may have…
Personally I'm split between the two – using cash will mean less to borrow and less to repay, but the cash may be lost if the investment goes south. On the other hand, borrowing the full cost from the bank opens you up to negative gearing, tax deductions, etc., with your cash safely sitting elsewhere.
Thanks!
Personally i would be borroing the full amount and use your own cash proceeds to place in an offset account.
The net interest amount paid with the right lender is exactly the same and you still have the flexibility of immediate access to your own cash funds if needs be. You also preserve the full Tax deductability of the interest.
Richard Taylor | Australia's leading private lender
i too would borrow the full amount. Otherwise if you needed your cash for personal expenses it would not be available without rebborrowing it and the interest would not be deductible.
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
I'm with Terryw and Richard,
Borrow the full amount and offset the cash – you never know what the future holds, and if you need cash for something unforseen – better to have it at easy reach.
If you borrowed 100% and used an offset with the cash…. wouldnt you still pay LMI?
Would you, at the end of the day be better off putting in 20% to avoid that?
This is assuming that you have the 20% to put down plus reserves for offset.
feel free to disagree.
unless you used other security you would have to pay LMI if you borrowed more than 80%.
If it was me I would probably limit the loan to 80% – no sense in paying LMI unless you think you can make a greater return on the remaining 10 to 15% (max loan 90 to 95%)
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
You could always consider using a LOC (from another asset) and the Offset account, hence avoiding LMI if you desire.
I did some work for a client a little while ago, she had a PPOR with mortgage $277k and $170k in offset. We refinanced and set up a LOC facility for her of another $120k. She then got a loan with another lender to fund the purchase of an IP (loan $360k). She used $90k of the LOC to fund the deposit and costs.
The after tax difference in doing this was $17k pa she was better off than if she simply used the $90k from her offset to fund the deposit and costs of the IP.
It depends on your goals and timetable, but in my opinion creating wealth is about using other peoples money to invest in capital growth and income producing assets. If you have the safety nets and risk insurance measures appropriate for you in place, the return on your own funds can be very high.
Good luck
GregRefinance to get the 20% deposit and enough for stamp duty etc (hence avoid LMI), and borrow the other 80% aginst the new security, when you set this up correctly about 110% is tax deductible. Then put your excess cash back in an offset account so your repayments are reduced. You will have the best of both worlds. Sit down with someone who can show you a few other tricks… all the best.
Don't use a LOC in your situation…..
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