hi

you are fairly highly geared. But many people are. ideally, It is good to have a buffer as Jac says, I think you should sit down and make up some scenario spreadsheets and projections and see how you would go in terms of cashflow.

Getting the loan may be possible if you borrow high, and I would suggest you don't use the offset money but to deposit this into your home loan and then set up a large LOC. If you just were to use the offset money this would mean higher interest on your home and less tax deductions.

Not stamp duty, or legals – they can only be claimed as capital expenses when you sell. Borrowing costs can be claimed over 5 years -this would include LMI and I think maybe registration of title and mortgage – not sure on these.

Hi Alex

I think you will find that same sex couples are treated the same as non-same sex (??) couples and that you would only get one FHOG per couple. You would need to look at the definition of couple/spouse in in the FHOG Act in the state you intend to buy in.

Sounds like you don't fully comprehend IO loans -thats ok it took me about 5 years to get my head around them.

The first thing you need to understand is the tax savings. The fact that you are paying PI means that you are paying down the loan. This is generally good but on an investment loan it means your tax deductions are decreasing. This extra you are paying could be put to better use by paying down your non deductible loan first. This would reduce the interest which isn't deductible and also leave the investment loan high so that your tax deductions would remain high. Overall you would be paying the same amount.

Once you pay off your personal home loan then you can look at using PI loans on investments – but still I would suggest you use IO loans and use the extra money that you would have been paying to buy more properties.

Sounds like your broker has cost you a fortune in extra tax. I would seek a new broker who knows what they are doing and try to fix it asap before you go any further.

2 Properties under one loan is an absolute disaster – especially as one is an investment. Every repayment you make will be reducing your investment loan as well as your personal home loan. This means more tax. which means wasting money!

Let me explain further about the use of an IO loan and putting money in an offset account.

Firstly, if you have non deductible debt you would be better off paying this down first rather than paying extra into an investment loan or into an offset on an investment loan. This is because personal debt is non deductible. Every cent paid into an investment loan means less deductions which means more tax so its best to reduce non deductible interest rather than paying more tax.

Next, even if you have no personal debt I think it is generally not a good idea to use a PI loan or to pay extra on an investment. By using a PI loan you are reducing the loan balance and locking your money away. These extra funds paid are trapped in the loan – from a tax perspective. You may be able to access the funds via redraw but there will be adverse tax consequences.

The good news is that you can still save the same amount of interest by placing excess funds in the offset account instead of the loan.

eg. $100,000 loan and you come into $50,000 cash. You have 2 options

A. pay down the loan to $50,000. Good news you think as you only have a loan of $50,000 and you only pay interest on this. But you suddenly need the $50,000 as you plan on upgrading to a bigger home or need to buy a new car etc. So you redraw the $50,000.

You have a loan of $100,000 as before the deposit, but now only interest on $50,000 is deductible because the 2nd $50,000 redrawn is to be used as deposit on a personal item. Interest on personal borrowings is not deductible.

B. Now say you had a IO loan with a  100% offset account. You retain the loan balance of $100,000 and place the $50,000 in the offset account. Now you only pay interest on $50,000, so you save the same amount as in A (assuming rates etc are the same).

When you want to use the money you just take it out of the offset and use it. There are no tax consequences as your loan hasn't moved. The interest payable will go up when the money is withdrawn and all the interest should be deductible as it was before.

Interest on $50,000 would be around $3,500 pa. Tax saved on this may be around $1000 pa give or take depending on yoru income. so it is a fairly serious issue -especially when you consider the compounding effect over the life of a loan. You could be using this money to save non-deductible interest on your home loan.

As long as you are covering the interest each month this would be possible. A better way would be to just pay the interest and to keep any excess in the offset account.

No, the whole amount will not be deductible.

Deductibility will depend on what the borrowed funds are used for. Taking money from redraw is reborrowing – so the interest on this portion will only be deductible if used for investment/business purposes – you will be using it to purchase a new owner occupied property.

You are highly geared with little room to move.

Have you considered moving out and renting? You will probably find something similar to what you are in now for much less per week than the loan. You will also be able to get tax savings by negative gearing your current home – and can do so without CGT implications for up to 6 years.

You probably realise now that you shouldn't have paid down the loan – you have locked up $40,000 in an investment property which means you need to reborrow it to use on the new PPOR. This may cost you around $800 pa in extra tax. over 30 years with compounding this could be costly.

So learn from your mistake and take a IO loan for the new property. Don't pay the loan down in case you move out later. Use a 100% offset account to save interest instead.

For the deposit I would set up a new loan on the unit, borrow as much as you can and get this as a separate loan. Use this as deposit and get a 3rd loan for the remainder. Use only the new property to secure the 3rd loan and only the 1st property to secure the 1st and 2nd.