hi Brad

Yep that is pretty much it.

You can try to reduce the use of the loan 2 as much as possible by borrowing 90 or 95% for the 2nd ip, but you will need some more equity to keep going. You can only get this in 2 ways  -capital growth or repaying the loan (make sure it is the non-deductible loan).

Always citically analyse the bank's suggestions cause they are usually not ideal.

I would get a separate loan for $60,000 from the existing property. This should be IO (loan 2) and secured against your PPOR only. Since your other loan (loan 1) is fixed you may as well set up an offset against this loan. Move the offset to loan 1 as soon as possible.

Loan 3 would also be interest only and secured against the new property.

Do not pay the stamp duty from your own pocket as you will be doing yourself a disservice. Borrow it. If you have the cash for stamp duty pay it off loan 1 (your PPOR loan – if you can as it is a fixed loan maybe $10k will be the max without penalty). You want to reduce your non-deductible debt first and then borrow it by increasing loan 2.

You want to be 105% financed for investment property while you still have a PPOR loan.

There is no point in investing without capital growth. Repairs will eat all of your measly profits.

Yes I think it is tresspassing if they are in your property without your permission. You should have done an inspection before settlement and refused to settle. It can be a pain to try to get them out if they refuse to move, so better try to keep on good terms.

Why not just get an offset?
If you invest the cash elsewhere you will be doing yourself a disfavour. You will be paying tax on the interest received for starters as well as paying the home loan down slowly meaning more interest would be payable. If you are going to invest it would be better to pay the money into the loan and then redraw so your deductible debt is decreasing. When u redraw to invest the interest on this portion would be deductible – but this would be messy to work out at tax time.

Tax deductibility of interest depends on what the funds are used for. And withdrawals from are loan are new borrowings, deposits into a loan are repayments. So if you withdraw from a loan to buy an investment (eg $40,000 of shares) the interest on this money reborrowed is deductible.

But if you have one big loan you may need to aportion interest. eg. you may have a $100,000 home loan paid down to $60,000. You then buy $40,000 of shares so 40% is for investment and 60% for personal. So you could claim 40% of the interest.

Things will get complicated though as if you may another repayment into the loan then you cannot chose for it all to go towards the non-deductible part. This is because it is one loan. eg you may a further $1000 deposit = 40% of this must come off the investment loan and 60% off the house loan. This is not ideal as you are reducing deductions. You want to reduce the non-deductible first. It also gets complicated with further deposits – especially when they are odd amounts.

Ideally I would structure loans like this:
1. IO loan with 100% offset
2. LOC for any equity

Pay all rent, wage, famil allowances etc into the offset. Use the LOC to pay for all investment expenses.
After a while the offset will have a substantial balance. You then have to make a decision on what to do with it. I would wait until the LOC maxes out and then, depending on the circumstances, pay down the IO loan and set up another LOC for the same amount. Just using the money from the offset to invest is no good as you will not be able to claim the interest.

Redraw is totally different to IO+offset in terms of tax.

Redraw should be avoided in most cases because of the potential tax problems.
eg. You have a $100,000 loan and pay it down to $60,000 and then redraw $40,000 to buy a boat.
You then move out of the house and keep it as an investment. Your total loan is $100,000 but the interest is only deductible on the $60,000 portion as you borrowed $40,000 for a boat (assuming not for business etc).

If you had used the offset account option the interest on the full $100,000 would be deductible.

If it is an owner occupied home and you never intend to move out it should be ok. But you never know what the future can bring, so why not use an IO loan with an offset?

what about the 30% deposit required?

These days banks don't trust their clients with money. Usually a max of $10,000 is all they allow out without proof of where the money is spent. Often with ANZ a statutory declaration is all that is needed for small amounts, but if you tell them it is for renovations then they will ask for quotes.

If quotes were a condition then it will go back to the assessor for sign off once the quotes are supplied – but they shouldn't need to reassess it all again unless there is a  long time between asking and the supply of the quotes – or if your situation has changed.

What about offering vendor finance for the ones you are trying to sell?. ie you offer to lend them the deposit.

Eg. you want $100,000. But arrange it so they pay $80,000 now and you set up a loan for $20,000 where they repay you over x years.

(of course it will only work if your loan is less than $80k)